Financing Economic Solutions to Unemployment and Accompanying Social Problems

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This is a response to various economic posts here and elsewhere. We should all be tired of the hand wringing. 80% of our social and economic problems would disappear in a few months with a:

      •   Federal Job Guarantee, as part of a      
      •   Full Employment Fiscal Policy     

 
Here’s how:

Step One:   Rename your Political Party: “The No Excuses – Get to Work Party”.  Tag Line: “We want YOU to get to work!”  (No handouts will be involved.)

2)   Make the first plank: Full Employment: A Job Guaranty: “You want a job, we’ll give you a job, come hell or high water. No Excuses”

3)   Revise Federal Reserve Act so Federal Reserve Bank reports to the Treasury.

4)   Execute on national “To-Do List” (infrastructure; alternative energy; high speed rail; rehire every teacher, fire fighter, cop laid off in last 8 years; quintuple trade school and community college staff – free tuition, free elder and child care.) Fund through securities purchased by the Fed – either as loan or just have Fed “gift” it to the Treasury. Hiring people directly or through contractors. Minimum guaranteed wage: $10/hr w benefits. (40 hours or 20 hours per week.) Eliminate private sector minimum wage.

Added spending by newly employed workers, producing public sector goods and services, induces business people to hire MORE workers to produce private sector goods and services.

5)   Track wage inflation monthly, If it starts getting out of hand (say, approaches 4%), take action:

•  Fed sells securities,
•  Fed increases interest paid on reserve deposits at the Fed,
•  Congress increases tax rates aggressively across the board (income, sales, and asset values), and/or
• Congress slows spending. But everyone is still guaranteed a job at $10/hr, full time or part time, plus benefits.

Inflation should not be an issue since newly issued money is offset by both public sector and private sector goods and services produced.

6)    Result: Everyone’s working and income inequality will diminish.

  •  Expenditures for unemployment insurance: zero;
  •  food stamps: zero;
  •  Medicaid: virtually zero;
  •  all sorts of welfare for this or that: zero.

If we really want to be punitive, cut welfare benefits for able-bodied folk not taking guaranteed job.

7)   What’s for dessert? “Now let’s get to work!”

Not that hard kids!!

“HOW DO YOU PAY FOR IT!!!!!??????” In order to implement a Federal Job Guaranty and Full Employment Fiscal Policy, it’s important to understand a few points of how the economic system works.  Perhaps it’s time to consider a model that reflects the ways things are as opposed to the way things were before 1971.

Modern Monetary Theory is: first i) an examination of how our monetary and fiscal economy works, and second, once that is understood, ii) the implications of policy prescriptions for solving our economic problems. In terms of our monetary system, four assertions are made:.

1) The US government is unlike a:

a. state,
b. municipality,
c. business, or
d. household,

in that it can issue its own currency.

2) A sovereign (Treasury combined with the Federal Reserve Bank), like the US, that:

a. issues,
b. borrows in, and
c. floats

its own currency, can NEVER run out of cash.

3) The sovereign, like the US, can:

a. issue currency to spend and buy anything the economy produces,
b. up to the productive capacity of the economy (adjusted for turnover/velocity),
c. without creating inflation.

In other words the US government can issue currency and hire any and all unemployed and underemployed folk. The constraint is the productive capacity of the economy, as measured by wage inflation. If prices do rise above an acceptable level, they can be controlled by i) selling government securities, ii) raising interest paid on deposits at the fed, iii) raising taxes across the board (on income, sales/vat, and asset values), or iv) a cut in spending.

So the Job Guarantee law should include automatic across-the-board tax increases that kick in when certain monthly wage inflation target are hit – say for 6 months in a row. These can include:
a) Income Taxes,
b) Sales / VAT Taxes
c) Asset Value Taxes (or Wealth Taxes)
That’ll cool things off pronto. The taxes can be inserted into the Job Guarantee law so they kick in automatically if monthly inflation exceeds a certain level for say 6 months in a row.

4)   The US government debt is not a problem in any way, shape, or form. In fact, it can be repaid tomorrow without a negative repercussion. That would simply involve replacing government bonds with deposits at the Federal Reserve Bank with similar interest and maturities. The similar or even better risk/reward terms assure no change in investor savings/spending preference or desire to hold dollars.  Not recommending this course of action, just pointing out that it is possible.

Private Debt, by the way, can be a problem and is largely responsible for many of our recessions.

The policy implications of these assertions are many.  So what to measure?  What to manage?  2 things:

   a)  Unemployment – as in keep it at ZERO at all times, and

   b)  Inflation – as in measure monthly and keep it at a low manageable and comfortable level at all times.  (3% to 4%?)

Easy Peasy!

Here are some resources to learn about Modern Monetary Theory (MMT is a name that stuck with this field of study. It’s a misnomer, however, in that it’s not necessarily Modern – it’s been around since the 1940s; it’s not just monetary – it involves both monetary and fiscal operations; and it’s not just a theory – it involves an explanation of how our monetary system works since we went off the gold standard in 1971.) YouTube some intro lectures from:

–  Bill Mitchell:  Demystifying Modern Monetary Theory

–  Stephanie Kelton – The Angry Birds Approach to Understanding Deficits in the Modern Economy

–  L. Randall Wray – Modern Money Theory: Intellectual Origins and Policy Implications

–  L. Randall Wray — MODERN MONEY: the way a sovereign currency “works”

–  Modern Money Network

–  Warren Mosler’s Soft Currency Economics

Some helpful blogs / twitter feeds:

–  Bill Mitchell – Billy Blog

–  New Economic Perspectives

–  Twitter – Stephanie Kelton

–  Real Progressives

The foundations of MMT are John Maynard Keynes, Abba Lerner, and Hyman Minsky. Recent proponents are: Randall Wray, Stephanie Kelton, Warren Mosler, Jamie Galbraith, Bill Mitchell, and Steve Keen. Stephanie Kelton was appointed to the Senate Budget Committee by Bernie Sanders in late 2014 and she and Jamie Galbriath and Bill Black advised Sanders during his campaign. Collectively, they are a New Hope!

A book you can read is Modern Money Theory, A Primer on Macroeconomics for Sovereign Monetary Systems (L. Randall Wray) It’s a little technical but very clear.

There is considerable pushback from the mainstream on MMT. Folks can’t wrap their brains around it. (I’m talking the vast number of mainstream economist, including so-called “liberal economists”.)  I attribute it to people not being able to unlearn stuff they learned in their 20s. Especially if you based your career on it.

Hope that helps.

factoryworker
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13 thoughts on “Financing Economic Solutions to Unemployment and Accompanying Social Problems

  1. Pingback: The Kids are NOT Alright! The Truth about The Federal Debt and Intergenerational Equity | fflorescpa

  2. Pingback: Tariffs! | fflorescpa

  3. CryptoGoldBug

    This will lead to hyperinflation! Debasement of the currency! Wheelbarrows of currency for a loaf of bread! Zimbabweeeee!!!! Weimer Republiccccc!!!!!!

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    1. fflorescpa Post author

      Inflation is a variable that needs to be managed but the key is that if there is excess capacity in the economy (unemployed folk) the goods and services they produce after getting hired (both by public sector and private sector) offsets whatever new currency is issued. So if inflation is too much cash chasing too few goods, the amount of goods increases to offset the increased currency issued to hire them. So no added inflation.

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    2. Jacqueline S. Homan

      STAAAAHP!!!! As a monetarily sovereign nation that issues its own currency that’s not pegged to a commodity or to any other nation’s currency, this is not going to happen w/ the FJG and m4A. The THREE main causes of hyperinflation are:

      1) Government loses the ability to enforce taxes (which is what happened to the Confederacy states during the Civil War)

      2) Large foreign denominated debt (the Weimar Republic being economically crippled by conditions imposed by the Versailles Treaty where France forced the Germans to pay reparations for WW 1 in French franks instead of Germany’s own currency)

      3) Severe shortages of goods (Zimbabwe, Venezuela)

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    1. fflorescpa Post author

      – A sovereign does not have to tax or borrow in order to spend. And hiring otherwise unemployed folk should not increase inflation as the pie of goods and services increases to offset the added money.
      – Are these “make-work” jobs?: pulling your children out of a burning building, forming the thin blue line between your wife and getting raped, building and repaving the roads and bridges you drive over, cleaning the toxic waster dump left by some failed job creator, bringing our infrastructure up to snuff, making sure most folks on the road know the rules of the road and can see straight, winning WW2, making sure your kids are educated and can be functioning adults? …infrastructure; alternative energy; high speed rail; rehire every teacher, fire fighter, cop laid off in last 8 years; quintuple trade school and community college staff – free tuition, free elder and child care

      Liked by 1 person

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    1. fflorescpa Post author

      Valuing public sector tasks is tricky but in calculating the marginal cost of a Jog Gty task, you have to subtract the savings from currently supporting unemployed workers, since with implementation of the program, these costs could conceivably approach zero. By reducing these costs ($10/hour) by the overall savings (unemployment insurance payments, Medicaid, Food Stamps, some disability payments) the hurdle for a public sector Job Gty program is probably pretty low.

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      Reply
  4. CryptoGoldBug

    The government expenditures are taking resources/capital away from private sector and “crowding out” private investment.

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    1. fflorescpa Post author

      In terms of the real economy: What are resources? What is capital? Both consist of PEOPLE and DIRT. And when there are unemployed folk in the economy, there are plenty of both. So the fact that they are unemployed – by definition – means they are not being taken away from private sector. So there is no “crowding out”. In terms of money: there is always enough money in the bank, available to be invested if business people think there is demand for a product or service they can produce. And if there isn’t, banks can create it out of thin air by making loans.

      Liked by 1 person

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    1. fflorescpa Post author

      If you want to get into the weeds: they can definitely get fired from the Job Gty program. If they do, they can reapply, but they wouldn’t be entitled to another JG job until they wait 30 days with no benefits. If they get fired a second time in a 12 month period, they have to wait 60 days. If they get fired a 3rd time, they have to wait 90 days, but at this point they are assigned a counselor to suss out the problem. Nobody likes getting fired and having to start a new job. If they wait or work a year, they’re back to 30 days.

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