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Wednesday, July 21, 2010

Neo-Chartalism, Part III

A question to MMT'ers.

Let's ignore the issue of insolvency, inflation, hyperinflation...all that jazz from Krugman/Wray....
My question is:

In this brave new world where the government spends, numbers are added to a bank account and that spending provides income to the under-capacity private sector to indirectly create some jobs [X], or, contrarily, let's assume the idea of a 'full employment' government guaranteed wage/job at $8 an hour or whatever is provided during a moderate recession to maintain employment - that income is provided by the government (labor spending) to hire that worker to do some job X.

Point is: deficits don't 'matter' (given underemployment) because inflation, stability, politics, perception, credit rating... aren't a concern (which I disagree with to a degree from my last post - but this isn't about that). ...

So the question is: what is "some job [X]?"  And, why do you suspect, in aggregate, that X people that would be otherwise underemployed / unemployed are better off working in a government created job (indirectly or directly) as opposed to some alternative?  I suppose my concern here has a bit of an Austrian tinge to it along the lines of inter-temporal missalocation of capital (and I'll extend that to include labor).  Why assume that the government won't create dynamic inefficiencies?

What happens to these jobs when the recession ends?  Who determines what these jobs are?  Would these jobs create unfair externalities on other private industries?  What about the capital investment created to support the public jobs?  Could these things and the ability to speculate on them create a different kind of government led bubble?  Surely some capital stock would already exist (the under-utilized stock) but certainly not all of it, and that which does exist would need significant retooling - capital purchased from private suppliers.  I recognize that Minsky (who I'll admit I was unaware he was a proponent of this) viewed this as not a real problem provided the employment would be in labor-intensive service type public jobs.  Though, to me, this 'program' just seems riddled with issues.   Though, I'd love your feedback MMT'ers.

But then let us assume that, beyond that question, the employment itself creates a perverse incentive to expect to just work a low-paying, low-skill public works job every recession as opposed to doing what people SHOULD be doing during recessions (re-tooling, continuing education, increasing skill sets, chasing dreams...)  Is that not problematic?

I thought that part of the heterodox tradition was not to blindly say, "it's the spending, stupid" but to anticipate outside the box economic concerns.  I see no real answers in your literature to these concerns.  I understand, from a paper provided to me that Minsky thought that it was 'unfair' to have workers tool to their jobs, rather, particularly in hard times, jobs should tailor to workers - but this strikes me as being a bit one-sided.  Is there not room for development and aid of the worker?   Maybe it's the heterodox in me, but this almost seems to take it to the opposite extreme from Austrianism.   I find that typically, the best policies are those incorporating ideas from numerous fields of thought - which typically means a meeting in the shades of gray.

I await your responses...cordially please....calling me 'sophomoric' is hardly a response.

11 comments:

Ken Houghton said...

Not speaking for the MMTers, but I'll try some of the questions, just to get things going:

1 of 2

What happens to these jobs when the recession ends?

Their funding goes away, or at least gets reduced to maintenance. (non-economics economist explanation: the political will for funded those jobs is reduced over time.)

Who determines what these jobs are?

Definitionally they are public-sector jobs that can kick-start private-sector spending: infrastructure maintenance and repair, creating efficiencies in government processing, etc.

Would these jobs create unfair externalities on other private industries?

Definitionally you are in a situation where "unfair externalities" exist. Dr. Black's "paint house roofs white" might take work from competing paint companies, which is why I'm suspicious of it. (Otoh, spending the cash by the government to hire those companies at the prevailing wage [the reason for the Davis-Bacon Act is to prevent government competing directly with private sector, in that respect], who would then need to hire more resources, though, would fit perfectly.)

What about the capital investment created to support the public jobs? Could these things and the ability to speculate on them create a different kind of government led bubble?

Of course. But this would be no different than during normal times, where cities build, e.g., the RCA Dome or those three or four roads that all go in an oval/circle around Indianapolis.

Will it lead to inappropriate speculation? Yes. Build a road, and a business tries to make a go of it there. Announce a road and people start buying up land around it in expectation of making a quick profit. Are those sustainable bubbles, though? Probably not. And enough of them will "take" in the recovery that it likely would be inappropriate to declare them "bubbles" instead of just "bad investments."

Recall that some capital is not being used (or being used suboptimally) at the time, so any investment with an expected return > 0 is a better use of capital than keeping it "in your mattress."

Surely some capital stock would already exist...but certainly not all of it, and that which does exist would need significant retooling - capital purchased from private suppliers.

I don't see the problem here; you're describing "creative destruction" of an underutilized resource. If the government is willing to buy tuning forks from me at a market price and turns them into lightning rods that are again sold at the market price, where is the harm?

You're smarter than I am, so I know there's a real objection here, but I don't see it.

Ken Houghton said...

2 of 2

[T]he employment itself creates a perverse incentive to expect to just work a low-paying, low-skill public works job every recession as opposed to doing what people SHOULD be doing during recessions (re-tooling, continuing education, increasing skill sets, chasing dreams...) Is that not problematic?
No, it's not. It changes the risk-reward of the equation, but (1) those jobs are not ones you would want to take in a "full employment" economy, at least not from the government, (2) there is nothing that says re-tooling cannot be vocational, (3) the presence of a variety of "temporary public sector" jobs would allow the expansion of skill sets (at least as much as private sector employment, and probably moreso since flex time presumably would be easier to get) as well as the maintenance of current skills. (Fannie or Freddie--were they government entities and not private-sector companies with taxpayer support--could use my MBS experience much more than my current job does or time on the dole would.)

Would the for-profit (especially) educational institutions suffer? Possibly/probably, but most states already have training programs available for the qualified unemployed, and shifting those to the qualified quasi-employed would be no issue. The change would be in the marginal worker who is trying to shift fields ("retool"), which may reduce those U of Phx "Business Management" degrees--but whether that should be seen as a bug or a feature is something we can discuss.

Also, it's more difficult to "chase dreams" if you know you won't have anything available as a "fallback." I'm inclined to argue the guaranteed base wage is an incentive to entrepreneurial activity (again, at the margin), just as guaranteed health insurance will be five years from now.

As I said, just starting the discussion, but most of your arguments appear to apply as much to "full employment" private sector issues as well.

Nathan Tankus said...

"because inflation, stability, politics, perception, credit rating... aren't a concern (which I disagree with to a degree from my last post - but this isn't about that)" inflation does matter and there is enormous amount of minskyan and chartalist literature explaining its causes and why a public full employment strategy won't cause the same inflationary pressures as other full employment strategies. i admit chartalists haven't been good at focusing on it (which is why i'm creating my own blog to address them) but don't assume chartalists don't think about inflation. as for the political aspect of it, the whole point of blogs like economic perspectives from kansas city and billy blog is to bring attention to these issues in the public sphere and to attempt to get people to hold their governments accountable. we don't assume government will do the right thing, we hope people will force their governments to do the right thing which is how all positive changes have occurred in this country

Nathan Tankus said...

"What happens to these jobs when the recession ends?"
the government offers a base wage (something like the 8 dollars an hour you mentioned). people who can't find a job in the private sector can, if they choose, get a job at the base wage. when the recession starts to recede private employers will start to hire workers out of the public sector by overing a slight markup over the wage they are already getting (which consequently shrinks the budget deficit and what makes the job guarantee such a powerful automatic stabilizer).

"Who determines what these jobs are?" local communities. in the same way that job programs during the great depression where federally funded but the projects were chosen by the local government this would be funded the same way. there are also proposals to provide these workers to non profit organizations and simply have the government pay their wages. "Would these jobs create unfair externalities on other private industries?"
define "unfair externalities". they would do jobs that the local communities hire them to do because no one else is doing them. i would like some evidence that previous job programs like jefes in argentina and in the united states during the 1930's severely hampered private businesses
"What about the capital investment created to support the public jobs? Could these things and the ability to speculate on them create a different kind of government led bubble?"
how exactly would private individuals be "able to speculate on them"?

"But then let us assume that, beyond that question, the employment itself creates a perverse incentive to expect to just work a low-paying, low-skill public works job every recession as opposed to doing what people SHOULD be doing during recessions (re-tooling, continuing education, increasing skill sets, chasing dreams...) Is that not problematic?" if you had any familiarity with the history of the civilian conservation corps, the work progress administration or any of the other job programs you would know that these job programs had an incredible effect on the education level and skill sets of those in the programs. millions of Americans learned to read, as well as countless other skills that they carried with them for the rest of their lives. furthermore all the empirical evidence on the subject shows that the long term unemployed's skill sets rapidly deteriorate as time goes on making them less productive and even less desirable by employers over the long run. a jobs program would preserve their skills and put them to good use.There is a reason Minsky was such a supporter of a public employment programs... he was in one! (the work progress administration if i'm not mistaken)

a final note to the other chartalists commenting, it is not very helpful to insult garth for not agreeing with us, it simply makes him more hostile to our ideas.

Garth said...

Thanks Nathan, though I'd say I'm heavily skeptical, not hostile.

So the recession ends and huge public works projects are half done and they just fade away into the night? And what what about these public works projects... the likelihood of them being politically driven seem pretty high - what makes them so valuable in the long-run?

Local communities would chose the projects? I don't think so Nathan. Look at the federal stimulus. There are so many strings that tie local governments - what gives you the impression our Federal government would basically say, "hey locals, here's some cash, spend it as you choose." ???

Finally, you can't compare the public works projects of the Depression to today. Great so people learned to read. Literacy was low back then. We've grown a lot over the decades thanks to new technologies etc. Skills like reading are not luxuries anymore for large groups of people. We need to compete globally. Soft skills aren't going to be useful. Math and science skills are really all that are going to keep us alive to compete against China and India, etc.

"As time goes on"...yes if we were talking about a depression lasting a decade or more. But we are bouncing back - slowly but we are. The reality of today is that people need to retool their skill-sets, not stoop to doing potentially inefficient political pet projects. That being said, I support spending on infrastructure and energy and certain targeted things - but I gather the scope of spending you are talking about would be vastly larger.

I'm sorry, I just find some of those answers rather naive to the reality of the day.

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