My Comments on MMT’s Job Guarantee Idea


Over the holidays, a debate broke out in the blogosphere about the so-called job guarantee idea that the MMT folks have bandied about.

By Edward Harrison

I call this controversial idea “Unemployment Insurance for the 21st Century“, something I first addressed in 2009, based on a post by Randall Wray.

My view: a job guarantee will never happen in the US unless we have a deep Depression like the one that began in 1929. Politically, this idea is a non-starter on this side of the Atlantic… unless things get really bad and all other options have failed. I say this because I am a pragmatist and that’s the political reality I am seeing. To my mind, the politics must always be front and center mentally. Now, if you wanted to look for a place where this job guarantee idea would first be implemented, try Spain, where youth unemployment is almost 50%.

Clearly, the US has a great need for infrastructure repair — roads, bridges, tunnels, public transport, you name it. Just the day before yesterday, I was walking down the street with my wife and son when we noticed some serious (but unnecessary and annoying) street work that the local county had done. I went ballistic, complaining that, on the one hand, the local elementary school right across the street had been shut down because the building was ‘not up to code’, yet on the other hand, the county was doing these ridiculous and unnecessary street and sidewalk ‘improvements’. It immediately hit me that one could claim that these improvements were keeping people employed and aiding the economy. But, my viscerally negative reaction tells you that such a claim would be considered false by many taxpayers. It’s through these eyes that I view the debate on the job guarantee.

I’m not going to get into what is ‘real’ MMT and what isn’t. Instead I will just repeat verbatim what I wrote in the comments to my post “More thoughts on out of control deficit spending” last March in response to Jeff Reisberg (You should read the post too):

“I was having this conversation with Scott Fullwiler and Randall Wray and, yes, they both indicated they were concerned about cronyism and the Predator State. So you are right that this is something that concerns them. Perhaps I shouldn’t say I am more negative than they are on that level. Perhaps I should say that they are more convinced that full employment is the primary goal of government.

“Where I think Scott, Randy and I agreed is that the cronyism and resource misallocation is less important than the output gap from underemployment in a massive recession like the one we have had. If you had to err on any side, it would be on the side of increasing demand in order to close the output gap, even if that meant some level of government waste and/or cronyism and resource misallocation. The alternative is to allow labor to sit idle and thus miss out on tens of billions in potential production.

“One more thing about the cronyism that has to do with the present political debates. I think this goes to my point more and is something I have discussed quite often with Marshall Auerback. The Obama Administration is seen as having used ‘Keynesian’ stimulus as a primary tool in dealing with the crisis. In my opinion, it is relatively certain the economy would be in worse shape if they hadn’t done so. The same goes for the liquidity provided in QE1.

“The problem is the WAY it was done and why this invariably leads to a certain disgust in the electorate. In both cases, in terms of the Obama Administration and the Fed, you saw the Predator State at work, meaning policies favoured certain groups over others. Now I think the fiscal stimulus was too small and not targeted enough. But that’s neither here nor there when the bailouts are the major ‘stimulative’ activity that the electorate sees. That’s where the problem is. And while Tim Geithner says these ‘deeply unpopular, deeply hard to understand’ policies were necessary, doing things this way ensures that stimulus is discredited as a policy tool. I am thinking principally of the freebies for the too big to fail banks.

“My point here about cronyism and resource misallocation has much to do with that. The point being that if you are destined to get cronyism in a deep downturn, you are also likely to get stimulus revulsion and that necessarily undermines the ability to provide any stimulus, whether it helps or not. What I am saying is that the move into deficit hawk territory and the (often false) arguments used to support this move are enabled greatly by cronyism. The cronyism makes these arguments persuasive and fatally undermines any attempts to use government as a tool to diminish the impact of underemployment.

“So, while MMT’ers are hugely doubtful of the private sector’s ability to generate full employment alone, they will have to make do with the private sector’s lead while the government is in the thrall of corporatism – if only for political reasons.”

I am never categorically against anything — including the job guarantee. In fact I like the ‘automatic’ aspect of it to reduce cronyism. Nonetheless, there are a lot of questions that the job guarantee creates which can’t be answered, at least politically. That’s why the JG won’t happen unless the economy is in a serious Depression and other options have failed.

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