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??
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.
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.
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.