We are shortly to begin the last talk: "A path to full employment: options for policymakers" with Pavlina Tcherneva and Randall Wray. As usual, INSERT STANDARD LIVEBLOG DISCLAIMER HERE.
Causes of unemployment, short vs long run.
Short run: financial crisis and unemployment. 9megajobs lost, all projections say that unemployment will remain high for years.
- Consequences of unemployment: lost opportunities, output. Part-time jobs, career advancement hindered.
- Need 20megajobs to make up for it.
- Washington focused on Wall St at the expense of Main St. Good policy blocked by deficit hysteria.
Long run problem: Demand gaps and structural unemployment.
- NAIRU: unemployment policy tool. Reserve army of unemployed. Cuts bargaining power of labour, keeps inflation low.
- Structural unemployment: difficulty for young people, women---long term costs.
- ILO: 2007 strong growth, but 200M unemployed.
- Growth not a solution! Fuels productivity growth, but doesn't necessarily create jobs.
Sovereign gov't goals: primarily full employment. Gov't has capacity to make it happen. For political reasons, price stability needs to be a goal as well. Yes, we can have full employment AND price stability at the same time.
Unemployment costs: labor underutilisation --> net income loss! Huge social costs (e.g. poverty, health, human capital loss, etc). Long-term unemployed become unemployable.
Benefits of goods and services. Obvious one: production. But there are many benefits not accounted for by economists: e.g. social, political stability.
New Deal lessons
- Finance constrained/downsized. (We have now prevented it this time.)
- Direct gov't job creation. (died in postwar boom, reinforced belief that growth is enough.)
Post-WWII capitalism: golden age. No depressions, created middle class, committed to high employment. Minsky predicted that this "stability is destabilizing."---banks would "break free" of regulation.
War on poverty by Kennedy and Johnson. Supply side plus welfare: misguided emphasis on growth. Minsky: this will fail. It needs an emphasis on jobs! 1 min wage job per family will eliminate 2/3rds of poverty. (Wray and Kelton have computed the same number.) Politically: Americans will support giving jobs, but not welfare.
Poverty did fall, but not due to war on poverty: civil rights and social security.
Free market ideology's rise killed full employment. Reagan's "Welfare Queen", "trickle down." Clinton: end welfare as we know it, deserving poor. Intuition of reducing welfare correct but only by giving jobs.
Bush: ownership society, "compassionate" conservatism. This kind of thing actually reduces ownership through home foreclosure.
Democrats then adopt "fiscally responsible". But their surpluses during Clinton were BECAUSE of growth, not a cause of growth.
She is going to talk about responsible policy and "get past the obsession" with financial ratios and dogmas. (Adam) Smithian vision---as he intended it.
Strategy: do not use unemployment to control inflation. Measure fiscal policy in terms of employment creation. No one has really been able to find a stable/well-defined link between NAIRU and inflation...
Therefore: plug labour demand gap, don't target output/GDP gap. Deal with employment directly. Tie deficit spending directly to employment. Need N jobs, then you know exactly what deficit spending you need. Just employ N people, and that is exactly the cost!
Direct job creation!
Guarantee full employment in short and long run---don't simply apply Keynesianism during depressions.
Theory of job guarantee
- Replace NAIRU with employment buffer stock. (rather than block inflation via unemployment.)
- Bottom-up policy, not trickle down. Deal directly with unemployed, hiring off the economic bottom.
- Can still handle labour flexibility via buffer stock mechanism.
- Keeps labour employable, targets problem areas.
- Make it valuable work.
Mechanism: establish wage floor of labour, public sector employs at that rate; private sector bids above that floor to hire.
Other features: job guarantee is voluntary. Spending is right level to keep people employed, not more, not less.
Firms benefit: by having a fully employable pool of labour rather than chronically unskilled labour, reduces training costs.
- Inbuilt inflation control. Budget shrinks counter-cyclically when private sector doing better (as more are hired into private sector).
- Effective labour supply at minimum wage---"high quality anchor".
- Doesn't solve all problems in the labour market, but must better than unemployed/NAIRU buffer stock.
Has been put into practice in Argentina in miniature. 4h of community work at min wage. Had major effect on poor, women, minorities. Countercyclic, affordable. People move into private sector--->program shinks.
Unemployed themselves helped generate social improvement projects for the Argentina program.
Growth is not an appropriate target---does not create jobs, can be unequal, can harm environment. On the other hand, job guarantee has many social benefits.
It has been done in the past and in other countries (India eg.), it's right and just. Having access to a job is a basic human rights.
Implementing in the USA: wage bill will only be $350-$500gigadollars. US gov't has a deficit in convictions, not resources.
Q: Cato Inst would *love* this, could eliminate minimum wage. (ie, sarcasm). Universal living wage. Index wages to cost of housing. Can we use this as a job guarantee wage?
A: Mosler: sure, if the will is there. As an aside, employment buffer stock would be lower than NAIRU stock---and still maintain price stability. This still allows us to use competitive "American" approaches to employment.
Q: *couldn't hear*
A: Mitchell: Need to decide what a humane wage is: do we want to allow people to pay less than a living wage.
Q: How do you do this over a large population without military control?
A: Mitchell: But India does it.
Q: But how did they do this politically?
A: Mitchell: They figured out that the rural poor moving into urban areas was going to be a problem due to unemployment. It was politically necessary for them to create jobs where the private sector won't.
Q: So how to do this in the US Congress?
A from audience member: Need grassroots pressure. Congress won't do this. Left need noise machine like right.
A from Auerback: It's actually not that hard. Sell it as making welfare redundant. Surprisingly good reception even from some right-wing policy-makers. And some unions have a problem with job guarantees: permanent slave worker class---at least until the mechanism is better explained to them.
Q: America seems to be very averse to things that sound "socialist." Industry will complain that they won't be able to hire out of the buffer stock.
A: Mosler: This can be managed by other levers of fiscal policy e.g. taxes. In reality, this will shrink public sector because the employment buffer stock will be smaller than the social costs of high unemployment.
A: Wray: no, this is not guaranteed employment in the sense that no one would be able to be fired from the buffer stock employment. Not true. Show up drunk, one *can* lose a buffer stock job.
A: No, workfare does not provide the jobs. The key is that jobs at a living wage must be provided by the gov't.
A: Mitchell: Note: unemployed are ALREADY in the public sector. They're just doing nothing---and doing nothing means social costs. Not THAT hard to convince business.
A: Wray: Another problem with workfare: administered and funded by American states, not based on sovereign deficit. Simply cannot succeed.
A: Mitchell: Australian workfare is nothing like a job guarantee. Not living wage, not ongoing until better employment, not productive.
A: Tcherneva: Workfare was simply counted a success by reduction of welfare rolls. But didn't change poverty and social costs thereof.
Q: Do the panelists have to hide their true (unorthodox) views to get a career in economics?
A: Wray: Not any of the panelists, but if you want to work at the Big Schools, then you need to do so.
A: Kelton: There are definitely cases, though, like Notre Dame.
Q: More idea than question: Obama budget commission is being run by Peterson Foundation (right-wing) as it is not funded. There are 20 Peterson-funded public hearings. Can job guarantee supporters attend and influence?
A: Kelton: Actually, the public openness may be fake. Might actually be hard to attend, gatekeepers and all.
Q: (missed, about Soc Sec insolvency I think).
A: Kelton: if you dogmatically insist that Soc Sec be funded out of payroll taxes and other self-imposed restrictions, things are going to go bankrupt (Soc Sec, Medicare). The parts that won't (Medicare part B and D) are being guaranteed by the gov't. It's only because the gov't says so...
A: Mosler: unemployment causes environmental damage. Creates pressure to kill trees.
A: Mitchell: US health care is crazy. No one suffers from lack of health care in Australia because of poverty. Environment: market-based schemes for emission control is ridiculous, do it by rules! Financial sector: stop banks from being speculators. Outlaw OTC trading, redirect workers into more productive/socially beneficial tasks. (Use gambling addiction control for those addicted to speculation.) Massive injection of funding into education for productivity in the future.
But the current solution is to starve education...
(Last) Q: Hard to discuss this issue in other countries than USA?
A: Mitchell: No, no way as bad in Australia. Fox News could not exist in Australia. Possibly due to religious zeal in USA. But neoliberals invaded Australia as well, but welfare state has survived in a degraded state---but far better than USA. This is cultural: Australian "mateship". [How does this play out for Canada?]
(Last last) Q: Why does the right-wing do this? Why do anything so destructive?
A: Just because. Just for funding. We're not psychologists.
Wray: due to groups of narrow interest, individual narrow interest. Adds up to bad things.
Mosler: Faith in self-reliance (unjustified). Those people with that faith/ego in their own abilities fund think thanks, etc.
Auerback, Mitchell: Canada and Australia did not allow weird AIG tricks, largely escaped worst of economic calamity.
Called to a close.
Wrapup: I will post the notes I took offline fairly soon, as well as a summary. But I'm heading off now.