An MMT jobs guarantee blows the roof off of inflation. Only solving through existing policy solves.

The JGP proposal also augments inflation concerns 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 stabilizer. Yet closer inspection shows its implicit indexing may also render it an automatic destabilizer.23

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 problem of conflict inflation, and they are doubly wrong to be dismissive of Lerner’s later concerns that prompted his WIPs proposal.

These multiple adverse considerations suggest it may be better to use and strengthen existing policy modalities to secure stable full employment. Those modalities include structural measures to improve income distribution (e.g. restoring worker bargaining power and reinvigorating progressive taxation) so as to rebuild the aggregate demand generation process, combined with strengthened and improved counter-cyclical stabilization policy (e.g. planned counter-cyclical infrastructure spending, counter-cyclical interest rate policy, and counter-cyclical asset and credit market policy based on asset based reserve requirements (Palley, 2010a)).