This is all true and there is another reason a guaranteed job program would cause negative productivity, opportunity cost. Despite what the MMTers say, government has to get the money from somewhere, either from taxes or inflation. If they get it from taxes that means the money is transferred from productive uses. If this was frictionless it would mean that the projects selected would need a ROI greater than the marginal project of the private sector. Given that taxation is not frictionless, the actual ROI needed for the project to be actually productive is probably around 25% more than the marginal private sector ROI.
The only reason for a guaranteed job would not be the increased productivity for the economy as a whole but rather the welfare of the unemployed. It could keep skills erosion from happening and be good for the mental state of the unemployed. However, a correct monetary policy could also keep the economy at full employment, while having fewer of the costs.
Once the government releases money into the economy, it doesn’t disappear. Some of it goes into savings. (In the ordinary sense of the word - money not spent.) In which case it doesn’t add to GDP or employment. But it does satisfy the demand for savings, which will be there, either way. (If the government doesn’t satisfy it, it will stay there, continuing to act as a drag on employment.)
Some of it goes to pay down debt. If it goes to pay down bank debt (which is where most debt - I think - originates) then it reduces the amount of bank money in the economy. (Banks create money by lending. Repayment destroys it.) So central bank money replaces commercial bank deposits. But again, if people want to reduce debt, they’re going to attempt to reduce spending in order to do it. So reducing debt eventually allows people to get to the place where they can start spending again.
So just giving people money, eventually improves the economy and leads to higher GDP and employment.
The difference, I guess, is that if you give people money for work, you get the benefit of whatever work they did, and an immediate fall in unemployment.
The resource constraint in the 70’s was oil. Oil, especially then, even more so than now - is an essential resource that affects every aspect of the economy. If there is too little oil, production falls and prices rise, leading to inflation and unemployment.
People generally don’t become “successful” because they are afraid of poverty and failure. They become successful because they have a driving desire to be a great scientist, doctor, lawyer, businessman or whatever.
People work all the crappy jobs no one wants to do because they are afraid of poverty and failure.
The “job guarantee” idea is a bad one because, like anything, the problem is in the details. All jobs aren’t created equal and workers aren’t interchangeable cogs that can be placed in any job. If an executive loses their job as Vice President of Whatever at MegaCorp, do they continue earning $200k a year or are they given some living wage “make work” job? What do people who have no skills do?
“inflation” for all intents and purposes is “money disappearing”.
If I am understanding you correctly you are saying that inflation comes from a fixed supply of money and a shortage of goods to spend it on. If that is the case, doesn’t it mean that the price of money conforms to the laws of supply and demand and that inflation can also be caused by a fixed supply of goods and an oversupply of money?
It’s interesting that for much of history, there was such a nearly unquenchable need for more agricultural workers that industries arose to coerce or even kidnap people to do these jobs. By the time of the 20th century (cf. The Grapes of Wrath), it turned around and people went begging for farm work that was already all filled. There’s still some around, sure, but you can’t just drive out to Kansas and sign on with the first farmer you see and be picking corn the next morning. Likewise, there is no need for “a thousand strong men” to build a bridge or three hundred to build a road across the desert. The need is for a certified architect, lots of high-paid consultants, machinery, and as few manual workers as possible.
That’s not quite right. The Grapes of Wrath represented an double whammy anomaly-- Depression + Dust Bowl. Also, you actually can sign up to pick crops the next day. What do you think all the illegal immigrant farm workers do? Now, most Americans citizens don’t think about doing that, but they could if the were so inclined. But you wouldn’t be picking corn in Kansas-- you’d be picking strawberries in California.
But if people have more money - because, for example, they have jobs - then they will be able to buy more things. When people can buy more things, that means more things will be sold, which means companies and factories don’t have lie idle, or fire people.
What do you mean by “correct monetary policy”?
The actual monetary policy of the Fed over the last several years has been the gradual creation of trillions of dollars of new money. The unemployment rate over the same time period has fallen from approximately 10% to about 5.5%. Inflation has remained low over the entire period.
If what the Fed has actually done is what you mean by correct monetary policy, then it has created money without creating inflation. Instead what has happened is that people have gotten jobs, and the economy has improved.
Welfare ended in 1996.
Unless you’re talking Social Security, etc?
Wrong. There are tons of things that arent being done today that need to be done. Bring back the CCC. Every highway, every beach, every city street, every park would be clean, litter and graffiti free, the restrooms sparkling, the trails free of poison oak, etc. Basic pothole filling can be taught- there are hundreds of thousands of miles of roads today that are not being maintained. And that’s a skill that could be used to get a real job.
You get rent, food and some amount a hour- I dunno- $1? $5?
Those who have child skills can be trained and certified to watch the kids of those working. A Mom of three can watch ten as easily- daycare.
Every government office can use a couple or more interns. Get your call answered by the third ring by a real person.
Every able-bodied person gets a job, and nothing if they dont work.
I’d prefer a (low) guaranteed income for everyone (not subject to means testing). Let private industry create jobs, though government can help out with appropriate taxes, subsidies, and investments.
The money “printed” is vastly different. QE money does NOT require Congressional approval, does NOT increase the deficit, and does NOT create a future burden on taxpayers.
There are three types of stimulus: (1) monetary stimulus like QE which, as I just summarized, is vastly different from fiscal stimulus; (2) tax cuts; (3) government investment, e.g. road repair or work-training programs. Like you, I prefer type (3), but that is not politically feasible in today’s post-rational America.
Not yet, but the dollar is still being propped up by wholesale theft from Job Creators™. Did you know Warren Buffet is forced to pay taxes at a rate almost as high as his secretary? :smack: In modern American political thinking, tax cuts are the solution to everything. Want another big war? Cut taxes. Guaranteed income? Cut taxes to “pay” for it. The very politicians supposedly worried about inflation will, by their nihilistic policies, eventually bring it about.
Not a good idea. It’s bad enough we have so many people wasting time and resources
working for government or on government projects now. We need people producing things and services which have been demonstrated to have value to consumers. This is how welfare is increased, and wealth created.
“Creating money” is the definition of inflation, although most people don’t realize it–even most economists, who should know better.
Most people think that inflation is simply a synonym for rising prices, when in fact the rising prices are a symptom of inflation. Dollars are like everything else – the more there are of them, the less each one is worth.
If you have trouble understanding this, think of it this way–what’s another word for blowing up a balloon? Inflating it. Thus, the increase in the money supply is inflating the money supply.
First of all, to speak of “TrillionS of new money” with a T and an S, I think you’re referring to excess bank reserves which, BTW, do not show up in M0, M1, M2 figures. More on that below, but first let’s fight some confusion about “inflation.”
Inflating a balloon is called balloon inflation. Inflating the money supply is called increasing the money supply but could be called money supply inflation. That’s not economic theory; that’s just application of Webster’s dictionary.
One way to find what people mean by “inflation” is to check Google for hits. “Price inflation” gets 1.8 million hits, more than 4 times as many as “cost inflation”, which was in 2nd place among those I tried. “Wage inflation” was a close 3rd place.
“Money inflation” and “money supply inflation” together got 130,000 hits, only one-twentieth of “{price,cost,wage} inflation.”
Thus we can assume that “inflation” by itself refers to price inflation specifically.
I’ll guess that what you were trying to say is that increasing the money supply tends to lead to price inflation. But do the excess bank reserves (the TrillionS you refer to) pose such a threat?. Read this FRB report for a discussion of why high excess reserves may not lead to inflation. Note that much of the excess reserves (considered “monetary base”) simply replace inter-bank deposits which are not included in any money supply figures.
Also, MMTers don’t deny the possibility of inflation.
Some people act as if the supply of money were the only factor. It’s not.
Inflation is a matter of supply and demand: the supply and demand for money; and the supply and demand for goods and services.
When you increase the supply of money, some people will put it into savings (in the sense of not spending it). Some people will pay down debt. Neither creates inflation.
If people buy stuff with the extra money, that can lead to inflation, unless there is excess capacity. If there’s excess capacity, the result will be more companies selling more things. When people buy more things, and companies sell more things, that results in more employment, higher GDP, and a healthier economy.
The ability to produce more stuff can be constrained by a number of factors. In first world countries the most important factor is the availability of workers. But there are other constraints that can come into play as well: natural resources, security, the lack of the rule of law, skilled workers, and corruption, for example.
What the Fed and the Treasury actually did is exactly what MMTers would recommend, except they would have recommended doing more, faster.
People complain about government all the time. I have more than my share of dealing with government employees, and I can say that there are good ones and bad ones. Some who don’t give a shit about their jobs. Some that work their asses off, and some are somewhere in between.
I also have some first and second hand information about how corporations work. The main difference I see is that they seem to have a lot more meetings (where not much seems to get accomplished), and that a lot of more energy and time goes into getting ahead, rather than doing their jobs. It seems like the ones who focus mostly on getting ahead, are the ones who are most likely to get ahead.
I guess what I’m saying is there’s a wide-spread attitude that government is bad, and corporations are good. That’s not consistent with my experience. Which is not to say there’s not waste in government. It’s to say there’s plenty of waste in corporations as well.
The thing about Dilbert, for example, is that it’s not that much of an exaggeration how big companies actually operate.
You seem to forget that the crash in 2007 took trillions of dollars out of the economy. We were very close to deflation. Perhaps that is one reason we’ve had such low inflation despite the Fed putting so much money into the economy.
I’d suspect that 6 years ago you’d have predicted with absolute confidence that the Fed policies we’ve seen would have let to at least 5% inflation, though I’d guess you’d have said 10%. Am I correct?
By correct monetary policy I mean policy that is appropriate to the situation. The Fed has not had correct monetary policy since around 2006. At that point policy became too tight, when the financial crisis happened it combined with the too tight monetary policy to create the Great Recession. The Fed responded at least six months too late to the Great Recession and then responded too cautiously. QE3 has been successful in reducing unemployment, but it took too long. The Fed still has not met its implicit inflation targets, much less overshot to get back to trend growth.
MMT just happened to be right about the need for stimulus, but so was conventional monetary theory. What is wrong with MMT is that it thinks that stimulus is always correct and will never have any bad consequences. Once the economy returns to full employment and the velocity of money returns to more normal conditions, then the MMT prescription of printing as much money as politicians can spend would result in disastrous inflation.
Monetary policy is preferable because it is more powerful, does not need to be paid back, is much easier to do, is quicker, and will not be offset.
When the government decides to do a project it first has to do a wage survey of unionized workers in the area to make sure unions are not being undercut and to set up the correct wages. This takes about a year. Then they have to do environmental impact reports if it is new construction. Then they have to wait for public comment on the reports and then address those comments. If the people who made the comments are not satisfied, they have to fight it out in court. After this the project is bid out. Once the final bid is agreed on, then people can start being hired, and work can start being done. Depending on the project this can take 5-15 years and cost billions of dollars. All the money during the planning stages are spent for architects and lawyers and civil servants, not construction workers or laborers. If there is still a recession going on at the end of the process that is probably coincidental. On the other hand you can announce a new monetary policy today and it starts working today.
Since the Fed has a target for how fast it wants the economy to grow if it thought fiscal stimulus was truly effective it would then lower the amount of monetary stimulus it did. The would have the effect offsetting most of the fiscal stimulus. Given that most of the budget goes to politically popular "mandatory’ spending, fiscal policy is restrained in a way monetary policy is not.
Off topic but what you said about Buffet’s taxes is not true. Most of Buffet’s wealth comes from unrealized capital gains. His salary is not that much more than his secretary’s because he pays her alot and does not need a big salary since he is incredibly rich. However, since he owns the company the taxes the company pays are being paid by him, just in a different form. He actually pays alot more in taxes than his secretary it is just structured so it looks like he is not personally paying.