Modern Monetary Realism and Guaranteed Jobs

Critics of the Job Guarantee often seem to come from the right-libertarian quadrant of the Political Compass. Most recently, several respected participants in the debate have begun to describe themselves as Modern Monetary Realists (for example, here and here), partly to distinguish themselves on the Job Guarantee issue. Joe Firestone has provided an excellent broad-ranging series on the questions in dispute. My focus in this post will be much narrower, concerned with one particular aspect of the Modern Monetary Realists’ critique that remains unclear to me.

My concern here is with the position of the Modern Monetary Realists on full employment as such. Sometimes they seem to suggest that full employment should not be a policy objective on the grounds that unemployment and, by implication, slack labor markets are conducive to efficiency and high productivity. At other times, they instead make the claim that full employment could be achieved through means other than a Job Guarantee, or even that full employment would occur as a matter of course once other objectives (e.g. “Full Productivity”) were met. In my view, both these claims are unfounded. The latter, in particular, has no legitimate basis in economic theory.
 

A Short Note on Political Labels

Before addressing these points, it seems important, in view of the sometimes heated nature of the debate, to stress that I do not intend “right-libertarian” to be interpreted as a pejorative term. Nor do I mean to imply that the political perspectives of the critics are extreme. In the Political Compass, a person’s political position is given a value on the horizontal axis from left to right on economic issues between –10 (extreme left) and +10 (extreme right), with 0 being centrist. On the vertical axis, which concerns social issues, –10 indicates extreme libertarianism and +10 indicates extreme authoritarianism, with 0 again indicating centrism. To suggest that most of the critics seem to be in the right-libertarian quadrant says nothing more than that their positions on the graph usually are such that they are somewhere in the bottom right-hand quadrant, whether centrist, moderate or extreme. In other words, all I am suggesting is that the critics tend to have a certain level of preference for market-based over government solutions and are at least somewhat liberal on social issues. If I am mistaken in this, I apologize, but no offense is intended.

Further, personally I do not consider either “extreme” or “centrist” to be pejorative. These assessments are simply in relation to conventional attitudes. My own political position, as should be obvious, is measured as extreme left-libertarian. I am aware that there are people who think labeling somebody a “communist”, “Marxist” or “socialist” is an insult, but I am happy to identify to a large degree with any one of those labels and do not consider them derogatory other than in the minds of the ignorant and uneducated. In the same way, I do not intend “right-libertarian”, “conservative” or “moderate” to be taken as insults.

While in clarification mode, I should also add that although this post focuses on an area of disagreement with the Modern Monetary Realists, I consider the areas of agreement just as important. My view is that the proper understanding of monetary operations developed by Modern Monetary Theorists and shared by Modern Monetary Realists and others such as myself who don’t quite know how to categorize ourselves is enormously important in its own right. To the extent the Modern Monetary Realists succeed in disseminating this understanding far and wide, they will be doing a tremendous (and voluntary) service of great benefit to the general public.

Anyway, now back to an area of disagreement …
 

Full Employment as a Policy Objective

If opposition to the Job Guarantee is based on a rejection of full employment as a policy objective, the position seems difficult to justify on moral grounds unless at the very least an unconditional basic income were supported in its place. In comparison to a Job Guarantee, a basic income scheme would not have the same efficacy as a nominal price anchor and would also fail to deliver full employment to the extent the jobless preferred jobs to free time, but at least it would ensure that nobody was denied access to the necessities of life.

The apparent rejection, by some critics, of full employment as a policy target seems to be motivated by a view that unemployment and slack labor markets promote productivity. One argument may be that workers, faced with the ongoing threat of joblessness, will be intimidated into expending more effort on the job. It is far from clear to me that fear is more conducive to sustained high work intensity than income security and better workplace morale, but certainly this is an empirical question open to investigation.

There also seems to be a concern that workers will prefer their Job Guarantee positions to unattractive employment opportunities in the broader economy. From my perspective, if this were true, it would simply mean that pay and conditions needed to improve for workers to be enticed into jobs that were less enjoyable or fulfilling than the Job Guarantee roles. Available evidence suggests that monetary incentives are most effective in the case of menial or unpleasant work, so maybe just a pay rise would be sufficient to attract staff. But even if staff could not be attracted in some instances at viable wages, it remains to be explained why this would necessarily be a bad thing. There is little reason to suppose markets do a better job than democracy when it comes to determining socially productive activities. I have discussed this point previously (for example, here and here). For brevity, I won’t revisit the arguments in this post.

Contrary to the arguments of the right-libertarians, a consideration emphasized in the academic literature is that Job Guarantee participants would be kept more “job ready” than the unemployed because of the maintenance of “good” work habits. If true, this would work against the notion that a Job Guarantee is bad for productivity.

But, in any case, all the arguments considered so far strike me as rather small fry, because they are essentially static in nature. They concern the intensity and proficiency of workers for a given level of technology or production technique. Far more important is the impetus for innovation and technical improvement over time. This relates to the dynamism of the system, and it is on this point that the productivity-centered critique of full employment and the Job Guarantee seems especially mistaken.

Unemployment and slack labor markets, by depressing wages, weaken the imperative for firms to reduce costs in other ways. In contrast, tight labor markets, by giving workers greater bargaining power and threatening labor shortages, create a strong impetus for technical innovation that temporarily sheds labor and dramatically reduces costs. These improvements in dynamic efficiency are more significant for productivity than the, by comparison, quite trivial gains that can be made through an intensification of the labor process under a given production technique.

In short, on the largely static considerations, the likely effects on productivity are ambiguous. There are tendencies operating in both directions. However, even if these factors mostly operated in the direction the critics suggest (I doubt this), they would be swamped by the negative effects of unemployment on dynamic efficiency.
 

Full Employment Through Other Means

Although right-libertarian critics at times appear to reject full employment as a policy target, at other times they seem to argue that non-inflationary full employment could be sustained through other means. More specifically, there seems to be a view that full employment would follow naturally from a focus on other policy objectives such as “Full Productivity”. If the mechanism they have in mind is the market, the notion is unfounded.

It is clear on the basis of Keynes, Kalecki, the Capital Debates and Neoclassical General Equilibrium Theory that a market economy will not necessarily tend toward full employment, and that, in general, unemployment cannot be eliminated solely through microeconomic measures. For Keynes influenced economists, unemployment is the consequence of demand deficiency. From the perspective of Neoclassical General Equilibrium Theory, the absence of a tendency to full employment is due to price changes having both substitution and income effects, either of which can operate in a way other than might be expected in a partial equilibrium framework.

Framed in terms of Modern Monetary Theory, unemployment occurs if the non-government net saving desire happens to exceed the budget deficit. If so, the unemployment will persist unless either: (i) the government is willing to enable the non-government’s net saving desire through a sufficient increase in the budget deficit; or (ii) the non-government alters its aggregate saving behavior in such a way as to render it consistent with full employment.

The first hope – deficit expenditure – cannot deliver sustained full employment in a non-inflationary manner unless the measures are targeted, for example through a Job Guarantee or, somewhat less effectively for price stability, planned public investment (a little more on the latter possibility below). Generalized deficit expenditure will usually result in bottlenecks before full employment has been attained. The policy challenge is further complicated by the fact that the non-government net saving desire is a moving target, and unobservable, making it difficult to gauge. To the extent the generalized deficit expenditure redistributes income, it will affect the non-government net saving desire.

The Job Guarantee would circumvent this problem by targeting employment directly rather than the net saving desire. The net saving desire could then deviate within fairly wide limits without causing significant inflation, because the effects on demand would be absorbed or countered by the automatic stabilizing properties of the Job Guarantee.

The second hope – a market-based automatic tendency to full employment – is also unfounded. As has already been mentioned, one implication of the capital debates is that there is currently no valid theoretical basis for the claim that the price mechanism will adjust non-government net saving to the level consistent with full employment. The same conclusion follows from Neoclassical General Equilibrium Theory. Although some Austrians might deny these theoretical results on the grounds that they derive from supposedly inappropriate applications of mathematics, this is not a convincing defense of the supposed automatic tendency to full employment. The mathematical analysis shows that even under conditions of perfect information, the tendency would not be operative. The reasons for this relate to fallacies of composition, not the presence or absence of uncertainty.

Since at least the Capital Debates, it has been clear that a reduction even in real wages will not ensure an increase in aggregate employment, and relatedly a reduction in even the real rate of interest will not induce private investment sufficient to underpin full employment. I discuss these points in more detail in a previous post.

It is possible to get an intuitive sense of some of the reasons for the absence of an automatic tendency to full employment. Some of the following intuition relates to the Capital Debates, but some of it involves other considerations. For intuition specifically relating to the Capital Debates, see the previous link.

Under conditions of complete wage and price flexibility, it is clear that the effect of nominal wage reductions on aggregate demand would be ambiguous. Consumption demand of workers would be likely to fall. Consumption demand of rentiers would be likely to rise. Investment demand might or might not increase depending on expected profitability, which, as the Kalecki Profit Equation shows, is a function of aggregate demand. It is actually quite likely that wages and prices would simply fall more or less in proportion, leaving real wages mostly unaffected. However, the theoretical results of the Capital Debates indicate that even if real wages fell, there could be no presumption that employment would increase.

The remaining possibility for an automatic tendency to full employment rests with the real rate of interest and its influence on private investment. Here, again, the Capital Debates have made clear that there is no basis for supposing that changes in interest rates can induce private investment at a level sufficient to underpin full employment.

Interest rates can certainly have an impact on aggregate demand, but the impact is uncertain and probably weak under many circumstances. In “normal” times (i.e. not during a period of household deleveraging), a reduction in the rate of interest might well encourage higher consumption demand from those with mortgages. To the extent rentiers suffered a reduction in income, lower interest rates might impact negatively on their consumption demand. In particular circumstances, the direction of the effects may be reasonably predictable. In general, the overall impact is ambiguous.

Even if under particular circumstances private demand expenditures happened to respond positively to lower interest rates to such an extent that the economy neared full employment, the likely consequence (in the absence of central planning or a Job Guarantee) would be inflation. The reason for this is that an increase in private consumption expenditure acts in the same way on prices as government consumption expenditure, and private investment acts just like public investment. Stronger consumption demand, whether private or public, will result in bottlenecks and wage pressures before full employment is reached unless investment activity keeps pace with the growth in consumption expenditures and more or less matches their composition.

In other words, for full employment to be attained (in the absence of a Job Guarantee) without coming at the price of high inflation, there would need to be a balanced expansion of productive capacity, brought about through private and public investment, in line with the composition of consumption expenditures. There is nothing in the price mechanism to engender such balanced development. Yet, in the absence of a Job Guarantee, the requirement of balanced growth is more pressing, because there is not the margin for error that would be provided by the automatically expanding or contracting pool of Job Guarantee workers.

The relevant point for present purposes is that the most effective option, short of a Job Guarantee, would be a policy approach anathema to right-libertarians; namely, planned socialized investment. Socialized investment was Keynes’ preferred approach. It would help to keep consumer demand more or less in line with productive capacity at a level consistent with full employment output, as well as eliminating the violent fluctuations in aggregate investment activity. In fact, a certain degree of planned excess capacity would provide wriggle room in the event of unexpected fluctuations in non-government spending patterns.

It seems unlikely that right-libertarian critics of the Job Guarantee have much appetite for planned socialized investment. That leaves them with a reliance on private markets. On the basis of existing theoretical knowledge, there are simply no strong grounds for claiming the price mechanism can deliver full employment, let alone full employment with price stability.
 

Conclusion

Unemployment is a government policy choice. It is brought about through a deliberate curtailing of demand below the level necessary to deliver full employment. No amount of wage and price flexibility can be relied upon to eliminate the resulting unemployment.

Full employment could be achieved through generalized deficit expenditure, but it would be inflationary. Planned socialized investment could enable less fluctuation in aggregate investment and more balanced growth at more or less full employment output. However, the Job Guarantee provides the surest means to price stability alongside full employment. For those on the left, this could be combined with a much more extensive role for the public sector, including planned socialized investment. For the right-libertarians, the Job Guarantee actually provides conditions most conducive to laissez faire in the rest of the economy. If it was the political will, death and mayhem (figuratively) could be let loose in the broader economy while workers were sheltered through a Job Guarantee, an unconditional income, or both. After all, it is capitalists who make the profits. The deal is, they take the risks, not workers.

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34 thoughts on “Modern Monetary Realism and Guaranteed Jobs

  1. The following may sound irrelevant but it’s not.

    All of the following is general gyaan without much proof for now.

    In my opinion, the Neochartalists are so busy in pushing the case for JG, – having understood from heterodoxy about powers of the government – that they lose focus on the real problems. I was once told by an MMTer that the balance of payments constraint was exotic to say the least!. Like Milton Friedman they argue that nations should float their currencies in the international markets with no official intervention whatsoever, and supposedly – and since it is straightforward in their view – full monetary sovereignty is achieved.

    James Tobin understood that well:

    “I believe that the basic problem today is not the exchange rate regime, whether fixed or floating. Debate on the regime evades and obscures the essential problem.”

    There is no way the solution to this crisis will be achieved without international arrangements to balance trade (by real and monetary means) with a bias toward world-wide fiscal expansion so that full employment is achieved.

    Francis Cripps said this in 1983 about the balance of payments constraint:

    “… [U]ntil the economists in our society get around to tackling this problem, we risk being stuck with periods of long recession, even if we are occasionally and accidentally favoured with periods of world boom.”

  2. “If opposition to the Job Guarantee is based on a rejection of full employment as a policy objective, the position seems difficult to justify on moral grounds unless at the very least an unconditional basic income were supported in its place.”

    I’ve pushed on that and not got a clear answer – nor on whether public funds will be used to subsidise jobs in the private sector. Just lots of reasons why JG is politically untenable.

    There seems to be a lot of talk about using a dynamic tax rate on the payroll tax to try and provide a counter-cyclical mechanism. But I struggle to see how that can be sufficiently finely tuned to be completely effective – given that the labour market is actually lots and lots of markets all with their own particular unemployment rate.

  3. Really brilliant piece, Peter. Exemplar of clarity, brevity, and precision. Thanks for taking the time and trouble of explaining it.

  4. There is a very simple and fundamental reason for rejecting full employment as an objective, which is not mentioned above. This is that the BASIC economic objective is not to create work for the sake of it. The BASIC objective is to maximise output per hour, within environmental constraints, while providing work for as many of those who want to work as possible (or something like that).

    A point that JG enthusiasts ignore 99% of the time is a very simple text book point, namely that the marginal product of labour declines with increased numbers employed. In particular, increasing the number of less skilled people in the public sector (regular public sector plus JG) involves this declining marginal product. And the decline is RAPID in the public sector, because the public sector is not as good as employing the less skilled as the private sector.

    Moreover, if a JG system is set up, and with a view to making the work concerned as productive as possible, skilled labour, capital equipment and materials are withdrawn from the regular economy, the net effect can be a REDUCTION IN GDP because the reduced output from the regular economy exceeds the increase in output derived from the JG scheme. Plus there are the bureaucratic costs of running JG schemes to consider (a point which particularly concerns Cullen Roche, if I remember rightly).

    I’ve gone into the theory behind all this in some detail here: http://mpra.ub.uni-muenchen.de/19094/

    Creating work is a classic example of what economists sometimes call an “intermediate objective” – that is an objective which LOOKS LIKE it might help achieve the above mentioned BASIC objective, but doesn’t necessarily do so. Other examples of intermediate objectives include “cutting the deficit” (or the debt) and improving the balance of payments, or external surplus/deficit.

    Having criticised work creation which fails to increase GDP, it can of course be argued that where someone has been unemployed for an excessively long time, some form of work for them is justified even if GDP does not rise in consequence. The justification is what you might call “hysteresis prevention” – hysteresis being the idea that being unemployed too long makes it difficult to get back into the labour market. However the evidence in favour of hysteresis is not clear cut.

    Re the suggestion above that “Job Guarantee participants would be kept more “job ready” than the unemployed”, I’m afraid the empirical evidence is not clear cut here. Though there is good evidence that private sector JG is the best option as regards maintaining employability. See:

    http://ralphanomics.blogspot.com/2012/01/effect-of-temporary-subsidised.html

  5. Ramanan,

    “There is no way the solution to this crisis will be achieved without international arrangements to balance trade”

    What’s wrong with try to export only what you need to pay for imports not priced in your own currency and import as much as you can priced in your own currency approach?

    That’s the competitive approach which would require the export flooders we have at present to either hoard your currency, or switch to a domestic demand policy.

    I don’t see why it needs a big hug club. I think it can be achieved competitively by simply deploying a counter-strategy on those trying to run an export surplus in your currency.

  6. Intuitively, I think that Ramanan is correct here and I have said so from the beginning of this debate. The issue is not only economic but also social and politically, and it is arguable that the social and political dimensions supersede the economic — whereas the fundamental presupposition of most economists is exactly the opposite.

    We have to see the world in terms of a global economy, which is a closed system, as we rocket toward a more integrated global economy. Otherwise the journey will be a lot rockier than that it needs to be.

    Based on this point of view, the problem is demand deficiency, on one hand, and ecological sustainability on the other.

    The economy is the material life-support system of a population, which is humanity in terms of a global economy. Culture is the spiritual life-support system. The difference between material and spiritual is basically quantity v. quality.

    The needs, desires, and aspirations, opportunities and possibilities determine the social parameters. Global politics is ultimately about policy objectives for meeting these social requirements quantitatively and qualitatively in a distributed fashion. Economics provides the quantitative understanding of allocation of scarce resources effectively given objectives and efficiently wrt means.

    Thinking that an invisible hand is going to lead to a stable solution, let alone an appropriate one or an optimal one, is based on magical thinking.

    What needs to be done ASAP as Roger Erickson is fond of saying, is to increase the adaptability rate by increasing return on coordination. Doing less puts the entire species at risk under present circumstances.

    While TPTB were meeting at Davos there was a counter-conference in Brazil. The future is not in fixing the present system but rising to the challenge of fashioning a new world order based on participatory democracy oriented toward global distributed prosperity in a sustainable way and also developing a global culture based on quality of life and achieving the highest human aspirations for all.

    Meanwhile, most are mired in what my young friends call “old thinking.” The young are in no mood to wait for TPTB to fiddle while the while the planet literally burns.

  7. Balance of trade problems have nothing to do with points raised by Peter in the above article. Of course it’s true that full employment is difficult given international trade imbalances. But one problem at a time please. Can we keep things simple: assume a closed economy and think about what’s the best JG set up in a closed economy? I could write a very long book on the latter problem alone.

  8. Neil,

    “What’s wrong with try to export only what you need to pay for imports not priced in your own currency and import as much as you can priced in your own currency approach?”

    As if importing in your own currency is any better but let me not go into that fornow. I only bring in invoicing to make a point that giving a thought experiment which assumes imports are invoiced in domestic currency is just part of the story. Etc.

    A nation cannot decide how much it can export. It can try to seek new markets for its exports and the government can help the exporters. Unfortunately, foreigners have to like your product. All nations try to do that (trying to sell) and some win and others don’t.

    United States cannot decide how much iPads it can sell to the rest of the world. It has to work hard (collectively) to beat other sellers such as from Japan.

  9. Another great post, as usual.

    Who pays you, guys (bloggers and contributors), for all your time? :-)

  10. Ralph,

    I fully understand my first comment may seem off-topic to readers here but not to me.

    However, check the video link I posted in which Tom Palley has something to say about JG and how it is connected to South Africa’s production capacity, trade etc.

  11. Ralph, I agree with some of the others in believing that the chief motive for full employment is social or communal and not purely economic. I think the strongest, most healthy and and most durable kind of society we could have is one based on a social code of participation, reciprocity, sharing and mutual obligation. Ideally, we should choose the kind of life we want to aim at in a deliberative, democratic fashion, and then do our best to share the burdens of producing and sustaining that kind of society.

    Building and sustaining a society takes a lot of hard work. People might find some of the work very enjoyable, at least some of the time. And some of it will always be onerous. A commitment to full employment means a commitment to a system in which everyone who wants to step up and participate in the work of building their society is provided with an opportunity to put their talents and skills to use.

  12. Or you could have just said that all non-JG full employment proposals thus far are variants on pump-priming and that has an higher inflationary risk than JG.

  13. Ralph,

    How does subsidising unskilled labour in the private sector help innovation to automate?

    It seems to me that the best approach is to take that labour off the existing private sector companies, who are by definition not investing sufficiently to create adequately paid jobs, and give it to another sector to use for its purposes.

    If that is done in a JG/IG style manner, then all the private sector has to do to get it back is innovate and invest. Which will probably come from some smart entrepreneur looking at the public/third sector use of labour and thinking that they can do more with them.

    Subsidising existing private sector operations so that they can exploit labour suffers from the same moral hazard problem as subsidising private banks. It just means they get fat and lazy and crowd out smarter operators.

  14. “And the decline is RAPID in the public sector, because the public sector is not as good as employing the less skilled as the private sector.”

    Have you considered that that is perhaps the point. To deny the operators in the current setup access to the labour and setup competition to them using that labour to force them to retaliate?

    “Moreover, if a JG system is set up, and with a view to making the work concerned as productive as possible, skilled labour, capital equipment and materials are withdrawn from the regular economy”

    Have you considered that isn’t the view, and the view is actually just to stop aggregate demand falling away too rapidly, maintain basic work skills amongst the unskilled labour pool, and anything else is treated as a bonus.

    “Plus there are the bureaucratic costs of running JG schemes to consider”

    Yes we’ve heard Cullen’s views. He doesn’t seem to appreciate that the quantity expansion of an economy and floating exchange rate assumptions are also ‘just theories’.

    The bureaucratic costs of a JG are the same as the current social security arrangements. In the UK we are developing the Universal Credit system which will take timesheet data from employers and turn it into real time payments for credit recipients.

    So the UK Job Guarantee would simply require you to extend that by saying the state will pay any timesheet filed by a public/third sector body up to 35 hours at the minimum wage.

    The Job Centres then offer the public/third sector placement services as they do now.

    Once you’ve got that in place, then you need to determine what you’re going to do with those that even the third and public sectors consider unusable. And that may boil down to simply paying them off (or as I call it hiring them for the purposes of spending their income).

  15. Neil,

    You ask “How does subsidising unskilled labour in the private sector help innovation to automate?” My answer is that it probably doesn’t. But what it CAN do is to promote what I referred to above as the “basic” economic objective. That is, employers (public and private) cease expanding their workforces when the marginal product of labour equals the min wage / union wage, etc. Ergo there are a large number of potential jobs out there with products BELOW the min wage / union wage, but above zero. If those are created, then GDP rises. That is Pareto optimum. We are all potentially better off.

    Re your second and third paras, you suggest the destruction of private sector jobs, and creating LESS PRODUCTIVE JOBS. I say “less productive” for a good reason, as follows.

    Valuing public sector output is problematic: in fact the only reason ANY value is placed on such output is that we vote for this output at election time. Thus the only assumption that ECONOMISTS can make here is that at the margin the output per person-hour in public and private sectors is the same (else voters would vote for a bigger/smaller public sector).

    Therefor any artificial transfer of jobs from one sector to the other will create less productive jobs at the expense of more productive jobs. GDP falls.

    Re your claim that the private sector does not create “adequately paid jobs”, entrepreneurs already have a motive for creating as productive jobs as they can: if I’m an entrepreneur and have the choice between creating ten $100,000 a year jobs (with me taking my cut) and creating ten $30,000 a year jobs (with me getting a smaller cut) it’s a no brainer, isn’t it?

    I.e. simply destroying relatively unproductive private sector jobs will not result in private sector employers to create oodles of highly productive jobs. You yourself abstained, so I gather, from one or two business ventures because you thought sales would not cover costs and risks. I don’t blame you. Presumably you were trying to create as productive jobs as possible. I’ve been thru the same experience.

    Re moral hazard, bank subsidies, etc, JG and bank subsidies are VERY different. Bank subsidies arise out of political corruption, etc. You’d doubtless noticed the insulting remarks I’ve made on my blog about bankers and the politicians they’ve bought.

    In contrast, subsidising the unemployed into relatively unproductive jobs with EXISTING employers (public and private sector) is arguably not a subsidy at all. I’d argue that it sort of re-instates a totally free labour market: that’s a scenario where there is no state organised unemployment benefit and no min wage rules. In this scenario, the unemployed would, to a greater extent than they currently do, get temporary and relatively unproductive jobs, pending the appearance of something better. Put another way, my preferred version of JG simply counteracts the interference in the free market that you get from benefits and min wage laws.

    Re JG nicking permanent skilled labour and capital equipment from the regular economy you answer that by saying that JG acts as an automatic stabiliser. As far as the JG wage alone goes, JG is no better as a stabiliser than unemployment benefits (to the extent that the JG wage is equal to benefits). As to capital equipment etc, there is a problem, as follows.

    Obviously given excess unemployment, if we set up JG schemes and order up millions of dollars’ worth of capital equipment, etc, that will raise demand. But in that scenario (i.e. given excess unemployment) why not just raise demand and/or expand the regular public sector? I.e. why bother with JG schemes?

    Alternatively, if unemployment is relatively low (or at “NAIRU” or Bill Mitchell’s “inflation barrier” level), it just ain’t possible to order up capital equipment, etc, by RAISING DEMAND. That is, the equipment can only come from nicking it from regular employers. And the net result is to increase the “less skilled labour to capital equipment” ratio amongst regular employers.

    Now instead of doing that, why not just subsidise the less skilled into jobs with regular employers. The effect is the same: increasing the “less skilled labour to capital equipment” ratio amongst regular employers.

  16. ” Ergo there are a large number of potential jobs out there with products BELOW the min wage / union wage, but above zero. If those are created, then GDP rises. That is Pareto optimum. We are all potentially better off.”

    With staff engaged below value with larger employers who couldn’t create proper jobs. Larger employers suffer from much higher levels of entropy than smaller employers and therefore are not optimal, but are able to absorb the short term subsidised individuals much better.

    The theory that large companies suffer competition from smaller companies is empirically incorrect. That’s just another neo-liberal myth. Oligopoly is the dominant form in the market.

    As Chomsky puts it “People talk about a ‘free market.’ Sure. You and I are perfectly free to set up an automobile company and compete with General Motors. Nobody’s stopping us. That freedom is meaningless”

    So I have a great fear of a private sector subsidy system propping up Poundland at the expense of the local Cut Price Charlies, when we should use this market failure to force the system to produce more small entities at the expense of the big ones.

    “simply destroying relatively unproductive private sector jobs will not result in private sector employers to create oodles of highly productive jobs.”

    No, but it will stop them using subsidised labour to undermine those entities paying a decent living wage.

    I see no good reason why the private sector should profit if the wage paid isn’t a living wage. The profit should come from system optimisations on top of a living wage.

    “Therefor any artificial transfer of jobs from one sector to the other will create less productive jobs at the expense of more productive jobs. GDP falls.”

    Or alternatively creating more interesting jobs at the expense of exploitative ones. GDP isn’t necessarily the metric we’re optimising to here.

    I’d be quite happy if the Playboy channel had to fold because it couldn’t get the staff.

    “In contrast, subsidising the unemployed into relatively unproductive jobs with EXISTING employers (public and private sector) is arguably not a subsidy at all.”

    I’m saying a similar thing (but paid, not subsidised), but I’m suggesting that the private sector should be excluded from that mix, because it should be punished for failing to invest, not rewarded.

    ” As far as the JG wage alone goes, JG is no better as a stabiliser than unemployment benefits”

    That depends on what the individuals are doing for their unemployment benefits. If the system is encouraging them to take up work positions that the system makes available to them (either by creating them, or encouraging public/third sector employers to take on these people) then the benefit is the reduction in hiring risk in that marketplace.

    So you can’t take the wage alone. A Job Guarantee has a greater inference of ‘encouraging people to show their wares through work’ than an Income Guarantee system.

    “Alternatively, if unemployment is relatively low (or at “NAIRU” or Bill Mitchell’s “inflation barrier” level), it just ain’t possible to order up capital equipment, etc, by RAISING DEMAND. ”

    Correct, and Job Guarantee and Income Guarantee are ineffective at that point. However they are very effective in the run up to that point, which is the area where the debate is.

    As I’ve said before you’ve got a journey to get to NAIRU, and much happens along the way. I’ve never understood why detractors are so fixated on the end point and not the journey. The journey is much more interesting.

  17. btw Ralph, I’m trying to flush out the underlying assumptions in your design here, because you have a point.

    One of the issue I have with MMT style Job Guarantee is the ‘no competition with private sector’ clause in the middle of it for the available job types.

    That’s a ‘Wisdom of Solomon’ requirement, and I don’t like it. The public sector is particularly lousy at making that distinction.

  18. That is, employers (public and private) cease expanding their workforces when the marginal product of labour equals the min wage / union wage, etc. Ergo there are a large number of potential jobs out there with products BELOW the min wage / union wage, but above zero.

    Ralph. I believe this is a fallacy. To see why consider these two thought experiments:

    1. Suppose I own a large tract of land the size of the state of Montana. The land is extremely fertile and could produce the food output of a medium-sized country. But there is nothing growing there because I haven’t developed it. The land also contains vast mineral resources. But they are not being recovered because I am not mining it. The land also contains a forests filled with several interesting species of native flora which have highly valuable uses in medicine. But these resources are not being developed because I am not developing them. And I am simply not interested in selling the land or its resources.

    In every instance of private sector capital development we find a circumstance in which some private person or enterprise takes some stuff they already own as inputs, does some work on those inputs, and transforms them into something whose combined value is greater than the combined value of the original inputs. They are willing to do the work because the addition of value that results from the work is significantly greater than the cost of the work itself. But obviously the private people and enterprises won’t and can’t do the work on inputs that they do not own.

    Why is this relevant? Because in a country like the United States, for example, but also in every other country, there are vast resources that no private sector entity owns. Thus no private sector entity will undertake capital development with those resources, even if there is great, untapped potential value to be created by capital development of those resources.

    I’m not just talking about the large amounts of land and structures that are public property. I’m talking about people, the air we breathe and much of the water we drink. Nobody owns people. Not anymore, at least. And yet the development of people sometimes pays vast economic benefits. And I’m not just talking about intangible cultural and social benefits, of the kind markets do not measure and upon which markets do not place prices – although those can be very substantial indeed. I’m talking about economic benefits of very concrete kinds. If we turn our people into a deep pool of mathematical, scientific, imaginative and other intellectual talents, that pays concrete economic benefits. If we make our people physically stronger and healthier, that pays concrete economic benefits.

    No private sector entities will ever do this human development work in sufficient amounts to realize the vast store of potential that comes from doing it. That’s because when a private company develops and individuals human beings capacities – which is an expensive process – they don’t own the human being that results. Great economic value can be produced, but no private firm can recover all that value. Thus it will never be in their interest to do it.

    2. Suppose a million people own a million tracts of land with some particularly desirable features. The features are such that if any single owner owned all those tracts of land, and were willing to develop them in the right way, they could create a network of structures that would, in combination with the other similar structures generate vast economic value. But this potential remains unrealized. Some don’t want to sell their land. The project of raising the capital to buy and develop the land is simply so vast and complex, and so expensive, and the scale is so massive, that no private sector enterprise or realistic coalition of enterprises could accomplish it. It won’t get done b y the private sector.

    Only the combined power of the public sector deploying the latent powers that it has vested in its government to command and direct resources, and to readjust property relations, can accomplish this task. This was noted long ago my Adam Smith, who said governments must take on those tasks which “though they may be in the highest degree advantageous to a great society, are, however, of such a nature that the profit could never repay the expense to any individual or small number of individuals.”

    There is a common line of argument that we hear frequently from free market partisans like John Carney to the effect that there really isn’t much valuable work to be done, because if there were, the private sector would already be doing it. The marginal costs of doing the labor that might be performed must therefore be below the marginal addition of value that would be created by doing the work. Thus any public program of full employment would have to be an economic wasteful mis-allocation of resources.

    I think this intuition is far, far off the mark. There is tremendous potential to be realized. Our civilization is grossly underperforming, and even destroying itself, because of our stubbornly misguided ideological obsession with reliance on the private sector.

    We have already done tremendous damage to our global environment, undermining the habitats that are the foundation of life on Earth. Saving ourselves from this gathering man-made disaster is every bit as important now as saving the world from the man-made disaster of fascism was in the 40′s. The private sector cannot wage and win the global war on environmental destruction. The investments needed will be too enormous; the scale too vast. Only the mobilized efforts of political communities and their governments are up to the task.

    Also, people in many of our countries are barely scratching the surface of their economic and human potential, because we have persistently failed to invest the resources needed to develop their imaginations, their cognitive skills and their physical health. We increasingly place our faith in private sector job training, or such development as the individual or her family can afford to do on themselves. This is an absurd and blinkered approach. The private sector cannot do this job.

    Forget the make-work fallacies. We are killing ourselves and crippling the civilization of our children and grandchildren because of our stupid over-reliance on private sector entrepreneurs and enterprises. We need to liberate the public sector to do the jobs that only the public sector can do.

  19. Neil,

    Re your first five paragraphs I think you are saying that private sector JG would favour large firms. I don’t see any big difficulty in allowing small firms to use JG labour. Perhaps “firms” in the form on “one man bands” which according to the tax authorities do not keep proper records should be excluded. But that’s about it.

    Re you and me not being able to make cars in competition with Ford or GM, that is true. But that works both ways. Large firms, because of their large overheads have big problems competing with small firms in areas like plumbing and decorating work or building extensions on houses.

    “No, but it will stop them using subsidised labour to undermine those entities paying a decent living wage.”

    First, about a third of the workforce in the UK are on in-work benefits “tax credits” in particular. I.e. about a third of jobs in the UK do not pay a “living wage” (on one definition of the phrase, at least). Destroying a third of the jobs in the country is not on.

    Second, high wage types of economic activity are no normally in competition with low wage types. E.g. lawyers with ten years’ experience don’t feel threatened by McDonald hamburger fryers.

    “I see no good reason why the private sector should profit if the wage paid isn’t a living wage.” Employers in the long run do not profit from subsidies, nor conversely do they lose out from taxes. Distilleries pay VAST amounts of tax, while farmers get HUGE subsidies. Economic theory suggests that after implementation of these subsidies/taxes, profits just revert to what economists call “normal profits”. And this is pretty well what happens in the real world, because subsidies and taxes ultimately just get passed on to the customer.

    Also, there is a very good theoretical reason for letting firms pay the free market price for particular types of labour even if the wage is below the socially acceptable minimum (which it would seem to be for about a third of UK employees). This is that a generally accepted rule in economics is that GDP is maximised where prices are free market prices (unless someone can demonstrate market failure – which is easily enough done in some cases, e.g. pollution or externalities in general).

    “Or alternatively creating more interesting jobs at the expense of exploitative ones.” Suppose you switch from a “boring” job making stuff that people actually want to spending all day at an “interesting” job like painting landscape pictures which precious few customers want to buy. A bunch of people still have to do boring jobs like harvesting potatoes, and stacking them on supermarket shelves so as to keep you alive. Who is “exploiting” who?

    “That depends on what the individuals……” I think you are suggesting here that JG makes people more employable. There is plenty of empirical evidence here. See the “Ralphonomics” link I mentioned above. And the evidence is that private sector subsidised jobs are the better than public sector subsidised jobs or training so far as improving or maintaining employability goes.

    Hey – this argument can go on for ever!

  20. ” I don’t see any big difficulty in allowing small firms to use JG labour. ”

    Allowing is not the same as using. Smaller firms do not have the management capacity to handle the rotation and bureaucratic restrictions of the subsidy scheme. That much is obvious from the data on the Future Job Fund scheme where larger operations used the facility much more – and therefore received more of the funding.

    Similarly the clawback structure of Tax credits has reduced the take up of work placements from mothers. I’ve had quite a few anecdotal conversations along the lines of ‘don’t seem to have any more money in my pocket so I’m not bothering’ so that fits with the statistics.

    And the data seems to show that there is little extra take up of work amongst other classes. So Tax Credit like subsidies seem to be distributional rather than creating extra activity.

    “First, about a third of the workforce in the UK are on in-work benefits “tax credits” in particular. I.e. about a third of jobs in the UK do not pay a “living wage” (on one definition of the phrase, at least). Destroying a third of the jobs in the country is not on”

    Did introducing the minimum wage destroy a third of jobs?

    If not, then why would upping that to a living wage destroy a third of jobs?

    BTW the Tax credit benefit to somebody working 30 hours on minimum wage is £15 per week. It disappears completely at 33.5 hours per week for a single individual.

    The majority of Tax credits are a massively bureaucratic system that could be simply replaced with the straightforward ability to offset your employment costs against income. There is very little point taking tax off people just to give it back in Tax credits.

    Anybody in the US would laugh themselves silly at our arcane employment costs laws. They really are from another age.

    “Also, there is a very good theoretical reason for letting firms pay the free market price for particular types of labour ”

    You’re not doing that though. You’re imposing unnecessary conditions on the labour that makes it nowhere near a free and fair market. Forcing labour to change on short term contracts and imposing clawbacks that make the marginal tax rates in the sub-median range higher than the top rate of tax is not a free market.

    A free market only happens when the labour can say ‘no deal’. A free market only happens when the power relations are equal. A free market requires both sides to be made up of numerous small entities without market influence or power.

    So there is no free market in labour. It is another of those myths. Trying to apply free market solutions to the current structures will therefore not be optimal.

    This is one of the main objections to the private sector subsidy systems. It’s assumptions are not the conditions on which the labour market actually functions.

    “A bunch of people still have to do boring jobs like harvesting potatoes,”

    Machines harvest potatoes. It’s one of the few crops that can be! One of the amazing things about agriculture is how much of the harvesting work still has to be done by hand. Stunning. So the point still holds, just not for potatoes :-)

    Of course the way you get people to do boring jobs is … pay them more. If you don’t like that then you need to automate it.

  21. Ralph wrote, “the marginal product of labour declines with increased numbers employed. In particular, increasing the number of less skilled people in the public sector (regular public sector plus JG) involves this declining marginal product. And the decline is RAPID”

    I don’t think paying somebody to do something, anything, could produce less than paying them to do nothing as the current unemployment scheme does. The transfer payment doesn’t show up in GDP so it doesn’t affect productivity. But because someone is excluded from the GDP calculation doesn’t REALLY make the employed more productive. It is just a statistical aberration because we don’t place an economic value included in GDP on the subsistence living being earned by the unemployed.

    Last, I’m curious if there are better buffer stocks to be used than unemployment, ones that would cause less market manipulation, especially in labor markets, as a result of policy. I’m thinking along the lines of something unusual like maybe a counter cyclical increase in immigration quotas (imagine if they had brought in a million extra families per year since the housing crisis began), the petroleum reserves filing and depletion (was it a good idea to fill them in 2008 at $140/bbl?), counter cyclical highway priority list funding, accumulation and depletion of social security “trust funds.”, accumulation and depletion of fx reserves . There are problems with any buffer stock when taken to extremes. But that is the point, a buffer stock is only supposed to be used for the fluctuations and not as an end unto itself. There are so many diverse possibilities to use buffer stocks at key moments in policy making that if done properly and in concert could reduce the amount of human suffering while at the same time would not violate economic values we hold dear. A broader debate around the wide range of options we have would be helpful in identifying how the tool itself works and might shed light on how to manage a JG even.

  22. @PeterC,

    Correct me if I am wrong, but my understanding of MMT was that it was based and developed on the fundamental premise that neoclassical economics had failed empirical test and in our daily experience.

    Therefore, neoclassical central ideas, like the NAIRU, inflation targeting, the idea that wages equal marginal productivity of labour, that market equilibria were Pareto optimal, etc. were not only empirically discredited notions, but also alien to MMT.

    To put this another way: if all those notions (NAIRU, etc.) were considered valid and useful representations of how the economy works, why on earth would we need MMT? The neoclassical market is supposed to self-equilibrate, why would it need an external agent (i.e. the government) to equilibrate it?

    @Ramanan,

    Okay, let’s see if I get your point, based on what the gentleman in the video said.

    The fear is that an increase in effective demand (due to yellow jobs, night watchmen, etc.), without a corresponding increase in output, would (1) raise prices, (2) create a trade deficit and (3) devalue the currency (which, I suppose, would feedback into 1).

    The question is: why wouldn’t output increase? Aren’t we supposing that output is under capacity?

    At the other hand, if the idea is that a JG policy (carried beyond the point where output equals capacity) would create those costly effects, then the question is what happens to the costs of not implementing it? I think that was what Mosler was asking.

    NOTE: If I misunderstood, pretty please, correct me in a language that even a guy like me can understand :)

  23. Dan,

    You say that “No private sector entities will ever do this human development work..” (i.e. education, etc). I think most people realise there is a fair amount of truth in that, which is why most countries have free state education up to 16 years of age or thereabouts. Plus in most European countries there is plenty of free or subsidised education and training available for people well over 16 years of age.

    What you said is not ENTIRELY true in that absent state education, my guess is that about two thirds of parents would give their kids a fairly good education. And absent the taxes needed to fund state education, parents would have extra money in their pockets to fund their kid’s education.

    But it’s the bottom third (very roughly) which would spend their money on cars and booze rather than educating their kids. So they are the kids who really benefit from state education.

    Re imparting firm specific skills to employees, it is widely recognised that firms are tempted to provide a sub-optimum amount of training because employees are free to take their skills elsewhere.

    Re Carney, I agree with him in that he is saying JG jobs are bound to be RELATIVELY unproductive. But that is no reason to reject JG altogether or for saying that JG is necessarily a misallocation of resources. Min wage jobs are RELATIVELY unproductive, but I’m not against min wage jobs.

  24. Magpie, concerning the part of your comment directed at me, yes, I agree with you.

    Great discussion, everybody. As noted by RyanVMarkov, there is some voluntary yet socially productive commentating going on. :-)

  25. The BIG is not theory, it is practiced in most developed countries already in form of social security or similar programs. One can argue that such transfers or should be increased or should include better medical coverage etc., but that is an argument of degree, not of kind.

    Furthermore, I think there is a great scope of measures in between a JG as proposed by MMT and standard social security payments, many of which are also more fact than theory in many parts of the world. Such measures include free education (as mentioned above), on the job training, subsidised reduction of working hours during downturns (as in Germany), progressive unemployment benefits, jopb coaching (as here in Switzerland) and probably many more I don’t know of. Just because something isn’t practiced in the US, doesn’t mean it doesn’t exist (I dont’ mean you, PeterC, I know you’re in Aus).

    So generally, I think BIG vs. JG is a false dichotomy. There is a continuum of possible measures that can help make the workforce more productive and attractive for private sector hire. This is an independent issue from effective demand, which is an abstract fiscal matter within the (politically binding) constraints of inflation / currency depreciation.

    One problem that gets lost in these discussions, I find, is the phenomenon of a growing disparity of productivity (in a narrow economic sense), especially within developed economies. There will always be a need for people who work in education, care, cleaning, agriculture (fruit picking and the like) etc. – which are all jobs that require a specific amount of man hours at pretty much constant ‘productivity’ and that cannot be outsourced. Contrast that with typical jobs in IT or finance or even the entertainment business that have enormous reach thanks to modern communication and we get ever diverging productivity. All we can do, is choose how best to deal with this phenomenon, but it will never go away completely.

    I agree that globalisation and the subsequent problems with the current account (see Ramanan for that discussion) have made it even harder for countries to deal with this on a national level. But I think we must first realise that no amount of making people more ‘productive’ will change this basic dilemma of modern society . And thus, as a consequence, we are constantly forced to reassess the ‘value of labour’ as we see its economic value diverge from its social value.

    We can deregulate immigration and make sure all crap jobs are done by people who speak foreign languages or have a different skin colour, which makes it easier for the ruling classes to dismiss the problem as one of ‘culture’ or ‘race’ rather than economics. We can distract from it by defining it as problem of envy and ultimately of personal responsibility and thus denying that humans are social creatures. But it won’t go a way!

    So, to tie this back in with the JG discussion, we first have to decide how to value labour in light of technological progress before we decide how to address a shortfall of it.

    One thought I’ve had recently, although I haven’t developed it in any way, is that we may have to question the division of labour itself and thus the division into productive, unproductive and unemployed labour. As examples, Swiss political offices and many community services such as fire fighting are voluntary and part time and Switzerland still has a draft for its military. Germany, too had a draft until last year, but more importantly, it had (has?) an alternative social service for those who didn’t want to roll around in the mud, with which it covered much of the dirty work in its much heralded public care system. I believe a system in which every adult is obliged to partake in some kind of community work next to pusuing a bread and ego career could help overcome the moral gap that then shows up as a wage and communication gap in modern neo-liberal societies. We can only begin to fight economic divergence by achieving moral convergence.

  26. ” I agree with him in that he is saying JG jobs are bound to be RELATIVELY unproductive. ”

    Inevitably. But that is based on productivity being the sole measure of value. Unfortunately if you push for ‘productivity’ you end up destroying the human being.

    All of these buffer jobs are going to be dealing with the left side of the bell curve in terms of skills, motivation and intelligence. These are difficult to use individuals. Anything beyond their value as consumption units signalling to the production system to produce something for them should be seen as a bonus.

  27. “There is a continuum of possible measures that can help make the workforce more productive and attractive for private sector hire. This is an independent issue from effective demand”

    I believe MMT’s argument is that it isn’t an independent issue from effective demand and that making the workforce more attractive for private sector hire increases effective demand (essentially an unemployed buffer stock stops having an anchoring effect on wages earlier than an employed buffer stock in the run up to full employment)

  28. I’m a little late to this very good party, but would like to offer some comments anyway. Ralph says above:

    “There is a very simple and fundamental reason for rejecting full employment as an objective, which is not mentioned above. This is that the BASIC economic objective is not to create work for the sake of it. The BASIC objective is to maximise output per hour, within environmental constraints, while providing work for as many of those who want to work as possible (or something like that).”

    I guess I don’t think this just “is” the basic objective of the economic system, because I don’t think the economic system we create can set its own objective. Instead, I think we, collectively, get to set its objective. My theory about this objective is different from Ralph’s.

    Where I start is with the value of “public purpose.” Because MMT as an approach is about what the Government ought to use its currency monopoly for, through its monetary and fiscal policies. I think that in a democracy it ought to use those policies to fulfill public purpose. So then the problem is to specify what we mean by public purpose.

    The dimensions “full employment” “price stability” “full productivity” “prosperity” “innovation” “economic growth” may all be viewed as dimensions of public purpose. Other dimensions might be universal health care availability, equality of economic opportunity, equality of educational opportunity and others that any of us might want to add.

    Once dimensions are selected, then formulating the MMT knowledge claim network (KCN) ought to proceed by prioritizing the dimensions. This can be done rigorously using methods like the Analytic Hierarchy Process (AHP) to develop ratio scales of priority. No one in mainstream economics or in MMT for that matter doing that now, of course.

    Speaking more loosely, I think all of these dimensions are pretty important, but I think that “full productivity” is the least important of these goals right now and nowhere near as important as FE with PS. Cullen Roche and the other MMR folks (they’ve now modified their label to Modern Monetary Realism) may be able to get me to think differently if they explained what they mean by “full productivity” and find a credible way to measure it, since they’re also claiming that “FP (hence FE)” though this is a claim I doubt for reasons like those so clearly stated by Peter above.

    But right now I have little idea what they even mean by this term unless it’s something very like the goal Ralph stated above, which very clearly can be achieved without implying FE. Anyway to finish off this point. Since I don’t agree with Ralph’s basic value assumption about the goal or objective or economics, the rest of his argument kind of falls to the ground for me, and I think that would also be true for many of the MMT founders who certainly seem to think that FE at a living wage with PS is basic to “Public Purpose.”

  29. More on Ralph’s reasoning:

    “A point that JG enthusiasts ignore 99% of the time is a very simple text book point, namely that the marginal product of labour declines with increased numbers employed. In particular, increasing the number of less skilled people in the public sector (regular public sector plus JG) involves this declining marginal product. And the decline is RAPID in the public sector, because the public sector is not as good as employing the less skilled as the private sector.”

    I really don’t understand how one can say unequivocally, that “the marginal product of labor declines with increased numbers employed.” Nor do I see why the decline should be rapid in the public sector, because it isn’t all that plausible to me that (1) the public sector is necessarily worse at employing the “less skilled” than the private sector or (2) those out of a job and having trouble finding one are necessarily “less skilled” than many of those working. I can’t see how one can come to such conclusions without knowing what skills the people who need a job have or knowing what the skills of public sector management of the as yet non-existent JG program might be. So, perhaps Ralph can explain all this to me, and tell me what I should believe what look to me to be unfounded assumptions.

    Finally, I certainly don’t think this is a simple textbook point, and if its, please don’t quote me Greg Mankiew.

    Next:

    Moreover, if a JG system is set up, and with a view to making the work concerned as productive as possible, skilled labour, capital equipment and materials are withdrawn from the regular economy, the net effect can be a REDUCTION IN GDP because the reduced output from the regular economy exceeds the increase in output derived from the JG scheme.

    I suppose this can happen, but, again, I don’t see how one can draw this conclusion based on such abstract theory. First why can’t the JG program be provisioned with new equipment not yet produced by the private economy? And when it is used why would it not be used in the non-Government, non-profit sector? Also, why wouldn’t provisioning the JG involve an expansion of idle resources in the private sector which would help to close the output gap? And, finally, what says that the work performed in the non-profit sector by JG funded employees would not produce outcomes of greater value than many outcomes of private sector activity. Whether or not this happens is surely both a question of value in part and also an empirical question, since it’s quite clear that many outcomes of private sector sector are presently of little or even negative value.

    So, if public sector jobs created positive value of any kind and replaced some of the negative value jobs that now permeate the private sector, it seems to me there would then be a net gain in value from JG economic activity. If you will an addition to productivity over what went before.

    And finally, I’d like to ask everyone, how we can even talk about “productivity” without even attempting to specify it. I know how the term is normally used in economics, and not to put too fine a point on that, I think it’s a bullshit idea unless the people using the term share the same idea about valued outputs.

    As we increasingly move away from an economy based principally on material/physical outputs and toward one which is producing more non-material outputs, I think it becomes harder to place a value on such outputs using the core concepts and methods of standard economics, and that until we can do that we can’t measure “output per labor hour” in any meaningful way. It may be meaningful to talk about productivity when one is dealing with the number of autos produced in an automobile factory, but when is trying to measure the productivity of knowledge workers and innovators of various kinds, measuring productivity is a very different kettle of fish. I am not suggesting that such measurements are impossible. In fact, I think the opposite is the case. But I’m afraid that the current models and methods of economics as I understand are wholly inadequate for accomplishing this task.

  30. Also, Edward Harrison – Richard Nixon gets it

    For me, this speech is the clearest demonstration of what 40 years means in terms of national priorities and the general mindset. This is not the guiding ethos of today.

    Nixon said a lot more in his statement than this, but I have stripped it to its essence to demonstrate the intent behind his comments. He was saying that low employment is not enough. Full employment should be the standard.

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