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Parts One,  Two, Three, and Four

In the first four parts of this series, I analyzed views on the Job Guarantee (JG) idea offered by Cullen Roche and Peter Cooper in conjunction with a post by John Carney,  which kicked off an explosion of blogosphere posts and commentaries on the JG. In Part Three I began an analysis of John Carney's views by taking exception to his claims that the JG would be inflationary, a bureaucratic nightmare, and would cause economic stagnations. In Part Four, I critiqued his views on the problem of a mismatch between demand and the skills needed to fulfill it, the possible inflationary impact of this mismatch, and also his claims on the JG and stagnation.

In this post, I continue analyzing John's further take on the JG in in his 'The Trouble with a Job Guarantee.  His reasoning in this post, focuses on the problem of a mismatch between demand and the skills needed to fulfill it, the possible inflationary impact of this mismatch, and also amplifies his claims on the JG and stagnation. My interleaved replies from an MMT perspective to his assertions and arguments are provided in this and an upcoming post, as well as in Part Four. All my replies assume that the JG would not be “paid for,” but would occur through deficit spending.

Does the JG Really Solve the Mismatch Problem?

”The Job Guarantee gets around one of these problems: it guarantees that anyone who comes to the government employment office ready, willing, and able to work will be able to get work for pay and benefits. The problem of mismatch is seemingly solved since the government will just supply the demand for something the unemployed can do. Direct hiring works better, in this sense, than trying to jigger the knobs of monetary policy.

But is the problem of mismatch really solved? I do not think it is.

The jobs created under the Job Guarantee are specifically not supposed to compete with the private sector, which means that they supply goods and services for which there is not a market demand. The total output of the economy might increase, but much of this output is non-productive—that is, it doesn’t actually improve our lives."

Comment: This statement really reflects John Carney's bias towards private sector employment, and is simply ridiculous and outrageous on its face! We all know that Government work produces valuable goods and/or services that improve our lot in life, everyday. We also know that a lot of Government work is valueless or produces negative real value. But we can equally well say the same things about private sector work. Much of it has zero or negative real value from the viewpoint of those of us who aren't getting paid for doing it, and I won't trouble to even provide the very obvious examples of this. There's also much private sector work that adds real value to our lives and is well worth doing.

My point is that whether JG work produces real value has nothing to do with markets or whether businesses in markets believe they can make a profit from certain kinds of activity. But it has everything to do with whether Americans are likely to and, in the event, will value the goods and services produced by JG work. Whether the output of the JG program is “productive” will be judged by the people that will or will not benefit from it, and not by the private sector market that it will not be competing with.

"Now some people will say that this is fetishizing the market. Aren’t there things that improve our lives other than what the market will pay for? I don’t want to argue that there are not. I do not think, for instance, that these days we could pay for the Sistine Chapel but our lives are greatly improved by its existence. The problem is that there is no reason at all to think that people laboring in Job Guarantee positions will supply meaningful improvements rather than holes in the ground."

Comment: I'm sorry, but the quote just before the disclaimer does “fetishize the market.” It clearly does make the a priori assumption that what the market values is much more valuable than what the political system or society or people value. And this is a generalization that John Carney cannot establish with any scientific tests or data. It is an ideological view coming out of Austrian economics and Randian ideology. It is not an assertion that should be taken at face value.

Actually, also, contrary to John's view, there is plenty of reason to think that people laboring in JG positions will add value to the economy. We know that many non-profits add value to American life. We know that New Deal project outcomes added lasting value to American life and continue to do so. We also know that many government activities add value today. But, most importantly, we have plenty of reason to believe that the people who run the JG program will be able to design it so that JG workers will be very likely to produce value. We have the years of research on the JG by MMT researchers to show that many good ideas already exist for JG projects that have value. All we have to do to assure ourselves that this is true is to read that literature.

I know that John says that he has read the MMT JG literature and that he hasn't any reason to believe that value will be produced, so he wants to be cautious before implementing the JG. But I've read that literature too, and I totally disagree with John and think his view is colored by the bias I called attention to above. He is predisposed to think that the JG cannot add value, so therefore, no examples of projects that might produce value will persuade him.

I can't say for sure whether this view of mine about John is right. To see whether it is, readers of this post should read the MMT literature themselves and decide. Don't take my word for it, and don't take John's. Decide for yourselves! I'm confident that you will decide that John's claim that “The problem is that there is no reason at all to think that people laboring in Job Guarantee positions will supply meaningful improvements rather than holes in the ground,” is just false.

"The Job Guarantee folks seem to think that there are plenty of meaningful jobs that aren’t getting done but that could be done by the unemployed. I don’t think this is correct. In fact, I cannot really think of many at all. Sometimes things like caring for the elderly or constructing bridges and roads are nominated as candidates. But these are not jobs that can be done just by anyone. They require a certain sort of person with a certain set of skills. Most jobs do."

Comment: This is the same claim as the one made above. Read the literature! Decide for yourself! It's easy to think of productive work for people to do. I'll bet you can do it for yourself. Here's one, start a JG project to provide the SEC with 50,000 new investigators to ferret out the control fraud in the private sector that led to the crash of 2008. That one will certainly add value to American life; specifically a value it is lacking now – namely the value of justice and fairness under the law. Of course, the 50,000 new investigators will need some training; but I suspect Bill Black could design a brief educational program teaching the basics of investigation that wouldn't require more than two weeks of intensive training to complete.

The Distribution of Labor and the JG

"So the Job Guarantee actually falls prey to that old problem of the distribution of labor. Unless the skills, talents and dispositions of the unemployed miraculously match the jobs the government would like done, it doesn’t actually work much better than the “full employment” monetary policy.

This creates the inflation problem I wrote about when I first addressed the Job Guarantee. The MMTers claim that their approach isn’t inflationary. In fact, they like to call it “Full Employment and Price Stability.”

But if they are creating jobs that put more money into people’s hands without creating more supply of that which is actually demanded, then prices are likely to increase.  Businesses may be able soak up some of the extra-demand by increasing their output—but this has limits, especially if there is a labor-demand mismatch. The productivity of existing workers can only be increased so far."

Comment: This just re-hashes John's old assertions. Everyone agrees that Government can't deficit spend an unlimited amount without causing demand-pull inflation. MMT doesn't disagree with this. No one's proposing deficit spending beyond productive capacity using the JG or anything else. JG spending is designed to shrink as the private sector responds with more supply to the Government providing funding for real work that will add value to American life.

The reason why it will is that in responding to increased demand the private sector will rehire people from the JG and it will shrink. As I've argued above, the so-called labor/demand mismatch is really a claim that the increased demand can't be met by an increased supply response. But there is absolutely no evidence or reason to believe that we can't "supply" in response to the increased demand coming from the JG. If John thinks there is, then I think the burden is on him to provide some calculations based on empirical data. I challenge him, or anyone else, to do that.

"Because the workers without skills demanded by the private sector have jobs and earn income, their incentive to retrain and relocate is diminished—which means that the labor mismatch persists and businesses may not be able to increase output to match rising demand."

Comment: This one is really strange.  If businesses aren't able to meet the demand that existed before the crash of 2008, then it will be because they don't hire back the workers they laid off. If State Governments can't meet the demand for the services they provided before the crash, it will, again, be because they are refusing to meet that demand by hiring their employees back. It won't be because of any skill mismatch. There's little empirical evidence that this will be a serious problem, if the demand is there.

Also, if some people remain on the JG because they can't get better-paying private sector jobs due to a skills mismatch, and if they know that those jobs are going begging, then they will take advantage of JG-related opportunities for retraining, because the incentive for them to do so in the form of higher pay and better benefits will be there if the market is working, and will pay a higher price for labor as demand increases. And if the market doesn't work, then the JG safety net is all the more necessary to give those the market can't provide for, work that will produce real value.

Originally posted to Money and Public Purpose on Tue Jan 10, 2012 at 06:30 AM PST.

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Comment Preferences

  •  John Carney Strawman (1+ / 0-)
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    John Carney sounds like a man arguing Austrian  economics who doesn't understand Austrian economics.  John Carney says that the benefit of the JG program is zero because if it was any value.  However, that is not even the Austrian position.  It is that if what you pay was worth it, the market would pay.  

    Even if I bought the basis of Austrian economics, I would recognize that "yes, though I might be paying more than the market is willing to pay - but the market would take it for less".  For instance, though the government is paying 8$, but the market might only be willing to pay 5$.  So the JG would be providing 5$ of benefit for 8$.  The loss is 3$, not the full 8$!  John Carney isn't even expressing his Austrian bias correctly.

    Of course, my Keynesian bias doesn't view the 3$ as a waste, but views it as an aggregate demand boost.  In my view Carney just couldn't be more ridiculously wrong on this issue.

    Our Dime: Understanding the Federal Budget

    by Dustin Mineau on Tue Jan 10, 2012 at 09:29:15 AM PST

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