The Job Guarantee. Problems from a Left Perspective.

There’s no doubt that a JG program along the lines we might imagine it to be, and along the lines advocated by the leading names of MMT: Warren Mosler, Bill Mitchell and  others would be highly desirable.

We could have an economy run to ensure almost full employment except for a  JG rate of about 2%. Then maybe there would be another 2% who were in receipt of unemployment pay due to their being temporarily between jobs. We could allow a reasonable period of time for that to occur -say about 3 months. The JG could have a part to play in young people’s apprenticeship schemes too. There could be some relaxation in the principle of “public purpose” if job training was combined with education. The JG could pay a living wage meaning that the wage was more than just enough to stay alive but it was enough to enjoy life too.

The problem, for me, and I suspect others on the left, is that we fear it won’t turn out quite like that. There’s no guarantee, or even likelihood,  that the JG will end poverty. It would depend on the wage the JG pays relative to the cost of living in the locality. If you’re living in London and depending on the rental property market you’d need an income much higher than anything I’ve seen proposed for the JG to be above any reasonable definition of the poverty line.

Incidentally, this posting was prompted by a discussion between Neil Wilson and others (including myself) on his very good blog:

http://www.3spoken.co.uk/2015/11/job-guarantee-jobs-for-people.html

“Very good” doesn’t mean we always agree, BTW,  as this exchange shows.

PM: “We don’t want to get into the situation, for example, where we’re threatening young mothers with loss of benefits for not taking up the JG or getting into disputes with the mentally ill as to their capability for work.”

NW: “I’m afraid that isn’t your choice. That is the choice of the society you live in and how they perceive those individuals”.

Which is a fair enough comment of course, but if it looks, from a left perspective that there are too many devils-in-the-JG-detail for comfort why would the left want to aggressively pursue the concept of a JG? Why not just leave it ” to the society (we) live in ” to come around to the idea ? That’s not likely to happen for a very long time, though. Either the JG is pushed by the left or it just won’t happen at all. Another problem, again at least for me, is the language used to promote the idea of a JG and it being a “buffer stock”. We are real people. Yes we want to work and make a contribution but we don’t want to be a “buffer stock” in the same way as we can have a buffer stock of bales of wool or kilos of butter.

While MMT and concepts like the JG are useful they only go so far. MMT doesn’t say anything about how wealth and incomes should be shared out. If we don’t address that question, and keep on addressing it then we’ll end up with just as much poverty in the future even though society as a whole could well be richer.

There could well be very much higher rates of JG work as the not-so-innocent fraudsters in Government deliberately shift essential work into the JG sector. The JG would be a very powerful weapon and used in the hands of the fraudsters to reduce wages. We could, for example, have a JG now in parts of the EU which paid say €7 ph or whatever was just slightly higher than social benefits. So in Greece we’d have 25% on a JG instead of 25% unemployed.

There’s no way any of us with a leftist perspective would support that. If anyone is contributing to society by working, the old principle of Labour’s Clause 4 applies: “To secure for the workers by hand or by brain the full fruits of their industry and the most equitable distribution thereof that may be possible etc..”

Having a JG, even on a so-called living wage, doesn’t change that one bit!

The UK Autumn Budget Statement – More Neoliberal Nonsense!

The Autumn statement would not be so bad if it was economically coherent, with the spending and taxing plans agreeable, or otherwise, according to one’s political opinion. However, it does not make any sense. Not only does it not “add up”, it is inconsistent with all the principles of arithmetic.

The right wing Tory MP John Redwood makes the point :

“In total the new estimates show us paying an extra £105 billion in tax over the five years”

George Osborne says:

” we will reach a surplus of £10.1 billion in 2019/20″

Note: it’s not just “about £10 billion” its  “£10.1 billion”. We’ve all got to admire just how precise George and his Treasury economists can be about these five year forecasts! As if !

There’s no chance of this happening with the UK running a ~ £90 billion deficit in its external deficit due to trade and other international payments.  It would mean that the UK economy would have to find ~ £100 billion every year to pay the import bill and also provide the government with its £10 billion surplus.

This, presumably, is close enough to John Redwood’s ” extra £105 billion in tax”?

George Osborne says that  “Britain will be out of the red and into the black” which is completely untrue. These figures mean the British economy will be in the red to the extent of ~£100 billion to pay for the Govt being ~£10 billion in the black,  and Britain’s overseas trading partners being ~£90 billion in the black.

It can’t possibly happen that way,  unless somehow the trade deficit can be turned into a trade surplus, and that aspect is totally ignored in George Osborne’s grand plan. The UK economy could not sustain a net loss of £100 billion even for one year – never mind on an annual basis. George Osborne will only send the economy into a downward spiral trying to achieve the impossible. An economy in a depressed state will also deliver depressed levels of taxation revenue.

In a couple of years time, the excuse for the plan failing , as it inevitably will , is likely to be that even though the Government has kept spending under control, taxation revenues will have not come in as expected. This will be attributed to: Problems in the eurozone, problems with world trade, problems with loss of revenue from North Sea oil, a new war in the Middle East maybe?

In other words, the same kind of ‘excuses’ as were put forward after the last similar plan failed, in the years following the Tory win in 2010, except the Govt could blame the Lib Dems then! If the Government cared to look for a reason, rather than an excuse, they would explain that their deficit has to be the sum of what everyone else saves. They don’t have direct control of that.

There’s a saying , usually incorrectly attributed to Einstein, about doing the same thing over and over but expecting different results, being a sign of madness.  Are the Tories mad, though, or just plain bad?

MMT and Economic Growth

Most economists , including the MMT variety, are wedded to the notion that economic growth in itself is a good thing. Of course, it has indeed been that over the last centuries. Few of us would be happy living under the same conditions as our 19th century forebears for example.Looking at inscriptions on the headstones of an old cemetery, or the reading of a few chapters of a Dickens novel provides enough evidence of the harsh living conditions that most endured then. Infant mortality was high. Many women died in their prime due to complications of childbirth. Improvements have largely been made possible by economic growth. In our modern economies we notice that unemployment falls when economies grow. Workers can negotiate higher wages as businesses can sell their products and services into marketplace. Everyone is happy. Governments get re-elected!

Economic growth is largely a product of human ingenuity. Give a group of workers the task of doing something, like making a car for example, when they have no experience of even seeing a car before and they’ll struggle to do it. The cars they produce won’t be very good. They will consume a lot of labour power and be relatively expensive, so that only the very wealthy can afford them. That was the case in the early years of the car industry. But as the workers gain more experience and apply their intelligence to the problems at hand, the cars are continually improved. The labour time to make each one falls as production techniques improve too. Fast forward to where we are now, and we have very good cars made very efficiently by far fewer workers at a fraction of the cost of a century ago. It is the same story in just about every industry we can think of.

Those in the Green movement question that we can have economic growth forever citing the fact that economic growth implies an exponential consumption of the finite resources which are available to us. It’s a good question and it’s one we are going to have to answer sooner or later. We might want to make a start on doing that now in the context of our present economic problems. In the UK and Europe we have seen no real economic growth since the 2008 GFC. The situation varies from country to country but typically GDP per person is just about what is was a decade ago. Even so, this is still approximately twice what it was a generation ago. So is everyone twice as happy now as they were then? Or are they exactly as happy as they were a decade ago?

Of course they aren’t. There’s much more unemployment and underemployment now. There are more homeless people than there were, there aremore people relying on food banks. The state of the NHS and the education system is worse than it was. In 1980, students still had grants, but now they don’t, even though supposedly we are a much wealthier society, notwithstanding the difficulties brought about by the 2008 crash. This is not what I remember being told by Sir Keith Joseph ( a Tory politician very close toMargaret Thatcher) in the early 70’s when we clashed at a student meeting where he was speaking. He criticised me, in particular, and the left in general, for being overly concerned with the redistribution of existing wealth and not enough about the creation of new wealth. His message was that social and economic problems, of which we were both aware existed, were best solved by having a more productive economy and allowing the wealth creators free rein to create wealth unhindered by State interference. It would have been inconceivable to the rest of the meeting, and maybe even to Keith Joseph and myself, that some 40 years later we’d have had the levels of growth we’ve had but still the same economic problems would remain unresolved.

We don’t need degrees in economic theory to know that if the proverbial ‘economic cake’ is much bigger but there are still those surviving on meagre rations, that the imbalance must be due to how that cake is cut. The question of who gets what does matter when discussing Economics. Economic growth has to be more than about mopping up surplus labour in a capitalist economy. If we do achieve some growth, that’s fine, we all can feel a bit better off. If we don’t, we should all feel that we are neither better nor worse off, instead of, as now, feeling that we have to run just to stand still. Do we need a different type of economy for that to happen? The critics of MMT might argue that it’s little more than a patch for the problems of a capitalist economy. I wouldn’t accept that but we do have to explain how MMT can work for everyone if we are to establish meaningful links with the political left. A Job Guarantee on a minimum wage won’t be enough for many.

If we do want that, we have in the words of Labour’s old Clause 4 to provide an economic theory which can help to “secure for the workers by hand or by brain the full fruits of their industry and the most equitable distribution thereof”.

 

“We need deficits because people want to buy gilts” – Richard Murphy

Richard Murphy published an interesting  article “On budget surpluses and the economic illiteracy of the Fiscal Charter”  yesterday in which he made several important points such as “we need deficits because people want to buy gilts” and “if the government runs a surplus someone else has to run a deficit”.

Absolutely right and well said, Richard! I hope everyone who’s even the slightest bit worried about our deficit and so-called “national debt” reads this very important piece of what will be ‘news’ to them. Maybe John McDonnell has finally seen the light? There’s nothing wrong with a a change of mind when new evidence and new arguments compel that. Intelligent people change their views all the time as more information becomes avaialble.

The question to be resolved, and I must admit I’m not totally clear on the answer, is if we should sell gilts. Is the fact that people want to buy them a good enough reason to sell them? Why can’t we just allow people to put their money on deposit. Offer the a fixed interest rate, say 2%, and tell them “That’s it. Take it or leave it”.

Some would say 2% was way too high. We should pay 0%. So what will happen then? If we discourage people saving, deliberately creating enough inflation to make 0% , or even 2% very unattractive, we’ll theoretically have no deficits at all.

Because Government Deficit = Savings of the Non-Government

Is that what people really want? Is George Osborne aware that what he needs to do to achieve his surplus is create more inflation and stop selling gilts?

What is People’s Quantitative Easing?

PQE,  sometimes known as Overt Monetary Financing, is the process of creating new money, issued by the central bank in exchange for government bonds. This is then directly spent into the economy to stimulate economic activity. Whereas conventional Quantitative Easing is primarily to provide liquidity to banks and other financial institutions – Some might say it is to give them money which can create asset price bubbles, and other price distortions! – PQE is much simpler and free of many complications.  PQE  can be part of powerful fiscal policy to remedy the  problems of recession and depression.

Mention PQE, however, a term coined I believe by Richard Murphy, and it won’t be long before Zimbabwe and the Weimar Republic will be used as examples of why it’s not a good idea! That’s OTT, but nevertheless the objection of possible inflation needs to be addressed.

PQE could possibly cause inflation. All government spending, as with all spending, deficit or otherwise, carries an inflationary potential .

Deficit spending is necessary to keep the economy functioning when users of the currency wish to save some of it. Those who doubt that might just like to consider the very simple economy of a baby sitting circle. If everyone in the circle readily spent a token and received a night’s baby sitting in equal measure to their willingness to do a night’s baby sitting to receive a token, there’d be no problem at all. But, say, for whatever reason, some of the sitters decided to accumulate tokens. Fairly quickly there would be a shortage and the system would cease to function. There would be a demand, from those without tokens, that the baby sitting council should issue extra ones. Those with a stockpile of tokens would object, saying the “printing” of new tokens would devalue their existing tokens.

If the hoarders lent the tokens back to the council they could be pacified with some reward. Just as lenders of pounds to the government are pacified with a reward of extra pounds. But if the hoarders of the tokens saved them in a piggy bank and refused to lend them back, all the council could do would be to create new tokens and inject them into the system. This would be the equivalent of PQE.

Is one method more or less inflationary than the other? There’s not much in it. Arguably PQE would be less inflationary because there are no extra rewards needed. If the issuing of new tokens, by either method, was just enough to restart the system, not too much and not too little, then neither method would be inflationary.

So who are the hoarders in the real economy? The central banks of the big exporters are the biggest. The big exporters don’t want to spend all they earn by selling goods and services into the British economy. So they buy Government bonds and so effectively lend back their surplus tokens, or ££. The wealthy are the other main ‘culprits’. They tend to accumulate more ££ than they need.

But what if not everyone recycled their extra tokens back through the banking system? Suppose they kept hoards of cash in safes or bank deposit boxes? The government can’t borrow those back. All it can do is create some new tokens. PQE in other words.

The government can’t know just how fast money is moving or if lots of it is being stored this way. What it can expect is the combination of low interest rates and low inflation will make it more attractive for many users of currency who may be engaging in illegal, or borderline, transactions and so wish to hide their finances, will  to store their cash this way.  However, Government can easily monitor inflation. If it is engaging in PQE and inflation starts to be a problem it needs to back off. Alternatively if it’s not a problem it can do a bit more. The government needs to be careful, but shouldn’t be so scared of the idea that it doesn’t even try it out.

The British left needs to discuss more than the UK’s membership of the EU.

As the EU debate swings into life in the UK we’ve so far heard the most from the business sector who have been most pro in their advocacy of the UK’s continued membership. It is perhaps quite natural that big business would like the EU to remain as it is. Those on the traditional left would say that’s because they want to have a large pool of unemployed workers to keep wages down and maintain worker discipline!

Are they correct in saying that? As things are at the moment it is hard to say they aren’t. It is hard for big business to argue that they only want the EU for its expanded, but much depressed, market.

The modern supposedly progressive left has been seduced by the powers-that-be in the EU into thinking the EU to be a socially progressive organisation too. Recent events in Greece, for example, are shaking that view. That needs  to be shaken  some more. A first step would be to get them to actually discuss the problem. We might well think the election of Syriza in Greece, with its band of ex-Maoists, ex- Trotskyites, ex-Communists would be a topic of interest for them. Not so. They are shell-shocked into silence at the moment. The main Labour websites have nothing at all to say on that.

Anyone believing in a united Europe, as many of our EU advocates clearly do, should feel as passionately about unemployed young people in Spain or poverty in Greece as they do about it in the UK. The progressive left  say they like everything about the current level of EU integration, and like the EU as it is. If they ever remember to make a critical comment, it is not because they wish to change anything or intend to vote against any of its measures.

If the UK today had ultra high levels of youth unemployment as the south of the EU currently suffers,  the progressives would never let anyone hear the end of it. Rightly so. There would be marches  from the most depressed areas to London to demand some action.

If the UK had Greek levels of unemployment, and a Greek cost of living crisis which has depressed average real incomes by almost a quarter since 2007, again we would not hear the end of it, as the ‘progressives’ would rightly think it completely unacceptable. If the unemployment in Greece or Spain had been brought about by a right wing military coup, again there would be uproar. So why is it that these people who believe in pan European solidarity have nothing to say about the scandal of poverty and joblessness in large areas of Euroland? Why are they not insisting on new policies for the EU?

Now’s a good time to be saying something about that in connection with the EU referendum. The British left needs to discuss more than the UK’s membership of the EU. It needs to discuss the EU itself too.

How to win and lose elections. (2)

There’s been a lot of navel gazing in British Labour circles recently about what went wrong last week and what needs to be done to prevent a re-occurrence next time. Presumably in about five years time. The arguments are pretty much along the same lines as the last time that Labour suffered an unexpected election defeat. Naturally, those on the right want to move more to the right. Those on the left want to move more to the left. Those in the middle think a new personality might do the trick.

Who’s right? Let’s just stand back and look at the numbers. According to my calculations the Tories received about 24% support from the electorate in the 7th May 2015 UK elections. Labour about 20% support. That’s including those who didn’t vote. So to win government, next time, Labour need to get at least another 5%. If they are positive, and were prepared to really go for it, they could aim for another 10%. If they achieved that they’d be back big-time.

So what’s the best way to do that? Let’s leave the politics out of it as much as possible and just think in pragmatic terms. Do they try to persuade nearly half, or a quarter if we allow for the same reduction in the Tory vote, of those who voted Tory this time to switch sides? I could be wrong, but I don’t think that’s ever going to work. I know a good few Tories and I can’t think of a single one who would ever vote Labour, even if the Labour Party were offering the most Tory of policies and had a picture of Maggie Thatcher on the front cover of their next manifesto. Of course, if the party did that they would jeopardise their own core vote. That’s never a good idea.

I’d say the same would be true in the USA too. Both the Democrats and Republicans would expect only limited success if either moved towards the other politically. Probably it wouldn’t be enough to make a real difference. It could well be counterproductive and would naturally give more justification to those who were disillusioned with the lack of political choices that were on offer. They’d choose to do other things, rather than becoming involved in the election and would be less likely to make the effort to vote. This argument probably wouldn’t apply to Australia which has compulsory voting – the Aussies are quite unusual in that respect.

Alternatively, Labour could aim for the 56% who didn’t vote for either them or the Tories. This, again, would include those who didn’t vote at all. Labour wouldn’t persuade them all, that’s for sure. But, they’d just need to sway 1 in every 5 and they’d be home and dry.

This is an implied conclusion which, I have to acknowledge, will be more appealing to the left than the right. But, I’d argue it’s the reality too. The left would argue that by being true to their historic principles, and offering a message of hope rather than despair to working people they would have a better chance of winning. They’d argue the need to have a distinctive message which wouldn’t allow anyone on the doorstep to say “but you’re all the same”.

I’d add that the party, as a whole, needs to make a start on the explanation of how the economy really works which is not at all how most people think it works. Once more people have that understanding it will become apparent what the real choices are from both a left and a right perspective.

Never mind the deficit just vote for the recovery!

It’s difficult to know who to back in next month’s UK elections. Europe is a major issue which the most normally sensible parties, or at least the parties who the public normally consider to be the more sensible,  have largely chosen to ignore  in the run up. The events in the eurozone are highly significant, in particular the Greek crisis,  yet those in the most pro-EU parties don’t want to talk about them at all.

There’s next to nothing about it on Labour’s main website, Labourlist, for example.

Funny that!  Those who believe in a united Europe, as many of our more ardent EU advocates clearly do, should feel as strongly about unemployed young people in Spain or poverty in Greece as about hardship in the UK.  Yet, if they ever remember to make a critical comment, it is not because they wish to change anything. The just expired Parliament has seen a complete absence of Labour opposition to any new laws or powers for the EU.

If the UK today had 50% youth unemployment as the south of Euroland currently suffers, Labour would never let us all hear the end of it – and rightly so. If the UK had Greek levels of unemployment, and a Greek cost of living crisis which has depressed average real incomes by almost a quarter since 2007, again we would not hear the end of it, as Labour would rightly think it completely unacceptable. So why is it that these people who believe in pan European solidarity have nothing to say about the scandal of poverty and joblessness in large chunks of Euroland? Why are they not insisting on new policies for the EU?

The situation is far from ideal but it’s probably best to vote for the party who you feel will produce the best recovery. The recovery, when it happens, will fix all deficit problems. Firstly a healthy economy will mean increased taxation revenue. Secondly, if the economy is healthy no-one is going to worry about debts and deficit anyway. The US$ is surging at present as investors buy up $ securities. Are they worried about a $17 trillion (or is it $18 trillion by now?) debt?

I don’t think so. There are those in the USA who can’t make head nor tail of it all and are pushing for a balanced budget. I can’t see them getting anywhere but heaven help us all if they do!

Balancing the Budget !

As election time draws near in the UK , and the US presidential election campaigns start to get underway across the Atlantic,  we’ll no doubt hear a lot about this topic shortly, if we haven’t already.  Apologies if you’ve heard this all before but the political and economic mainstream still don’t grasp it. Political parties will accuse their opponents of making “unfunded promises”, and of having “black holes” in their budgets etc . Nations’ finances will be likened to a household.

Except that Sovereign Governments, like the USA and UK are issuers of currency. They aren’t at all like a household. If a household has a deficit of say £10k pa then, generally speaking, spending cuts of £5k coupled with an extra £5k of earnings will fix the problem. How many times do we see see the same logic applied to countries too? It never works. It can’t work. Governments afterwards wonder why. It isn’t difficult to understand:

Money coming into the Private Domestic Sector , which is essentially what we all think of as “the economy” can only be from two sources. Government spending directly into it (Gsp) , and payments from overseas for exported goods and services. How can anyone possibly think that reducing Gsp isn’t going to affect Taxes paid? Every £ or $ collected in tax originally comes from Govt spending.

The ability of the economy to deliver taxes to the government has to be directly related to its income. Reducing its income will  make us all poorer and reduce our ability to deliver those taxes.  Spending cuts won’t do anything like as much towards reducing that deficit as is usually supposed.

How much simpler could it be?

And yet if the “balanced budget” cretins get their way what will happen?  The government will makes cuts, tax revenue will fall and the deficit will end up not much different to what it was previously. The cretins will then argue they didn’t make enough cuts and that they’ll need to make more on the second round. And so it will go on, with increased levels of unemployment and business failures at every stage.

We just can’t let this happen. It’s madness.  Instead of forcing the budget to “balance”, we should should look at balancing all the money flows to maximise our economic potential.

Tony Benn (1925 -2014) An honourary MMTer?

Tony Benn , one time Labour MP, Labour Cabinet minister,  and leader of the democratic left in Britain died yesterday. He was an inspiration to many and will be sadly missed. The best tribute I can make is to post these two videos, the first a 10 minute history lesson for neo-liberals, of him in full flow.

Some quotes:

“Education is our core weapon……If people knew what was happening they wouldn’t accept what was happening…the Government doesn’t want people to know…”

“Every single generation has to fight the same battles again and again. There is no final victory and no final defeat.”

“I am very proud I was in the Labour Party of 1945. Our manifesto was very clear. It said the interwar slumps were not acts of God….it was the direct result of too much economic power in the hands of too few men who behaved like a totalitarian oligarchy in the heart of our democratic state. They had and they felt no responsibility to the nation”.

“…in wartime there are no economic arguments at all. I’ve never heard a general say I can’t bomb Baghdad this month because I’ve exceeded my budget. You just do whatever is required. We should adopt the principle you do whatever is required in peacetime too.  People want jobs, they want income they want education, they want health care , they want to be looked after if they are old”.

Sounds great!

The second is an interview he gave to Michael Moore:

“If you can have full employment by killing Germans, why can’t you have full employment by building hospitals?”

Tony Benn spoke passionately about the NHS, saying that there would be a “revolution” if it was removed – and also argued for full employment.