Is MMT’s Job Guarantee Crucial?
Pavlina Tcherneva argues that the job guarantee is not just an afterthought to MMT but a crucial component that has so far offered the most coherent counter-cyclical economic stabilizing mechanism. A video follows at the bottom of the post.
Dr. Tcherneva is an Assistant Professor of Economics at Franklin and Marshall College specialising in monetary theory, fiscal policy, macroeconomic stabilization, and the economics of gender. She previously taught at Bard College and the University of Missouri–Kansas City and has conducted research at the University of Cambridge Centre for Economic and Public Policy, the Levy Economics Institute, and the Center for Full Employment and Price Stability.
This post is primarily addressed to the MMT community and whoever considers himself/herself a follower of Modern Monetary Theory. It deals with the question of what is in the purview of MMT.
A number of MMT supporters from the blogosphere have argued that MMT has a descriptive and prescriptive part and, more recently, that the Job Guarantee program (JG) falls in the category of prescriptions and that it is not as essential to the MMT project as the description of the operational realities of modern economies.
The argument is that once we have understood how sovereign governments fund themselves and how the banking system operates under different currency regimes, then we can pick from a menu of policy options that the monetary regime affords, depending on our individual political preferences. Some MMT followers have claimed that they would prefer tax cuts to spending due to their more conservative leaning, while others still seem unconvinced that full employment is possible or even desirable. By contrast, most first generation MMTers have made the full employment objective a salient feature of our work.
Though clearly there is an aspect of MMT that is purely descriptive, I have always considered this division between the descriptive and prescriptive part of MMT to be a fundamentally flawed dichotomy. Why are MMTers busy describing what governments can and cannot do under different currency regimes? Why have NewEconomicPerspectives, MoslerEconomics, BillyBlog,PragmaticCapitalism, MikeNormanEconomics, CreditWritedowns, to name just a few, spilled so much ink about the flaws of the Euro, the difficulties with quantitative easing, or the impact of austerity policies in the U.S. and abroad? Because producing an adequate description of monetary operations in and of itself is a useless exercise, but when it sheds light on the policy options before us it is invaluable. And when we illuminate policy choices, we MMTers inevitably make a choice between one policy prescription over another.
The adoption of a currency board, a monetary union, or gold standard is a political choice and to claim that MMTers are mainly interested in describing the problems with the EU or dollarization or the gold standard without imparting any normative judgment or preference of one currency regime over the other would be disingenuous. I doubt anyone would claim otherwise.
When we discuss monetary policy we are not simply impartially evaluating the actual monetary operations, we bet, we trade, we make claims, assertions and forecasts. Do we not hypothesize a monetary transmission mechanism different from that of monetarism? Do we not theorize about the multiplier effects from spending on primary/direct employment and in turn on secondary/indirect unemployment? Do we not have a theory about the Fed’s ability to grow the economy, about the impact of discontinuing the payroll tax cuts on the economy, or of imposing draconian austerity measures on any nation? Certainly we do. We are not just describing, we are also forecasting and ultimately prescribing.
All of this requires some theory about how all the pieces of the reality we’ve just described fit together to produce some economic results. And to our credit, MMT has been right on the money on pretty much everything from the impact of austerity, to the relative ineffectiveness of QE, to the movements in bond yields. This is the true test of our effectiveness as economists or pundits—it is how well our theory and our conceptualization of reality stand the test of time.
I realize that it is somewhat of a philosophical point to say that facts do not exist in a vacuum and that we need to have a theory to make sense of these facts. But it is important to make this point, because MMT supporters are doing a disservice to the MMT project by drawing flawed boundaries between what can be called objective and what can be called subjective in the MMT project.
And whereas a number of bloggers and friends have embraced the merits of a sovereign monetary system, have renounced the flawed monetary arrangement of the EMU, and have forcefully debated proponents of the gold standard, the JG has recently received considerable skepticism and criticism from them (recent critiques can be found here, here and here).
Now I welcome criticism of the program any day and like many of my colleagues have answered questions and concerns about the JG for many years. We have also modeled, simulated, and studied specific direct job creation programs around the world. Though we may not have a universal JG to study today, we have good many examples that mimic or at least have important features of the JG that permit us to study the merits of direct employment.
The JG is not just an afterthought to MMT but a crucial component that has so far offered the most coherent counter-cyclical economic stabilizing mechanism.
If MMTers want to be technocrats in analyzing monetary policy, then the same has to hold true for fiscal policy as well. So I ask that critics/skeptics/supporters of the JG apply to it same technocratic scrutiny that they apply to every other aspect of MMT. If you claim that you can objectively explain the merits and demerits of one currency regime over the other, then the same has to be done with respect to the JG or any other fiscal policy.
Make your case against the JG based on its intrinsic features, not on its political viability. Tell me why your policy of choice is more sound and more effective than the JG. Tell me why and how tax cuts will produce and maintain high (full) employment better than direct job creation. What are your assumed transmission mechanisms, your multipliers, your estimated effects on prices and wages? Let’s debate these types of issues, as I do not think that tax cuts and direct job creation are policies of equal merit. Tell me why subsidies or contracts to private firms are more expedient and efficient stabilization methods than direct investment by government. I may disagree but will be happy to engage.
But to claim that fiscal policy is somehow more susceptible to crony capitalism, corruption, inefficiency than monetary policy (Fed lending facilities, anyone?) or any other private sector behavior (Enron, WorldCom… heck, all the pervasive control fraud in the financial and non-financial sectors!) is simply a nonstarter.
The fact that any program like the JG can face various problems does not mean in and of itself the program is bad. It’s like arguing that we should scrap voting in the U.S. since elections have been plagued by voting fraud and a good portion of the electorate has been deliberately disenfranchised and prevented from voting. A genuinely pragmatic and technocratic attitude would be to ask the question “What is the problem to be solved” (unemployment, corruption, inefficient allocation of resources, inadequate education) and then to find a solution.
I suspect that JG has received a lot of flak, not because the program is ineffective, but because at bottom some MMTers from the blogosphere disagree that unemployment is an economic and social evil that has to be eradicated. If that is the position, then let’s bring it out in the open and let’s have that debate. I am happy to make the case that unemployment is a serious macroeconomic problem of capitalist economists that requires a long term solution which cannot be delivered by the private sector, and that the solution we propose does not rest on some authoritarian control of the government over the economy. I will gladly argue that an economic system with an “employment buffer stock” is a more stable, sound, efficient, and just than one with an “unemployment buffer stock”. If you think the opposite, then make your case, but let’s have a debate on these technical terms, not on the basis of some people’s visceral “dislike” for government-provided jobs or on the basis that such a program is politically infeasible. These are non-arguments.
If you asked me 5 years ago if the U.S. would elect a black president in the next election, I would have told you that this was a near political impossibility because many Americans were still not ready for it and wouldn’t like it.
Economists not only have the responsibility to adequately conceptualize, describe, and analyze the economic reality, but also to be ready with effective policy tools to solve the most important problems of our time, no matter how the political winds blow.
As John Maynard Keynes wrote in a letter to T.S. Eliot, good intentions are never the problem; the trouble with formulating policies for full employment is that economists lack both the intellectual conviction of their feasibility and the cleverness to design them (Keynes 1980: 384).
MMT-JG advocates just might be the exception.
A version of this article first appeared at New Economic Perspectives.