I’ve been thinking about the job guarantee as it is envisaged by proponents of Modern Monetary Theory (MMT). My focus has been on various quantity effects of the policy that can be considered using the standard income-expenditure model as a base (for preliminary posts along these lines, see here and here.) Since the income-expenditure model takes the general price level as given, it does not directly shed light on the aspects of a job guarantee that would pertain to price stability. To provide some context for a possible future discussion of quantity effects, it is perhaps worth summarizing how the job guarantee would moderate price pressures. Clear statements of the MMT position on the topic can be found in a billy blog post (here) and closely related academic articles by Bill Mitchell (here) and Warren Mosler (here).
At one time or another many of us have probably pondered questions such as: Where does a national currency come from? How does a currency system basically work? Why might people agree to accept a national currency in the first place? How can we be confident that a national currency won’t collapse and that people will continue to accept it in economic transactions? Can a government ever go broke and leave citizens footing the bill? Can financial affordability even be an issue for government?
An alternative title to this post could have been, ‘The Interest Rate on Public Debt is at the Discretion of Government’. This remains true even though, in the neoliberal era, governments usually require themselves to follow various unnecessary rules on how their spending is to be conducted. These rules are voluntary and can be removed at a later time. But even while these rules are in place, they do not prevent government from dictating the terms on which it spends.
An earlier post discussed some of the dynamics of output and demand implicit in the income-expenditure model. Attention was confined to a simplified economy that was stationary other than when adjusting to one-off exogenous changes in demand. The present post considers a continually growing economy in which autonomous demand changes over time. The discussion is kept simple by treating all demand other than private consumption as exogenous. The model can be extended to include additional endogenous demand components – such as investment or job-guarantee spending – but this is left for another time.
Whenever the topic of economic growth is broached, there is a common and understandable reaction along the lines that growth is ecologically unsustainable or socially harmful. Since one of the preoccupations of this blog is demand-led growth, it is perhaps worth pausing to reflect on the appropriateness of the topic. This can be broken down into two parts. Why consider growth as such? And why emphasize the possibility that growth is demand led?
I gazed out the eighth-story window of a humble – bashful, even – apartment at crowds of pedestrians on the street below, feeling drawn to those crowds, blissfully lost in their collective thoughts, basking in a sense of universal oneness and kindness toward everyone and everything. I held a specially designated Study Mug to my chest, nestled just so, withholding for a time the pleasure of that first sip. At last I relented, and gave in to sweet temptation, raising the Mug to my lips.
Theoretical studies of output and growth often focus on the behavior of equilibrium output. The usefulness of this approach depends on there being a tendency for actual output to converge on equilibrium output. With such a tendency present, studying the behavior of equilibrium output will tell us something about the behavior of actual output. It is therefore of interest to spell out the process by which an economy in disequilibrium is thought to tend toward equilibrium.
I have been thinking about a simple depiction of a demand-led economy. Mostly it draws on standard Keynesian macro, Kalecki’s work on cycles and growth, and supermultiplier models developed within the surplus approach. The main focus is on the evolution of a demand-led economy through time. The present post simply sketches the basic framework and provides some context. Perhaps in the future certain aspects can be fleshed out.
A key purpose of demand-led growth theory is to extend the ‘principle of effective demand’ to contexts in which productive capacity is best considered variable rather than fixed. The central idea is that, over any time frame, it is demand that determines output, and demand-led variations in income that adjust planned leakages to planned injections. Once it is acknowledged that capacity is variable, it becomes clear that the adjustment of output to demand, and planned leakages to planned injections, can be achieved not only by utilizing existing capacity more fully, but by expanding capacity through investment.
A while back on Facebook, or maybe it was twitter, someone asked what would be left for our own lives if artificial intelligence ever came to exceed our own.