Pavlina Tcherneva & L. Randall Wray: Policy Proposals for Fiscal Sustainability

April 28th, 2010 by selise


“Policy Proposals for Fiscal Sustainability”

L. Randall Wray, Professor of Economics, Research Director of CFEPS at the University of Missouri – Kansas City, and Senior Scholar at The Levy Economics Institute of Bard College and Pavlina Tcherneva, Assistant Professor of Economics at Franklin and Marshall College, Senior Research Associate at CFEPS and Research Associate at The Levy Economics Institute of Bard College. Both blog at New Economic Perspectives

Session 5 — 1st Fiscal Sustainability Teach-In and Counter-Conference
George Washington University, Washington DC, April 28, 2010


Additional Reading and Supplementary Material:


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TRANSCRIPT (Thanks to the Volunteer Transcription Team):

L. Randall Wray: I’m going to start off, and I’m going to set the framework, and then Pavlina will talk about the specifics of the policy proposal. [00:00:13]

Pavlina Tcherneva & L. Randall Wray - Slide 2

Pavlina Tcherneva &
L. Randall Wray - Slide 2

Here’s an overview: I’ll talk about the causes of unemployment; the appropriate goals for a sovereign government – and by that we mean what we’ve been talking about all day, one with a sovereign floating exchange rate, non-convertible currency; cause of unemployment – Bill was getting into this in his last comment; some lessons from the New Deal – which we gradually forgot; and then abandoning the commitment to full employment – and this is almost the exact title of a book written by Bill Mitchell that is very good talking about this period. And then Pavlina will take over and talk about the Job Guarantee program in both theory and practice and how this can be used to achieve what we think are the appropriate goals of a sovereign government and contrast that with the view that growth alone is an appropriate goal, and then conclude. [00:01:19]

Pavlina Tcherneva & L. Randall Wray - Slide 3

Pavlina Tcherneva &
L. Randall Wray - Slide 3

The causes of unemployment: I wanted to look at two different kinds of problems. The first is short-run causes of unemployment. For example, we find ourselves in a deep financial crisis, with unemployment rates that are approaching Great Depression levels, and what causes that, and then turn to over the long run we also operate with chronic unemployment. That is, we don’t normally achieve full employment, and I’ll talk about two problems there: first, demand gaps, and second, structural unemployment — that is, growth without job creation. [00:02:10]

Pavlina Tcherneva & L. Randall Wray - Slide 4

Pavlina Tcherneva &
L. Randall Wray - Slide 4

So, in the current crisis, we lost over 8 million, approaching 9 million, jobs already, and I’ve put “already” down because I don’t believe we’re anywhere near through the crisis. I think this is 1931; that is, we’re 2 years into the crisis and we could very well see continued job loss for many years. But, even if we only take the official projections of the so-called experts who do believe that we’re starting on the road to recovery, even they agree that unemployment is going to remain high for years. So even if it doesn’t get worse, they are saying the best case scenario is very high unemployment for a long time. [00:03:00]

The lost opportunities from this period – Warren was talking about the lost output and so on; of course we’ve got that. But we also are losing opportunities for people who should have been coming into the labor force in the past two years, for example, my college graduates, who are finding it very difficult to get any kind of job, much less a decent job. We have people who have had to take part-time employment rather than full-time employment, and of course career advancement has been hindered by the downturn. So there are lots of lost opportunities because of the crisis. [00:03:42]

I think that if we do a careful assessment of the number of jobs that we need right now, it’s probably well above 20 million jobs, because not only do we have to replace the jobs that have been lost and make up for the jobs that should have been created to take care of the people who would have come into the labor force if it had been operating at a higher capacity, but also, even if the business cycle peaked back in 2007, we were nowhere near full employment. [00:04:15]

So, to provide enough jobs to take care of those, and get us to something close to full employment, we’re going to need 20 million jobs, well over 20 million jobs probably. And just contrast that with what Obama was promising when he came into office: We’re going to either create or save 2 to 3 million jobs. Obviously it’s far too little. Nobody really is looking at big enough numbers. I am told by by people who work with politicians in Washington that a new jobs bill is still possible, but they’re talking about tens or maybe hundreds of thousands of jobs. It’s not going to be adequate. Nobody is thinking on the scale of the kind of program we need. We need a massive number of jobs. [00:05:07]

Now the problem is that Washington during the first two years of the crisis really wasn’t focused on job creation; it wasn’t focused on Main Street. We all know it was focused on saving Wall Street. Maybe it needed to do that; we probably have different opinions over whether that was necessary or not. But in any case the problem is that right now both the politicians and the population at large believe we’ve already spent so much money, how can we possibly afford to create 20 million jobs now. It’s too late. We’re not going to be able to save Main Street because we spent too much on Wall Street. [00:05:47]

And so I think that this confusion about what’s affordable has become the major barrier. Now there always is a barrier to proposing this program. We’ve always encountered resistance to the idea that the government should be responsible for ensuring full employment, and we’ll try to make that case. But now, this affordability, and, oh no, we’ve already spent so much money on Wall Street that we can’t possibly afford a reasonably-sized employment program, that now the deficit hysteria is the main barrier to getting us out of this deep recession that I think will continue for many years. So, that is sort of our short-run unemployment problem, dealing with crisis and getting things going. [00:06:38]

Pavlina Tcherneva & L. Randall Wray - Slide 5

Pavlina Tcherneva &
L. Randall Wray - Slide 5

But we have had a long-run employment problem, and that really results from two really different causes. First is, and Bill was alluding to this, and this is dealt with in his book that I mentioned, that unemployment came to be used as a policy tool. That is, unemployment was not a problem to be tackled by government policy, No, unemployment became the policy tool to deal with the supposed problem of inflation. So, policy actually was targeting unemployment, using that to keep inflation rates low. And so I know all the economists or anyone who studied economics, knows about the NAIRU approach; we’re trying to get unemployment up high enough that it will prevent inflation or prevent inflation from accelerating. And so that is the use of unemployment as a buffer stock. That is, and Warren described this process, those unemployed people are supposed to help keep wages from rising. And then that helps keep the pressure off prices and so it keeps inflation low. Or, Marx called it the “reserve army of the unemployed.” And so it’s sort of ironic that you had people like Milton Friedman adopt a Marxist ideology that we need that unemployed “reserve army” to keep labor in check. Okay, so that was one aspect of the problem. [00:08:26]

Pavlina Tcherneva & L. Randall Wray - Slide 6

Pavlina Tcherneva &
L. Randall Wray - Slide 6

And then there is another aspect, a structural unemployment problem. I’m not going to read the long quote here, but the ILO has produced a lot of research on structural unemployment, and they noted in 2007 — the date is important because this is at the peak of the business cycle — that we had 200 million unemployed people around the world. No doubt this is a vast undercount, okay, I don’t want to argue about that, but obviously it is a very large number, and they emphasize this is in spite of strong economic growth. And unemployment — every region in the world has to face major labor market challenges. [00:09:11]

So what they’re saying is that strong economic growth is not a solution to this unemployment problem. It is going to exist — even with strong economic growth. Okay. And why is that? It is because growth fuels productivity growth, which they said averaged 26% up to that business cycle peak over the past decade, on average around the world, but jobs had only grown by 16.6%. And meanwhile, of course, populations are also growing, and so the unemployment problem is becoming worse in spite of very strong productivity growth. In fact, it’s not “in spite of,” it’s “because of.” [00:09:56]

It’s because labor is becoming more productive that we don’t need as many workers in order to have economic growth. And again, the economists in here will recognize this is David Ricardo’s machine problem. So David Ricardo pointed this out back in the 1820’s. He said this is going to be a continuous problem, that through labor-saving technological advance we are going to create a growing pool of unemployed labor that we can’t put to use. So Ricardo was very pessimistic about the long-run outcomes. We were able to put this off for a very long time because we were able to find ways around this problem by opening up new markets, creating new sources of demand. But it has become a chronic, global problem that growth alone will not create enough jobs. Okay. [00:10:52]

Pavlina Tcherneva & L. Randall Wray - Slide 7

Pavlina Tcherneva &
L. Randall Wray - Slide 7

So what do we think should be the goals of a sovereign government? Now I think there are many. We have mentioned several times that we conceive of, in John Kenneth Galbraith’s terminology, there is a public purpose, so there are things we want the government to provide for us. Okay. Maybe we want decent social security for the aged, but taking a step back from that, and just saying in the most general terms possible, what are the most important things that a sovereign government should do for us? Well, it ought to insure that we have full use of domestic resources, and it has the fiscal capacity to do this. Economic growth and promoting economic growth alone is not going to give us full capacity use. [00:11:48]

So, we think that government ought to be focusing on full employment because it is much more important to have labor fully employed than it is to have, say, our agricultural resources fully employed — although we ought to aim for that too. But let’s make full employment a primary goal. And, as Warren keeps emphasizing, for political reasons, not really for economic reasons, we need to make price stability also a goal. The problem is that for a very long time orthodoxy has thought these two goals are completely in conflict. You cannot have both of these at the same time. You either can have full employment and then you’re going to have inflation, or you can have price stability but you’re going to have to have a lot of unemployment. Okay, so, what we’re trying to do is to promote a program that can give you full employment with price stability, okay, and that this should be the goal of sovereign government. And our argument is that it has the capacity to do this. [00:12:58]

Pavlina Tcherneva & L. Randall Wray - Slide 8

Pavlina Tcherneva &
L. Randall Wray - Slide 8

Bill sort of got into this in his last comment, and because I presume most people here are not academic economists what I’m going to say is pretty obvious to you, but to academic economists this is all new. Now, they recognize [laughter] that unemployment does have a cost, and that is, okay, you don’t fully utilize, you get these open gaps, as Bill was talking about. All right, we lose some net income because those people could have been working and earning income and producing goods and services, GDP could have been higher. And so that’s what economists focus on, and it’s significant. And as Bill and Warren have been arguing, the losses in the past two years are just tremendous in terms of lost GDP. Okay, so that’s one thing. [00:13:52]

But… the sociologists and political scientists would point to these other things, which are also huge, and they are almost always ignored by economists. Okay, just run through very quickly: poverty, social isolation, crime, regional deterioration — because unemployment usually is regionally concentrated and all the Americans know we can identify parts of the country that suffer from unemployment to a greater extent than others — health issues, family breakdown, school dropouts. You know, this is well established in the literature outside economics. It promotes violence, ethnic hostility, even terrorism. The loss of human capital, because when people are unemployed for a long periods of time they become unemployable, partly because of behavioral changes, but also because of the way that potential employers perceive them. Two years unemployed, I don’t want to take a chance on you. So, whether it’s a real human capital loss or a perceived capital loss, it will prevent them from having the same job opportunities they would have had if we hadn’t gone through this two year period. Okay, and hysteresis: long-term unemployed become unemployable because of all these things I’m mentioning here. You become homeless and this is going to have a very long-term impact on your employability. [00:15:33]

Pavlina Tcherneva & L. Randall Wray - Slide 9

Pavlina Tcherneva &
L. Randall Wray - Slide 9

Benefits of full employment: Again, the economists are going to point to the first one: They produce goods and services, they add to GDP. Of course that is a big benefit. But there are lots of other social and political benefits of achieving full employment. On the job training and skill development… If you are employed you will be increasing your human capital. Poverty alleviation — I’ll mention this again in a few minutes. Community building, social networking. Pavlina will talk very briefly about Argentina. We went down there and we saw the benefits to communities of creating jobs in areas that had had no jobs before a jobs program was created. Social, political, and economic stability are all promoted by full employment. And then finally there’s this notion that our colleague Matt Forstater has written about — and unfortunately he was going to be here, but he couldn’t. There are positive feedbacks, reinforcing dynamics, so in a sense there is a multiplier effect of all these things. So, if you just add up the benefits, we get more GDP, we get poverty alleviation, and so on. There also is a multiplied impact greater than the sum of these individual benefits from achieving full employment. [00:17:05]

Pavlina Tcherneva & L. Randall Wray - Slide 10

Pavlina Tcherneva &
L. Randall Wray - Slide 10

Okay, we went through a period similar to what we’re going through now, and of course we had two major reforms that I think had a huge impact on our experience in the post-war period. The first was that finance was downsized and constrained. Read John Kenneth Galbraith’s The Great Crash, and it will sound extremely familiar. The account he gives, the kinds of financial institutions, innovations, practices that were all put in place, the rising inequality, the growth of finance, all previous to the 1929 Crash, sound an awful lot like what we went through in the past decade. Okay. Anyway, we massively downsized finance, and mostly that was not the government downsizing: The markets downsized it. This time around we prevented the markets from doing the downsizing. Markets wanted to downsize Wall Street. And if we had left them alone they would have done it, but we stopped them this time. And then we constrained them, and this helped to promote financial and economic stability in the post-war period. [00:18:26]

The other kind of reform that we had was the direct job creation. We created about 13 million jobs in the alphabet soup of programs that we had, so I’ve listed some of these here, and the unemployment rate was greatly reduced by these programs. And Marshall has written on this, because I know some writers have argued that it didn’t reduce the unemployment rate, but that’s because they counted these 13 million people as still unemployed even though they’re showing up to work. So it really was a political decision, made now, to understate the true impact of the New Deal. [00:19:08]

Now the problem is that gradually this first reform was eroded in the post-war period because financial institutions found ways around the constraints, which of course is natural profit-seeking behavior. By growing competition from unregulated financial institutions, the so-called shadow banking system, and a regulatory response to that: Oh, the commercial banks, that are heavily regulated, can’t compete with the shadow banks, that are lightly regulated, so we need to reduce the regulations. Okay? So for all those reasons we got rid of most of the New Deal constraints on finance. [00:19:50]

And, of course, the problem with second, the direct job creation, is that in the post-war fairly rapid economic growth we came to believe we don’t need these programs. Growth alone, trickle down, rising tide raises all boats, and all these arguments that the growth will create the jobs so we don’t need the government to engage in direct job creation. [00:20:17]

In the post-war period, for the first two decades or so, we had the golden age of capitalism, the highest sustained growth rate. We had no financial crises in a twenty year period. Normally in US history, every 20 years we had a depression. We not only didn’t have a depression, we had no financial crises. We had minor recessions, but we recovered quickly. But It wasn’t true just for the US, and Bill could tell you the same story about Australia. And it wasn’t just true for the developed nations. The developing world also had the highest sustained growth it had ever experienced. In fact, it was better than our Industrial Revolution. The developing world was growing faster than the UK did during the Industrial Revolution. So, in a sense, it was a golden age of capitalism. [00:21:12]

We had a commitment to high employment. Now Bill would talk about a commitment to full employment in Australia and they probably came close to achieving that. In the US, we never really embrace that, but we did embrace high employment. We achieved unemployment rates for white males of 3%, almost as good as Australia. But it was only white males. We were not really committed to full employment, including women and especially African Americans, and so their unemployment rates were much higher than this. We had the… A lot of people misname the 1946 act, they say the Full Employment Act, but it wasn’t the Full Employment Act, it was the Employment Act.. But it did commit the government to trying to maintain a low unemployment for most groups, if not full employment. [00:22:12]

We had the creation of the US middle class over this period that was sustained by jobs and decent wages. The problem is — Minsky started writing in 1957, arguing that, yes, we have created the conditions for economic stability, a generally high-wage economy, a high-consumption economy, a constrained-finance economy, and all of these things are conducive to rapid economic growth with financial and economic stability — the problem is stability is destabilizing. [00:22:47]

Okay, so he predicted that the financial institutions are going to gradually break free of these constraints and they’re going to engage in riskier behavior. And he also foresaw that we could start to get inflationary pressures building even before we get to full employment in this kind of economy. I don’t have time to go into that. But, anyway, in 1962, in spite of this golden age, the US rediscovered poverty, found out that actually we still had poverty in 1962. And so this was sort of a shock in Washington. It’s a book by Michael Harrington [that] pointed this out. [00:23:34]

Pavlina Tcherneva & L. Randall Wray - Slide 11

Pavlina Tcherneva &
L. Randall Wray - Slide 11

And so they decided that we needed a war on poverty, and Minsky actually was involved in this War on Poverty. He was close to Shriver and Hubert Humphrey, and he wrote lots of letters to them, and actually wrote papers and was writing a book on poverty and employment at this time (he was at UC-Berkeley), and he said the problem with the war on poverty is that you’re focusing on the supply side, you’re trying to stimulate the supply side, economic growth is going to create jobs, and then we just need to make sure we have workers that are ready for the jobs. So we need to emphasize more training, and getting people to change their behavior, get rid of the culture of poverty, the Moynihan thesis, and so on. And then we’ll have welfare for the people who aren’t able to work. Okay, so that’s what the War on Poverty was. [00:24:28]

Minsky said this is going to fail. And he wrote letters to all these people, and they say the war on poverty is not going to reduce poverty. It’s going to fail. Why? Because, first, it’s demoralizing: You’re telling people who are unemployed — and poor — that you’ve got to reform yourself first, Okay, and then maybe you’ll be able to get a job. Without supplying them a job. So even if they did it, even if they went to school, got educated, got training, we’re not creating any jobs for you. Okay? There was no significant job component in the War on Poverty, and Minsky calculated that if we just supplied one minimum wage job to each poor family we would lift two thirds of all poor families out of poverty. Even if the minimum wage pays a total annual income below the poverty line, the family is still getting income from other sources. And so he actually went into the data and calculated one minimum wage job per family would eliminate two thirds. So, instead of the War on Poverty, he said, give ‘em jobs. You’ll get rid of two thirds of poverty. Later Stephanie and I calculated the same thing in the Clinton boom, came up with exactly the same number. One minimum wage job per family would eliminate two thirds of poverty. [00:25:53]

The final objection that Minsky had was, he said, okay, you’re going to provide welfare, maybe that’s a good thing. The problem is that Americans are not going to support a generous enough welfare safety net in order to lift people out of poverty. And of course that prediction turned out to be true. Yes, we gave welfare, but it was never enough to lift a family out of poverty. What we really needed to do is give them jobs. And Americans, he argued, will support that. Americans believe that if you work you ought to be able to get out of poverty. But Americans don’t support giving welfare to lift people out of poverty. Now the poverty rate did fall, and some people have wrongly said it was the War on Poverty, but it wasn’t. It had nothing to do with it. If you actually look at the data, the reduction of poverty rates from 1962 to 1973, which was a large reduction of the poverty rate, fell almost in half, it was almost entirely due to Social Security payments to the elderly. So we greatly reduced the poverty rates to the elderly. That had nothing to do with the War on Poverty; it was Social Security. And the other was the civil rights movement that increased the labor market outcomes, mostly for African Americans. And that was a long-term trend actually, that had had been going on since World War Two; it was just a continuation of the trend. And actually, for African Americans, the poverty rate continued to fall until Reagan. For the US as a whole, it stopped falling in 1973. So, anyway the War on Poverty did fail, just as Minsky argued that it would. [00:27:39]

Pavlina Tcherneva & L. Randall Wray - Slide 12

Pavlina Tcherneva &
L. Randall Wray - Slide 12

From ‘73 forward, the US, and — Bill argues in his book, most — or is it Bill — all other developed nations abandoned the commitment to high employment and full employment outside the US. And this was associated with the rise of free market ideology. We can all remember Reagan’s campaign against welfare queens who supposedly drive Cadillacs, government is the problem, supply-side/trickle-down economics is all we need, Clinton arguing that we need to end welfare as we know it — and I actually think there was a very good aspect to Clinton’s agenda here. He said we need to change the way Americans look at poor people. We need to make them see them as deserving poor, and the only way to do that is to get them off welfare and into jobs. I think that was completely correct. The problem is Clinton didn’t give them any jobs. He said we’re going to take away welfare, now you go get a job. But he didn’t provide the jobs. If he had provided the jobs it would have been, I think, a successful policy. [00:28:55]

Bush, of course, talking about the ownership society — If you’re interested, you can go to the Levy Institute. I wrote a paper in 2005 that said this promotion of the ownership society, for most Americans the only thing they own is their house, and what we have got going on in the United States, writing this in 2005, is a way that is going ensure that Americans are just going to lose their homes. Okay, so it’s actually going to reduce ownership in society. [00:29:23]

And, then, finally, under Clinton, the Democrats sort of very strangely and ironically became the party of fiscal responsibility, which has always been the role of the Republicans. Now it became the primary policy of the Democrats: We’ve got to balance the budget. And they learned the wrong lesson from the Clinton years, when we ran a budget surplus, because the economy performed very well in terms of growth. Of course, it was a debt, household debt, fueled boom which was absolutely destined to eventually collapse. But the lesson they learned was, oh, budget surpluses lead to rapid growth, when actually it was the rapid growth that created the budget surpluses. So, anyway, the Democrats become the party that’s always advocating tightening fiscal policy. [00:30:22]

And finally we had the rise of something that takes a variety of names. Jamie Galbraith called it the predator state, many people call it financialization, or neoconservatism, or neoliberalism. Minsky actually called it the rise of money manager capitalism, and that that over the past decade — well, longer period than that — but over the past decade has built up the conditions which finally led to this crisis. This is my last sentence. [00:30:57]

Now Pavlina is going to take over and talk abut the specific policy proposal. [00:31:00]

Pavlina Tcherneva: Okay, this is the final stretch, so hang in there. Today most of the day we have mostly focused on our operational understanding of government spending. So now we get to the vision. How do we utilize this operational understanding of government expenditures to get past the obsession with the financial ratios, with these numerical measures of government success, and actually get to the real thing? Talk about financial ratios in context of what is happening to the real economy. So our vision is, I’d say a Smithian vision, Adam Smith’s vision. Adam Smith said that the wealth of a nation rests within its people. This is what Bill was talking about, not wasting human resources. So how do we do that? [00:32:20]

Pavlina Tcherneva & L. Randall Wray - Slide 13

Pavlina Tcherneva &
L. Randall Wray - Slide 13

So this is what we think of features of responsible fiscal policy. We don’t use unemployment and human livelihoods as means to check inflation. This whole idea that Randy was addressing that somehow unemployment is a necessary evil, and we have to put up with it in order to maintain price stability. The empirical evidence first of all, is very spotty on this. Economists constantly redefine their NAIRU or their inflationary barriers and you look at the data and its very difficult to find this particular level. So let’s just measure fiscal policy in terms of employment creation effects. This is how we tend to see things. And so long as we are living in a monetary production economy, where the access to livelihood is a wage-paying job, then that should be the criteria for responsible fiscal policy. [00:33:34]

But we can debate that. These are the questions that sort of emerge from the historical perspective that Randy provided, and also you will see how we believe that this kind of approach utilizes this operational knowledge that we’ve just built to build a very sustainable system. So we are redefining sustainability in terms of employment creation, price stability, as opposed to certain debt/GDP ratios. [00:34:00]

We have to switch the conversation, we really need to re-orient our thinking about fiscal policy. I like to argue that its done in a backwards way. That what we are attempting to do is plug some demand gap, whatever that means. And Randy’s was alluding to this, we fix our growth rate, er come up with measures of potential output, we don’t really know how much labor went into the production of that potential output, what happened to the structure of the economy, how much was output produced by labor replacing technology. [00:34:37]

We have no sense of the sort of dynamic forces that are determining output. So we would like to measure potential output in terms of men and women put to work. So the way to flip fiscal policy is not to target a demand gap, because that’s not very clear what that means, but instead to target a labor demand gap. [00:35:00]

And you know we’re arguing that this delivers more bang for the buck. We do not know today how much more, even if we agreed that maybe deficit spending is sustainable, even in the most sympathetic, I would say, commentators to the deficits I would say ‘look we need to push further, we’ve got to deficit spend. We still don’t know how much we need to spend, how large deficit spending is large enough to produce the real outcomes that we are aiming for. So what we are proposing is that we actually tie deficit spending directly to the objective and you know exactly how much you need to spend. [00:35:38]

How many people do you want to put to work? Obama wants to save and create 3 to 4 million people, ok put them to work, you know exactly what your wage bill is going to be, you’re going to find out your materials and your costs. If you want to create ten million jobs you know what your budget is going to be and you have directly achieved the goal as opposed to going backwards through this vision of producing growth and hoping that somehow the growth will lift up all boats and trickle down to the economy and produce the kind of job growth. [00:36:06]

So we see a responsible fiscal policy as an employment stabilization via direct job creation, and we see direct job creation as a permanent feature of policy making, because the objectives are to guarantee full employment, not for the short run but also for the long run. In other words this is very different from depression economics, which is Paul Krugman’s euphemism, finally the return to Keynesianism is because we’re in a depression. No, we would like to achieve sustainable fiscal policy throughout the short and the long run. [00:36:44]

Pavlina Tcherneva & L. Randall Wray - Slide 14

Pavlina Tcherneva &
L. Randall Wray - Slide 14

Okay, so what is the job guarantee in theory? Let me just synthesize some of these ideas very quickly. There is an alternative to the NAIRU, that is, we can use an employable, or employed pool of labor as the buffer stock, not the reserve army of the unemployed. So I’ll explain a little bit about what that means. This is the job guarantee Bill refers to. This program is a job guarantee, there are various other – public service employment, direct job creation, you name it. But what that basically means is that you provide an unconditional offer of a public sector job at a minimum wage to anyone who wants to work. This way, as a permanent program, and an unconditional program it attains and maintains full employment. [00:37:33]

Pavlina Tcherneva & L. Randall Wray - Slide 15

Pavlina Tcherneva &
L. Randall Wray - Slide 15

Okay, so essentially the features of the job guarantee is that this is a bubble up policy, this is not trickle down economics. It is a policy that hires off the bottom. It deals precisely with those that are either never employed or the ones that are last into a job and first out of a job. So, it’s a bottom up approach. It operates with flexible markets via a buffer stock mechanism, so this is the part that we need to explain how the job guarantee serves as this buffer stock. And I’m using Bill Mitchell’s terminology here, who basically made the case a number of years ago that, just like any other commodity buffer stock, you can stabilize the price of that stock by simply selling it when the price is too high, and buying it when the price starts falling. So you can envision labor as being a kind of a buffer stock [00:38:00] where you offer employment to all those who want a job at a base wage. And that would be your stimulus, essentially, that produces growth. [00:38:48]

As that demand trickles up to the economy and the private sector rejuvenates and starts demanding labor, then the private sector will be able to hire from the public sector pool, by bidding up the wage. Once the private sector has been saturated, or has hired as much as they desire, if you observe sort of an overheating economy, inflationary pressures, the private sector decides that it needs to downsize, then those workers will be laid off and instead of moving into unemployment they move into the public sector buffer stock. So essentially what this program does is it establishes a wage floor to labor. Today the wage floor of labor is essentially zero, because you can hire somebody that is willing to work at a premium above the zero wage that they are earning at the very moment. [00:39:50]

So this is how, we can talk more about this sort of mechanism, but this is a program that then deals with any kind of unemployment that you’re trying to solve: cyclical unemployment, the long-term structurally unemployed, seasonal unemployment, as well as the entrance into the labor market (you know, my college students that are looking for a job). The benefits of this program of course is that it also creates an employable pool of labor and it maintains and enhances human capital. We like to always argue that this program offers both a job as well as an opportunity to improve skill through training and education.[00:40:42]

It’s a targeted program as opposed to this indiscriminate aggregate demand that management plan that we seem to be implementing today, or the way fiscal policy is conducted today. It’s very targeted. You know where the unemployed are, you take the contract to the worker. You deal with distressed areas. You look at their resources, you look at their needs and you mobilize them. So it’s a very targeted approach. It also is an approach that takes workers as they are. You’re not trying to educate people and hopefully they will find– they will become employable in the eyes of the private sector and find employment. You provide the opportunity, and then also you provide other opportunities to train to become employable and transition to the private sector. So this program can be seen as a transitional employment program. It’s a safety net that captures the unemployed and prepares them for private sector work if they so desire. Of course the projects have to be useful and valuable. We all think that there are plenty of useful things to do. [00:41:46]

Pavlina Tcherneva & L. Randall Wray - Slide 16

Pavlina Tcherneva &
L. Randall Wray - Slide 16

So just to summarize: it’s a voluntary program, nobody is forced into working for this job guarantee, the spending level is always at the right level, however many people show up for work, that’s how much you spend, you don’t spend more than necessary and you don’t underspend in a sense, and it has a transformative impact on workers, on firms, on communities and on the economy. I think I’ve already said a lot of the things that I’ve listed here. [00:42:16]

Firms also benefit from this because it replaces unemployed with employable workers. It reduces their training costs. They have a visible pool of labor, they know what these potential private sector workers have worked, what kind of experience they have received, and they benefit from that as well. This is a policy that can lift the floor, so we’re going back to the earlier discussion about taxing the rich and how do we redistribute, well you can improve the income distribution by lifting the floor, and if you set the wage at the appropriate level that would lift people out of poverty. [00:42:56]

Okay, it’s a permanent program, and by permanent program again I just want to emphasize that it doesn’t mean more demand, it might mean better distributed demand. [00:43:07]

Pavlina Tcherneva & L. Randall Wray - Slide 17

Pavlina Tcherneva &
L. Randall Wray - Slide 17

Okay, the job guarantee, the macro-stability. Just let me touch on this once again, the wage provides an in-built inflation control mechanism. This is because the compensation package establishes the floor. This is the floor to the standard of living for the entire nation. Again you spend on this fixed-price floating-quantity rule. This is what previous speakers were alluding to previously. You fix the price of labor and then let the budget float with the needs of the economy. When the economy decelerates the budget expands as those workers enter the public sector, so it has an expansionary effect. When the economy grows the budget automatically contracts as workers move out into private sector jobs. So that’s the counter-cyclical mechanism. And wages become the benchmark for the prices to the extent that wages are an input of production of all reproducible assets, then will serve as an anchor to prices as well. [00:44:15]

So full employment and price stability also promotes currency stability. And the idea here is that we are establishing better anchors than the current system. We use labor as that anchor. This is not a solution for all labor market problems. We can use this program as an institutional vehicle, as a program to address specific goals. We may want urban inner city renewal, maybe you want green infrastructure investment, you can use those resources then to direct them to the specific things you want to do. There will be other things that you might want to deal with, labor market discrimination, and other things. This is not a panacea for all labor market problems, but it’s definitely better than the unemployment buffer stock. [00:45:10]

Pavlina Tcherneva & L. Randall Wray - Slide 18

Pavlina Tcherneva &
L. Randall Wray - Slide 18

So let me very briefly talk about Argentina. Argentina is one of the most recent cases of implementing a program that mimics the job guarantee. It is not job guarantee, I want to emphasize it’s actually a limited program. But it was a large-scale program, it was implemented quite quickly and in our view effectively. So we have been studying this program and looking at the macro effects as well as well as going to projects and visited those projects to see what they did and how they impacted people. [00:45:39]

Now, even though it was a smaller program it still exhibited the features that I was just discussing of this sort of macro universal job guarantee program. The Argentina program was implemented as an emergency measure. It was depression economics, people took to the streets, they demanded from their government jobs, the government gave them jobs. And they gave them jobs, the program was running, up and running in a few months. Just like the New Deal era experience, we were able to organize things to do for the unemployed relatively quickly. It was a part time job, it offered 4 hours of community work to the unemployed heads of households at a minimum hourly wage, and 2 million people showed up for work. This is about 13% of the labor force in Argentina, and Argentina, granted, is coming down from 25% of unemployment. So their levels were close to our real actual unemployment levels, but look higher than our official levels. This program had a considerable impact on the poor, and especially on women and minorities who had access to these jobs. [00:46:52]

It was counter-cyclical, it stabilized output, prices, and currency. You look at the data and you find all of those indicators stabilize. GDP growth was between 8 and 12% between from 2003 to 2007 and only in the last year it dipped to 5%. So it’s job creation that produces growth as opposed to the other way around. The government budget moved into surplus. There were a variety of things going on there but of course you’re generating large amount of incomes which are being taxed. The multiplier effect of this program, I’ve looked at some of the measures and some of the more conservative measures is 2.57. Meaning that for every dollar spent on the program you’re creating 2.6 dollars of output. [00:47:44]

Pavlina Tcherneva & L. Randall Wray - Slide 19

Pavlina Tcherneva &
L. Randall Wray - Slide 19

Now, and what happened? Did people get stuck in the public sector? No. Actually what happened was that as the economy recovered many workers transitioned into private sector jobs. It was organized in a very interesting way. I can tell you about all those institutional details, how it was administered, how the resources were mobilized, but suffice to say it was federally funded, locally administered, the government actually maintained a database of skill and experience of the unemployed, helped them to transition to private sector jobs as well, and from our visits as well it was obvious what kind of impact this program had on the poor, it empowered, it provided on-the-job training, every project that we went to see [00:48:00] had an adjacent room with literacy education, with training, with various other courses that they could take. I like to see this as a new form of microfinance, as opposed to lending to people you just give them a grant for the wages and for the materials, get them on their feet, get them to produce something, and pretty much every project that we saw was some people that set up shops, carpentry shops or baby clothes tailoring shops or toy shops, or something that they could then sell on the market. But they were also products that were freely distributed to the poor. Lots of food kitchens, daycare center, public libraries, elder care, centers for the abused etc. [00:49:27]

Again, the employers hired from the pool. The economy, the economy stabilized very quickly. One benefit of this was that it formalized the informal sector. In Argentina actually there’s a very large share of the economy that is a grey economy. Those that used to work under the table were issued social security tax cards, they would be– when they transitioned to private sector jobs now they were working under contract. The program established a wage floor. From all the people that transitioned … sort of a wage floor, because it was a limited program. But from all the people that transitioned from the public sector job to the private sector, they were all hired at a premium, 97% of those were hired at a premium. [00:50:06]

Pavlina Tcherneva & L. Randall Wray - Slide 20

Pavlina Tcherneva &
L. Randall Wray - Slide 20

And communities were transformed. I can give you lots of examples, but what was interesting was the unemployed themselves proposed a lot of these projects, they were the ones that actually invented the kinds of things that they did. They did massive landfill cleanups, and recycling initiatives, and on and on and on. So these are some pictures of projects that we visited, and lots of food kitchens. There were lots of poor communities, but there were things like health promotion programs, subsistence farming, there were a lot of projects outside of the greater Buenos Aires area which we visited that dealt with agricultural projects, water irrigation, clay pits, etc. [00:50:55]

Pavlina Tcherneva & L. Randall Wray - Slide 21

Pavlina Tcherneva &
L. Randall Wray - Slide 21

So again, growth itself is not the appropriate target, you have to wed it to job creation. It can promote inequality, this sort of pro-growth, or growth at all costs approach can promote inequality, it can harm the environment. We haven’t really said anything about the environment yet. So we are really looking at a bottom up approach that looks at full employment through direct job creation, a job guarantee. We view this as a program for shared prosperity. You can set an environmentally sustainable growth path and maintain price and currency stability [00:51:37].

Pavlina Tcherneva & L. Randall Wray - Slide 22

Pavlina Tcherneva &
L. Randall Wray - Slide 22

We can do it, we have done it once in the past, as have other countries in one form or another. It’s the right thing to do. I think we could debate this but you know I want to get back to the point about having access to a job as a basic human right. And in my opinion I think Obama just needs a Rooseveltian resolve. We can talk more about this later, but just the wage bill, just the wage bill of hiring 20 million people at a – I think Warren has proposed $8 an hour – where you could do a living wage of $10-$12 an hour, we’re looking at 350-500 billion dollars. Compare this to the other expenditures. [00:52:25]

But I want to emphasize, costs here are not in terms of financial costs, it’s not necessarily the problem. I just want to show you that in perspective you get, you deliver so much more bang for the buck in real, in real terms, if you target your programs. So we have a deficit in convictions, I think, a deficit in cleverness, not necessarily in the ability to fund. And let me end with a couple of quotes. One is by FDR that says that the liberty of a democracy is not safe if its business system does not provide employment, and produces and delivers goods in such a way as to sustain an acceptable standard of living. [00:53:07]

Pavlina Tcherneva & L. Randall Wray - Slide 23

Pavlina Tcherneva &
L. Randall Wray - Slide 23

And the last quote is a quote from Keynes this is something we as academics constantly run against, and that’s this idea that we have to keep 5% or 10% of the population in idleness, “The Conservative belief that there is some law of nature which prevents men from being employed, that it is rash to employ men (or women) and that it is financially ’sound’ to maintain a tenth of the population in idleness is crazily improbable, the sort of thing which no man could believe who had not had his head fuddled with nonsense for years and years.” [00:53:45]

Pavlina Tcherneva & L. Randall Wray - Slide 24

Pavlina Tcherneva &
L. Randall Wray - Slide 24

Thank you.




Session 5: Q&A [00:54:17]


Dennis Kelleher, Rebel Capitalist: Two things, and I’m not sure you if you wanted to talk about it. And I think our friends at the Cato Institute would appreciate this. A job guarantee would eliminate the need for a minimum wage, correct? I mean a federal minimum wage, you could do away with it because the government is, the government is basically setting the base wage, right? I think they would love that. [00:54:42]

The other thing is that, I’m curious, I advocate a universal living wage. It’s a wage that’s based on, since we have this insane policy of waiting ten, twelve years to increase minimum wage, there is a theory, a movement, that says let’s pass a universal minimum wage, that says, you know what, instead of having to deal with this issue every seven, ten, twelve years, let’s just say we will pass a wage that is indexed to the cost of housing — not necessarily CPI, but the cost of housing. And HUD has an index it has that does that on a regional basis so it’s not straight across the board based on the entire country, it’s based on region, the cost of housing in a region. Is it possible to use something like that as a means of a base wage? [00:55:45]

Warren Mosler: Yeah, certainly if the political will is there for that. Certainly there is no objection to that and I’m sure–would support it. [00:55:55]

Just wanted to add something I just remembered to Pavlina’s. The size of this employed buffer stock, we’d expect it to be much smaller than the pool of unemployed for a given level of price stability. So for right now, if maybe the mainstream would think maybe we needed maybe 4 or 5 percent unemployed for price stability under normal circumstances, this might be only 2 or 3 percent because it’s a much better buffer stock than unemployed because labor can actually flow back and forth and so it becomes more of a transitional job between unemployment and private sector employment than it does…there still would be elements of just a career public service job. [00:56:36]

In terms of what you want to do politically with it, yeah there’s a lot you can do, you can introduce benefits from the bottom up. You could say two weeks vacation and then the private sector would have to have two weeks vacation to compete. You could say child care, you could put anything in it you want and introduce benefits from the bottom up — health care — and so competitive markets for courses would move those benefits up the scale. [00:57:05]

So what it does is allow us to use competitive market forces to achieve goals, it gives us a tool for that which is the American approach to things so it is a hybrid type of approach that gets rid of the moral hazard aspects of other approaches. [00:57:21]

Bill Mitchell: In the South African case, we’ve had a really big debate about it, because one of things I’ve been doing was designing a minimum wage framework for them which would embed in the public works program we’ve been working on, and over there, of course, you’ve got…the approach I used, to help out the process, to use poverty lines and nutrition rates and things like that. [00:57:52]

And, of course, then you find out that there’s objections from the government: 30% of private employers are paying well below what you’ve suggested as your minimum wage. And, I said this to the Treasurer of the country, that what you’ve got to decide in any nation is that aims to be a civilized, sophisticated country is what is the minimum price you want people to be able to do business at? And that minimum price has to be a wage that provides people with an inclusive capacity to interact in society, and if your private sector are paying below that then you don’t want them in your country. [00:58:40]

That’s the reality. Otherwise, you’ve got no aspirations to be a sophisticated, civilized country. And so the job guarantee wage is, you don’t do away with the minimum wage, it becomes the minimum wage. And then you can add on whatever, like Warren says in political terms, you can add on whatever, in Australia we call them social wage benefits: child care and access to all sorts of other benefits that are outside the direct employment contract. But it is the minimum wage and you have got to set it at a level that you aspire to be the actual living minimum, not some penurious sort of penalty rate. [0:59:30]

Roger Erickson: I’m Roger Erickson again. Listen to this, I’m reminded again of something in a different field and the question is about policy. What we’ve heard described here is options for how we could be doing things differently but that’s not how we can get this group or this population currently in this country to start exploring or selecting some of these other options. So there are two ways to look at this, one is historically and we have lots of to go on. If you look at small group theory, all these things get worked out through affinity bonds because the group is small enough that everyone is aware of group options as well as individual ones. [01:00:14]

The problem is scaling up to large populations. The only thing we’ve learned, I’ve learned today, is how we address this is we either have a war or a severe depression. We have to find a mechanism where a population can become self-aware enough to address this kind of…what it’s leaving on the table, short of having a major depression or a war, and the only example I can think of, of groups that have done this very large scale, are large military groups and they do what you would expect from any systems theory, they drive interaction and awareness through absolutely political or operational decisions. [01:00:55]

Bill Mitchell: I mean, as Pavlina said, India’s got a bigger population than the U.S. and India has introduced the rural Job Guarantee, as a national employment guarantee, it’s employed millions of people, already.

Unidentified: We’d love to hear how they did that. [01:01:11]

Bill Mitchell: They did it because the growth in the Indian economy, which was urban-based in technology and construction… [01:01:21]

Roger Erickson: I’m sorry to interrupt you but just to make it brief, it’s not what they did but how, whoever became aware first got the attention of their politicians.

Bill Mitchell: I’m just explaining how they did that.

Roger Erickson: Okay so… [01:01:32]

Bill Mitchell: They were faced, the motivation was that they were faced with an urban crisis because the rural poor had no option but to try to flood into the cities to enjoy the growth that was occurring there and they knew that wasn’t sustainable for housing and other reasons and so they suddenly realized that the reason this migration is occurring is the lack of jobs in the rural sector. [01:01:55]

Bill Mitchell: Solution: Create jobs. Who’s going to do it? The private sector isn’t going to do it, we’ve got to do it and they did it. Millions of jobs have been created in the second largest population in the world. [01:02:08]

Roger Erickson: So the hundred dollar question is what do we have to do to make the existing Congress aware of things that it has taken them years to become aware of?

Bill Mitchell: That’s a good question. [01:02:18]

Unidentified: Well that’s a serious political question and I…it’s going to take a grass roots effort. It’s going to have to come from the grass roots because of, we’re talking about, our political system is seriously dysfunctional. To get anything, something like this out of our current political system is just unrealistic. So it will be an incredibly difficult endeavor to do something like this but it doesn’t mean we don’t undertake the effort to do it and to start advocating this on several needs, several levels. [01:03:00]

You know, conservatives, right-wings have had an incredible noise machine that they have used for several decades now. There’s no reason why people on the left can not, don’t have to do the same thing and particularly do it on a grass-roots level. You know, we can do it; it’s possible. There are certain think tanks out there, progressive think tanks that are hopefully…will get on board with something such as this, soon. But it’s going to take a long time. I don’t know if I’ll see it in my lifetime. [01:03:39]

Marshall Auerback: I disagree, actually. Funnily enough, Warren and I have both talked about this, he’s been on the campaign trail so he’s had probably more media interaction but, whenever I’ve presented this idea, and I’ve presented it at a number of conferences, lot of speeches. I presented it once when I was in a debate with the former Governor of the Bank of Canada and, actually, it got a surprising degree of what I would call bipartisan support. I think as Randy said, a lot of people on the right like the idea that you can legitimize government expenditure by work and, especially when you sell them on the idea that it makes, it’s not that we want to eliminate welfare, but you say it makes welfare redundant because you have this program in place it does actually tend to command a lot more appeal. [01:04:28]

Funnily enough, a lot of times I get, I’ve had objections from unions rather than from on the Right because what the unions think is that you’re trying to create a slave class of labor that’s going to undercut their wages and you have to try to explain you’re trying to fill the gap and create a full employment pool which ultimately enhances their pricing power. So, in the first instance it can be a little bit deflationary because if you have someone who’s been paid, say, $40 an hour and all of a sudden he’s lost his job and he has to go to $8 there is a once off adjustment but then the adjustment mechanism the other way which is much easier. So I actually think this is one of our winning ideas which actually could get much greater political acceptance than you think. [01:05:16]

Jeff Baum: Yes so, again this is obviously coming to a lot of political questions and I think the big difference between the United States and basically every other country, especially India, is that there’s just so much, number 1, there’s so much noise and, I mean America is genetically averse to anything that sounds socialist, right? This is a socialist idea, how dare you, we believe in private industry so regardless of the merits of the argument there’s all the noise. [01:05:47]

But following on what you just said, how do you stop, if this becomes the minimum wage, what stops every minimum wage worker saying, “Why should I work in private industry? Why don’t I just go work for the government, I can’t be fired.” And, effectively, that’s the kind of argument you’ll get from industry is that you’re going to compete against private industry and that’s going to drive wages down. I’m sorry not drive wages down, it’s going to support wages and therefore we’re not going to be competitive with government. Where’s the argument there? [01:06:18]

Warren Mosler: Look, we’re going to have active fiscal policy that keeps, for a given size government, keeps taxes low enough so that the private sector will be able to have the means to hire everybody which means they’re going to have to still have the means to pay a higher wage. So if we start off at an $8 an hour, first of all that’s not going to be disruptive. I don’t think anyone quits their private sector job for that or very few people. [01:06:41]


Warren Mosler: Well yeah. It’s full-time work. There are still people who are going to work baby-sitting and whatever. So — you’ll get a few and then we conduct discretionary fiscal policy so that this pool, the private sector hires these people away and maybe they’ll have to pay ten or eleven or twelve dollars so it will be some spread but then that spread will stabilize and then that will be the stabilized private sector wage, let’s say, unless we over stimulate…we have too much aggregate demand, we allow too much aggregate demand and then our pool of buffer stock workers shrinks to zero then, of course, it’s no longer a buffer stock and then you lose control of prices on the upside just like with any other buffer stock. [01:07:21]

But if we conduct policy to keep it at two or three percent, whereas before we had unemployment at four or five percent we’ve actually reduced the public sector because the unemployed are in the public sector. Look the thing is, and don’t forget when I told you about my cards in creating, if there’s a tax to get out of this room and of, whatever, and then I don’t hire enough, I don’t offer enough jobs so you can get the money to get out of this room, why did I do it? Something’s really wrong with my policy, I should be lowering the tax or giving you more work. Right? I should be increasing my spending or cutting my taxes. We got to get discretionary fiscal policy to the point where these people we’ve taken out of the private sector and not used in the public sector because either we don’t want them, we don’t want to spend, whatever, has got to be minimized. [01:08:18]

We want to minimize it but we also want to have a buffer stock as a price anchor. Now, every monetary system uses a buffer stock policy, a gold standard is a gold buffer stock, unemployment is an unemployed buffer stock. What we’re saying is an employed buffer stock is far superior to an unemployed buffer stock and far superior to a gold buffer stock. It’s larger, deeper more flexible, and most important, whatever your buffer stock is, it’s always fully employed. There’s always a bid for the buffer stock. On a gold standard, gold is always fully employed, you can always take an ounce of gold and sell it to the government and get money for it, you can always monetize it. [01:08:57]

In a wool buffer stock, where Bill started, there’s always a bid for wool. Sheep are fully employed. [Laughter] No, it’s true. So, right now, we use unemployment as a buffer stock, this clearly shows we don’t have any idea what we’re doing. Not only do we not understand the monetary system we don’t understand that, well that’s part of it. We don’t understand a buffer stock always anchors a monetary system. We should be using an employed buffer stock. [01:09:21]

Jeff Baum: I get that point, I just think once again from someone who said before…I think that you kind of assume that everyone does because they don’t understand it? Or they do understand it, they just don’t care and it serves their interest. [01:09:35]

Warren Mosler: Well I’ll just just give you the benefit of the doubt for rhetorical purposes. [Laughter]

Jeff Baum: Well, yeah. well, you tend to do that a lot. [01:09:40]

Warren Mosler: Privately, I could say a lot of other things that you probably don’t want to hear. [01:09:45]

L. Randall Wray: I wanted to correct a misunderstanding because a lot of people do jump to this. We’re going to guarantee a job offer for anyone who is ready and willing to work. And then they say, oh, well then they’ll never get fired. No. We never said that. [01:09:56]

They don’t show up, they show up drunk, they don’t do their work they are fired. Anything that the private employer can do, legally do to their employees, the employers in this program will do. And socialist, I think if you tell most Americans what we’re going to do, we’re going to require that people who ought to be working, define disabilities I think very narrowly, they’re going to have to work instead of welfare. And you ask them, “What would you call that system?” All Americans are going to call that, “Oh, that’s capitalism.” They wouldn’t call it socialism. [01:10:39]

Jeff Baum: Didn’t they all ready say they converted from welfare to workfare? I don’t know exactly what that meant but wasn’t that Clinton’s big thing? [1:10:45]

L. Randall Wray: Well…but without the jobs. [01:10:47]

Warren Mosler: At a minimum, you have to sell your time and that has value. And look, we’re not talking about the government owning the means of production. We’re talking about the government providing for public infrastructure. Public infrastructure is all the things you hire people for and then you’ve got this transition pool where you facilitate the transition from…back to the private sector and that’s what this does. What, we’re 750,000, I think out of the 2 million in Argentina 750,000 went to private sector unemployment within two years. People who never would have done this before, was it more than that?

Pavlina Tcherneva: Yeah, I think it was more. [01:11:22]

Warren Mosler: More like half, a million, that’s enormous. These are people who had never been in the private sector, never held a private sector job. The biggest service this did to the economy, well one — all the direct things, but secondarily it allowed the economy to expand at very high rates without labor bottle necks. It’s an extreme facilitation of the private sector, where right now private labor does not flow from unemployment to the private sector very well at all. It takes a lot of demand pull to get that done which is to everyone’s disadvantage, to the detriment of all of us. [01:11:56]

Bill Mitchell: Just in terms of your concern about the business sector. I’ve been on about this for, what is it, thirty-two years now, since I was an undergraduate.

Warren Mosler: Since the second grade. [01:12:13]

Bill Mitchell: Well as Warren said, I got the idea sitting in my fourth year at Melbourne University and I was sitting in an agricultural economics class and at that time the Australian government was running what’s called the wool price stabilization scheme. And it worked by the federal government when the private market didn’t want to buy as much wool as was put onto the market the government bought it up and stored it in big sheds. And when the markets were strong the government wanted to stabilize the price, it just released the wool out of the sheds and back into the market. And it was very successful, it was used to satisfy the rural lobby to stabilize their income so they weren’t fluctuating. It was very successful. And I remember sitting in this very cold winter day in Melbourne, in Victoria, where I grew up, thinking well I didn’t really care about…it seemed like a full employment of wool scheme. Every bit of wool that was produced was employed, either in the shed or in the private sector somewhere. And at that time Australia was just going into very high unemployment, it was 1978, and I said I don’t really care about wool so much but I care about labor and we could use a buffer stock to do that for workers. [01:13:31]

But the point about business is, I often give talks to the business community and they’re as right wing in Australia as they are here and I’ve given talks in the Netherlands where they are as right wing as they are in South Africa and elsewhere and its more to Warren’s point. I ask them the question, they’re all in suits and what have you, and I say where are the unemployed now? And its a question they’d never really asked I don’t think and eventually I get them to admit or understand that the unemployed are all ready in the public sector. Now you are having debates in Congress somewhere down there or up there, I’m not sure of the direction, about extending unemployment benefits. Well, that’s a recognition, and you’ll obviously do that again, given the skull and the crosses I would imagine, but in Australia we have the unemployment benefits guaranteed. But that tells you where the unemployed are, they’re in the public sector. So then I say to the assembled businessmen, typically men, I say, “Well what are they doing in the public sector?” And I can get them to chant, “Nothing.” And then I say, “Well are you happy about that?” And I can get them to say, “No. The bastards.” [Laughter] [01:14:47]

And I say, “Well wouldn’t you rather they’d be doing something productive in the public sector?” And they say, “Yes.” And once you go through this logic you can sneak up on them. [Laughter] And in the end they become supporters of the job guarantee doing community-based development work, doing environmental care services, doing aged care services, because they would rather, their ideologies and their prejudices would rather see them doing something than nothing. It’s very easy to persuade them. [01:15:22]

Unidentified: I would like to echo what Marshall was talking about. It kind of surprised me and woke me up. I have right wing friends, I’m sure you do, too but there’s one thing that does echo with them, “Put them to work and they’ll pay taxes.” And believe me, they agree with me on nothing else and they think it is a good idea. Believe it or not… [01:15:45]

Marshall Auerback: By the way work-fare, work-fare with the state-administered program and one of the reasons why it didn’t work goes back to the old argument that states don’t create currency so it creates, there was an external constraint. But even at that it did reduce the welfare rolls for a time when you had employment being created, but it can administered on the local and state level but it has to be funded at the federal level. That’s a key point. [01:16:18]

Bill Mitchell: I meant to say something about work-fare, in Australia, we call it “work for the dole.” And its nothing like a job guarantee because it’s… a job guarantee is an unconditional offer, the government sets the price and says we’ll take anybody. Work-fare and “work for the dole” are compliance programs to force people to do sort of like Shylock in the Merchant of Venice. The government wants you to do something for the pittance of welfare they offer. It’s typically not anything like a living wage. It’s a program, not an entitlement. It’s usually short term projects not doing very much at all. Whereas a job guarantee is an ongoing guarantee and people say to me, “Well what if someone wanted, liked working in the job guarantee?” And I say, “Well, what’s wrong with liking your job? It sounds to me like a good thing if you actually settled into the job guarantee for life and made it a career move. What’s wrong with that?” [01:17:24]

Most people won’t do that but some people might. And then it’s up to the private sector to restructure their jobs, and their wages and conditions offered to make themselves competitive. What’s wrong with that, that’s going to increase productivity. [01:17:43]

Pavlina Tcherneva: Just one final note on the work-fare. It was considered a success only because of the reduction in welfare rolls but when you look at the actual conditions of the recipients, poverty did not change and, in fact the income they received was less than if they had remained… The income was through jobs was less than what they would have gotten on welfare. So it was considered a great success through the Clinton Goldilocks years, right? But now it is a whole different ballgame. And so you have also these additional issues if you would like to facilitate this transition from the public to the private sector as well, you also have to provide certain protective services if you will. You gotta provide some sort of transportation, day care services that will facilitate this transition into the private sector so there are things to do. [01:18:37]

Joe Firestone: You have a question. [01:18:38]

Unidentified: Yes. I want to ask, well not a job guarantee related question. I have a friend, an Australian economist and he told me he had to give up on his academic career because he had not mainstream views. So I want to ask did you have to hide your true views in order to advance in your, obviously you’re professors so you teach students? Did you have to initially hide your true vision in economics in order to get the jobs? [01:19:25]

L. Randall Wray: I don’t think anyone here did but we were special cases. Let’s say that our goal was to get a position at Harvard, Yale yes, you absolutely would have to hide this and wait until you had tenure and then you could finally promote this and write the kinds of things, I mean the things related to this. But none of us made that choice. [01:19:49]

But we know lots of people who have suffered the slings and arrows, these kinds of things. We’ve seen university departments, economics departments implode over differences between those who hold these kinds of views and those who hold the more conventional views. And I think we all know people…yeah at Notre Dame.

Unidentified: The Fighting Irish, literally. [Laughter]

Joe Firestone: We have a question back here. [01:20:15]

Unidentified: This is more of an idea than a question but just on the question of how do we kind of implement getting this idea on to the mainstream, I think everyone knows the President’s debt commission is going on right now, I don’t know if everyone knows that since they have no budget they’re actually outsourcing their roles to the Pete Peterson Foundation, including the listening tour is actually going to be the listening tour that America Speaks is putting together that the Pete Peterson Foundation is paying for. The Foundation went to America Speaks with a bag of money to do it all themselves and they said they wouldn’t do it if it were just the Peterson so they got MacArthur to lend their name but it’s all Peterson money. We know what Peterson wants to do with it. There are twenty hearings around the country on June 26 and the thing is they’re all open to the public. [01:21:10]

So this is the exact type of thing that if there is a coordinated effort, if we can get people into those meetings then we can raise this and at least pull the discussion to a more balanced place than where Pete Peterson wants it and he paid millions of dollars to make sure they end up with the recommendations that he wants. So, again, the organization is America Speaks and I feel like this is something that this group could do by email and try to get folks into as many of those meetings as possible with this idea offered up as something that the people want.

Warren Mosler: Any bloggers in here?

Unidentified: One or two.

Joe Firestone: We got all kinds of bloggers. Not everyone is raising their hands.

Warren Mosler: Can’t hurt, can’t hurt. [01:21:57]

Stephanie Kelton: I understand, and Randy and I heard yesterday some things like you’re talking about but I understand these are very difficult to penetrate, that the groups are pre-screened. It may be even an invitation-only although it may have the appearance of being open to the public and a mix of everyday common Americans. But my impression is there is a gatekeeper and it might be pretty difficult to penetrate those meetings. [01:22:33]

Joe Firestone: Just a question. You focused really, wholly on the job guarantee with respect to the policy implications or policy considerations. Could you comment some on the health care issues and the environmental issues and some of the other policy issues where we are not attempting to meet any of our problems due to budgetary considerations? Those considerations always come in first and seem to control the agenda, they’re kind of in the background but, this is off the table because it costs too much or that is off the table because it costs too much.

Warren Mosler: I think you just said it all. [Laughter]

Stephanie Kelton: I was… [01:23:18]

Joe Firestone: I’d like to hear you say it. I say it all the time but I don’t hear you say it [inaudible]. [01:23:24]

Stephanie Kelton: I think this comes back to what we’ve been hammering at all day long which is that there are all kinds of self-imposed constraints. If you say that you’re only going to fund Social Security out of the payroll tax and you use, you establish these Trust Funds and you say the Trust Fund must have a positive balance or else we’re not going to clear the checks at the level that’s been promised then we’re only going to be able to meet 77 percent, or so, of promised benefits after some date. I was rereading, I was telling Warren yesterday, I was looking at the Trustees Report from 2009 for Social Security and Medicare and what the Trustees are projecting for the Old Age Survivors Insurance Trust Fund OASI, the Disability Insurance Trust Fund DI and you put them together and you get OASDI and you get what everyone commonly refers to in everyday language as the Social Security Trust Fund. [01:24:19]

Those are both projected to go bankrupt at some future date. In the 2009 Report, the day of doom is now 2037 on those two programs. Health Insurance Trust Fund, the Medicare care side is also projected to blow up. That’s supposed to go bankrupt. The Supplementary Medical Insurance Trust Fund (SMI) is projected to be solvent into the indefinite future. As far as the Trustees can see, 75 years and beyond, there is no problem with the SMI Trust Fund which is Medicare Part D and Medicare Part B. Why is there this difference? Why are the other three going broke but this one is perfectly fine? And it happens to be that the government has guaranteed to make all payments for Medicare Part D and Medicare Part B out of General Revenue and tied the payment of benefits for other Medicare payments, hospital benefits, and Social Security to the availability of the funds in the Trust Funds. And so, I mean it’s crazy, it’s right there in the Trustees Report and they say it very clearly that the reason Supplementary Medical Insurance plan is solvent as far as the eye can see is because the government says so. It’s as simple as that. [01:25:45]

Warren Mosler: Just to your last question.

Joe Firestone: So the whole problem with respect to Social Security and also Medicare is just to have the government say so?

Warren Mosler: Yes.

Stephanie Kelton: Exactly, it is an accounting problem, it’s not a financial problem. [01:26:00]

Warren Mosler: So look, I think we also tend to agree that unemployment is a large cause of the environmental degradation. Nobody cuts the trees down when they don’t need the money and don’t need the jobs. So, so many of these things that go on are in the name of creating jobs when that shouldn’t be the case, we should be at full employment anyway and then the pressure for that would go away. [01:26:26]

Bill Mitchell: Here’s a snippet of policies that are current and that I’ve written about and that are on my blog. Health care, America has a crazy health care system. It’s a dysfunctional health care system and you could be very well advised to look at the Australian system, Universal Health Care. The poorest person in Australia has immediate access to first class health care whenever they want it. And nobody suffers from lack of income in relation to health care. So I think Universal Health Care is something you should aim for. The government will always be able to afford that if there’s enough real health care resources available and if there’s not, then you could redeploy people who I’m just about to be put out of jobs in the financial sector as doctors and health care professionals. [01:27:20]

Environment, I’ve written that, and your government is toying with the same sort of nonsense as my government. Emissions trading schemes, market-based trading schemes are ridiculous. You need rules-based schemes. That is you need to identify, in say Australia’s case, it’s the biggest coal exporter. Coal is not a viable long term industry in environmental terms. Give it twenty years and then close it down. It’s a rules-based approach. The sort of emissions trading systems that Europe has been implementing are dysfunctional and will create a worse problem. [01:27:59]

Financial sector, we need radical reform of the banks. Banks need to go back to being financial intermediaries, not speculators. And I would immediately outlaw almost all OTC trading and redirect those workers into other jobs that might help us solve cancer and create environmental care solutions and things like that. The only speculation I would allow is that there can be readily attached to the real sector, for example, forward markets provide a counter-party for a manufacturer who wants to hedge exchange-rate exposure on some manufacturing contract that crosses borders, that’s fine. That’s speculation that serves a real purpose. Any speculation that doesn’t should be outlawed and I would create public sector jobs to provide gambling advice to those that I’ve outlawed. [Laughter] [01:29:05]

So there’s some policy initiatives. I would…The future to our inter-generational challenge dependency ratio challenge is first class education at all levels and public education in my country services, by far, the greatest majority of people and I’m not so sure here but probably secondary school still does here. And I would have massive injections of public spending into education to increase their productivity. As our dependency ratios will surely rise we will be able to get more output per unit of worker and not have to worry about the real resource shortages that might arise. But as we said this morning the irony is the solution we’ve adopted is to trash our education systems and therefore we are undermining our future when we think we’re actually supporting it. So there’s a few snippet policies. [01:30:12]

Joe Firestone: One more question and then I think we’re going to have to wrap it up, at least, the formal ceremonies for the day. Can you pass over the microphone before you start? [01:30:26]

Unidentified: This should be a short question. We’ve added now three countries as examples of that social unrest provided the impetus to get policy makers’ minds focused on this. We all know, most of this audience knows about different parts of the United States so, at least I’m very curious to know, is there any significant difference in the resistance of people to discussing these ideas in Australia as compared to the United States? [01:31:03]

Bill Mitchell: No. With all due respect, the dialog is more civilized in Australia. Fox News couldn’t exist in Australia.

Unidentified: What do you mean? He came that way. [01:31:21]

Bill Mitchell: he boss exists, that’s why we got rid of him. [Laughter] But the type of journalism wouldn’t survive in Australia, we would think it was a joke. Even the, what I would call the extreme right in Australia is more civilized than Fox News. And one of, we were having a conversation with someone this morning, one of the differences might be I sense there is much more of a religious zeal here than there is in Australia. We don’t have the fundamental sort of puritanical origins. We were criminals after all. [Laughter] And I think you’ve commented, Randy, when you’ve come across, when you’ve been interviewed by our press, that you were surprised by the sort of questions the press and the way in which the public discourse and policy discourses is played out. It’s more civilized.

L. Randall Wray: It’s more intelligent. [01:32:29]

Bill Mitchell: It’s more intelligent Randy’s saying. Well I wasn’t going to sort of say it [Laughter]. But at the end of the day the neo-liberals invited us too. But our welfare state has been degraded but not destroyed. And I think that they haven’t been successful in getting rid of Universal Health Care, they haven’t been successful in getting rid of a decent minimum wage system, they haven’t been able to completely trash public education. They’ve tried all of those things, they haven’t succeeded in doing that and they never will. It’s too culturally embedded in us, in our, we’re a more collective society than the U.S., we have a more, we have this concept called mate-ship, and everybody’s a mate, even your enemy is a mate in Australia. And that’s a very strong collective tradition, goes back to the settlement, goes back to our war efforts, and our ANZAC tradition and all of that stuff. At the end of the day we will not allow a fellow worker to go without health care if they don’t have income, we won’t allow them to go without housing if they haven’t got income, it just wouldn’t happen.

Joe Firestone: There is one last question. [01:33:56]

Unidentified: Just one. Just to follow-up on that. All my life I’ve seen the right-wingers arguing for things that are plainly destructive and you just said they were trying it in Australia and they couldn’t succeed but what are they doing it for? Why do we have so many people trying to do this kind of stuff? [01:34:24]

Marshall Auerback: You know I’m Canadian and just a little anecdote. One of the reasons we almost didn’t avoid the sub-prime bubble was because AIG came up to Canada when the Harper Tory government come into power in 2006 and they argued for us to liberalize our insurance markets so they could offer programs like Credit Default Swaps that was AIG’s doing. And the Tories were no more ideologically predisposed to do this than the previous Liberal government was. Maybe they just wanted to expand their money-making machine across the world and maybe they always want to do that. [01:35:13]

Unidentified: So is it just like when you have a two year old who can crawl all over you and do terrible things but the reason he does that is because he doesn’t know he can hurt you. I mean, are these guys like just children trying to get what they can and do what they want and not know that it has consequences?

Bill Mitchell: I don’t think there are any psychologists on the panel. [Laughter]

Warren Mosler: I think they do it for the funding.

Unidentified: It seems to me it’s somewhat for the fun. To make it more exciting, to make life more interesting. [01:35:50]

L. Randall Wray: But a big part of it is, so you can step back and look at the big picture but there are little stories about each one of these, so each individual firm, each individual sector is trying to get a bigger share. And so, they’re advocating for things they see as in their own individual interest and then we can step back and we can say, “When you add all these things together it’s a disaster.” I think that’s part of it. Now, I do believe in conspiracies, too — but I don’t think you have to go there to explain why, if you’re Goldman Sachs and you’re going to be peddling Credit Default Swaps and you’re betting against your customers, you would like to see that allowed.

Unidentified: There used to be moral, there used to be things you wouldn’t do.

Unidentified: Yeah, and there used to be regulation too. [01:36:35]

Warren Mosler: But the other thing is you have a lot of successful people who think that it was because of their own doing and then fund organizations that support self-reliance and all these things we consider right-wing types of things, less government and that type of thing. And you’re not going to stop that, it’s just human ego. [01:36:56]

Bill Mitchell: Yeah, I think the question about regulations is important. I mean the big difference between Australia to here in the financial sector is we really kept the regulations on the banks. And not one bank went close to failing in Australia. I mean we didn’t even have a recession because the financial implications were very muted in Australia. And that’s because we still maintained most of the regulations. Like you ditched your 80/20 rule, we didn’t have an 80/20 rule we had a 75/25 rule, we didn’t ditch it. The modification we had was anybody who wanted to go without a 25 percent deposit had to insure. And the banks had to insure them. And that’s a fundamental difference. [01:37:48]

And the other big difference, of course, was that, and I think you’ve made this point sometimes too, Warren, is that when did the sub-prime crisis become a crisis? When did we get this sort of debt melt down? We got it when we, there was no doubt at the margin that people who should never have got loans. But when did good debt become toxic debt? When people lost their jobs. You could have avoided a whole lot of the bad debt problems if you had an earlier and more substantial fiscal intervention. Whereas in Australia we had a very early fiscal intervention and a relatively large fiscal intervention. And the deficit terrorists were saying, “This is ridiculous. What are you doing? You’re going to kill us.” But it saved us. And it stopped a lot of the good debt becoming bad debt. You didn’t do that here. And that’s cultural and, whoa, intelligence, as Randy says, I didn’t say it. [Laughter]

Warren Mosler: When you’re upside down the blood goes to your head. [01:38:57]


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    7 Responses to “Pavlina Tcherneva & L. Randall Wray: Policy Proposals for Fiscal Sustainability”

  1. [...] SESSION 5   “Policy Proposals for Fiscal Sustainability” [...]

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  2. 2 Chris said:

    I think that a JG might have more political traction in the US if it could be tried first on a smaller scale on the initiative of a local government or even a nonprofit. (Yes, I know that international examples exist, but US politics is allergic to all the things it could learn from the rest of the world.) Would it be possible to design a local currency to fund a city-level JG? I read Randy’s post here on Buckaroos at UMKC as a way to encourage community service. Such a small scale demonstration would be much easier to get somewhere than having a national debate in our currently toxic political environment.

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  3. 3 A Green Job Guarantee For Ireland – Smart Taxes Network said:

    [...] Video presentation on Job Guarantee. Bill Mitchell’s description of the program. L. Randall Wray writing in the huffington post. A more complete description of how and why it would work. Comparison to an income guarantee. Another description of it by L. Randall Wray (he calls it an Employer of last resort or ELR for short) [...]

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  4. [...] available on a Creative Commons, non-commercial, share-alike basis here, here, here, here, here, here, and [...]

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  5. [...] the jobless and their children out of poverty.  Direct job creation has important macroeconomic stabilization features and is the original Keynesian vision of how fiscal policy should be conducted. Generalized pump [...]

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