A Challenge To MMT: The Improved Job Guarantee (IJG)

ONE SIZE DOES NOT FIT ALL

One of my concerns with the JG proposal is that while it promises to "take workers as they are and provide jobs that fit their skills," the reality seems to be that it would "coerce" skilled and semi-skilled workers to accept a minimum wage dead end job or else face starvation and homelessness [bearing in mind that the vast majority of unemployed do not receive unemployment insurance, that only about half of Americans below poverty level receive food stamps, and that Clinton ended welfare as we know it].   This is in contrast to the New Deal WPA that offered different wages for different skills, or in contrast to BIG or JIG proposals that would guarantee a basic income so that no one would ever have to face starvation and homelessness.  

Conservative Milt Friedman advocated a BIG so that no American would starve or be homeless, while MMT does not advocate a safety net for those who cannot or will not participate in a JG.    Does that make MMT even more conservative than Milt Friedman?

I suggest an Improved Job Guarantee (IJG) that would pay 85% of the prevailing wage for each occupational category, up to some cap (perhaps set the cap at the median wage for each county).   For example, if the prevailing local wage for TIG welders is $20/hour, then the IJG would offer $17/hour for qualified TIG welders.   If you believe in the buffer stock theory (I mostly don't) then the IJG would create a buffer stock of TIG welders.   The 85% of prevailing wage would not compete with the private sector for TIG welders and would not cause TIG welder inflation.   And so forth for other occupational categories.

Alternatively you could do like the WPA and offer 4 wage categories:  unskilled labor, semi-skilled labor, skilled labor, and professional or management.   As long as each pay category is slightly below the local prevailing wage, it would not compete with the private sector, would not be inflationary, and any alleged buffer stock effect would still be there.

I challenge MMT to explain why they object to paying slightly below the prevailing wage for each job category?

BENEFITS SHOULD BE CONTINUOUS AND FAIL-SAFE

Another problem with the JG is the alleged benefits -- MMT suggests that JG workers should be provided with the same benefits that every other Federal worker enjoys.   But no real life JG that I am aware of has included benefits, and I certainly don't see the MMT JG benefit proposal as being politically viable because people who work in the private sector with lousy benefits would resent JG workers getting the superior Federal benefits.    [MMT claims the JG benefits would set the standard for private sector benefits, but why should that be so, since existing Federal benefits do not set a standard for private sector benefits?   Given a choice between a minimum wage JG grunt job with good benefits or a well paid private sector job that utilizes our skills but has lousy benefits, many of us would choose the latter.]

If JG workers do receive Federal benefits, then their benefits will be disrupted when they "transition" to the private sector.   They'll have to start over from scratch with a new out-of-pocket deduction before their new health insurance kicks in.   They may have to switch to a different doctor.   They may have to move their kids to a different day care.   And so forth.

I propose that the most obvious way to "set the standard" for benefits is a universal national benefit system.    It would be better for the people because we would enjoy continuity and equality of benefits and providers.   It would be better for private employers because they would no longer bear the cost of providing benefits.   It would be better for the country because it would make our businesses more competitive with foreign businesses.   It would be better for the political viability of the JG because it is difficult enough to pass full employment legislation legislation without linking it to controversial issues surrounding benefits.

I challenge MMT to explain why they do not insist on a universal national benefits system?

MACRO EFFECTS OF THE IJG

Compared to a minimum wage JG, an IJG would pump more money into the economy when the private sector lays people off.   Providing that the IJG wage for each job category is lower than the prevailing wage, it would not cause cost-push wage inflation and would not compete with the private sector.

POLITICAL VIABILITY OF THE IJG

At the present time neither the IJG nor the JG are politically acceptable to our oligarchic government.   The only type of job programs that are being passed in the current neoliberal political environment are "workfare" programs that replace the safety net.   It may take a revolution to create a political environment that is willing to seriously consider a humane full employment program.

MMT'ers often claim that their JG is more politically viable than other safety net programs, yet they have never been able to prove their claim by passing a living wage JG.    I challenge MMT to either pass a living wage JG or else stop making false claims about political viability.

THE WORKFORCE HAS CHANGED SINCE 1935

Contrary to the conservative claim that unemployment is "structural" and that the unemployed lack the skills employers are looking for, unemployment during the Great Recession touched almost all occupations, not just the unskilled.   Any true full employment program should accommodate a broad range of skills and occupations.

WPA boss Harry Hopkins recognized the need to create skilled and professional jobs, too.

Harry Hopkins realized this and tried to create WPA jobs for a variety of skills and education levels, not just pick-and-shovel work.    Since then, an even greater percentage of the American workforce has become skilled and educated, making the need to create skilled jobs even more important than it was in Harry Hopkin's day.

The workforce has become more educated.   A modern WPA should provide skilled and professional job opportunities, not just grunt jobs.

SKILL ATROPHY AND HIRE-ABILITY

One of the arguments in favor of a JG over a BIG is to avoid skill atrophy.   However, that only works if the JG actually uses a person's skills, and MMT has yet to explain how they are going to create skilled jobs out of thin air?

Another argument for the JG over a BIG is that employers prefer to hire people who are already employed.   But that only works if the applicant is employed at a job that is relevant to his career path.   I can speak from experience that employers looking to fill a skilled or professional position won't take you seriously if you are currently employed at a dead end grunt job.   You don't even want to list those dead end jobs on your resume, because they are toxic.

If the JG is to truly assist the individual, rather than be a form of punishment, then it needs to guarantee jobs that are relevant to the individual's career path.

PRACTICAL ISSUES WITH AN IJG

There are many practical problems with any job creation program: how do you create meaningful jobs out of thin air?  Who decides what sort of projects these jobs entail?    How do you fund the non-labor costs?   How do you create jobs that match the skills of the unemployed?   How do you target job creation in depressed regions of the country?   How do you avoid competing with the private sector?  How do you avoid duplicating existing government programs?   If you are merely substituting JG temps for jobs that would have otherwise been performed by permanent government employees, then what have you gained?   These are thorny questions that have never been answered to my satisfaction.

Hyman Minsky bragged that his ELR would take workers as they are and provide jobs that fit their skills

These practical problems apply to both the JG and the IJG.   The main difference with the IJG is that it is harder to create skilled jobs out of thin air than it is to create unskilled jobs out of thin air.    For example, a TIG welding job requires an expensive TIG welding machine and some metal and some sort of practical project that needs to be welded.   A bulldozer operator job requires an expensive bulldozer and some practical project that needs bulldozing.    A process engineer job requires some sort of manufacturing process that needs engineering support.   Tools and materials and facilities cost money, and would blow MMT's proposed 80% labor funding rule out of the water. 

 

The reality is that most skilled jobs are going to require either major infrastructure type projects (that need to be debated and voted on by Congress) or long term government programs (that also need to be debated and voted on by Congress).   

But ..... that's also a problem with the MMT JG, unless you admit that JG jobs would only be dead end grunt jobs, like picking up litter.   If that's the case, then the ELR/JG promise to "take workers as they are and provide jobs that fit their skills" is a big fat lie.

I challenge MMT to live up to their original promise to "take workers as they are and provide jobs that fit their skills."

FUNDING AN IJG

Any JG program will require funding for not just labor but also tools, materials, and overhead.   MMT has typically proposed spending up to 20% of the JG budget on non-labor, claiming that is how the WPA was funded.   But in fact 33% of WPA project costs were non-labor.  

33% of the cost of WPA projects was for something other than labor.

Today, non-labor costs would be much higher because of productivity gains.   For example, the WPA often used pick-and-shovel labor to dig a trench for a sewer pipe, but today the trench would be dug by one skilled operator in an expensive backhoe.   To revert back to pick-and-shovel methods would be "make work" and not in anyone's best interest.   To use MMT jargon, make-work would not serve the "public purpose."

WPA at Fort LeBoeuf, PA.   Today this  job would be performed by one skilled operator in an expensive machine.

MMTer's have often suggested shifting some of the funding costs to local governments, but that merely passes the buck and doesn't address the root problem.   Local governments must tighten their belts during recessions, they can't print money like the national government.   Local governments are funded by regressive taxation so passing the funding problem to local governments effectively places the funding burden on the poor and working class.   Shifting JG costs to local government is like saying "if the JG becomes law then you'll have to pay higher regressive taxes."   How politically viable is that?

I challenge MMT to explain how they are going to fund the materials and tools that any real life job creation program will entail?   I challenge MMT to explain how the funding for JG projects will be debated and voted on in a democratic manner, rather than dictated by some anonymous bureaucrat?

CONCLUSION

Today's workforce is more skilled and educated than the workforce of the 1930's.    The skilled and educated should not be ignored or abused by a JG that offers only dead end minimum wage jobs.   The WPA attempted to create skilled and professional jobs and a JG should do the same.  The WPA paid different wages for different occupations and a JG should do the same.

I challenge MMT to guarantee to fully employ minds and not just fully employ bodies.   

 

Would A Basic Income Guarantee (BIG) Increase Drug Addiction?

A recent op-ed by Philip Plinkington continues the Minsky/MMT tradition of finding lame excuses to reject a Basic Income Guarantee and instead peddle their beloved ELR/JG. 

Mind you, I respect Philip as an economist and agree with him on many economic issues.    I even agree with some of the things he says in his BIG op-ed.  This blog will merely question some of his unsubstantiated claims about the BIG and JG concepts.  

 "Imagine, for example, that a BIG office opened up in a drug-addled neighborhood. ..... Even though the monthly income is intended to free people to pursue their creative impulses, without added social support the money could end up funding drug habits instead. .... Many children who grow up in such an environment would also likely emulate their parents by simply collecting BIG payments and buying drugs with them. .... as is well known among labor economists, it is idleness and unemployment above all else that lead to problems such as drug addiction."

SAY WHAT ???   Phillip's welfare-drug-link claim is the sort of nonsense we would expect to hear from Rush Limbaugh, Glenn Beck, or  .....  Hyman Minsky.   Philip does not point the reader to any studies backing up his claims.

It is beyond the scope of this blog to definitively explain the causes of substance abuse -- that would take a book or three and there are probably already many books written on the subject.  But we will question Philip's unsubstantiated claim. 

Can Philip provide any evidence that transfer programs increase substance abuse?   Can Philip provide any evidence that improving the economic security of substance abusers harms their children?    

Well, we'll have to see what, if anything, Philip comes up with, but so far it's just an unsubstantiated claim.

Can I point to evidence that a Basic Income might actually REDUCE substance abuse or improve the lives of the children of BIG recipients ?

--  This article  suggests a correlation between the Gini coefficient and substance abuse (the Gini coefficient correlates to nearly everything wrong with society).   A BIG should reduce the Gini as has been proven by Brazil's Bolsa Familia.

--  This article suggests that Canada's Mincome program improved health outcomes:

"You don’t have to work in health very long to realize that many of the conditions you are treating are the consequence of poverty. People are sick because they are poor. .... hospitalization rates fell by 8.5% among subjects in the [Mincome] experiment relative to the controls. The reasons for that are reductions in “accidents and injuries” and reductions in hospitalization for mental health issues."

 The same article also suggests that Mincome enabled more children to finish school:

"One of my results is that high school (grade 12) completion rates increased during the study."

 -- This article suggests that Brazil's Bolsa Familia (a BIG of sorts) improved outcomes for the children of program recipients:

• Infants are more likely to receive their vaccinations on schedule. This is true especially for the second and third doses of vaccines against diseases such as polio, diphtheria, pertussis, and tetanus, without which children cannot be considered properly protected.
• School attendance by boys and girls rises by 4.4 percentage points. The largest gains have occurred in the historically disadvantaged northeast, where enrollments have risen by 11.7 percentage points
• Children are more likely to progress from one grade to the next. This is especially true of girls aged 15 and 17—who are at greatest risk of dropping out. Bolsa Familia increases the likelihood that a 15-year-old girl will remain in school by 19 percentage points.
• Pregnant women have 1.5 more pre-natal visits with a healthcare professional.

The Rumsfeld-Cheney BIG experiments suggested that a BIG helped children:

"In North Carolina, children in experimental families showed positive results on elementary school test scores. In New Jersey, data on test scores was not collected, but a positive effect on school continuation rates was found. In SIME-DIME there were positive effects on adult continuing education."

A study of the  Namibia BIG does not mention any increase in substance abuse.   Instead, poverty fell and economic activity increased.  Sorry, Philip.

Philip Asks What About Immigrants?

"if anyone could turn up at the BIG office every month to collect a check, there would be an enormous influx of immigrants into any country that set up the system."

That is a fair point and my personal response is quite simple -- I oppose unlimited immigration under any circumstances.

 I would also point out that the same issue arises with a Job Guarantee -- would the JG be open to illegal immigrants?   (I believe that there is zero political support for that in the U.S.)   If a JG were open to illegal immigrants, and if we had unlimited immigration (legal or otherwise) what is to prevent an enormous influx of immigrants attracted by a JG?

Philip Raises the Spectre of Inflation

"If enough people left their jobs and signed up for BIG, would the actual production of goods and services in the economy fall sufficiently to generate increased scarcity and thus inflation?"

To begin with, is our economy running at full capacity and with full employment?   No, not since WWII have we experienced anything resembling full employment.

Is there any evidence that everyone would quit their well paid, meaningful, rewarding jobs and sign up for a subsistance level BIG?    In other words, would people leave a $50,000 job for a $13,000 BIG?    Well, that has actually been studied to death  and we know the answer -- that the reduction in labor force participation caused by a BIG is small and benign:  

"Married women effectively used the guaranteed income to ‘buy” themselves longer maternity leaves. When they left the workforce to give birth, they stayed home longer. Secondly, adolescents and especially adolescent boys reduced the hours they worked because they took their first full-time job at a later age."

That quote is probably referring to Nixon's BIG experiment.


 The Namibia BIG actually resulted in an increase in economic activity:
  

"The rate of those engaged in income-generating activities (above the age of 15) increased from 44% to 55% .....  particularly through starting their own small business ...... The BIG contributed to the creation of a local market by increasing households' buying power.   This finding contradicts critics' claims that the BIG would lead to laziness and dependency."

Philip Claims The Argentina Jefe Was A Success

Well, success is in the eyes of the beholder, but the Jefe was discontinued, in part due to massive fraud.   Similar to the New Deal WPA, the Jefe was offered only to heads of households,  yet one source claims that only 43% of Jefe's were actually heads of households.    (If it had been up to me, I would have eliminated the head-of-household requirement, but the point is that the head-of-household requirement was a reflection of the country's values, and that is their right).    About 25% of Jefe's took the pay without actually performing any work, effectively turning the Jefe into a BIG rather than a work program.    The Jefe only reduced poverty 1.4% and Gini 4.7%.    

Perhaps the Jefe's problems were a matter of flawed execution rather than a flawed concept.   However, make-work programs in other countries, like Britain's Workfare and America's "Georgia Works" and "CalWorks" have also been  troubled and of questionable value.   One of the arguments for a BIG rather than for a work program is that a BIG is much simpler to execute than a work program.

Philip Claims The JG Would Be Voluntary

"The JG does not seek to replace existing welfare institutions. ..... The JG is decentralized and voluntary."

Well, perhaps Philip's vision for a JG would truly be voluntary and perhaps Philip also envisions a truly reliable safety net in addition to a JG, but at least some JG proponents advocate a "coercive" JG.   Certainly the workfare programs in the US, the UK, and most recently in Australia are "coercive."      As for the safety net, there isn't much of a safety net in the US, with only about 12% - 25% of the unemployed (depending on your source) currently receiving unemployment insurance.    So the reality for many would be "participate in the JG or else face starvation and homelessness."   

Philip Claims The JG Would Be Local And/Or Privatized

"The government then invites charities and nonprofits to sign on to the program."

Again, perhaps this is Philip's personal vision for the JG,  but some JG proponents favor a nationally administered job program.     In America, state and local governments have a history of being corrupt, backwards, bigoted, etc..      Nationally administered safety net programs like Social Security and Medicare have a far better track record than locally administered safety net programs like TANF, unemployment insurance, food stamps, and most recently O-Care.   And don't even get me started on privatization !

Must We Choose Between A BIG and A Job Program ?

Philip concludes:

"A BIG is achievable today, and if it were implemented it would increase employment and alleviate much human suffering, but it would not target social problems in as focused a way as the JG program would."

But must we choose between a BIG and a JG?   Why not combine the two with a Job-Or-Income-Guarantee (JIG) ?    Let the people who are dying to do make-work join the JG, and let the people who would rather get on with their lives draw a BIG.  

Another false dichotomy is limiting the JG to a minimum wage "transition job."   Why not create permanent or at least long term jobs?   Why not create jobs that offer different pay scales for different positions, as the New Deal WPA did?     Why not create job openings by reducing the work week and lowering the retirement age?    Why not stop exporting our middle class jobs to foreign countries?    And so forth.   There is more than one way to address the unemployment problem --  I resent having my choice limited to the uninspiring minimum wage JG.  

Update #1: on using safety net money to buy drugs and alcohol

This blog does not intend to discuss substance abuse at length, but the obvious (to me) solution to using safety net money to purchase drugs or alcohol is to decriminalize drugs, treat substance abuse as a medical problem rather than as a criminal problem, and make the drugs available by prescription for free or at nominal cost, similar to how Portugal does it.   Then there would be no incentive to use BIG money to purchase drugs.   The number of addicts in Portugal has been halved since it decriminalized drugs.   

Update #2:  Philip responds by denying that he said what he said

 
Let's recall what Philip's op-ed actually said:

"Imagine, for example, that a BIG office opened up in a drug-addled neighborhood. ..... Even though the monthly income is intended to free people to pursue their creative impulses, without added social support the money could end up funding drug habits instead. .... Many children who grow up in such an environment would also likely emulate their parents by simply collecting BIG payments and buying drugs with them. .... as is well known among labor economists, it is idleness and unemployment above all else that lead to problems such as drug addiction."

Update #3:   Philip responds that he sorta meant something sorta different.

I'm not going to endlessly debate semantics and intentions.   The gist of Philip's op-ed echoed the Minsky theme that an ELR/JG has better social outcomes than a BIG.    Until such time as JG proponents can back up their claims with hard data, their claims are merely a value judgment.   As I have pointed out previously, studies of the American, Canadian, Brazilian, and Namibian BIGs have demonstrated positive social outcomes.   As I have asked previously, why must we choose one or the other?    Why can't we have both a Basic Income Guarantee and job creation programs?  

A Partial Critique Of Minsky's Social Policies

At the request of "friends" who insisted that I supply page numbers and/ or paper titles to back up some things that I said about Minsky, here are a few things that caught my eye.   This is by no means a complete take-down of Minsky -- that would require a book (and I would love to write that book, but I would have to first either win the lottery, or else live in a country that had a Basic Income Guarantee to sustain me while I wrote the book).   But this blog highlights some of the things that caught my attention and made me lose respect for Minsky and his modern day disciples.

Unless otherwise noted, all page numbers refer to the paperback collection of Minsky papers, "Ending Poverty, Jobs, Not Welfare."   There are certainly many  other Minsky papers that are not included in that book, and Minsky's views varied slightly from paper to paper, so you may well be able to cite other Minsky papers that contradict the Minsky quotes that I will include here, because indeed, Minsky often contradicted himself!     Nonetheless these specific quotes seem to be representative of the mindset that drove Minsky's policies.

Note that even though I am very critical of Minsky's views on social policy, particularly his Puritanism, I respect his better known macro work on instability.   IMHO Minsky was a pretty good economist who was hampered by some old fashioned personal biases.

Minsky claims that the New Deal & Great Society failed to reduce inequality

Page 28, "Effects of Shifts of Aggregate Demand upon Income Distribution,"   Minsky claims that "the distribution of relative wages did not appreciably improve during the expansion of the 1960's."   Minsky repeats this claim on page 68 of "Poverty and Policy": "Thus the labor markets as they behaved during the 1960's did not tend to reduce the inequality of incomes."  To back up this claim, he provides a table of blue collar wages on page 34  (and a similar table on page 66) showing that unionized & skilled blue collar wages increased while low-skilled, non-unionized wages were stagnant.   The gold standard for measuring income inequality is the Gini coefficient, but Minsky does not even acknowledge the existence of the Gini coefficient.

A quick glance at a historical Gina chart disproves Minsky's claim. 

In fact, the New Deal and Great Society policies did reduce inequality and did improve median incomes.    They were not failures, as Minsky claimed.   They weren't perfect, but they were moving us in the right direction.

This is important because the gist of "Jobs, Not Welfare" is that the War On Poverty was a failure so we should scrap it and start over.     If the New Deal/Great Society programs were actually a success, then Minsky's argument is invalid.

Minsky claims that it is impossible to maintain full employment without inflation

Minsky also claims that Keynesian policies failed because they caused inflation.   I.e., page 69 "Are there any fundamental and strong forces in a capitalist economy which tend to make the sustaining of full employment politically unpopular, unproductive in reducing poverty, or very difficult?  The answer to the question is that there are:  inflation .... decreases the political popularity of full employment."

Here again I would have to write an entire book to do justice to the subject of inflation (does anyone want to support me while I am writing that book?)   For now I will merely note that the subject of what causes inflation and what to do about inflation are still hotly debated.   Some economists claim that  inflation has usually been caused by oil prices, not by Keynesian deficit spending, and many MMT economists seem to agree, yet these same MMT economists who agree that most inflation has been caused by oil will turn around and say "we can't have full employment without a JG because inflation." 

Australia maintained tight full employment with low inflation for 30 years (approximately 1945 - 75).    The Aussie "golden years" ended when OPEC jacked up the price of oil.   The point is, if Australia can create and maintain full employment without inflation, that shows that it is possible (as long as oil is cheap !)

So Minsky cites inflation as another reason that New Deal / Great Society policies have failed and why we should scrap those policies and start over.   But of inflation was actually due to oil, then Minsky's argument is invalid.

Minsky claims that Food Stamps cause inflation

P. 138, "The Poverty of Economic Policy," 1975:   "The food stamp program is a significant factor generating the inflation that has so troubled us in the past several years."    Minsky present no proof to back up this claim (no page numbers or paper titles !)

Once again, it would take a major paper if not a book to do justice to the subject of food prices.   For now I will merely point out that most of us now agree that the 70's inflation was caused by energy prices.   But rather than doing any real research to understand the causes of inflation, Minsky simply jumps to the conclusion that 70's inflation was caused by transfer programs like Food Stamps.  Minsky believed that transfer programs were a failure so we should scrap them and start over.   If 70's inflation was actually caused by oil, then Minsky's argument is invalid.

IMHO, it may be that, to the extent that Food Stamps allow people to buy more food, that does put upward pressure on food prices.   But if we replaced transfer programs with a JG that paid a living wage for doing make work, and if JG workers spend their paycheck on food, that's still going to put upward pressure on food prices.   The only way that a JG would reduce food inflation would be if the JG somehow increased food production -- which is not necessarily a bad idea.   One of my thoughts is to offer a BIG conditional on the individual growing vegetables and raising chickens in their back yard (you may laugh but with climate change looming, local food production may become a big deal).   

However, most JG programs talk about picking up trash, maintaining parks, daycare, teacher's assistants, etc..   All nice things, but not related to producing food.   Pavlina Tcherneva has suggested using the JG to subsidize some local community gardens, but her proposal is vague (where does the land and water, etc., come from, how do you distribute the produce, etc.).   In any event it is unlikely that a few community gardens would make a dent in national food production.

Also bear in mind that until recently the US had agricultural policies that actually paid farmers not to produce, that our current ethanol policy inflates food prices, and that we still have trade policies that discourage food imports, i.e., Americans are not allowed to buy sugar from Cuba.  

Another factor in food prices is monopolization of the food industry.   Another factor is global population growth.   Another factor is energy costs (industrialized agriculture is energy intenstive).   And so forth.   There are many factors that influence food prices, yet Minsky ignores all that and jumps to the conclusion that Food Stamps are to blame.   Instead of making an honest effort to understand the economic problems and then propose economic policies to address those problems, Minsky starts out with a certain ideology -- that work is good and welfare is bad -- and invents economic logic to justify his ideology.   I disrespect him for that.

Minsky Embraces Supply Side Economics

P. 140, "The Poverty of Economic Policy" : "Transfer payments always involve a transfer of income from those who are active in the labor force to an inactive segment of the population.   The transfer takes the form of raising the price level of consumption goods."

That is supply side economics -- that the economy is constrained by supply.   Post-Keynesians disagree, believing that there's usually excess production capacity and that the economy is usually limited by demand, not by supply.

I tend to sympathize with the Post-Keynesian view.   We have more vacant houses than homeless people.   The US has generally been capable of growing more food than it can produce, so we pay farmers not to grow food, or we pay them to grow corn for ethanol.   Toyota is quite capable of producing more cars, but I don't have the money to buy a new Toyota.   And so on and so forth. 

Certainly there have sometimes been shortages of particular items -- if the Russian wheat crop fails, if war disrupts the oil supply, etc., so the supply side vs. demand side argument is not black and white.   But mostly I think Minsky's supply-side assumption is wrong.

Minsky Disses Policies That Helped The Middle Class

P. 150 "The policy has been .... to expand government spending on projects that tend to hire the already well-paid workers: defense, space, highways, fancy metro systems, housing, etc.."

And this is a bad thing?    Those are the jobs, along with manufacturing, that created the American middle class.   Those are the kinds of jobs we need more of !

There is a grain of truth in what Minsky was trying to say -- that we should create jobs for everyone, not just the middle class.    But in fact, Keynesian economics did create many entry level jobs.   When you build a dam, that creates jobs for manual laborers as well as for skilled laborers.   When you manufacture a military jet, that creates entry level jobs to sweep the floor and to drive fork lifts as well as skilled jobs and professional jobs.   Don't try to tell me that Keynesian economics was a failure because it created lots of middle class jobs ! 

Minsky Claims The Middle Class Can Take Care of Themselves

P. 150 "The strategy [of the ELR] is to create jobs .... [for] the unemployed and low-income population.  The already affluent need no breaks, and they can, so to speak, take care of themselves."

Bear in mind that when Minsky refers to the "affluent," he is talking about the middle class, not about the 1%.   It's true that the middle class was doing fairly well when Minsky wrote that 1975, but IMHO that was precisely because of the New Deal/Great Society policies that benefited the middle class.

One of my gripes with the ELR/JG is that, despite the claim that it would create a job to match the individual's skills, the truth is that it's a heckuva lot easier to create a grunt job than to create a job for someone with a specialized skill.   The Minsky/MMT position is that the government should focus on helping the unskilled and let the skilled fend for themselves.   That might have worked in the relatively strong economy of the New Deal/Great Society, but it's woefully inadequate for our current age of austerity, when we have  unemployment and and underemployment that cuts across all skill levels.   We have engineers delivering pizzas and PhD's on food stamps !  

Minsky Proposed Taking Children Out of School and Putting Them in Labor Camps

P 151.  "I would initially program the operation for 1,000,000 young men and women at the ages of 16 through 21 ...... the program would would involve camp living .... I would use military personal in supervisory functions at the camps ... if young men and women who do not want to be in school .... were removed from the NYC school system and streets, the task for the schools and the public authorities would be eased."

Hitler would agree !

For the record, I do support a CCC-type program aimed at young adults, but I certainly would not take 16 year olds out of school and put them in military style camps !   My personal rule for any JG, CCC, or BIG would be that the individual must first be 18 years old and/or complete high school.

Minsky Proposed Repealing Child Labor Laws and Putting School Children to Work?

P. 151.   "I would make NYA jobs available to all [students] who want to work .... half during the school year and half in the summer."    Minsky does not explain exactly what kids would do in these jobs.

But, I googled the NYA -- it was a New Deal work-study program for ages 16 - 21.    Most of the time NYA kids would get paid to study what they would study anyway, as in the attached picture of an NYA class getting paid to study typing.   So it wasn't really a "job," it was a handout.    It stimulated the economy, and perhaps it encouraged some kids to stay in school.   I'm all for that.

But how would that be different than the Scandinavian practice of giving college students a stipend, or Rodger Mitchell's proposal to pay students a salary?

If you give a college student money and call it a "transfer," then Minsky is opposed to it, because transfers are very, very bad.   But if you pay a college student to go to college and call it a "job," then Minsky believes it's a great idea, because jobs are very, very good .....  sigh.

Minsky Wanted To Dismantle SS and Force Old People To Work Until They Keel Over

P. 152 "Social Security is another transfer payment scheme that has to be brought under control.  .... I would eliminate the 62 optional and the 65 mandatory retirement ages ....  such a combination of a right to work (including full or half-time on the WPA) .... should enable us to end the pressure for ever-escalating benefits."

In other words, screw Social Security and make Grandma and Grandpa work at the ELR until the keel over -- and rest assured that many of them would keel over before they reached Minsky's retirement age.    Why be so tough on Grandma and Grandpa?   Because transfers are very, very, bad and work is very, very good, in Minsky's warped Puritan mind.

Note that one of the justifications for creating SS in the first place, besides not wanting Grandma and Grandpa to starve, was to encourage old people to retire so that job openings would be created for unemployed young people.   That is still a legitimate issue today -- old people are working longer and longer because SS doesn't pay enough to live on and their private retirement savings were wiped out by recessions,  while young people are unemployed.

People of color do not live as long as white people, poor people do not live as long as rich people, and men do not live as long as women.   An arbitrary retirement age of 65 means that rich white women may enjoy 35 years of retirement while poor men of color may never live long enough to draw Social Security.   That's not fair.   Since everyone's health is different, and since different occupations have different physical requirements, it makes a lot more sense to me to let the individual decide when to retire.   A means-tested BIG is one way to make that happen. 

Summary

While I admire Minsky's macro work on instability, his social policies seem to have been driven by a warped Puritan value system that I do not share.   To justify his extremist policies, Minsky resorted to supply side economics and other questionable assumptions that do not hold up to closer examination.

It's admirable to care about poverty and inequality, but there is more than one way to get there.   It's admirable to want to create jobs for the unemployed, but there's more than one way to get there.   I object to narrowing the options down to just one -- the JG -- just because a dead economist with warped values said so.

I Like The JIG Proposal

I really like the Heteconomist's JIG proposal.  The JIG would offer the unemployed the choice of either a Job Guarantee (JG) or else a means-tested Basic Income Guarantee (BIG).  

The details are negotiable but I have proposed a $250/week BIG and a $12/hour, 30 hour/week JG ($360/week).  That gives the individual a financial incentive to choose work.  If the individual chooses the BIG instead, he or she would be just above the poverty threshold.  

Thus the JIG would eliminate poverty and unemployment.  See how easy it could be?

My proposal would extend to married individuals based on their individual income, not on their combined family income.  So if someone is married to a millionaire, they could still qualify for the JIG (of course if they filed taxes jointly then their BIG income would be taxed at a rate based on their combined incomes, and the BIG recipient could not be claimed as a dependent).  This would give stay-at-home spouses some financial independence and it simplifies the JIG by keeping the rules to a minimum.

My proposal would be based on weekly earnings, and the BIG check would be a weekly check.  My thinking for the weekly BIG rather than an annual negative income tax is that people need a weekly check to live on, and the weekly qualification basis (as opposed to an annual qualification basis)  would benefit temp workers, seasonal workers, the self employed, and those who are in between jobs, who can't reliably predict their annual income.  

Administration of the BIG claim would be very similar to how unemployment insurance claims are currently administered.  Once a claim is filed, the individual would report his income each week.  The reporting could be done either online, by phone, or by mail, and most of the administrative work would likely be highly automated.  If the week's income was less than $250, a check would be issued to bring the week's income up to $250.  A few auditors would be needed to sniff for fraud, just as unemployment insurance is audited for fraud.  Occasionally there would be people working under the table who did not honestly report their income, but that happens anyway, BIG or no BIG.

I favor the means-tested BIG -- in addition to job creation programs -- because it would provide a true safety net, something that America currently lacks.

The BIG part of a JIG could replace Social Security disability.  Right now, applying for SSDI is a nightmare, often taking over a year and requiring a lawyer to appeal.  Many people with legitimate health issues cannot qualify for SSDI.    

The BIG part of a JIG could also replace (or supplement) unemployment insurance.  Currently, only 25% of the officially unemployed receive unemployment insurance.  Consider that the real number of unemployed is probably double the official number and that leaves us with only 12% of the unemployed drawing unemployment insurance.   That's not much of a safety net.

The BIG part of a JIG would also help the self-employed, giving them something to fall back on when their business is slow, and encouraging more people to start their own businesses.  Currently the self-employed have no safety net at all.

The BIG part of a JIG could serve as an early retirement vehicle for those who desire early retirement.

The BIG part of a JIG could serve as paid maternity/paternity leave for parents who wanted to raise a young child.

The BIG part of a JIG could serve as paid vacation for the self employed and for all the temps and seasonal workers who don't get paid vacations.

The BIG part of a JIG could serve as short term disability insurance if you break your leg, etc., and are unable to work for a few months.

Both the means-tested BIG as well as the JG would function as automatic stabilizers.  During recessions, more people would go on the JIG, increasing deficit spending.  During booms, job opportunities would entice people to leave the JIG, reducing deficit spending.

The JG sounds good at first glance but when you ask hard questions about the JG -- what would I be doing, and where would I be doing it? -- the answers are not there.  The 80% wages funding formula (typical, some proposals have been even more restrictive) and short term perspective would severely limit the nature of the work.  For example, it's hard to imagine how a small town JG would create appropriate jobs for a butcher, a cowboy, a logger, a mechanical engineer, or a machinist.  It's far easier to imagine JG'ers picking up trash.

What if there is no JG near where you live?  What if you don't have transportation?  What if you are willing to walk 2 miles to a JG, but you can't drive 30 miles, and aren't willing to relocate for a temporary minimum wage job?

So it is not merely a question of whether the unemployed are willing to work, it's also a question of whether the JG can truly match their skills, whether the job is something more worthwhile than make-work, and whether it is feasible for the individual to commute to the JG.  

I suspect that in reality, much JG work would be CCC-style picking up trash, appropriate for young people just entering the work force, or for skid row bums, but inappropriate for skilled, older workers.    The bottom line is that I'd like to have the BIG option, just in case.

Hyman Minsky's "Economics for Democrats"

Just a quick note on a Hyman Minksy paper I read today (thanks much to the excellent Professor Kelton for calling the paper to my attention).

The paper starts out on a promising note -- who does not agree that today's Democrats need some lessons on economics? -- but then devolves into "a Job Guarantee will solve all our problems" sales pitch,  which I have heard many times before and am not interested in hearing again.  Sigh.

Anyway, here are a few highlights:

~ Minsky calls for raising the Social Security retirement age to 70 (and in another paper, Minsky called for repealing child labor laws and putting children to work, as well! ).  Because ..... well, because he hates giving people money, that's why.   Like the Puritans, Minsky believes that leisure is sinful and work is heavenly.  Never mind mechanization and automation, never mind that one farmer can grow enough food to feed 1000 people, never mind that cars can be built by robots, etc..  

~ Minsky apologizes for FDR's inadequate response to the Great Depression by claiming that Keynesian economics was not well understood until the end of FDR's first term, presumably referring to the publication of Keynes' "General Theory" in 1936.   However, Huey Long had already demonstrated the success of what we now call Keynesian economics during his term as governor of Louisiana 1928-32.   Huey embarked on massive public works projects, building roads, bridges, hospitals, upgrading public schools, and offering free med school for qualified students, financed with a combination of bonds and new taxes on resource extraction (which fell largely on out of state corporations like Standard Oil).  Huey's 1934 Share Our Wealth  proposal was very popular, and Huey (who by then was a Senator) threatened to run against FDR as a 3rd party in 1936 if FDR failed to enact Huey's economic proposals.  The threat worked, and FDR did co-op a watered down version of Huey's "Share Our Wealth" proposal in what became known as the Second New Deal.  FDR explained to his staff that he had to "steal his thunder," referring to the popularity of Long's Share Our Wealth plan.

Huey Long's "Share Our Wealth" proposal pushed FDR to the left

~ Minksy attempts to justify his disdain for "transfer payments" by claiming that "the welfare state ... was not a critical part of the New Deal."  Well, it is true that FDR shared Minsky's disdain for handouts, but it's not true that handouts were not a critical part of the New Deal.  Social Security, for example, was certainly a critical part of the New Deal, and Social Security at the time was a handout -- the people who received SS in the 1930's had not paid into it.  

Though FDR opposed it and vetoed it, nonetheless Congress overrode the veto to pass the Bonus Bill giving a handout to WWI veterans.  The veteran's bonus was hugely popular at the time, and provided a much needed economic stimulus.

Aid to Families With Dependent Children was certainly a critical part of the New Deal, and it was a handout.  It primarily benefited to stay-at-home mothers, yet Minsky has nothing nice to say about AFDC.  Why does Minsky hate stay-at-home mothers?  Did he have relationship problems with his own parents?   Did he feel abandoned because his mother died when he was only 19?  I don't know, but Minsky doesn't seem to have a lot of empathy for mothers, for children, or for old people.

~ While the paper is mainly a sales pitch for the Job Guarantee, which would coerce unemployed people to perform dead end jobs for minimum wage, Minsky proposes that the Federal government should also create jobs by way of "national research universities and institutes."  Presumably these proposed research universities would pay the going rate for PhD's and not merely minimum wage?  How convenient, since Minsky spent most of his life working in universities and research institutes!  

~ Minsky proposes a "defined contribution pension" to supplement Social Security -- for those lucky enough to live to his proposed retirement age of 70!  The conservative Heritage Foundation would surely agree with that!

So to sum things up, the allegedly socialist Minsky hates handouts, hates stay at home parents, hates old people, and hates children.  He loves minimum wage grunt jobs for other people, but prefers government subsidized research university jobs for himself!

Lest you get the impression that I am against Minsky, let me say that I am mostly impressed with his theory of business cycles.  He's good at macro theory, but doesn't seem to have a lot of empathy for people.  Of the JG/ELR, he speaks in generalities but never spells out the details of exactly how it would work.  As  Perry Mehrling said of Minsky, "he was an inspiring teacher, but his students learned to look elsewhere for the nuts and bolts of their professional training."  







 

The Job Guarantee as a Price Anchor?

Contemplate the following hypothetical scenario:  Walmart decides to offer its own private Job Guarantee.  It guarantees to hire anyone who wants to work as a Walmart associate, even if it means hiring all 20-some odd million unemployed Americans.

There is just one catch .... the associates will not be paid in dollars.  Instead, they will be paid 10 WalBits per hour.

Unfortunately, you cannot use WalBits to pay your taxes.    Uncle Sam will not accept them.

The good news is that Walmart will accept WalBits as payment for its merchandise, based on a floating exchange rate.   On the first day of issue, Walmart will accept WalBits as payment for its merchandise on a one WalBit per one dollar basis, but starting on the second day the exchange rate will be determined by a floating exchange on Wall Street.   Walmart will make no attempt to control the exchange rate. Who is Walmart to question the infinite wisdom of the free market?

However, Walmart's economists claim that because WalBits will be "anchored" to an hour of unskilled labor, you never have to worry about WalBit inflation.

You are unemployed and you contemplate accepting the Walmart Job Guarantee.  Who knows, maybe WalBits will be the next BitCoin?  Maybe someday one WalBit will be worth $1000 dollars?   You might become a WalBit millionaire! 

Should you agree to work for WalBits?