Man, I hadn't heard that a serious MMT-er had held out African forced labor as an example. This reminds me of Scott Alexander's fairly persuasive argument that a "job guarantee" almost certainly leads into a scenario where you have second-class citizens who are stuck working those guaranteed jobs in order to survive at subsistence, while the first-class citizens continue to work in the normal market.
This is why we should have UBI, not a jobs guarantee. UBI says that you're allowed to live at subsistence while NOT working -- which you might just do indefinitely, but it won't be comfortable, so most likely you'll still be looking for work. The point of UBI is precisely to make sure that nobody faces the choice between tolerating a shitty, coercive employer, and suffering some dire consequences (homelessness, hunger, or even worse, their children experiencing the same).
"second-class citizens who are stuck working those guaranteed jobs in order to survive at subsistence".
No, subsistence is what results from living on the dole; the JG creates an above poverty job with all the add-ons - long service leave, sick pay, holiday pay etc. which enables full participation at a socially acceptable manner, in the nation's economic and social life. But people aren't 'stuck' in a JG job; they can leave it whenever they find a better paying job (if that's what they want) whenever the opportunity arises. In this sense there are similarities between a JG and a UBI, except the JG pays more, and actually performs work which the community desires, and which the private sector is not interested in performing eg free assistance to the elderly, to enable them to stay in their own homes for as long as possible.
You seem to think you can implement a utopian "job guarantee" exactly as you imagine it.
Take a look at how, for instance, universal healthcare gets implemented, even in the countries that actually have it. And look at what the US actually has -- the ugly, compromised-down kludge -- and then consider what a "jobs guarantee" is likely to become _in the world we actually live in_. Look at the "moderate" (read: corporate Dems), and the far-worse Republicans, who already want to impose "work requirements" on everything. A "jobs guarantee" would rapidly turn into an excuse to deny even subsistence-level support for those who don't want to, or physically can't, work in the guaranteed jobs. Politically connected employers would find ways to get cheaper-than-minimum wage labor, by offering jobs through the jobs bank. It's a program that's _far_ too easy to corrupt.
"In the past, I have repeatedly asked people like Pavlina Tcherneva if she would be OK allowing unemployed people to receive the same minimum unemployment benefit she has in mind ($600 per week) without submitting to the workfare requirements. But although Tcherneva is generally open to chatting about the Job Guarantee, she always freezes up and refuses to answer that question. I wonder why."
No "force" involved. A Job Guarantee is an offer of an above poverty job with all the add-ons, to anyone who wants a job ind is currently unable to find a job. Why on earth would people who become unemployed, and then have the opportunity to access the JG program, be entitled to the equivalent of the JG wage, if they decline to participate in work offered at the local level, as part of the JG scheme? The JG pool is not "a reserve army of labour", which is exactly what the present involuntarily unemployed army is. The JG scheme is a 'buffer pool' of workers available for 'more productive work''(?) in the economy if such work becomes available.
Instead of the JG, why not just give them unemployment insurance, where they can spend their time looking for a job that suits them or starting their own business or getting job training instead of having to work at something that takes time away from getting a job they might like better?
The link of quotes from various JGers I posted earlier specifically quotes many JGers saying explicitly that they view the job guarantee as a reserve army of labor and that they expect it to act as a downward force on workers' wages, with some even wanting to abolish unemployment insurance to force people to work.
"He even goes as far as to explicitly say that the JG does not eliminate the “reserve army” of unemployed people who bid down private sector wages, but rather preserves them by keeping the JG jobs pinned to the minimum wage"
I would fully expect the JG to be a way to undermine minwage, along the lines of the tipped wage, and prison labor.
"Fine, you can have $15 an hour as the minimum wage. Heck, make it $20! But that's only for REAL jobs. If you're one of those layabouts who can't cut it on the real job market, well, fine, out of the goodness of our hearts, we'll still pay you something, for one these guaranteed jobs, but not as much as REAL workers make. Count yourself lucky you get anything at all."
I guess this hinges on whether you believe politicians or bureaucrats are capable of accurately determining what work the community desires.
Yes, people will be free to leave their JG job whenever a better offer comes along, but i suspect 2 years in a JG position would be toxic on a resume, just like 5+ years as a public servant now all but guarantees they will be unemployable in the private sector (unless you rise way up the ranks and your connections in government are of financial benefit to private sector).
UBI does the same thing. Social security is UBI for the elderly. Worked okay for a while, but as soon as it was clear that it was a ponzi scheme, the gov't simply changed the metric by which cost of living adjustments were calculated. A couple decades on, it's below subsistence for the boomers, and all the Xers and millenials I know are operating on the assumption it will provide a trivial portion of their income when they retire. This is what would quickly become of UBI, except in that case it would lock in entire families to constantly decreasing standards of living throughout their productive lives.
Your assessment of SS is almost diametrically wrong. It remains a major contributor to the income of most seniors, and the majority of income for a very large slice. And while yes for those who ONLY have SS, it provides a subsistence level of support, like, _that's the point_. UBI (or SS) is by itself _supposed to_ make sure you don't starve in the streets, that you have some basic level of survival. And of course SS doesn't have to pay for some of the expenses that play the largest role in retirement -- specifically medical care. We have a separate system for that.
Social Security relieves nearly 3/4 of the elder poverty that would otherwise exist (bringing the overall rate down to 10%, from 38%).
If Xers and millennials are assuming they'll get little from SS, they're being absurd. Even if in fact we do nothing to shore it up, what happens when the Trust Fund is exhausted is that SS reverts to a PAYGO system, and so benefits get cut somewhat, maybe by 30% or so. Which isn't great, especially for those seniors who worked min-wage type jobs their whole lives and couldn't save in other ways (real estate, IRAs, whatever). But it would still have a massive impact on keeping people out of truly dire poverty, and it would still represent a sizable income share even for median-wealth Americans. You really have to get into the upper quintile of wealth before SS is trivial to your retirement income.
And SS is beloved by the general public (especially the older public, who are over-represented among voters) because it is universal. The average not-holding-a-guaranteed-job person is not going to be so concerned about how the Jobs Bank works. The relationship of median low-info voter to a guaranteed job holder is going to look a lot more like their relationship to the imagined "welfare recipient" thirty years ago -- see all of the "work requirements" that are now imposed, which come with ridiculous administrative burdens that serve to just drive people out of collecting the benefits they're theoretically supposed to get.
Meanwhile, Bush the Younger won a resounding re-election victory in 2004, riding historically high approval ratings due to the (at the time) perception of a victory in Iraq, and announced he was going to "spend political capital" on privatizing Social Security -- a matter that tanked his popularity and that of his party, and was a significant contributor to losing both houses of Congress in 2006.
The most important reform that's ever happened with SS is that time when they created the trust fund, as a plan to _avoid_ benefit cuts. Republicans subsequently tried several times to pretend the trust fund didn't really count, which would've retroactively made the '80s reform a con -- we raised your taxes to shore up SS and avert benefit cuts, but then cut benefits anyways and just gave the money away in tax cuts to the rich. But the folks who wanted to pull that play have repeatedly failed, and then they gave up. The GOP under Trump never even really _tried_ to cut SS or Medicare, they just entirely gave up on balanced budgets to focus on their core project of cutting taxes for the upper 0.1%.
Once you provide a universal benefit that people understand, and see as effective and efficient, it is in fact _extremely hard_ to take it away.
The fundamental argument about SS long-term is whether we should raise taxes or cut benefits. I favor the former, and I suspect it _will_ happen sooner or later. Uncapping the FICA tax so it doesn't stop at $145k (or whatever the number is this year) would basically close the gap on the long-term funding of current benefit levels. It's really odd seeing supposedly Very Serious People -- folks who aren't among the con artists who just want to re-distribute FICA taxes upwards, who seem to have a sincere desire to protect the program for future seniors -- make the argument that it's so critical that we avert future benefit cuts, that we must... cut future benefits. There's a fundamental confusion there.
It's a really superior piece of work from Scott Alexander. Job guarantees have something going for them though, even if I'm not a fan. The truth is unemployment is mimetic. The longer you are unemployed, the likelier you are to remain so. Some of this is common sense. People are merely operating from the assumption that well, if no one hired you all this time, you can't be that good eh.
But some of it is just people who are down on their luck. A job guarantee can help those people. Of course, it can also give jobs to people who do not deserve them.
As an occasional MMT dabbler I might be able to explain some of the stuff around taxation you were wondering about above. I think the usual MMT way of thinking here is that things work like this:
1) government says all ten people in the economy will need to pay $1 in taxes each (for a total of $10).
2) We hire Susan as a firefighter and pay her $10.
3) The other 9 people in the economy need to provide some good or service to Susan in order to get the $1 they owe the government.
4) boom, now you've got a market economy.
I think in reality you'd want to spend more money into the economy than you plan to tax back out, at least until you achieve the right level of liquidity. So the government might hire two people to do firefighting, injecting $20 into the economy, but still only tax $10 out, leaving the extra $10 behind to continue circulating.
My understanding (maybe wrong) of the idea here though is that we think of government spending as creating money, and taxes destroy money. So the government doesn't pay for things with taxes - in an MMT model, taxes are simply collected and burned in big bonfires, and then as a completely separate action, the government prints new money and spends it into existence.
"the government doesn't pay for things with taxes - in an MMT model, taxes are simply collected and burned in big bonfires, and then as a completely separate action, the government prints new money and spends it into existence"
I found this frame tremendously clarifying. Thank you, Tom.
In the traditional model, the relationship between taxes and spending makes intuitive sense to me -- the goal of taxes is to pay for things. The amount taxed should equal the amount spent (simplistically). The objective function is clear.
Do you have a sense of how MMT thinks about how much should be "burned" in any period of time? Is it completely arbitrary, or does burning money have an explicit goal/objective function?
So... Am I hearing this right? MMT basically wants to run the economy like it's WOW? You know. World of Warcraft. Where you put in a bunch of money sinks (repairing, mounts, etc. I mean until they just gave up the past few years) in order to get gold out of the economy, but then turn around and just reward people with gold for doing mindless tasks (quests, grinding mobs, selling junk)? Sorry late to this.
With the advent of cryptocurrencies, this framework starts making even more sense. You could envision conglomerates paying their employees in their own currency, with the promise that all necessary goods and services will be made available with that currency. Corporations would compete over what they can offer at what prices in their ecosystems.
The corporation could also promise to shoulder the tax burden of the employee, much like they provide healthcare via insurance. If the employee had zero fiat earnings, the taxation would become quite complicated due to fluctuations in value and function of the corporate cryptocurrency. Seeing how good lsrge organizations are at minimizing their tax bills, if they were in charge of their employees' tax bills the results would likely be quite different from what we see today.
In a crypto world MMT could indeed become a reality just like in these simple models.
If you like mathematical models (as I do), could you give us a feedback on the “Mathematical Model of Modern Monetary Theory” from Steve Keen ? (See https://www.patreon.com/posts/mathematical-of-40545245) It is a bunch of ODE drawing from accounting equalities so I guess it is difficult to contest it. Of course there are many free parameters in it, (such that the level of interest rate, CB open market policy level, share of output between Capitalists and workers, etc… ) and different parameters lead to different outcomes, but at least we could pinpoint what we are talking about. I recon however it may be not detailed enough for the discussion at hand (for instance, for matters of Job Guarantee, there is a need to split the aggregate of “Workers” between “unemployed workers” and “employed workers”). Thank you for posting your answers with a link to Wolfram or Matlab files so that we can experiment on your models too, that wil help fruitful discussions …
Yes, these stock-flow models using fundamental units of sovereign and private sector balance sheets are probably the closest we've got to good MMT models, thanks for sharing this one.
And I think you rightly point out that they are hard to dispute. They should be, because they should all be derived from accounting identities. The hard theoretical work where there's room for disagreement is about how to model things like the output gap, and estimate what the Government's equity is at any given point in time. I don't think the government's equity can be estimated in terms of something they control (units of currency), it should be estimated in terms of something more fundamental, like their political power - which can be expressed in currency terms as how much further they could raise taxes before being replaced by another government.
But yes, fundamentally these stock flow models are it. In the example Keen provides, government equity starts at 0, I'd be curious what it looks like if government equity starts positive BEFORE it issues any currency or administers any taxes. The real world scenario to imagine here is, when a new sovereign takes power after revolution, that is precisely because they have positive political equity. So how do you then quantify that positive equity in currency terms?
Noah asks: "how does MMT model productivity in the economy? It seems like hiring a bunch of firefighters in the absence of fires would negatively impact productivity and reduce living standards". Only if there were no involuntary unemployment, ie all available labor is employed , and the idle fire fighters could be 'productively' employed somewhere else.
Thus an examination of the concept of "productivity" is necessary. I will claim the person who is conscientiously tending a public park, is more 'productive' than the advertising agency encouraging consumption of consumer junk (confectionery food, gambling , grog) which has a negative productivity in terms of damage to the environment, and public physical and mental health.
Yes, very true. You caught that. Noah actually commits the "Bastiat Error" there. He assumed full productive employment, similar to that broken window metaphor. In the absence of that, and I think we can say all economies operate in the absence of that, hiring ten firefighters in the absence of fire is certainly better than not hiring them at all.
But, it is not better than hiring them to do something more productive. I mean there's a plethora of better options, so I see Noah's case.
By the way, where would you suggest we start when it comes to a better examination of the concept of productivity.
1. Start with minimum 38hr/week employment for all working age citizens. as the law of the land, so to speak, for all who want it.
2. Then let the private sector - driven by greed of course, maximize the productivity in the private sector of the economy, with the proviso all pay scales must be higher than poverty level. So incentive and greed remain intact as efficient drivers of creativity and resource allocation.
3. Those not able to gain an above-poverty footing in the private sector, will be offered above poverty employment (JG) in a range of work which the local council deems useful, with all the add-ons., funded by the nation's treasury and central bank which can be authorized to issue debt free 'public' money, (as opposed to interest bearing debt issued by private sector banks - see MMT) ; note the JG wage acts as inflation anchor, because it is set as the lowest (above poverty) legal wage in the economy.
Also note: the public sector is also part of the nation's 'chain of productivity' since it funds universal education, public infrastructure etc; and like I said it's difficult to equate "productivity" with profit seeking junk consumerism in the private sector., hence 'productivity' needs to be measured by more than production and pricing of widgets in 'invisible hand' markets.
In other word, the electorate should be able to decide how the balance of a nation's 'productivity' should be manifested , not just via 'invisible hand markets, but also by public sector-policy choices. The JG is a good foundation.
"Because MMT doesn't often include formal models, the question of how MMT thinks inflation works is very difficult to answer for yourself. The same is true of a number of other questions, such as how MMT's Job Guarantee would create full employment with price stability."
I know very little about macro or MMT, but from the little I've seen, I don't think they would disagree with e.g. monetarists over whether an identity like MV = PQ can be used to model and predict inflation dynamics. They would just disagree over how to estimate the output gap and, then in their prescriptive voice, they'd disagree about the best policy levers to manage it. I think they would say there's nothing neutral or natural about a non-zero unemployment rate; that a non-zero unemployment rate is a deliberate fiscal policy choice, and that, ceteris paribus, a jobs guarantee is the morally preferable fiscal policy - especially because they believe it is also a better way of managing the output gap (and hence price stability) than through interest rate policy.
My understanding is that the jobs guarantee is supposed to then operate like a buffer stock in MV=PQ dynamics, in the same way monetary policy is supposed to operate as a buffer stock. A jobs guarantee just substitutes one buffer stock which is less directly related to the output gap with another that is more directly related and carries additional pro-social policy benefits.
I haven't seen other good MMT models, but I don't think the one you chose is a good representation. It's not deep or simple enough. I feel like the fundamental analysis could be done simply using the sovereign's balance sheet, the private sector's balance sheet, and the output gap. The challenges there would be estimating the actual output gap and the true equity on the sovereign's balance sheet. This is especially challenging because I don't think the sovereign's balance sheet should be denominated in the currency they issue; it should be denominated in terms of their potential political power, which is a better representation of how much fiscal space they have with the private sector to exact higher taxes before being voted out or supplanted. Of course ultimately, all of our balance sheets are power balance sheets, it's just more convenient to denominate them in currency terms - this is the spot where econ reduces to political theory.
I don't know if there's a clean way to model that. But that shouldn't diminish the fundamental theoretical (not policy) lesson of MMT. As I read the literature, this lesson is that all macro analysis must bottom out in brute political power - most importantly, the power of the sovereign to extract higher taxes and manage a buffer stock of tax credits to implement its policy goals. Their core insight is that any analysis omitting this power variable will inevitably miss the most important credit/debt relationship in the economic world and so fail the most important predictive tasks.
Actually, re: subbing one buffer stock for another, that’s wrong. They’d say the gov’t already manages a de facto buffer stock of unemployment to maintain its price stability objective, but that it would be better to manage a buffer stock of productive capacity through a jobs guarantee. That would have the dual benefit of minimizing the output gap while maintaining full employment. Its supposed to work like an automatic stabilizer: in recessions, the jobs guarantee picks up the capacity the private sector can’t profitably employ, and redeploys it to publicly valuable projects. This helps avoid negative demand shocks and keep the output gap minimal. It also upskills people so that when the private sector picks back up, they’re more productive when they’re hired away from guaranteed public work.
Extend Bill Mitchell’s father-son business card analogy and you can get the point. During downtimes when the son is unemployable by the private sector, the father pays the son in tax credits/business cards for chores. When the local economy heats up, the son has learned some marketable skills and can earn more business cards elsewhere.
Fundamentally the jobs guaruntee is a technical device thats meant to better manage productive capacity, minimize the output gap, and develop a nation’s human capital. It is the corrective to a fiscal/monetary policy of nonzero unemployment which is both economically inefficient and morally bad.
Hmmm. great piece as always. I'm not sure this is MMT'S best foot forward. Stephanie Kelton does a much better job at explaining the theory in her book, the Deficit Myth. But I've always found something suspicious about MMT's core assumptions. In simple terms, MMT looks at the government and thinks well, the government can't need money cos it can print whatever amount it likes. So, why do taxes exist? Maybe, taxes exist because the government needs goods and services. And so, you arrive at this funny conclusion where the objective of work is to pay tax and the objective of tax is to stimulate work.
But taxes began to fund wars at a time when the government couldn't just print money: you can't print gold or silver or materiel. And then they continued because they become instruments of fiscal policy, and because let's face it, governments got addicted to collecting taxes.
There's another problem. Anyone who possesses a sufficient acquaintance with post colonial African history knows the entire concept of a tax-driven concept holds no weight.
Europe came to Africa for slaves and in the late nineteenth century returned for natural resources. There is no need to evoke tax driven currencies. Forced work and indentured labour, sometimes in horrific conditions as with the sad case of Belgium and the DRC among others, did the job perfectly.
You don't need the incentive of a tax based currency when there's the incentive of brute Force.
I think your story about where/how taxes began may not be historically accurate. I'm not a historian, so I don't know for sure, but my hunch is that it's not quite right.
Any time a human community has a sovereign, there's a relationship of credits and debts between the sovereign and the people they govern. That doesn't emerge after a sovereign comes to power, it is part of what enables them to come to power. Classically, sovereigns do things like provide stability and protection, they owe that to their people. This debt carries a corresponding credit to the sovereign, which is the people's debt. One of the easiest ways to administer the fulfillment of that debt is through taxes. Another is through mandatory military service, or tithes, etc.
Also, there's no deep difference between a tax system and a brute force system; it's just that a tax system is easier and cheaper to administer. The credible threat of state-sanctioned violence which the state backs up by enforcing tax evasion just turns out to work better.
Well, I can see what you are trying to say about how tax is a fundamental aspect of all sovereign to subject relationships. In the Dawn of Everything, David Graeber documents the practices of certain Indian American cultures, the Northwest, who did this and I think we can say the same for probably every ancient culture.
It's a sort of, but not precisely, feudalism.
But, I was talking about an income tax system of currency, not merely goods produced by the subjects in that society that are handed back as tributes.
You are pretty much right about there being no deep difference between a tax system and a brute force system. All we've done in the modern age, in certain lucky cases, is institutionalize that force and attach it to the rule of law.
"All we've done in the modern age, in certain lucky cases, is institutionalize that force and attach it to the rule of law."
IMO, it's the reverse: The rule of law (ie. formalized consensus) authorizes the creation and provisioning of a govt to perform its duties for the people within its jurisdiction.
The most efficient and least painful way is for the sovereign/govt to create a currency that is used solely to provision itself. This means any resource that provisions govt must accept the govt's currency. And, since the people in the govt's jurisdiction authorized it to provision itself, they must accept the currency.
Of course, they can barter or use other currencies. But they must accept the govt's currency else they are abrogating the law that authorizes the govt to provision itself. In that jurisdiction it because defacto, illegal to not accept the currency.
Since they can't live on the currency, those businesses and individuals they exchange with to provision them must also accept the currency. The result, the sovereign's currency is the defacto standard in that jurisdiction.
Sovereign taxing is merely a means to mitigate inflation. Yes, in a direct way, it forces the citizens to earn the currency to pay the taxes. But they have to anyway since it's illegal not to accept it.
I'm being lazy and commenting on the intro, not the main post, but: if "MMT people generally claim that the only possible negative result of excessive government spending is inflation", and inflation ticks up after the government spends more money, why would that discredit MMT people rather than be support for their view?
(This isn't me claiming that "excessive government spending" does explain the inflation uptick. As I've written before — check out my Substack! — I think it's more oil prices. I'm just trying to evaluate arguments on their own merits here.)
Lately the most attention I've seen being given to MMT is by Bloomberg. I'm not sure why they think it's interesting. Perhaps you could ask. My impression is that Bloomberg editors don't really have any idea what MMT is and seem to vaguely associate it with the mainstream ideas behind inflation-targeting. Perhaps that's because inflation-targeting wasn't sold as "you can spend as much as you want until inflation starts rising" whereas MMT is sold that way.
Also there's as much confusion over how QE works in the progresso-sphere as there is in the Trumpo-sphere. I heard many calls from progressives during the pandemic for the issuance of a $1 trillion coin from progressives who were apparently unaware that there was absolutely no need for it since the Fed was plenty willing to back the massive pandemic fiscal stimulus with massive QE. Pandemic fiscal deficits backed by Fed pandemic QE has been equivalent to more than four such coins.
> I heard many calls from progressives during the pandemic for the issuance of a $1 trillion coin from progressives who were apparently unaware that there was absolutely no need for it since the Fed was plenty willing to back the massive pandemic fiscal stimulus with massive QE.
They were recently, and that makes strategic sense, but I was hearing such calls in 2020-2021 when ceiling was not an issue. I recall a bill being put to Congress (that went nowhere).
I think it too is defensible as making some strategic sense (it's spelling out a failsafe mechanism that short-circuits any what-ifs about the Fed or the government's balance sheet) but it's less straightforward than the newer debt-ceiling-driven coin advocacy.
Man, I hadn't heard that a serious MMT-er had held out African forced labor as an example. This reminds me of Scott Alexander's fairly persuasive argument that a "job guarantee" almost certainly leads into a scenario where you have second-class citizens who are stuck working those guaranteed jobs in order to survive at subsistence, while the first-class citizens continue to work in the normal market.
This is why we should have UBI, not a jobs guarantee. UBI says that you're allowed to live at subsistence while NOT working -- which you might just do indefinitely, but it won't be comfortable, so most likely you'll still be looking for work. The point of UBI is precisely to make sure that nobody faces the choice between tolerating a shitty, coercive employer, and suffering some dire consequences (homelessness, hunger, or even worse, their children experiencing the same).
"second-class citizens who are stuck working those guaranteed jobs in order to survive at subsistence".
No, subsistence is what results from living on the dole; the JG creates an above poverty job with all the add-ons - long service leave, sick pay, holiday pay etc. which enables full participation at a socially acceptable manner, in the nation's economic and social life. But people aren't 'stuck' in a JG job; they can leave it whenever they find a better paying job (if that's what they want) whenever the opportunity arises. In this sense there are similarities between a JG and a UBI, except the JG pays more, and actually performs work which the community desires, and which the private sector is not interested in performing eg free assistance to the elderly, to enable them to stay in their own homes for as long as possible.
You seem to think you can implement a utopian "job guarantee" exactly as you imagine it.
Take a look at how, for instance, universal healthcare gets implemented, even in the countries that actually have it. And look at what the US actually has -- the ugly, compromised-down kludge -- and then consider what a "jobs guarantee" is likely to become _in the world we actually live in_. Look at the "moderate" (read: corporate Dems), and the far-worse Republicans, who already want to impose "work requirements" on everything. A "jobs guarantee" would rapidly turn into an excuse to deny even subsistence-level support for those who don't want to, or physically can't, work in the guaranteed jobs. Politically connected employers would find ways to get cheaper-than-minimum wage labor, by offering jobs through the jobs bank. It's a program that's _far_ too easy to corrupt.
Read PavlinaTcherneva :'The case for a Job Guarantee". Then you won't write what you have written there.
"In the past, I have repeatedly asked people like Pavlina Tcherneva if she would be OK allowing unemployed people to receive the same minimum unemployment benefit she has in mind ($600 per week) without submitting to the workfare requirements. But although Tcherneva is generally open to chatting about the Job Guarantee, she always freezes up and refuses to answer that question. I wonder why."
Source: https://www.peoplespolicyproject.org/2020/07/30/the-job-guarantee-and-the-unemployment-system/
Sounds like to me that Tcherneva thinks like the pro-JG people who want to force people to work as a reserve army of labor above.
No "force" involved. A Job Guarantee is an offer of an above poverty job with all the add-ons, to anyone who wants a job ind is currently unable to find a job. Why on earth would people who become unemployed, and then have the opportunity to access the JG program, be entitled to the equivalent of the JG wage, if they decline to participate in work offered at the local level, as part of the JG scheme? The JG pool is not "a reserve army of labour", which is exactly what the present involuntarily unemployed army is. The JG scheme is a 'buffer pool' of workers available for 'more productive work''(?) in the economy if such work becomes available.
Instead of the JG, why not just give them unemployment insurance, where they can spend their time looking for a job that suits them or starting their own business or getting job training instead of having to work at something that takes time away from getting a job they might like better?
The link of quotes from various JGers I posted earlier specifically quotes many JGers saying explicitly that they view the job guarantee as a reserve army of labor and that they expect it to act as a downward force on workers' wages, with some even wanting to abolish unemployment insurance to force people to work.
Also, there's quite a bit of evidence that many pro-job guarantee MMT people view it as a way to loosen job markets: https://medium.com/@MattBruenig/various-job-guarantee-quotes-1291d22981ee
"He even goes as far as to explicitly say that the JG does not eliminate the “reserve army” of unemployed people who bid down private sector wages, but rather preserves them by keeping the JG jobs pinned to the minimum wage"
I would fully expect the JG to be a way to undermine minwage, along the lines of the tipped wage, and prison labor.
"Fine, you can have $15 an hour as the minimum wage. Heck, make it $20! But that's only for REAL jobs. If you're one of those layabouts who can't cut it on the real job market, well, fine, out of the goodness of our hearts, we'll still pay you something, for one these guaranteed jobs, but not as much as REAL workers make. Count yourself lucky you get anything at all."
I guess this hinges on whether you believe politicians or bureaucrats are capable of accurately determining what work the community desires.
Yes, people will be free to leave their JG job whenever a better offer comes along, but i suspect 2 years in a JG position would be toxic on a resume, just like 5+ years as a public servant now all but guarantees they will be unemployable in the private sector (unless you rise way up the ranks and your connections in government are of financial benefit to private sector).
Depends on the skills an employer wants, and a lot less toxic than a resume consisting of 2 years on the dole.
UBI does the same thing. Social security is UBI for the elderly. Worked okay for a while, but as soon as it was clear that it was a ponzi scheme, the gov't simply changed the metric by which cost of living adjustments were calculated. A couple decades on, it's below subsistence for the boomers, and all the Xers and millenials I know are operating on the assumption it will provide a trivial portion of their income when they retire. This is what would quickly become of UBI, except in that case it would lock in entire families to constantly decreasing standards of living throughout their productive lives.
Your assessment of SS is almost diametrically wrong. It remains a major contributor to the income of most seniors, and the majority of income for a very large slice. And while yes for those who ONLY have SS, it provides a subsistence level of support, like, _that's the point_. UBI (or SS) is by itself _supposed to_ make sure you don't starve in the streets, that you have some basic level of survival. And of course SS doesn't have to pay for some of the expenses that play the largest role in retirement -- specifically medical care. We have a separate system for that.
Social Security relieves nearly 3/4 of the elder poverty that would otherwise exist (bringing the overall rate down to 10%, from 38%).
https://www.cbpp.org/research/social-security/top-ten-facts-about-social-security
If Xers and millennials are assuming they'll get little from SS, they're being absurd. Even if in fact we do nothing to shore it up, what happens when the Trust Fund is exhausted is that SS reverts to a PAYGO system, and so benefits get cut somewhat, maybe by 30% or so. Which isn't great, especially for those seniors who worked min-wage type jobs their whole lives and couldn't save in other ways (real estate, IRAs, whatever). But it would still have a massive impact on keeping people out of truly dire poverty, and it would still represent a sizable income share even for median-wealth Americans. You really have to get into the upper quintile of wealth before SS is trivial to your retirement income.
And SS is beloved by the general public (especially the older public, who are over-represented among voters) because it is universal. The average not-holding-a-guaranteed-job person is not going to be so concerned about how the Jobs Bank works. The relationship of median low-info voter to a guaranteed job holder is going to look a lot more like their relationship to the imagined "welfare recipient" thirty years ago -- see all of the "work requirements" that are now imposed, which come with ridiculous administrative burdens that serve to just drive people out of collecting the benefits they're theoretically supposed to get.
Meanwhile, Bush the Younger won a resounding re-election victory in 2004, riding historically high approval ratings due to the (at the time) perception of a victory in Iraq, and announced he was going to "spend political capital" on privatizing Social Security -- a matter that tanked his popularity and that of his party, and was a significant contributor to losing both houses of Congress in 2006.
The most important reform that's ever happened with SS is that time when they created the trust fund, as a plan to _avoid_ benefit cuts. Republicans subsequently tried several times to pretend the trust fund didn't really count, which would've retroactively made the '80s reform a con -- we raised your taxes to shore up SS and avert benefit cuts, but then cut benefits anyways and just gave the money away in tax cuts to the rich. But the folks who wanted to pull that play have repeatedly failed, and then they gave up. The GOP under Trump never even really _tried_ to cut SS or Medicare, they just entirely gave up on balanced budgets to focus on their core project of cutting taxes for the upper 0.1%.
Once you provide a universal benefit that people understand, and see as effective and efficient, it is in fact _extremely hard_ to take it away.
The fundamental argument about SS long-term is whether we should raise taxes or cut benefits. I favor the former, and I suspect it _will_ happen sooner or later. Uncapping the FICA tax so it doesn't stop at $145k (or whatever the number is this year) would basically close the gap on the long-term funding of current benefit levels. It's really odd seeing supposedly Very Serious People -- folks who aren't among the con artists who just want to re-distribute FICA taxes upwards, who seem to have a sincere desire to protect the program for future seniors -- make the argument that it's so critical that we avert future benefit cuts, that we must... cut future benefits. There's a fundamental confusion there.
https://slatestarcodex.com/2018/05/16/basic-income-not-basic-jobs-against-hijacking-utopia/
It's a really superior piece of work from Scott Alexander. Job guarantees have something going for them though, even if I'm not a fan. The truth is unemployment is mimetic. The longer you are unemployed, the likelier you are to remain so. Some of this is common sense. People are merely operating from the assumption that well, if no one hired you all this time, you can't be that good eh.
But some of it is just people who are down on their luck. A job guarantee can help those people. Of course, it can also give jobs to people who do not deserve them.
It's the side of the looking glass you prefer.
JG should be the backup to UBI, then, not the other way around. UBI sets the floor, and JG offers a competitive wage above it.
That being said, I am absolutely not a fan of Universal Basic Income either. It has some serious problems.
Thanks for the link, about halfway through it. Always high-quality from Scott but they certainly are long. I need a break.
As an occasional MMT dabbler I might be able to explain some of the stuff around taxation you were wondering about above. I think the usual MMT way of thinking here is that things work like this:
1) government says all ten people in the economy will need to pay $1 in taxes each (for a total of $10).
2) We hire Susan as a firefighter and pay her $10.
3) The other 9 people in the economy need to provide some good or service to Susan in order to get the $1 they owe the government.
4) boom, now you've got a market economy.
I think in reality you'd want to spend more money into the economy than you plan to tax back out, at least until you achieve the right level of liquidity. So the government might hire two people to do firefighting, injecting $20 into the economy, but still only tax $10 out, leaving the extra $10 behind to continue circulating.
My understanding (maybe wrong) of the idea here though is that we think of government spending as creating money, and taxes destroy money. So the government doesn't pay for things with taxes - in an MMT model, taxes are simply collected and burned in big bonfires, and then as a completely separate action, the government prints new money and spends it into existence.
"the government doesn't pay for things with taxes - in an MMT model, taxes are simply collected and burned in big bonfires, and then as a completely separate action, the government prints new money and spends it into existence"
I found this frame tremendously clarifying. Thank you, Tom.
In the traditional model, the relationship between taxes and spending makes intuitive sense to me -- the goal of taxes is to pay for things. The amount taxed should equal the amount spent (simplistically). The objective function is clear.
Do you have a sense of how MMT thinks about how much should be "burned" in any period of time? Is it completely arbitrary, or does burning money have an explicit goal/objective function?
So... Am I hearing this right? MMT basically wants to run the economy like it's WOW? You know. World of Warcraft. Where you put in a bunch of money sinks (repairing, mounts, etc. I mean until they just gave up the past few years) in order to get gold out of the economy, but then turn around and just reward people with gold for doing mindless tasks (quests, grinding mobs, selling junk)? Sorry late to this.
Commercial bank loans create and destroy money all the time.
1. Loan origination:
Principle -- money to be created
Interest -- additional money that must be returned with the principle over time.
Collateral identified (house, car, income, etc.)
Money created and distributed to the borrower.
2. Principle returned with the additional to lender, reducing lender's asset (loan) and
the borrower's liability (loan), incrementally.
3. With last payment lender's asset and borrower's liability reduced to zero
NOTE: The principle returned is not added to the lender's assets as cash. It disappears. Only the interest is added to their balance sheet.
Follow the money and it makes sense.
With the advent of cryptocurrencies, this framework starts making even more sense. You could envision conglomerates paying their employees in their own currency, with the promise that all necessary goods and services will be made available with that currency. Corporations would compete over what they can offer at what prices in their ecosystems.
The corporation could also promise to shoulder the tax burden of the employee, much like they provide healthcare via insurance. If the employee had zero fiat earnings, the taxation would become quite complicated due to fluctuations in value and function of the corporate cryptocurrency. Seeing how good lsrge organizations are at minimizing their tax bills, if they were in charge of their employees' tax bills the results would likely be quite different from what we see today.
In a crypto world MMT could indeed become a reality just like in these simple models.
If you like mathematical models (as I do), could you give us a feedback on the “Mathematical Model of Modern Monetary Theory” from Steve Keen ? (See https://www.patreon.com/posts/mathematical-of-40545245) It is a bunch of ODE drawing from accounting equalities so I guess it is difficult to contest it. Of course there are many free parameters in it, (such that the level of interest rate, CB open market policy level, share of output between Capitalists and workers, etc… ) and different parameters lead to different outcomes, but at least we could pinpoint what we are talking about. I recon however it may be not detailed enough for the discussion at hand (for instance, for matters of Job Guarantee, there is a need to split the aggregate of “Workers” between “unemployed workers” and “employed workers”). Thank you for posting your answers with a link to Wolfram or Matlab files so that we can experiment on your models too, that wil help fruitful discussions …
Yes, these stock-flow models using fundamental units of sovereign and private sector balance sheets are probably the closest we've got to good MMT models, thanks for sharing this one.
And I think you rightly point out that they are hard to dispute. They should be, because they should all be derived from accounting identities. The hard theoretical work where there's room for disagreement is about how to model things like the output gap, and estimate what the Government's equity is at any given point in time. I don't think the government's equity can be estimated in terms of something they control (units of currency), it should be estimated in terms of something more fundamental, like their political power - which can be expressed in currency terms as how much further they could raise taxes before being replaced by another government.
But yes, fundamentally these stock flow models are it. In the example Keen provides, government equity starts at 0, I'd be curious what it looks like if government equity starts positive BEFORE it issues any currency or administers any taxes. The real world scenario to imagine here is, when a new sovereign takes power after revolution, that is precisely because they have positive political equity. So how do you then quantify that positive equity in currency terms?
Noah asks: "how does MMT model productivity in the economy? It seems like hiring a bunch of firefighters in the absence of fires would negatively impact productivity and reduce living standards". Only if there were no involuntary unemployment, ie all available labor is employed , and the idle fire fighters could be 'productively' employed somewhere else.
Thus an examination of the concept of "productivity" is necessary. I will claim the person who is conscientiously tending a public park, is more 'productive' than the advertising agency encouraging consumption of consumer junk (confectionery food, gambling , grog) which has a negative productivity in terms of damage to the environment, and public physical and mental health.
Yes, very true. You caught that. Noah actually commits the "Bastiat Error" there. He assumed full productive employment, similar to that broken window metaphor. In the absence of that, and I think we can say all economies operate in the absence of that, hiring ten firefighters in the absence of fire is certainly better than not hiring them at all.
But, it is not better than hiring them to do something more productive. I mean there's a plethora of better options, so I see Noah's case.
By the way, where would you suggest we start when it comes to a better examination of the concept of productivity.
1. Start with minimum 38hr/week employment for all working age citizens. as the law of the land, so to speak, for all who want it.
2. Then let the private sector - driven by greed of course, maximize the productivity in the private sector of the economy, with the proviso all pay scales must be higher than poverty level. So incentive and greed remain intact as efficient drivers of creativity and resource allocation.
3. Those not able to gain an above-poverty footing in the private sector, will be offered above poverty employment (JG) in a range of work which the local council deems useful, with all the add-ons., funded by the nation's treasury and central bank which can be authorized to issue debt free 'public' money, (as opposed to interest bearing debt issued by private sector banks - see MMT) ; note the JG wage acts as inflation anchor, because it is set as the lowest (above poverty) legal wage in the economy.
Also note: the public sector is also part of the nation's 'chain of productivity' since it funds universal education, public infrastructure etc; and like I said it's difficult to equate "productivity" with profit seeking junk consumerism in the private sector., hence 'productivity' needs to be measured by more than production and pricing of widgets in 'invisible hand' markets.
In other word, the electorate should be able to decide how the balance of a nation's 'productivity' should be manifested , not just via 'invisible hand markets, but also by public sector-policy choices. The JG is a good foundation.
Well, it's certainly an interesting way to balance both the public and private sectors.
Hence why I’ll be a tarot card reader after the revolution
"Because MMT doesn't often include formal models, the question of how MMT thinks inflation works is very difficult to answer for yourself. The same is true of a number of other questions, such as how MMT's Job Guarantee would create full employment with price stability."
I know very little about macro or MMT, but from the little I've seen, I don't think they would disagree with e.g. monetarists over whether an identity like MV = PQ can be used to model and predict inflation dynamics. They would just disagree over how to estimate the output gap and, then in their prescriptive voice, they'd disagree about the best policy levers to manage it. I think they would say there's nothing neutral or natural about a non-zero unemployment rate; that a non-zero unemployment rate is a deliberate fiscal policy choice, and that, ceteris paribus, a jobs guarantee is the morally preferable fiscal policy - especially because they believe it is also a better way of managing the output gap (and hence price stability) than through interest rate policy.
My understanding is that the jobs guarantee is supposed to then operate like a buffer stock in MV=PQ dynamics, in the same way monetary policy is supposed to operate as a buffer stock. A jobs guarantee just substitutes one buffer stock which is less directly related to the output gap with another that is more directly related and carries additional pro-social policy benefits.
I haven't seen other good MMT models, but I don't think the one you chose is a good representation. It's not deep or simple enough. I feel like the fundamental analysis could be done simply using the sovereign's balance sheet, the private sector's balance sheet, and the output gap. The challenges there would be estimating the actual output gap and the true equity on the sovereign's balance sheet. This is especially challenging because I don't think the sovereign's balance sheet should be denominated in the currency they issue; it should be denominated in terms of their potential political power, which is a better representation of how much fiscal space they have with the private sector to exact higher taxes before being voted out or supplanted. Of course ultimately, all of our balance sheets are power balance sheets, it's just more convenient to denominate them in currency terms - this is the spot where econ reduces to political theory.
I don't know if there's a clean way to model that. But that shouldn't diminish the fundamental theoretical (not policy) lesson of MMT. As I read the literature, this lesson is that all macro analysis must bottom out in brute political power - most importantly, the power of the sovereign to extract higher taxes and manage a buffer stock of tax credits to implement its policy goals. Their core insight is that any analysis omitting this power variable will inevitably miss the most important credit/debt relationship in the economic world and so fail the most important predictive tasks.
Actually, re: subbing one buffer stock for another, that’s wrong. They’d say the gov’t already manages a de facto buffer stock of unemployment to maintain its price stability objective, but that it would be better to manage a buffer stock of productive capacity through a jobs guarantee. That would have the dual benefit of minimizing the output gap while maintaining full employment. Its supposed to work like an automatic stabilizer: in recessions, the jobs guarantee picks up the capacity the private sector can’t profitably employ, and redeploys it to publicly valuable projects. This helps avoid negative demand shocks and keep the output gap minimal. It also upskills people so that when the private sector picks back up, they’re more productive when they’re hired away from guaranteed public work.
Extend Bill Mitchell’s father-son business card analogy and you can get the point. During downtimes when the son is unemployable by the private sector, the father pays the son in tax credits/business cards for chores. When the local economy heats up, the son has learned some marketable skills and can earn more business cards elsewhere.
Fundamentally the jobs guaruntee is a technical device thats meant to better manage productive capacity, minimize the output gap, and develop a nation’s human capital. It is the corrective to a fiscal/monetary policy of nonzero unemployment which is both economically inefficient and morally bad.
Hmmm. great piece as always. I'm not sure this is MMT'S best foot forward. Stephanie Kelton does a much better job at explaining the theory in her book, the Deficit Myth. But I've always found something suspicious about MMT's core assumptions. In simple terms, MMT looks at the government and thinks well, the government can't need money cos it can print whatever amount it likes. So, why do taxes exist? Maybe, taxes exist because the government needs goods and services. And so, you arrive at this funny conclusion where the objective of work is to pay tax and the objective of tax is to stimulate work.
But taxes began to fund wars at a time when the government couldn't just print money: you can't print gold or silver or materiel. And then they continued because they become instruments of fiscal policy, and because let's face it, governments got addicted to collecting taxes.
There's another problem. Anyone who possesses a sufficient acquaintance with post colonial African history knows the entire concept of a tax-driven concept holds no weight.
Europe came to Africa for slaves and in the late nineteenth century returned for natural resources. There is no need to evoke tax driven currencies. Forced work and indentured labour, sometimes in horrific conditions as with the sad case of Belgium and the DRC among others, did the job perfectly.
You don't need the incentive of a tax based currency when there's the incentive of brute Force.
I think your story about where/how taxes began may not be historically accurate. I'm not a historian, so I don't know for sure, but my hunch is that it's not quite right.
Any time a human community has a sovereign, there's a relationship of credits and debts between the sovereign and the people they govern. That doesn't emerge after a sovereign comes to power, it is part of what enables them to come to power. Classically, sovereigns do things like provide stability and protection, they owe that to their people. This debt carries a corresponding credit to the sovereign, which is the people's debt. One of the easiest ways to administer the fulfillment of that debt is through taxes. Another is through mandatory military service, or tithes, etc.
Also, there's no deep difference between a tax system and a brute force system; it's just that a tax system is easier and cheaper to administer. The credible threat of state-sanctioned violence which the state backs up by enforcing tax evasion just turns out to work better.
Well, I can see what you are trying to say about how tax is a fundamental aspect of all sovereign to subject relationships. In the Dawn of Everything, David Graeber documents the practices of certain Indian American cultures, the Northwest, who did this and I think we can say the same for probably every ancient culture.
It's a sort of, but not precisely, feudalism.
But, I was talking about an income tax system of currency, not merely goods produced by the subjects in that society that are handed back as tributes.
You are pretty much right about there being no deep difference between a tax system and a brute force system. All we've done in the modern age, in certain lucky cases, is institutionalize that force and attach it to the rule of law.
"All we've done in the modern age, in certain lucky cases, is institutionalize that force and attach it to the rule of law."
IMO, it's the reverse: The rule of law (ie. formalized consensus) authorizes the creation and provisioning of a govt to perform its duties for the people within its jurisdiction.
The most efficient and least painful way is for the sovereign/govt to create a currency that is used solely to provision itself. This means any resource that provisions govt must accept the govt's currency. And, since the people in the govt's jurisdiction authorized it to provision itself, they must accept the currency.
Of course, they can barter or use other currencies. But they must accept the govt's currency else they are abrogating the law that authorizes the govt to provision itself. In that jurisdiction it because defacto, illegal to not accept the currency.
Since they can't live on the currency, those businesses and individuals they exchange with to provision them must also accept the currency. The result, the sovereign's currency is the defacto standard in that jurisdiction.
Sovereign taxing is merely a means to mitigate inflation. Yes, in a direct way, it forces the citizens to earn the currency to pay the taxes. But they have to anyway since it's illegal not to accept it.
I'm being lazy and commenting on the intro, not the main post, but: if "MMT people generally claim that the only possible negative result of excessive government spending is inflation", and inflation ticks up after the government spends more money, why would that discredit MMT people rather than be support for their view?
(This isn't me claiming that "excessive government spending" does explain the inflation uptick. As I've written before — check out my Substack! — I think it's more oil prices. I'm just trying to evaluate arguments on their own merits here.)
Lately the most attention I've seen being given to MMT is by Bloomberg. I'm not sure why they think it's interesting. Perhaps you could ask. My impression is that Bloomberg editors don't really have any idea what MMT is and seem to vaguely associate it with the mainstream ideas behind inflation-targeting. Perhaps that's because inflation-targeting wasn't sold as "you can spend as much as you want until inflation starts rising" whereas MMT is sold that way.
Also there's as much confusion over how QE works in the progresso-sphere as there is in the Trumpo-sphere. I heard many calls from progressives during the pandemic for the issuance of a $1 trillion coin from progressives who were apparently unaware that there was absolutely no need for it since the Fed was plenty willing to back the massive pandemic fiscal stimulus with massive QE. Pandemic fiscal deficits backed by Fed pandemic QE has been equivalent to more than four such coins.
> I heard many calls from progressives during the pandemic for the issuance of a $1 trillion coin from progressives who were apparently unaware that there was absolutely no need for it since the Fed was plenty willing to back the massive pandemic fiscal stimulus with massive QE.
I'd thought that the progressives calling for the trillion-dollar coin wanted it as a way to work around Congress refusing to raise the debt ceiling (https://www.washingtonpost.com/outlook/2021/10/01/mint-coin-debt-ceiling/), not as a way to work around the Federal Reserve.
I don't remember any "raging" debate over it, I think it just fell flat, but there was a bill floated in late March 2020 and formally introduced in mid-April 2020 to mint two trillion coins (the Fed began aggressively buying in mid-March): https://fortune.com/2020/03/25/coronavirus-stimulus-bill-how-will-us-pay-trillion-dollar-coin/
They were recently, and that makes strategic sense, but I was hearing such calls in 2020-2021 when ceiling was not an issue. I recall a bill being put to Congress (that went nowhere).
That reply made it click: I realized you were pointing to Rashida Tlaib's "BOOST"/"ABC" Bill (https://tlaib.house.gov/sites/tlaib.house.gov/files/Automatic%20Boost%20to%20Communities%20Act%20.pdf) — and I see from your newer reply that that was indeed what you meant. Yes, that's a fair point, the bill does rely on Congress telling the Federal Reserve to buy two $1 trillion coins.
I think it too is defensible as making some strategic sense (it's spelling out a failsafe mechanism that short-circuits any what-ifs about the Fed or the government's balance sheet) but it's less straightforward than the newer debt-ceiling-driven coin advocacy.