The Job Guarantee, Kleptocracy and Blogging

This is a post about the job guarantee idea in the context of a historic economic crisis.

I intended to write this post on Thursday night as a response to a good post by Pavlina Tcherneva on the job guarantee that is now up on Credit Writedowns, but my schedule didn’t allow it. Now, I have a moment, so here are some quick thoughts on the job guarantee.

This post will not be like other posts you read on the job guarantee. As I said in my last post on the job guarantee, I am not going to discuss what is „real” Modern Monetary Theory since I am not in the position to make that judgment. However, I will give you my two cents on the political economy of state job guarantees.

I have a few competing ideas that I intend to thread through here so this post my deviate from the intended outline. Let me start back to front with the blogging part of the three elements in the title.

Blogging

I wrote Pavlina the following:

„What I think your piece identifies is the need in desperate times for public voices to advocate something strongly and forcefully to prevent something truly horrific from happening. Germany and Hitler and the War come to mind. The same might be said about Serbia and Milosevic for example.  What I heard you saying is that I am in that kind of position as someone with a public voice. Tell me if I got that right.

What I intend to write in response is that I feel I actually have two roles, to advocate and to predict. These two are sometimes in conflict, particularly in times of social and economic stress. But as a situation deteriorates it is the second role which increases in importance in helping people avoid worst case scenarios. How can they protect their wealth. how can they get a job somewhere where they won’t be fired, etc. There is a serious tension in these two roles and I acknowledge that. My writing is increasingly about forecasting and much less about advocacy.

Before I get to why I am putting it this way, I should point out that Pavlina responded that she feels „economists (whether they like it or not) have an advocacy role to play” but that she is more interested in the technical merits of the JG because the blogosphere is filled with a lot of disinformation about what the job guarantee is and what it means about the role of government.

For my part, when it comes to aggressive US policy responses, I think the die has been cast. That means my focus has to be less on advocacy and more on forecasting. Here’s an analogy I thought of on Thursday that works for me.

Say you are the designated emergency responder for your condominium. One day, unexpectedly, a condo resident takes an entire floor of fellow residents hostage and threatens to blow them (and maybe the whole building) up if the condo board doesn’t bail him out of his condo fees. This particular resident lives on the top floor in the penthouse and pays more in fees, although nothing commensurate with his square footage. Now, he’s broke and knows that if he doesn’t pay the whole building will fall into disrepair and cease to operate.

Anyway, now he is threatening to blow the 9th floor up. You know he is a good friend of the Condo board president and that the president has a lot of power to end this standoff and is willing to listen to residents about what to do. What do you do?

Well, in the beginning of the ordeal, your chief role is one of advocacy. You tell the tenants to exhort the condo president to not bail Jack out, but to let Jack sell off his condo and break it up into pieces or face bankruptcy.

But what if the condo president doesn’t take your advice and he bails Jack out at everyone else’s expense, yet Jack continues to hold the ninth floor hostage? At that point, you could continue your advocacy, but the reality is you are an emergency responder and you need to decide whether a catastrophe is likely to occur and prepare residents for that potential catastrophe.

Bottom line: At some point you have to switch from advocate to forecaster.

In October 2010, I made the switch with „Less Policy Advocacy and More Policy Forecasting at Credit Writedowns„. For me, Credit Writedowns is now more about helping people navigate the likely economic turmoil I anticipate and much. much less about advocating specific economic policies. So when I see things like the job guarantee debate in the blogosphere, this is my mindset.

Kleptocracy

Let me switch gears and talk about an interrelated topic, Kleptocracy, for a second. To my recollection, I was one of the first in the economic blogosphere to talk about the US political system using terms like kleptocracy or crony capitalism. This framing began as „a populist interpretation of the latest Boom-Bust cycle” in March 2008. But at the time, it was only a thesis, a suggestion. Since that time, it has become an integral part of how I view the political economy dynamics in the US and in Europe.

The central thesis is that government has come to work hand in hand with powerful private sector interests to promote an ideology, a religion I have dubbed corporatism masquerading as liberty which is really a convenient way of maintaining an ever more unequal distribution of income without significant social unrest. Now that policy rates have reached their nadir without the expected economic and asset reflation, social unrest is increasing and belief in the ideology is shaken.

The point here is that we lost the brief moment where „change” had any momentum in early 2009. The economic structure that remains intact is largely the same as it was in 2008. In fact, in the financial services industry in the US, Jon Huntsman correctly pointed out yesterday in a Fox News Op-Ed that the big banks are even larger today than before the crisis. So, we have a momentous conflict building between increasing social unrest and a more entrenched status quo.

My view is that the only way wholesale change is going to occur is if and when the economic system collapses entirely as it did in 1873 and again in 1929. To me, these are the antecedents for this particular economic crisis. So until then, we will have a slow growth economy punctuated by fits of recession and deleveraging until these issues are resolved. In saying that I am not fully discounting the possibility that the crisis gets resolved by socialising losses. However, I believe that this requires threading a needle and that eventually the policy errors will accumulate and bring the crisis to a head.

Job Guarantee

So, in the context of this world view, the job guarantee is a political non-starter right now.

My view: a job guarantee will never happen in the US unless we have a deep Depression like the one that began in 1929.

What about the merits of the job guarantee then — advocacy, if you will? Let me say from the start that I have drunk from the cup of free market ideology just like everyone else. So it could well be that I have been brainwashed by the corporatist propaganda. While that may be true, so-called free markets are about liberty and freedom to me, not about corporatism and ideology. I fully recognize that government exists for a reason and will always exist in a large stratified society. Government, by its very existence, is always redistributive. So, the real questions about government concern how many checks to put on its coercive power and what kinds of redistribution are warranted to make government both efficient and effective.

It is a lie to say that we can ever achieve absolutely free markets and it is foolish to strive to do so.

On the other side, MMT proponents like Bill Mitchell believe that the job guarantee, where government always supplies jobs to the unemployed is core to Modern Monetary Theory. This is the antithesis of the free markets. You could call it market socialism or socialism if you like.

Now, I am quite certain that issues like the job guarantee are exactly why many people reject MMT. It is too drastic a change in economic policy. Even if you believe that we can never achieve free markets and that it is foolish to strive to do so, it doesn’t mean you accept permanent government intervention. For me, It’s not either or — or as George Bush put it „either you’re with us or the Terrorists”.

What I like about the job guarantee idea is that it provides an automatic mechanism through which to stabilise unemployment without creating cash for clunkers schemes or bailing out specific sectors of the economy. It works well in creating a counter-cyclical stabilisation for any economy. I actually could envision a world in which some of the unemployed always worked in the private sector or  in public works, paid for by government as an alternative to unemployment insurance. And that’s why I dubbed the Job Guarantee Unemployment insurance for the 21st century in 2009.

But there is a lot not to like. Moreover, European economies where government intervention is more accepted are far more likely to use a mechanism like this.

Here are some questions:

1. Isn’t this a massive paradigm shift toward socialism? Some people may advocate this but why should we believe that such a massive shift will have positive results? Why should we believe that other people will accept such a shift? Why should we accept it?
2. How do we know that employment in JG jobs won’t be considered ‘second-tier’ and have almost no impact on future employability? It could even have a negative impact. See my post „Lessons We Can Learn On How Stimulus And Jobs Programs Failed in Eastern Germany„.
3. In a distorted economy like ours, with excessive reliance on finance, housing, banking, a JG could retard the reallocation of resources and help prop up economic sectors with an overinvestment of real resources.
4. Why should we believe that a JG can make jobs available in sectors where the unemployed have skills? All of the laid off mortgage and finance people are not going to be a natural fit for public works.
5. In any economy, it can skew resource investment. For example, real resources devoted to healthcare must naturally increase as our societies age. Is it not likely that a job guarantee will hasten that change without any public debate by reallocating employment to that sector?

John Carney lays out some more. His overarching criticism, with which I agree, is that the „burden of proof is on the reformer„.  That will always be the case.

Clearly, if JG jobs are created by the private sector and simply paid for by government, that minimises the potential conflict between government and the private sector. But you still have the issue of wages to deal with.

The debate here must start with political philosophy: the role of government in promoting full employment, economic and price stability and the appropriate allocation of resources as well as alleviating poverty in an advanced economy. Pavlina told me that she is hoping to begin the dialogue discussing those issues and then putting the JG in that context. I hope that’s where the discussion heads and will continue to carry posts on this issue by the MMT’ers as a result.

For me, the JG is just an idea at this stage. Crucially, it has no relevance to the current political or macroeconomic situation we face — and it will not until the economy reaches 1933-levels of Depression. My focus therefore is on whether that is a possibility and how to protect you and myself against that possibility.