Is Full Employment also on the Table, Malcolm?
We keep hearing from the government that everything is ‘on the table’ when it comes to tax and other reforms. Really! Does that include a proposal for full employment?
If you’ve been paying attention to the 2016 U.S. Presidential race and taken note of the various candidates travelling across the country trying to win public support, you would probably have heard of Bernie Sanders.
Bernie who is 74, is the longest serving independent senator in congressional history but who now sides with the Democratic Party in the 2016 race. The main difference between him and all other candidates is his socialist platform underpinned by an approach to economics that coincides with the basic principles of Modern Monetary Theory.
Bernie is one out of the box. He and Hilary Clinton are the main contenders for the Democratic Party nomination that will take place mid next year. But Bernie is nothing like Hilary in terms of policy direction. In fact, he is so far to her left he makes her look like a republican.
But both Bernie and Hilary have in their corner Stephanie Kelton, an associate professor and chairwoman of the economics department at the University of Missouri-Kansas City, who was appointed by Sanders as the chief economist for the Democrats on the Senate Budget Committee in 2014.
Kelton is a self-described “deficit owl” who supported larger budget deficits to counteract the recent recession. She also advocates the introduction of an ELR (Employer of Last Resort), a job guarantee program.
An ELR is a promise by the government that through either private partners in the community or through all three levels of government, a job will be available to any worker who is able and willing to work but cannot find suitable (or any) employment in the private sector.
A functioning ELR means the end of unemployment for those who want to work and consequently, the end of unemployment benefits which translates to a massive saving to any national welfare bill.
Stephanie Kelton understands the policy options open to sovereign currency-issuing countries like the U.S. and Australia, options that are denied those countries who peg their currency to another, or to countries in the Eurozone.
A sovereign government cannot become insolvent in its own currency; it can always make all payments as they come due in its own currency. It never needs to borrow to finance its spending.
Make no mistake about it, unemployment IS a policy option of any capitalist economy and full employment could be one too.
An ELR means paying some people to work rather than paying them not to work. This does not mean that currency-issuing governments are not subject to fiscal policy constraints. But deficit spending is not one of those constraints. The only constraint is inflation.
As long as there are unused resources, capital, people willing to work and unresolved needs such as providing proper healthcare and social services to communities in need, then there is capacity for the currency issuer to employ those resources. And that cannot be inflationary.
Australian economist, Professor Bill Mitchell says, “The Job Guarantee works on the “buffer stock” principle and provides an ‘inflation anchor’, which means that, in the context of the macroeconomic literature, it eliminates the trade-off between inflation and unemployment, the so-called Phillips Curve.”
Bernie Sanders already has a bold proposal to eliminate unemployment by creating 13 million decent-paying jobs, a living wage, and a federally-funded youth job guarantee, all of which is a stepping stone to full employment.
If the Australian government was serious about jobs and growth, the introduction of an ELR here, would be an economic imperative. Yet no such plan exists and none likely. Why is full employment not on the table? The answer: because a certain level of unemployment is part of the neo-liberal philosophy.
As the current thinking goes, 5-7% unemployment helps control wage demands, thus maximising corporate profits which, theoretically, lead to greater business expansion, which leads to even greater profits.
And so it goes on and on. The central objective is corporate profits, not employment. Employment is a by-product and the result is always an ever widening of the gap between rich and not rich.
Full employment interferes with that objective. Full employment helps restore equality and provides a higher living standard for everyone. This is the message Bernie Sanders is spreading across America. Bernie is no friend of the big end of town who detest his policies and have tried to paint him as anti-capitalist and worse still, a socialist.
Yet full employment also maximises tax revenues and minimises welfare payments. Furthermore, full employment increases demand which leads to improved productivity, something all corporations strive to achieve. So why isn’t full employment at the top of every western government’s to-do list?
It’s no different the world over. Full employment threatens the concentration of wealth among the rich and powerful and it is the rich and powerful who control the government’s that we elect to serve us.
This is one of the greatest crimes ever perpetrated in human history. Presidents, prime ministers, and parliamentary representatives are all targets of predatory behaviour by the rich and powerful because it is through our “elected” representatives that these faceless men are able to acquire their wealth.
Our political leaders constantly make decisions favouring the corporate world in the false belief that such decisions bring the promise of lots of jobs. But those jobs could be provided anyway through an ELR program rendering government decisions favouring corporations redundant; proof indeed that the big end of town is really the body in control.
Commercial development and manufacturing enterprises have always attracted politicians’ interest because it helps them to be seen to be doing their job. In reality those enterprises would still happen so long as they were commercially viable.
But no Captain of Industry in his right mind wants to see full employment for fear the price of labour would skyrocket. It is, however, a false fear. The benefits of full employment to any economy are self-evident.
The price of labour is determined by productivity output and a competitive marketplace, not wage demands. The rich would still be rich but the gap would be narrower. Some of their wealth would have to be shared with the rest of us.
That’s why they don’t want to see full employment. But do not be fooled by those who say it is impossible. So, Malcolm Turnbull, why is full employment not on the agenda?
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Agree completely John. I am continually heartened by your contributions to AIMN. The more exposure the precepts of Modern Monetary Theory get the better. Keep on keeping on. We must not relent.
Have watched some Stephanie Kelton Videos on YouTube and am mightily impressed. One with Warren Moseley was exceptional.
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Well said John Kelly – I keep trying to keep modern money theory on facebook as a conversation piece, unfortunately I am not anywhere near as elequant as yourself and nor am I able to argue the case well because I am not that well versed in the theory and facts of a fiat economy and what it means.
But I am having a little fun with it too.
I think it is important to keep talking about it on facebook and in particular to challenge the notion that the Federal gpvernment has to raise taxes to spend. When I say that I am almost universally viewed as a nut case, and some of the neo-con self promoted and reportedly qualified economists attack me straight away as an ignorant fool.
The fact that I am attacked by so called economists is actually telling me that they do not like the truth to be known
Anyway I keep trying
I would appreciate it you, Steventardrew and any other devotee would follow my comments and perhaps help me out when I am under attack or out of my depth!
Thanks John Kelly for a great article. I would love to see an article like this on the front page of all or at least a major newspaper one day so that Australian’s could have the veil of neo-liberal brainwashing lifted. We could then hopefully start to have a real discussion about how the government can enable a more healthy society to exist. It would be like a huge rocket under Australia’s progress hurtling us forward to much greater possibilities.
We could then get on with building large scale renewable energy and very fast trains. A real world class NBN also as well as a strong science and research tech driven education system.
Keep up the great work JK we really need to keep fighting for the truth to get out there.
@stephengb2014 I’m quite well versed in MMT from studying it the last 2 years so would be happy to help? Not sure where I could help if it’s Facebook? Do I need a name?
Yes thank you for this I have been publicly on FB reminding people that a job guarantee will deliver so much just from a mental health perspective alone! The numerous amount of environmental jobs required should encourage many of our youth to participate eg clean our beaches, national parks etc then all the severely lacking infrastructure projects around the nation could easily employ most of us for decades the benefits are enormous the positive feeling of a job money to save, spend will boost economic activity and taxes to the gov which reduces inflation/payments for the life of me I cant understand why more Aussies dont get it?
Great stuff. Very well written.
@Joe A we just have to keep talking about it and explain it to people. The neo-liberal concepts have been hammered in daily by media and government so it’s hard to break out of. It’s very instinctive to think of a household budget and so is an incredibly powerful narrative.
The more people we can talk to about it the more chance we have in future to make change happen.
Bernie Sanders is certainly an unusual american. One can expect him to be mercilessly attacked by the Murdoch media and the other mouthpieces for neoliberal ideology in the run-up to the Democratic Party nomination. He would do well to cease referring to himself as a socialist (democratic or otherwise), which is red rag to a bull in the context of north american politics, and is the kiss of death for anyone aspiring to high office. The reality is that he is a social democrat, in the honorable tradition of northern Europe and Scandinavia, and should refer to himself as such.
John, many thanks for an exceptional article.
Yes, sado economics is more fun… slakes their appetite for control and self justification.
In order to reduce unemployment, they would also first have to stop lying about the actual rate of unemployment at the present, where an hour a week cleaning dunnies is considered “employed”, going back to considering full time work as the seperate and desired category.
Would it work in an economy now dominated by services rather than manufacture?
Dr Kelton must be counting on a stimulus based on wages paying for the jobs through anticipated extra spending and for downstream benefits like improved mental and physical health for the newly employed, as well as rewarding jobs at child care centres, say.
John Hermann, they love him. They also have turned to Corbyn in Britain because he is not a neo lib Blairite. People are sick of capitalism as it operates at this time.
Paul Walter, I hope they love him … he will need all the love he can get in the run-up to the Democrat nominations, because the media as a whole will be all out to crucify him, make no mistake about that. Every dirty trick in the book will be employed.
Today’s use of fiscal policy is appalling. Pushing rates down in the ambition of returning to surplus while unemployment, underemployment and asset productivity are becoming bigger problems.
If the economy stalls we won’t be able to drop rates and running large deficits will be our only option to a fast recovery (which is important given the huge financial cost of unemployment to the budget).
Currency issuing nations can go bust if they want to prevent maintain some value in their currency.
Devalue your currency too far and the cost of imports becomes highly inhibiting for business and consumers. The U.S. will continue to devalue their currency and will be ok for a few years while capital rushes into their nation and their companies and assets become foreign owned (not so unlike Australia). Eventually the U.S. will default on their repayments and other nations will be forced to seek a solution (like cancel debt).
You can’t keep printing money (or quantitatively easing) or inflation will run out of control.
ELR is a good theory and COFFEE make a good case about the loss of tax revenue and welfare spending (don’t forget health) involved with unemployment. An ELR needs to use labor as a productive asset and add to the economy in a way that won’t “crowd-out” private investment. There are lots of government jobs that can be productive with no competition from the private market. Most government jobs are being outsourced to private contractors so such work is getting harder to find. SES and some Army duties make solid contributions to the economy. There are volunteer positions that add to the economy without detracting from private industry.
Turnbull might be less of a tin-ear on economics than Abbott was.
1. Has MMT been employed (no pun intended) anywhere in the world? At the moment it is no more than a very interesting hypothesis. I’m not opposed to a minimum income or job guarantee in principle, but treating MMT as a sure thing is wrong.
2.What makes anyone think that any politician planning to implement it has a snowball’s chance in hell of being allowed to win? Those who own the media all benefit from the current system and will fight tooth and nail to preserve it, and will make damn sure any movement is towards the “haves”.
ELR operated during communism but was used to replace the private sector. The concept should never detract from the allocation of resources in the private sector.
The U.S. Has been running mind boggling deficits for decades. Their debt was falling since WW2 but rose during war years now to the point were they can’t afford to keep troops on the ground.
It’s unlikely that they would be able to default on their debt even though it is impossible for them to repay it. The global economy wouldn’t allow it. I disagree that a sovereign nation can’t default by using their exchange rate. Eventually the cost of imports becomes too high.
We had a similar fiscal policy when Howard was saving money from the budget surpluses (though we now know he saved far far too little). Post Keynesian fiscal policy would have a budget saving when times are good and spending when times are bad. The saving and spending should cancel eachother out over the course of the business cycle, which is why our spending during the GFC was sustainable while it wasn’t for other countries.
John makes MMT sound like a pure Keynesian ideology and I doubt that is what Bill is writing about. Bernie however, I have no idea which ideology he is suggesting.
Brian Crawford you misunderstand modern money. It’s fiat now and floating. It’s created by a keystroke on a spreadsheet. We don’t need to do all the things we used to do for gold.
Gold: Q why do we need a shiny yellow metal so we can spend a $ of our own currency?
A: we don’t!
If you want to better understand the idiocy of this governments cost cutting then watch this 3min clip on money: http://youtu.be/bTZGU9s0idM
Government spending needs to build the foundations of the economy like education and infrastructure or the whole thing will collapse! The government is not fiscally constrained like a household!! We need our politicians to invest in our future and stop lying to us about needing to keep cutting the things that are essential for the future!
Brian, most of what you say is reasonably accurate but not all of it. Currency issuing governments can never run out of money and therefore, can never default on payments owing in their own currency. Yes, they are fiscally constrained to the limits of their GDP and the closer they get to those limits the greater the pressure on the value of their currency on international markets, and by extension, the more expensive their imports. But, neither Australia nor the U.S. could ever default on its bond commitments. To suggest otherwise is an oxymoron, or to put it a better way these days, a Barnaby Joyce moment.
Brian, While foreign investors can own Australian assets, they can only purchase those assets with Australian dollars. Once their foreign exchange money has been converted to $A it is subject to the $A exchange rate. That in no way places the $A under any pressure. It does, however, place their investment of foreign money under the pressure of the $A exchange rate. They are the ones taking the risk, not us.
As soon as you get full employment there would be a massive immigration program – you could count on it.
Those who don’t want a big Australia, who know it is a irresponsible viewpoint, cannot win.
Due to globalisation, Australia does not really own control of the economy anymore – because the rich have so much freedom to transfer capital around the world, we have to follow the policies of the bigger players. ie we have to keep top tax rates fairly competitive, as they are presently.
There is one way we need the very rich – we need them as a buffer against the more severe billionaires arising from developing countries – who would otherwise buy too many productive assets around the world. It is a lesser of two evils scenario – coming from a poorer base, which allows more opportunity for worker abuse, these folk would be worse than the most of the psychopaths we already have.
I think the left split themselves into too many fronts. I wish they would concentrate on fewer issues – such as forcing the government to build enough housing to cause a housing price crash (to lower our wage needs) and the resulting recession we need (to bring out forces that will attack the current plutocracy).
I hate deficits – because it sets up an excuse scenario for the neo-cons that they can use for all sorts of situations, it advances our plutocratic decline. I have no doubt Rudd spent too much to protect his political neck. Better a recession than a large deficit.
Jason. The money supply (M3) grows and shrinks with the bond market (RBA cash rate movements), and the balance of payments with the current and capital accounts. Together they can maintain GDP growth while the private sector slows (I’m really rusty on IS, LM, BP curves but they sit with MMT http://eml.berkeley.edu/~webfac/wood/e100b_f06/lecture24.pdf).
For foreign investment I was thinking about the current account and the inflow of money for the money supply. Currently the US accommodates their perpetual capital account deficits with ongoing current account surpluses. This wouldn’t last forever and eventually an economy will be spending more on interest than on repaying the principle.
Recessions cause the budget to go further into deficit. The cost of unemployment is huge and it is much cheaper to avoid unemployment than to loose billions in lost PAYE, Company tax, welfare payments and long term social costs such as health and crime. Japan still hasn’t recovered from their recession in 1995 https://ndainfo.files.wordpress.com/2009/11/usvsjapangdp.jpg https://static-ssl.businessinsider.com/image/53ce878b6da811f12112a151-800-532/japan%20public%20debt.png
[Recessions cause the budget to go further into deficit]
True, but it sets up the conditions for more productivity and hopefully stronger union membership. This will lead to a better overall result over the longer timeframe generating more tax income. With lower housing costs this provides more scope for the needed increase in taxation. We have agreed to additional expenditure such as NIDS, and we should contain the deficit.
We are going further into deficit anyway.
I’ve never worked in a place where there was not a need to readjust the structure over time, including some people loosing jobs. Under globalisation Australia has become too expensive for manufacturing. As an often bogan and multicultural country I think we need a 15% manufacturing base, we need the employment variety. We need the housing issue resolved as it will make us happier, more hopeful, which might make us nicer.
And we will have little need to destroy our standard of living by borrowing needless money from overseas. In a way bubble priced housing and high rents due to excessive capital costs is a bigger “tax” for the lower classes than income tax – individuals may win out of it, but the country does not. It takes away from the domestic money that could be invested into productive areas – which are not just in income producing areas, but in things like education as well.
Good article, John.
It’s just ironic that those who “need” unemployment are the same people who demonise the unemployed. Twiggy and Fatty come to mind with their welfare card and $6 per hour pay rates.