Originally published March 28, 2012 on the New Economic Perspectives blog.
Thanks for the comments, many of which get ahead of the story.
I’d like to remind readers that we are ADDING the JG onto the EXISTING system. So the correct comparison is NOT against some UTOPIAN IDEAL in which we all live like Wall Street’s finest in some sort of Ayn Rand blissful Fountainhead. But RATHER to compare the existing system against one in which the JG is added. I realize this is a difficult mental gymnastic. I hope this will be clear as I respond to seven comments (the others concern upcoming topics; indeed, even these really are about topics we have not explored in detail but they are worth discussing).
Neil: Government programs eliminate private sector operations; they lock out private sector innovations.
A: We have not yet discussed what JG workers will do. As much as possible we will want to do things that are not currently done by the private sector. Now, you could make the implausible argument that the private sector WOULD do everything at SOME price. That then leads to the “BIG” (basic income guarantee) or “Pump Priming” approach: just funnel money into everyone’s bank account until they can afford everything they want—and at some price the private sector will supply it.
Right. We will get very high inflation long before we create jobs and increase the supply sufficiently to satisfy all demands.
I will be posting soon on the (quasi-religious) belief that the private sector left to its own devices is “innovative”. False. Almost all innovations of any importance come from the public sector. The private sector innovates “pet rocks” (older readers will remember those). Forget about it. Private sector innovation is a pimple on the proverbial elephant’s rearend.
Golfer: No need to create training programs if they exist in the private sector. Go habitat for humanity!
A: On the job training should be a part of every JG job. We are not talking about training programs for jobs that do not exist. Provide the job, and enhance skills on the job.
Go habitat for humanity! (I agree. This is a good example of what we want.)
Neil: Why not just subsidize all jobs at $10 per hour, rather than creating new jobs through JG?
A: Why not just add a zero to every paycheck? Essentially the same. No jobs will be created, no living standards will rise. Indeed, we’d likely lose jobs at least for a while to imports.
Ralph: Are JG workers better than the reserve army of the unemployed and future imprisoned?
A: Of course. You’d rather hire out of street gangs? What kind of employer are you? JG workers show up for work, learn skills on the job, demonstrate their willingness to work. You’d prefer the prisoners?
As for “studies show employers don’t want these workers” that is too vague to respond to. I suspect most of these studies are of workfare programs that are means tested. In otherwords, you take poor people, take away their welfare, force them to work at very low pay, then expect employers to rush in to hire them? Of course that will not work. JG is not means tested. It is not work-for-the-dole. You are comparing apples and oranges.
Mattney: With inflation over time, the real wage in the JG declines.
A: Yes. We will need periodic readjustments upward. Like minimum wages. But with more political pressure.
Rougue: If aggregate demand increases too much then the JG declines (workers hired out into the private sector), so it becomes too small to hold down wage demands.
A: Right. We still have all the usual ways to fight inflation: raise taxes, reduce other kinds of government spending, impose rationing, adopt wage and price controls. We can increase the JG pool as necessary by slowing aggregate demand.
Adam: Some firms will get away with paying less than the JG wage. What about supporting small business?
A: Yes, you will still have the job scams in the back pages of Rolling Stone whereby you actually pay to be employed in the music industry (negative wages). No problem. The JG adds an additional choice: work for pay. If you prefer to pay to work, or to work for pay below the JG wage, go for it!
Like the myth about private sector innovation, there is another myth about small business as “job creators” and so on. I see no reason to subsidize them. Let Darwinian selection work.
Conclusion: Again, I am always amazed at how little faith people have in “markets”.
Oh no, adding a JG will kill small business! It will squash innovation! Firms will lose business to the JG!
Oh my! What will all our poor businessmen do?
I’ve got much more faith in them. We can add on the JG and the JG wage. The private sector will adapt—just as it has a million times before.
The Public Sector sets the terms and the environment within which the private sector operates. That is always true. The JG is a very tiny addition to what we’ve got, if you think about it.
Rules, laws, regulations, public infrastructure, public education system, publicly supplied healthcare (even in the US! Which is primitive beyond belief). You can argue that all these impact our “job creators”.
Oh no, if we provide a public city street, that takes away the possibility of a private toll road!
Free inoculations against childhood diseases destroy profit opportunities!
Laws against spousal beatings reduce the demand for leather straps!
All of these reduce profit opportunities for some firms, but vastly increase them for others. And increase the quality of life.
Have a little faith.