Productive J.G employment is not necessary

I like to understand what a statement is really saying about the universe. There is a lot of discussion around how the J.G should be implemented. There is one question in particular that is especially malignant.

Where we will all the jobs necessary for J.G workers come from?

This usually comes from Austrians and some MMTers opposed to the idea. They state something along the lines of, there is simply not enough work to employ all of these people, further any work work that is created by the State will be unproductive and massively hyper-inflationary. The reason why J.G work is unproductive is because the demand has not been determined by the market.

The Issue. Misinformed definitions of ‘market’, ‘productive’ and ‘inflation-causes’.

This is so wrong I don’t know where to begin. First take all of the people currently on unemployment benefits, they are not doing anything productive, in fact they are consuming and not producing at all. How come this isn’t called massively hyper inflationary?? They do nothing productive whatsoever, yet this hyper inflation mantra is not being applied to them, why not?? What makes one set of unproductive workers so different from another set of unproductive workers(J.G employees)?? Are you saying that the difference between hyper inflation and no inflation is the distance between unemployment benefits and the minimum wage?? Come on….

Electorate-demand Vs Market-demand

Austrians(in fact most economists) have this fetish with ‘market-demand’, if it’s not market-demand then it’s massively hyper-inflationary. There are a few things wrong with this perspective. I prefer a term called ‘electorate-demand’, that is demand as determined by the electorate. I would define ideal electorate-demand as the demand-structure that proportionally represents the interests of all members of the electorate. However, our current voting system hardly reflects this, hence electorate-demand is hardly ideal.

The privilege of Market-participation Vs The right of electorate-participation

Anyway the point I want to make is that if a subset of the population, say the unemployed, are not participating in the market, then how efficient is the market at gauging the wants & desires of market participants. See, market participation is a privilege determined by the size of your wallet. If you have no money then you can’t participate. Whereas electorate participation is a right. So how legitimate is a market that excludes, through no fault of their own, a subset of the population from market participation?? How efficient is a market that excludes a subset of the population??

Also once you understand the MMT perspective of how the State creates, destroys and controls money, then there is no such thing as ‘free-market’. A free market would be a market ruled by the Laws of the Jungle, is that where Austrians want to take us??

Target: MMTers

So now that idea of ‘free-market’ & notion of ‘productive’ has been dealt with, its time for me to make a point mainly aimed at other MMTers.

Without Cost-Push inflation

Lets assume that  J.G is operating when there is no cost-push inflation, this implies that any unemployment in such a situation is the result of inadequate demand. There is too many goods & services relative to their respective demand, and firms are forced to reduce costs and layoff workers. So paying J.G workers to walk on Treadmills will not be inflationary because…….?? Because the given situation presupposes an excess supply of goods & services relative to demand. Therefore J.G workers will be simply using their wage to purchase items that are in excess supply. If the J.G wage is ‘large’ compared to the wage-structure of the economy, then undoubtedly the spending caused by the J.G wage will at some-point balance the demand of the economy with the supply of goods & services. However given that prices are downward sticky(proven in liter.) and firms want to make profits, then firms will increase profit by increasing the number of goods & services they sell. Therefore prices will stay constant while supply increases. So in summary, given a situation without cost-push inflation, paying people to walk on treadmills will not be inflationary.

With Cost-Push Inflation

Now if the J.G is operating during a time of cost-push inflation, then it is expected that macro-policy respond in such a way to handle such inflation. This will mean a contraction in demand, which corresponds to a shift in the wage structure downwards. In order to achieve a contraction in demand people will need to spend less. In order to spend less they will need to earn less. So if on average everyone is earning less then the wage-structure will have moved downwards.

Weak Cost-Push Inflation

There is a little whole in this argument. As the wage-structure moves downwards then this will mean more people working at the minimum wage walking on treadmills. This appears inflationary because treadmill-walkers consume but don’t produce. However, as the economy realigns itself in response to macro-policy, opportunities will arise where it will be possible for businesses to employ someone on the minimum wage, and derive a profit. Businesses would employ J.G workers at or slightly above the minimum wage, turning unproductive workers into productive workers. Consequently, this would increase supply and signal the end of the cost-push inflation episode. The amount of time it takes for businesses to start employing J.G workers will be determined by the amount of opportunities to produce something in demand. Since the economy is experiencing cost-push inflation, then this indicates that such opportunities are sparse.

Severe Cost-Push Inflation

If cost-push inflation is severe then the amount of opportunities for businesses to produce would be significantly reduced, and may even be falling. Under such a situation there is only so much the population can do. The problem is not that there is too little people not producing anything. The problem is that there are few natural opportunities for businesses to produce. This is a problem of deciding how to divide the remaining opportunities. This is a distributional problem.

Summary

So in summary, when there is no cost-push inflation, unemployment is due to lack of demand meaning there is too much supply. J.G treadmill walkers would be non-inflationary because they are purchasing items already in supply. During cost-push inflation there are few natural opportunities for businesses to produce. On average everyone’s wage will be less, so that spending matches the reduced supply. Although there is adequate demand there are not enough natural opportunities for people to produce. The increase in J.G treadmill walkers is primarily explained by the lack of opportunities to do something else.

The Point

Hopefully MMTers can see that this is not an argument about how ‘productive’ J.G work needs to be. This misses the point. The objective of the J.G is to keep people job-ready. Don’t spend time trying to come up with lists of what J.G workers should do. Rather acknowledge that productive employment is not a primary of objective of the J.G. Help counter-parties understand why, this would be an enlightening experience for them. Then make the points of how easy it is to implement the J.G, such that it keeps people Job Ready. Getting into arguments over what is and what is not productive work will ensure that the J.G debate stagnates and leads no where. It also misses the point of the J.G in the first place.

Shaun H.

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11 comments

  1. Ralph Musgrave

    “Lets assume that J.G is operating when there is no cost-push inflation, this implies that any unemployment in such a situation is the result of inadequate demand.” Hang on . . . Where there is “inadequate demand” unemployment or “demand deficient” unemployment there will be no DEMAND PULL inflation.

    As to COST PUSH inflation, there may well be some of that. Indeed in the UK right now inflation is on the high side (around 5%), but the Bank of England is in no hurry to raise interest rates because it thinks (righly in my view) that this inflation is mainly cost push.

    • lowerleftlimit

      “Lets assume that J.G is operating when there is no cost-push inflation, this implies that any unemployment in such a situation is the result of inadequate demand.” Hang on . . . Where there is “inadequate demand” unemployment or “demand deficient” unemployment there will be no DEMAND PULL inflation.

      This actually a really good pickup. This is when one would ask, how do you distinguish between the two. If an economy is expanding due to exogenous factors, and then all of the sudden there was an essential resource shortage, what would be causing the inflation? I think this is a ‘definition’ problem and would depend on the sequence of events.

      For example I would define cost-push inflation as inflation due to an ‘unexpected’ change in the supply of essential resources. Demand-pull inflation would be inflation due to either an endogenous or exogenous expansion beyond the capacity of the real-economy.

      Lets assume that the economy was undergoing an endogenous or exogenous expansion, and there was an essential resource shock. I would classify the resulting inflation as primarily cost-push and demand-pull secondary. The magnitude of the resource-shock would indicate the proportion of inflation caused by cost-push.

      Wrt to the post, I think that using cost-push over demand-pull makes the argument more thorough. It maybe possible to argue that all inflation is in fact demand-pull. The reason why there is a limit to an endogenous or exogenous expansion is because there are limits upon the real economy. Such limits are derived by the supply of resources.

  2. Senexx

    I thought this was worth addressing. These are the responses to you at NEP

    Pavlina:

    Shaun, i completely disagree. JG needs to perform socially useful work. We already try to keep people job-ready through various training incentives, It does not stabilize the economy. JG has to increase socially useful output while allowing beneficiaries to retrain, maintain their skill and contribute to the community. I do not know of a JG scholar who has argued otherwise.

    Abram:

    Shaun, I understand what you are trying to say here (that maybe some of the other missed), but maybe you could have said it better. I think what he’s saying is that JG projects don’t need to create revenue producing output. These projects could focus on park-building, urban cleanup/renewal, or other similar projects that benefit society, but are not monetize-able. To this I would agree. These projects are opposed to things like bridge-building or other infrastructure projects which clearly have some sort of monetary return on investment.

    • lowerleftlimit

      Thanks for the update. I have made a response to Pavlina at NEP.

      In response to Abram.

      I’m actually saying something a bit more general than that. I responded to what Pavlina said by defining J.G. work as ‘work that is of similar complexity to the standard workday for the corresponding wage’. The only counter I can think of is the ‘internal-effect’ the work-type has upon the worker. This means that people working at the minimum wage in the private sector receive ‘internal-factors’ that shapes their mental, physical, spiritual, (and other internal components). So when a worker is in private-sector work they receive three things: (1) Wage (2) Skill-specific factors and (3) Internal factors. Skill-specific factors are defined as factors associated with a specific work-place. For-example unskilled labor learning how to wash dishes, or learning to use a rake, knowing the protocols of a specific work-place, etc.

      For the sake of argument lets assume that ‘internal-factors’ are the same for all work of a specific wage in the private sector. Then in the case of unskilled labor at the minimum wage, wages and internal factors will be the same. However there will be some variance in the skill-specific factors associated with each workplace.

      Applying this logic to the J.G. The wage is taken care of, a little imagination will solve the skill-specific factors, leaving the internal factors. Internal factors could be mean anything. For example, understanding that all workplaces have protocols. That would be an internal factor that keeps people ‘job-ready’. Another internal factor could be the feeling of participation in the community. This feeling may lead to desirable changes in the behavior of workers. Such an internal factor would be a strong counter to my argument. Creating non-productive J.G work that still convinces workers they are participating in the community is maybe difficult to achieve.

  3. Senexx

    As someone that has been involved in Australian workfare, I can voice support the internal motivator (which I think was explained better at NEP). However, given I’m only one person, that is anecdotal and it could run into the fallacy of composition, but I don’t think it would as I really can’t see how it would unless the vast majority of people prefer to do unsatisfying make-work.

    • lowerleftlimit

      I think my response to Dan Kervick is relevant here too.

      Thanks for pointing out comments on NEP were better, than have been copied here.

      Also, I could argue that people training in the military do not produce anything socially useful. However, the internal motivator is still influential upon participants.

  4. lowerleftlimit

    Comment from NEP by Abram Larsom:

    Shaun, I understand what you are trying to say here (that maybe some of the other missed), but maybe you could have said it better. I think what he’s saying is that JG projects don’t need to create revenue producing output. These projects could focus on park-building, urban cleanup/renewal, or other similar projects that benefit society, but are not monetize-able. To this I would agree. These projects are opposed to things like bridge-building or other infrastructure projects which clearly have some sort of monetary return on investment.

    My Response:

    Internal motivator

    I’m actually saying something a bit more general than that. I
    responded to what Pavlina said by defining J.G. work as ‘work that is of
    similar complexity to the standard workday for the corresponding wage’.
    The only counter I can think of is the ‘internal-effect’ the work-type
    has upon the worker. This means that people working at the minimum wage
    in the private sector receive ‘internal-factors’ that shapes their
    mental, physical, spiritual, (and other internal components). So when a
    worker is in private-sector work they receive three things: (1) Wage (2)
    Skill-specific factors and (3) Internal factors. Skill-specific factors
    are defined as factors associated with a specific work-place.
    For-example unskilled labor learning how to wash dishes, or learning to
    use a rake, knowing the protocols of a specific work-place, etc.

    For the sake of argument lets assume that ‘internal-factors’ are the
    same for all work of a specific wage in the private sector. Then in the
    case of unskilled labor at the minimum wage, wages and internal factors
    will be the same. However there will be some variance in the
    skill-specific factors associated with each workplace.

    Applying this logic to the J.G. The wage is taken care of, a little
    imagination will solve the skill-specific factors, leaving the internal
    factors. Internal factors could be mean anything. For example,
    understanding that all workplaces have protocols. That would be an
    internal factor that keeps people ‘job-ready’. Another internal factor
    could be the feeling of participation in the community. This feeling may
    lead to desirable changes in the behavior of workers. Such an internal
    factor would be a strong counter to my argument. Creating non-productive
    J.G work that still convinces workers they are participating in the
    community is maybe difficult to achieve.

  5. lowerleftlimit

    Comment from NEP by Pavlina R. Tcherneva

    Shaun, i completely disagree. JG needs to perform socially useful work. We already try to keep people job-ready through various training incentives, It does not stabilize the economy. JG has to increase socially useful output while allowing beneficiaries to retrain, maintain their skill and contribute to the community. I do not know of a JG scholar who has argued otherwise.

    My Response

    Why does the JG need to perform socially useful work? I really don’t know on what basis an argument could be made. The only one I can think of is inflation. Which I have already addressed.

    Unless your making it on a psychological basis? Meaning that workers will only be adequately engaged if the work is socially-necessary.

    And I’m not talking about training incentives. I’m talking about activities that are of the same complexity as a ‘normal-work’ day.

  6. lowerleftlimit

    Comment from NEP by Dan Kervick:

    Shaun, I think part of what produces the psychological benefits you described – the internal benefits – is workers’ knowledge that they are contributing to the community by producing something the community needs. It’s true that simply participating in some community activity – rather than being home alone – is beneficial to people. But a person who is participating in something that is obviously a mere make-work activity is likely to feel like a dependent recipient of charity, not like like a valuable member of the social team.

    Also, part of the problem of unemployment consists in the fact that, as a society, we are failing to generate the total amount of productive good we could be achieving when a significant number of people are unemployed. Contrary to the defenders of the efficiency of the free market system for the employment and allocation of resources, I would argue that there is in fact a massive amount of valuable work to be done of the kind that the private sector routinely fails to deliver. The market system needs to be supplemented by the social organization of these other kinds of work. Why employ people to do little of value when there is so much of value to do that remains undone?

    I think I agree with you that even a make-work job guarantee that isn’t organized around socially useful work is better than the system of mere transfer payments. But why do a second-best job guarantee when a better one would deliver so much additional value both to the people who are working and the society they are working in?

    My Response

    The reason why I came up with this argument is to show that MMTers need not become involved in ‘list’ arguments. Also MMTers have their priorities right when it comes to arguing the J.G. Unquestionably, socially necessary work takes precedence over non-socially necessary work.

    However, there is a ‘discovery-cost’ associated with finding each hour of socially-necessary work. I think that this ‘discovery-cost’ is an inherent and undocumented property of the proposal. This also implies another parameter which lets call the ‘community-quota’. This parameter is the amount of hours the community is willing to ‘subsidize’ at a specific discovery-cost.

    So once the J.G is initially implemented the discovery cost will be low. Meaning that finding socially-necessary work will be easy. Consequently, the working population will be willing to subsidize significant amounts of such work. However, as this supply becomes exhausted(worst-case) the ‘discovery-cost’ will rise, and consequently the community maybe unwilling to subsidize the necessary amount of hours to keep everyone in the J.G. This would mean the failure of the J.G.

    Therefore to avoid such a situation, an alternative source of work will need to be created. Understanding precisely the aspects of the J.G that make J.G workers desirable for the private sector is rather important in this respect. Understanding the ‘internal-factors’ that help J.G workers a sense of achievement is also equally important. Understanding what shapes the discovery-cost and the community-quota is also important. Understanding the relationship between the community’s perception and how this shapes the community-quota is also important.

    Hopefully it is seen that this perspective is not only important now, but an understanding will ensure the long-term sustainability of the J.G into the future.

  7. lowerleftlimit

    Comment at NEP by Pavlina R. Tcherneva:

    Shaun, In modern capitalist economies new wants and needs are created all the time. We also have what Schumpeter called creative destruction. We will hardly run out of things to do. the Institutionalists have contributed a lot to our understanding of this process. I recommend Polanyi’s ‘theory of the double movement’ and John K. Galbraith’s ‘theory of social balance’.

    My Response

    I think the best summary I heard was by Mosler, “There are an infinite number of problems to solve, right?” I completely agree. So yes based on this first principle I agree that there will always be new wants and desires.

    However, my argument remains. Discovering and creating these new ‘wants’ and ‘desires’ always has a search-cost. If this search-cost becomes to high, then any theory and/or program based on a non-existent or undocumented search-cost will fail.

    I think this observation shows why it beneficial to understand a perspective why such a search-cost is irrelevant in the first place.

  8. lowerleftlimit

    Comment at NEP by Joseph M. Firestone:

    It may not be necessary, but it is wrong to give away this point to John and others. Let him develop a viable measure of productiveness if he claims that JG jobs would not be productive. He says he is not biasing his analysis by insisting that the market always determines what outcomes have value. But this sort of claim is nonsense on its face. We in the Washington DC area are still benefiting 70 years and more later from the WPA projects completed here, and so are people in New York City and all over the country.

    If a measure of productiveness cannot encompass both private sector outcomes and public sector on a common non-monetary measurement scale, then it is a valueless measure biased in favor of a private sector that measures the value of all outcomes in nominal monetary terms.

    My Response

    I’m not sure it is as simple as saying ‘we shouldn’t concede this point’. In an ideal world there would be two MMT groups pushing the J.G. One group would be focused on the correct definition of productiveness and the other on showing that productiveness isn’t an issue.

    Saying that either shouldn’t concede their respective position could be potentially a waste of time. I also think that it is paramount to equip MMTers with alternate perspectives. This will give MMTers a better understanding of what they support, and another weapon in the ideological battle.

    I’m not saying that MMT should simply concede the ‘define productiveness’ argument, not at all. I think MMTers and opponents have much to benefit from arguing this point. However any battle weather physical or ideological requires resources. There may come a time when it is better to pursue one perspective over another. Or, rather than ‘putting all your eggs in one basket’ it may be more efficient to argue more than one perspective.

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