MMT JG is based on false economic rationale. Unemployment is from lack of wealth distribution, MMT can’t redistribute pre-existing wealth without substantially raising taxes.

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:

“Involuntary unemployment is evidence that the desired H(net financial assets) of the private sector exceeds the actual H(nfa) allowed by government fiscal policy.

To be blunt, involuntary unemployment exists because the federal budget deficit is too small.”

This concept is misleading in a capitalist system and inconsistent with the most basic understanding of economics. After all, we have known since the time of Keynes, that unemployment results from a shortage of investment. Capitalists do not return all of their profits back to the economy and as a result the economy cannot clear at all times. The problem of unemployment in a capitalist system is not a lack of government issued currency or NFA. The problem of unemployment in a capitalist system is a lack of wealth distribution. Keynes also understood that this issue could cause political strife if inequality were to become exorbitant. But Keynes also understood that some level of inequality was a feature and not a bug within modern capitalist economies therefore he proposed some countercyclical government intervention, but nothing remotely close to the highly procyclical intervention that would be required by a program like a Job Guarantee.

The natural base case in a capitalist system is some level of involuntary unemployment because the capitalists are profit hoarders who seek to protect profit margins. They will never, in the aggregate, maintain full employment at all times because they will never maintain an environment where aggregate demand and aggregate supply clear the market at full employment. This has nothing to do with NFA and government deficits and everything to do with how capitalists naturally behave. The MMT position and “base case” rationale for the Job Guarantee is fundamentally misleading and based on an erroneous understanding of the monetary system. The government does not cause unemployment. Some level of unemployment is that natural state of any capitalist economy.

Further, we know that profligate governments and hyperinflations do not result in reducing employment, but actually increase unemployment. Therefore, we know, empirically, that a lack of NFA cannot be the cause of unemployment.

More importantly, this has nothing to do with the budget deficit and net financial assets. The MMT perspective is little more than an accounting error within MMT wherein they view private sector saving as (S-I) or saving net of investment. MMT has a long history of stating that private sector saving is equivalent to the size of the deficit (S-I) = (G-T). They say that the private sector cannot adequately save without government net financial assets. This completely contradicts the fact that investment adds to private sector saving and is the key driving component of private sector saving. In fact, as of 2012 the quantity of domestically held government bonds (NFA) was just 4.3% of private sector net worth. NFA is not just a small part of private sector net worth. It is practically insignificant relative to other components, yet somehow, in the MMT world this is portrayed as the key driving piece of the economy and unemployment.

By defining “net saving” as (S-I) MMT confuses traditional economics which defines net saving as net disposable income less final consumption expenditure. When MMTers talk about “net financial assets” and “net saving” they are referring to financial savings net of domestic real investment by the private sector. It is not remotely close to representing household savings. By netting this huge quantity of private sector assets they are netting most of the cornerstone assets in our economy such as real estate, corporate stocks, corporate bonds, etc. When we think of “savings” in this sense we marginalize the two most important sources of private savings:

Surplus from investment.

Market value of existing assets.

This core misunderstanding is not sufficient to repudiate the Job Guarantee, though it does shed light on many of the problems within MMT. So let’s take a look at this policy more closely before dismissing it.