JGP does not combat inflation-It instead sets a deflation floor that can introduce inflation

Though JGP spending automatically adjusts, a JGP is not an anti-inflation buffer stock mechanism, contrary to the claims of Mitchell and Mosler (2001). A JGP sets a wage floor which acts as a buffer stock mechanism guarding against deflation. It does so by drawing labor supply off the market as unemployment increases. However, it does not mitigate inflation by adding additional labor supply as unemployment decreases. The buffer against inflation is the supply of available labor and that is the same, with or without a JGP.29

In theory, the JGP proposal has significant macroeconomic benefits including generating a particular type of full employment, providing another automatic counter-cyclical stabilization mechanism, preserving the skills of unemployed workers by keeping them in jobs, and providing society with the benefits of the output produced by JGP workers.

However, it also has significant downsides which MMT proponents dismiss.30 One downside is the cost of a JGP, which could displace other needed programs (though MMT denies that by assumption, because it asserts government is financially unconstrained). A second downside is the potential to displace private sector production if workers prefer JGP jobs. A third downside is JGP jobs can be used to undercut public sector unions and enforce workfare in place of welfare. In effect, a JGP could be used by a neoliberal government as a double-edged sword to undercut public sector employment from above and undercut worker rights from below. A fourth downside is some JGP jobs might be characterized as ‘make work,’ and that could be used as political fodder by neoliberals in their war on government.

The JGP proposal also augments inflation worries that are already inherent in MMT's money-financed approach to fiscal policy. The main problem is a JGP sets a real wage floor for the entire economy, thereby implicitly introducing inflation indexation. As the economy approaches full employment, inflation will tend to rise in accordance with Phillips curve logic. That will trigger a higher nominal JGP wage, and raising the nominal wage floor will tend to spread inflation throughout the economy. If private sector firms fail to match the JGP nominal wage increase, workers will start to drift toward JGP jobs, causing a contraction of private sector output that could even potentially cause stagflation. The JGP is intended to be a non-inflationary automatic fiscal stabilizer. Yet closer inspection shows its implicit indexing may also render it an automatic inflation destabilizer.31

Furthermore, to the extent that a JGP delivers quasi-full employment, it will also tend to exacerbate income distribution conflict inflation which emerges at full employment (Kalecki 1943). That is because it would remove or diminish the threat of labor pricing itself out of work, thereby potentially increasing wage demands. The problem of full employment conflict inflation is generic, but a JGP would exacerbate it. Indeed, a JGP could trigger such inflation even earlier by emboldening wage demands earlier in the business cycle. There is no easy solution to that problem, which explains Lerner's (1977; 1978) interest in wage-increase permits (WIPs). However, MMT proponents are wrong to claim that a JGP is not afflicted by the conflict inflation problem, and they are doubly wrong to be dismissive of Lerner's later concerns that prompted his WIPs proposal.