MMP Blog #42 Responses

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Originally published March 22, 2012 on the New Economic Perspectives blog.

Thanks for all the comments and the interesting discussions. Sorry this will be late as I’m in Brazil at a couple of conferences. A number of the comments were on topics we will discuss later—especially Vincenzo’s design of his own preferred JG. I am purposely keeping it general in the beginning, and gradually we will introduce the specifics. But note that the discussion made it fairly clear that no “one size fits all” will work everywhere. The real world program will need to be carefully designed to fit “conditions on the ground” (as our Pentagon warriors love to phrase it). We need to look at the general, universal program first so I will stick to that. Later I will argue that in some circumstances it might not be practical (due to political, institutional, sovereignty, managerial capability, or productive capacity constraints) to implement the universal program from the get-go.

As I will explain, the universal program takes workers as they are, with no income, training, experience, or level of educational attainment restrictions. It is non-invidious:  all races, genders, sexual preferences, political ideologies, and ages (with only a lower legal limit that is similarly applied to all workers) are accepted. Jobs are provided where workers are—they do not have to move to take a job, and commutes to work should be reasonable. Reasonable work schedules will be provided for those who prefer to work part-time. In the universal program, all full-time workers receive the same wage and benefit package; there might be an adjustment for part-time workers (i.e.: a worker who chooses to work a couple of hours per week might not receive the full benefit package—this is a detail we could discuss later).

Finally I want to emphasize again that this program EXPANDS choice, it does not REPLACE an existing choice. I say that because many critics will say “Oh, this is just workfare—making people work for the dole”. No it is not. It adds to the existing set of programs that make up the social safety net. Whether it might make sense to tighten up the safety net once the JG is in place is one of those specific details that we can discuss later. But first let’s try to understand the JG as an add-on, not a replacement. Workfare already exists, and there are strong political movements to reduce the social safety net. Some readers might oppose those movements, others might support them. But what we are trying to do here is to understand the JG program. After that we can discuss how existence of the JG might strengthen or weaken the hand of those who support or oppose social safety nets.

So with that preface, I’ll tackle a few questions.

Q1: Joe made a comment to respond to a comment that favored health standards for JG workers.

A: I agree with Joe: there certainly will be some health standards for particular jobs. For example, anyone who will work with children will have to take a TB test. And some jobs will be too physically hard for some workers. However, always keep in mind that a universal JG program takes workers as they are. It offers a choice. For example, the vast majority of people with disabilities want to work for pay (the last figure I recall seeing was about three-fourths) and yet even after decades of progress in theUS in reducing discrimination in hiring of people living with disabilities, the vast majority still cannot find steady work. The JG would take them—all of them—and design jobs for them. It’s the right thing to do. I realize our Neoclassical Scrooges will say: “but it is not efficient. They will never produce value anything close to the wage we pay them.” My answer: such a consideration does make sense in a small business firm, but it makes no sense for a society. All humans have a right to participate as fully as they can in the society in which they live. (Yes, that is a progressive notion, but science is progressive, and as we heard last week, reality has a liberal bias, too.) The deck is already stacked against many of those with disabilities. The public purpose must be biased toward them, to unstack the deck. Anyone who wants to contribute to society should be provided the opportunity to do so.

Q2: Joe also dealt with a question about time limits.

A: I go farther: no time limit. Ever. Take workers as they are, give them jobs they can do. Forever. (Well, until they leave this world.)

Q3: Ralph: marginal product of labor less than the wage mumbo jumbo.

A: We’ve known since Sraffa in the 1920s that the neoclassical theory of the labor market (firms hire labor up to the point where the marginal product just equals the real wage) is logically confused. No serious neoclassical economist would argue the way Ralph is arguing. It was disproven decades ago. It is nothing but a flawed ideology—a myth. Now, I did say that firms hire the amount of labor they think they will need to produce the amount of output they think they can sell. Given that, they will hire an additional worker only if she will work harder, better, or for lower pay. (We do not need to get into “real” wage since that is also a silly neoclassical idea: firms pay nominal wages, and you offer to work for a lower nominal wage if you want to try to replace an existing worker.)

However, I will concede to Ralph that if a firm thinks he will work harder, smarter, or better than an alternative worker, he will get the job. (It also helps if the employer knows Ralph’s family! We know that networks are the most important determinants of employment.) So yes, there is some concept of “productivity” with the “more productive” workers getting hired first. Perceived productivity is highly subjective on the part of employers—who have all sorts of biases (race, gender, religion, sexual preference, and so on)—and even after workers are hired it is hard to know what their productivity is (since production is social). But I admit that the JG program will tend to have those workers viewed as potentially “less productive”—and in that sense the JG intentionally “hires off the bottom”, taking those workers who are left behind in the private jobs lottery.

In any case, there is no independence between wage paid and “productivity”, marginal or otherwise. Higher wages induce greater effort (“efficiency wages”). And we actually measure much of our nation’s output by price, which is related to cost of production that in turn is largely determined by wages paid. Nice circular argument the neoclassicals get themselves into!

Q4: Neil and others: let private employers hire JG workers?

A: That is one of those specific details we’ll leave for later. As you will see, I’m skeptical of this (due to worker substitution) but am not 100% opposed. It depends. But we do not want workfare in place of the JG!

Q5: Neil and others: what about incentives for workers to leave JG for private sector jobs?

A: The JG program wage and benefit package becomes the base—the minimum wage. Other employers will need to recruit workers out of the program by offering them something better: higher wage, better benefits, better chances at career advancement, and so on.

What if a worker decides she really likes what she is doing in the JG and refuses higher wage offers in the private sector? Fine. Nay, good. She’s happier and we get the public purpose done. Obviously when that happens, the JG increased her available choices and now she gets paid work while contributing to society. Why would anyone be against that?

Many private firms face a problem: how can we get someone to take this crappy job, earning wages so low no one can live on them, with a cruel boss who enjoys watching workers suffer? Their solution: let’s get rid of the social safety net so that the only alternative is starvation. Of course that will be the proffered remedy from the employer side. It is the public’s duty to force employers to improve pay and working conditions.  Supporters of the JG do not need to downplay this aspect of the program. Yes, the JG and MMT are inherently progressive. Firms will have to shape up or go out of business. That is progress.

Q6:Tyler: Why would the JG be less inflationary than pumping up demand or supply sides?

A: It is very hard to get an economy to run at a pace where everyone who wants a job can get one. And even if you can occasionally get there, the economy never manages to stay there at continuous full employment. It takes directed employment programs. The JG can do it by directly creating jobs, so it’s consistent with a much lower level of aggregate demand. That is not to say we necessarily want to keep demand depressed. The notion is that the JG operates like a bufferstock program for labor, so we can achieve full employment with much less pressure on wages. But we will have to wait for the full explanation.

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