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Ryan Bhandari 19, Former Senior Economic Policy Advisor at Third Way, current Econ PhD student, 3-25-19, “What Is the “Federal Jobs Guarantee” and What Are People Saying About It?” https://www.thirdway.org/memo/what-is-the-federal-jobs-guarantee-and-what-are-people-saying-about-it // KG

#4: Inflation would rise. A sudden increase in the cost of labor for businesses will lead to inflation throughout the economy because of higher business costs that will need to be passed on to consumers. In addition, when only those at the bottom of the income distribution get a defacto raise to $15, there are upstream consequences. Workers who were making $15 an hour may demand $20 an hour now. Workers making $20 an hour might want $25 an hour and so on. This may seem like a benefit, but “this is a story of serious wage-price spiral, unless we introduce other measures,” warns progressive economist Dean Baker.5 We have been very fortunate that inflation has been well under control for the last few decades. A federal jobs guarantee could change that pretty quickly.

There is a growing sense that more needs to be done to help improve economic outcomes for many Americans. To that end, some on the left have begun to call for what is being called a “guaranteed jobs program”. The influential Center for American Progress released a new proposal on this, signaling at the very least that it is no longer a fringe idea. Unfortunately, I think this plan is full of tensions and problems.

Unless I am missing something -and I could be- the proposal is extremely light on details yet also extraordinarily broad. The plan lists several jobs that apparently are a good fit for the currently non-working and also in high demand: home care workers to aid the aged and disabled, affordable child care, teachers’ aides, and EMTs. So the basic plan, if I understand it correctly, is that the federal government will pay for jobs for people to work in the public or private sector, and the government will also pay for training as needed.

But the job guarantee also carries major risks, and it would be a mistake to ignore these. It’s never fun to explore the pitfalls of a policy that has great potential to reduce suffering and provide dignity to so many. But this is a necessary task because properly implementing the program requires knowing the ways it might go wrong, and because a backup plan might be needed in case the job guarantee doesn’t work out as expected.

The first potential drawback would be if a job guarantee lowers productivity. If people shift out of productive private-sector jobs into government jobs that generate only half as much real value, the productivity of the nation will go down.

The Guardian claimed a job guarantee policy ‘would secure a basic human right to engage in productive employment’. Throughout history, the vast majority of people would have found that a very strange ‘human right’. Having a job is to be in a position of subordination, reporting to and obeying a boss in return for payment. Indeed, historically the words ‘job’, ‘jobbing’ and ‘jobholder’ were terms of regret and even pity, referring to someone with a bits-and-pieces existence. Subordination and alienation have also been at the heart of labour law, which is based on the master-servant model.

The newspaper added that the job guarantee ‘would only offer employment under-supplied by the private sector’, singling out ‘environmental clean-up’ and ‘social care’. These may sound appealing on paper but represent a narrow and unattractive range of jobs to be offered. They also bear more than a passing resemblance to the menial jobs convicted offenders are obliged to undertake under ‘community payback’ schemes.

Ever since I wrote Work for All with John Langmore back in 1994, I've been pushing the idea that a path to full employment requires an expansion of publicly provided services. For about the same length of time, Bill Mitchell has been putting forward similar (but not identical) proposals.

At some point in this process, Bill became one of the advocates of what's called Modern Monetary Theory, which makes the point that taxes don't (directly) 'fund' public expenditure. Rather, they ensure that the total demand for goods and services (for consumption and investment) don't exceed the productive capacity of the economy, thereby generating inflation.This reframing raises the question: does a Job Guarantee require higher taxation? The answer, using MMT reasoning, is 'Almost certainly, yes'. Suppose the economy initially has two groups of workers, employed and unemployed. Employed workers produce some quantity of marketed goods and services, as well as freely provided public services. They receive a wage, while unemployed workers get a (low) benefit. As well as workers, there are people receiving profits, interest and so on. Now we introduce a Job Guarantee in which all unemployed workers are hired, at the minimum wage or more, to produce public services (say, extra contact tracing for pandemics), that would otherwise not be provided. The newly employed workers spend their wages (over and above previous benefits) on marketed goods and services. But where are these goods and services to come from? It can only be from reducing the consumption of those who are already receiving wages or other market incomes. Shifting the consumption to public use is the job of taxation (alternatively, the government could cut existing services, freeing the workers there to produce market goods and services, but I won't explore this).We can refine this a bit by allowing for a multiplier effect. Instead of employing all the previously unemployed workers, the Job Guarantee would only need to employ some. Their demand would increase employment in the market sector, providing jobs for the remaining unemployed workers. But it would still be the case that the additional output of marketed goods and services from those workers would be less than the total wage being paid to all formerly unemployed workers. The only exception is in situations where the unemployment benefit is very high relative to the minimum wage, so that the extra consumption of all the newly employed workers is less than the extra output of those who go to work in the market sector. That doesn't mean a Job Guarantee is a bad idea. The newly employed workers would be better off, and those already employed would get additional services in return for their higher taxes. But this isn't a free lunch. As Oliver Wendell Holmes put it, taxes are what we pay for civilised society.

The Job Guarantees positive economic effects are often overstated by MMTers. In a 2010 JG simulation Scott Fullwiler shows that the private sector economic impact is meager when compared to other policy options. As can be seen below, the JG adds just 1.73MM jobs over the 2 years coming out of the deepest recession of the last 75 years when compared to doing nothing. This might not sound like a small gain, but to put things in perspective – a full payroll tax cut adds over 4.25 MILLION private jobs during this same period when compared to the JG scenario. Meanwhile, the government workforce will swell to ~16 million workers!

Interestingly, the JG doesn’t prove much more effective than the stimulus plan that was enacted and proves far less effective than a payroll tax holiday. According to Fullwiler the JG would cost ~$324B over this period while the stimulus cost ~$600B. The stimulus adds 3.13MM jobs while the JG adds just 1.73MM jobs. So while the JG gets slightly better bang for your buck the difference is negligible.

1. The Core Rationale for the MMT Job Guarantee is based on a False Understanding of the Monetary System

MMT states that unemployment is caused by the imposition of a fiat monetary system. That is, if there were no monetary system imposed by the state then there would be no unemployment to begin with. Therefore, MMT states that it is the creation of the monetary system that leads to unemployment. MMT takes this concept one step further though. They state that the government is the currency monopolist and if the state does not provide enough jobs then the result is involuntary unemployment. Warren Mosler states:

The MMT crowd is right that the government has far more headroom to spend, and better macro-economic (as opposed to nice-but-silly humanitarian) reasons to do so than their mainstream opponents think. But they are wrong about what to do with that spending power. They correctly understand that government spending is constrained by the economy’s available resources rather than by tax revenue. But their central policy proposal, a “Federal Jobs Guarantee,’’ is a terrible stinky heap of burning radioactive garbage drenched in awful sauce, sprinkled with bad. It’s unfit for purpose, now and later, on its own terms and on any reasonable person’s.

I don’t make these criticisms gleefully, as in general, I am sympathetic to the general thrust of their thinking. But a real friend tells you when you’re wrong, for your own good (and everyone else’s). This basket case of a policy would be a disaster if tried and could discredit the entire school which proposed it, leading to the macroeconomic baby being thrown out with the policy bathwater. MMT needs to be forcefully critiqued, and saved from this glaring flaw. Unfortunately, this flaw is one that most MMT advocates refuse to acknowledge, and will passionately defend. So it must be attacked with equal passion. It’s like the 6 minute back alley fight scene in They Live — they must, despite their protestations, be made to see.

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.

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.

University of Oxford economist Max Roser has pointed out that the number of people in extreme poverty has fallen by roughly 137,000 individuals every single day for the past 25 years. That’s over a billion people—more people than there were on Earth just a couple centuries ago.

This miraculous occurrence has been called “the most important fact about wellbeing in the world since World War II” by the Nobel Prize winning Princeton University economist Angus Deaton in his book The Great Escape. And as CNN host and Washington Post columnist Fareed Zakaria has observed, these data indicate that more people have escaped extreme poverty in the last fifty years than had done so in the preceding five hundred.

This has been a negative case for economic growth. We should not pursue degrowth because to do so would cost too much in the coin of basic human freedoms. But material economic growth also directly expands human capabilities. Greater wealth, greater productive capacity, and the institutional machinery of innovation multiply the effective options individuals have to pursue their respective projects and ends. Growth makes freedom possible; freedom makes growth possible. They are inseparable.

It’s trivial to think of inventions that have radically improved human capabilities. A personal favorite is the birth control pill, which has perhaps done more to liberate women into public life and to undermine patriarchy than the entire edifice of feminist thought. But this required a base level of economic capabilities to achieve and to produce to scale. Hormone therapy for trans people might not have been developed had we started degrowth in J.S. Mill’s time. Covid would have hit differently without remote capabilities to continue work (which would be necessary to some extent even in a degrowth regime) and the readily deployed industrial capacity to churn out millions of doses of made-to-order mRNA vaccines. The Green Revolution enabled industrial agriculture to feed billions and genetic engineering promises to continue that tradition. Cutting edge technologies like CRISPR promise revolutionary health advances and as a kind of health platform technology it will likely roll out a whole new industry.

We pursue common purposes through collective action when it promotes the general welfare or general security against great dangers. We impose mask and vaccine mandates to ward off a deadly virus, and even that provokes backlashes. We shift industry to wartime footing, commanding the production of weapons and materiel when invasion or humanitarian catastrophes abroad threaten. And yes, we collectively submit to rules and regulations to protect our natural environment. Yet in all of these cases the measures implemented are for some tangible greater good, worth the abridgments to freedom even by the lights of those making sacrifices. Degrowth imposes limits for the sake of limits, on the abstract postulate that extending our frontiers and expanding our capabilities is intrinsically suspect.

People who are socialized in this way, in consumer society, can be characterized as ‘growth subjects’. In analysing ‘growth subjects’, which are often conceptualized according to the model of the bourgeois white man, three characteristics are particularly noteworthy: (1) having the status of an apparently completely independent individual; (2) an orientation towards maximizing one’s own ‘world reach’, or making ever larger parts of the world available to oneself, through for example, travel, consumption, media usage, and so on; and (3) striving for personal assertiveness in order to achieve these goals under competitive conditions. (FID 111, emphasis added.)

For green growth advocates, degrowth is not only impossible, it is also unnecessary, since economic growth and technological progress can enable us both to have more stuff and to reduce resource use and carbon emissions. A few countries, mostly in Europe, have exhibited declining carbon emis- sions during the last two decades despite sustained growth (Aden 2016). Technological studies also project feasible scenarios for a world powered by renewable (Jakobson et al. 2010) or nuclear power. Expenditure on a large- scale energy transition may stimulate growth and create new jobs, so green growth advocates claim.

I engaged with these arguments in chapter 4 but let me recap the main responses to these ideas

The first interpretation of degrowth is striving for negative GDP growth or a reduction in GDP (Gross Domestic Product).1 This is the most logical interpretation and useful one in the sense that it is likely to be understood as such by most economists, politicians and the general public. The reason is that it sounds as the opposite of (economic) growth, which in common use and the media is not a term denoting some vague development pattern but synonymous with GDP growth. According to this interpretation of degrowth, the current economic–financial crisis associated with less GDP growth or even a reduction in GDP is then seen by some as good for the environment (Martínez-Alier et al., 2010). But this conclusion is difficult to draw in general. The direct, short-term effect of reduced GDP growth may be, for example, fewer CO2 emissions as aggregate production falls. However, the long term effect is uncertain, as GDP degrowth may depress investments in cleaner technologies, renewable energy and related research, which can lead to an increase in future CO2 emissions. Even the short-term effect is uncertain, as production during a period of crisis may well shift to cheaper, dirtier techniques. Moreover, as is illustrated by recent events, both governments and firms are likely to pay less attention to environmental considerations and policies during a period of crisis.

GDP degrowth means a blunt instrument of environmental policy which reverses the causality between policy and growth as it is normally understood. Instead of putting good policy first and then seeing whether degrowth is a consequence, the degrowth strategy is to set the aim of degrowth first and then hope that the environment will come out well. However, this cannot guarantee a very focused, effective and efficient approach to reduce environmental pressure. Worse even, degrowth might turn out to be dirty. In fact, degrowth can be the result of producing less efficiently, i.e. having less output with more inputs, including more resources, energy, pollution and waste. In other words, degrowth is not a sufficient condition for reducing environmental pressure. Smaller is not always more beautiful — although I certainly would not go as far as Wilfred Beckerman in saying that “Small is stupid” in general, or that “large” (growth) is necessary for environmental improvement (Beckerman, 1995).2

George Mason University economist Tyler Cowen explains in a Foreign Affairs article that, “In the medium to long term, even small changes in growth rates have significant consequences for living standards. An economy that grows at one percent doubles its average income approximately every 70 years, whereas an economy that grows at three percent doubles its average income about every 23 years—which, over time, makes a big difference in people’s lives.”

To concretize this point, Cowen proposes a thought experiment in his book Stubborn Attachments: “Redo U.S. history, but assume the country’s economy had grown one percentage point less each year between 1870 and 1990. In that scenario, the United States of 1990 would be no richer than the Mexico of 1990.”

But the degrowth solutions offered are highly flawed and their brand is not likely to be welcomed by the global working class, even as it attracts sections of the professional class.[1] Degrowth proponents commonly fail to unpack the qualitative aspects of economic growth, lumping all in one basket; i.e., sustainable/addressing essential needs of humans and nature versus unsustainable, leaving the majority of humanity in poverty or worse. Degrowthers point to the relatively privileged status of workers in the global North compared to those in the global South as a big part of the problem, instead of recognizing that the transnational working class will not only benefit from growth of sectors that meet its needs in both the global North and South but must be the leading force to defeat fossil capital.[1, 2, 3]

A common claim in the degrowth discourse is that “perpetual growth on a finite planet leads inexorably to environmental calamity.”[4] This assertion fails to deconstruct the qualitative aspects of growth, what is growing, what should degrow, under what energy regime? While of course there are obvious limits to the growth of the global physical infrastructure, why can’t knowledge and culture continue to grow for a long time into the future in a globally sustainable and just physical and political economy?

Modern Monetary Theory (MMT) was the “Mumble Rap” of politics and economics in the late 2010s. The theory was incoherent, unsubstantial, and––before the pandemic, you could not avoid it if you wanted to.

People across the country celebrated MMT. Alexandria Ocasio-Cortez, the Democrat Congresswoman from New York heralded MMT by proclaiming it "absolutely [must be] ... a larger part of our conversation [on government spending]." The New York Times and other old-guard news sources authored countless articles raising the profile of MMT, while universities scrambled to hold guest lectures with prominent MMT economists like Dr. L. Randall Wray. Senator Bernie Sanders went as far as to hire MMT economists to his economic advisory team.

The critical theoretical question is: what are the macroeconomic impacts of changes in those stocks and the changes in AD that they finance? MMT sees the effects of increasing government financial obligations as entirely benign, and policymakers can use the financial space to costlessly boost demand and push the economy to full employment. There are no negative consequences from increasing government financial obligations; no conflicts with other policy objectives; and no policy implementation problems. In contrast, Old Keynesians had a more complicated view of the economy in which negative consequences, policy conflicts, and policy implementation problems are possible.16

As shown below, MMT's macroeconomic policy assertions follow from its oversimplified and incomplete Keynesian analysis. The lack of a dynamic economic model with behavioral content is a glaring professional failure. Unfortunately, instead of addressing that failure, MMT proponents have responded by claiming critics either do not understand it or have misrepresented it.

While MMT proponents are technically correct that a government with its own currency can print money to pay its bills, that isn’t the end of the story. In our recent Mercatus policy brief, Scott Sumner and I criticize the stronger claims of MMT and identify five major weaknesses with the idea.

1. MMT has a flawed model of inflation that overestimates the importance of economic slack.

The paper showed MMT oversimplifies the macro economy and exaggerates policy capabilities. All macroeconomic models are highly simplified representations of reality. MMT takes the standard Keynesian macro model and further assumes away the real world challenges of the economy and policymaking. The resulting oversimplified static model makes it look as if sovereign government is financially unconstrained and full employment without inflation is an easy reach for policy. Once those oversimplifications are walked back, MMT’s claim dissolves and MMT reduces back to a version of Old Keynesianism.

Despite MMT’s analytical economic deficiencies, it has made huge advances as popular political polemic. Its success is due to two factors. First, MMT has a simple and clear narrative. Second, events have exposed the neoliberal lie regarding the ineffectiveness of and lack of financial space for fiscal policy, creating an opening in public discourse which MMT has seized.