Tuesday, February 11, 2014

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.

Wednesday, February 5, 2014

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."