LUMPENPROLETARIAT—At Lumpenproletariat, we’ve drawn attention to modern monetary theory (MMT, or modern money theory) because it shows us how we we can employ modern money for public purpose, such as eliminating involuntary unemployment. MMT synthesises ideas from the State Theory of Money of Professor Georg Friedrich Knapp (also known as Chartalism) and the Credit Theory of Money of British economist and diplomat Alfred Mitchell-Innes, the functional finance proposals of Professor Abba Lerner, Dr. Hyman Minsky‘s views on the banking system, and British economist Wynne Godley‘s sectoral balances approach.[Fulwiler, Kelton, & Wray]
MMT shows us how a modern monetary system works, such as that of the U.S., which means how such a nation’s money supply works and, by extension, how its federal government spending works. Many people, for example, are still under the impression that our money system is still operating under a gold standard, by which American currency, the U.S. dollar, was backed by gold. But American currency has not been backed by gold since 1971, when President Richard Nixon closed the gold window, which means that Nixon ended the international convertibility of the U.S. dollar to gold. Nixon did so out of sheer necessity as the U.S. began to run out of gold with which it could back the U.S. dollar during the Vietnam War (or the American War, as the Vietnamese call it).
As a consequence of that Nixon shock, most other countries also soon abandoned the gold standard, as the Bretton Woods system of international financial exchange became inoperable without direct convertibility of the U.S. dollar. This meant that the U.S. dollar became a purely fiat currency. Without having to convert U.S. dollars to gold, President Nixon could continue to spend on U.S. military aggression against Vietnam without fiscal constraints. The only constraints he, then, faced in waging imperialist wars were real resource constraints, such as metal for production of weaponry and human bodies for the war machine.
Similarly, today, when the economy is stagnant or in decline for most working class Americans, who are unemployed or underemployed, the U.S. government can afford to spend without fiscal constraints. Again, the only constraints are real resource constraints. These are all facts of a sovereign monetary system, such as that of the U.S., which are articulated by modern monetary theory (MMT).
One of the key policy proposals, which follows from an understanding of MMT, is the job guarantee programme. Basically, since 1971, we have had the economic policy space to end involuntary unemployment as we know it. Imagine that. So many social ills, which arise out of involuntary unemployment, such as poverty, crime, family instabilities, and lack of economic opportunities, could be greatly reduced or eliminated. Anyone who is in need of a job and is willing and able to work can be provided a job under an MMT-based job guarantee programme. Again, as noted above, most Americans are still under the impression that money is a finite thing, that it’s backed by gold or that taxes must be collected from working people in order to fund federal government spending. That is not the case.
The U.S. government creates dollars out of thin air by simply printing paper currency or making an electronic entry on a computer screen. The U.S. government does this when it funds forever wars of aggression against the world. And the U.S. government did this when they bailed out the bad banks during the Global Financial Crisis of 2007/2008. And the U.S. government can do this today for socially beneficial government spending, such as the creation of a federal job guarantee programme or federally-funded cradle-to-grave health care or education.
The only thing we lack in order to provide economic security, jobs, education, and health care to all American families in need is the political will, as leading MMT scholar Dr. L. Randall Wray, often teaches his students (such as your author) at the University of Missouri-Kansas City as well as in public appearances and broadcast media interviews. But, perhaps, the lack of political will in support of an MMT-based job guarantee programme is changing.
A new article in The Nation has broached the question of the job guarantee policy proposal in an article entitled “It’s Time for the Government to Give Everyone a Job: A new plan from CAP is a promising first step” by David Dayen. It’s interesting, however, that the author claimed that the idea of “guaranteed employment for anyone who wants a job” has been “kicking around the left for a long time” because it really has not. If it has, it’s been way under the radar of broadcast media. Even the Pacifica Radio network, the nation’s leading left broadcaster is essentially ignorant of MMT and the job guarantee proposal. With the exception of Pacifica Radio’s Guns and Butter, which broadcast seven consecutive one-hour weekly radio shows on the 2012 MMT Summit in Rimini, Italy, virtually all left broadcasters are either unaware of MMT and the job guarantee policy proposal, or they refuse to acknowledge it. Occasionally, Against the Grain will discuss the idea of an unconditional basic income (UBI) guaranteed to all, whether employed or not. But, even then, both the interviewers and the interviewees seem ignorant of MMT because they speak of taxes funding federal government spending, including for the basic income proposal, which is technically inaccurate. If they only knew about MMT, the arguments of UBI advocates would be that much stronger. But, then, if the public knew about MMT, the cat would be out of the bag, so to speak. And the public would likely demand that the government start spending modern money for public purpose. This is probably why Senator Bernie Sanders decided to not inform the American people about MMT or the feasible MMT-based job guarantee programme. Bernie Sanders’ chief economist in the Senate Minority Budget Committee, and on his presidential primary campaign trail, was a former professor of mine, Dr. Stephanie Kelton, a leading MMT and job guarantee programme advocate.
It’s also notable that David Dayen’s article in The Nation didn’t even mention MMT, or how the job guarantee programme could be funded. But, then, The Nation is not a very radical institution. In fact, it’s often quite politically and intellectually dishonest. Dayen merely invoked one figure of “a cost of about one-quarter of Donald Trump’s tax cut”, which misleads readers into thinking taxpayer dollars would be paying for the government programme.
THE NATION—[19 MAY 2017] It’s Time for the Government to Give Everyone a Job: A new plan from CAP is a promising first step.
The Center for American Progress has been a White House in waiting for mainstream Democratic candidates for over a decade now. When it places something on the agenda, that becomes part of mainstream discussion on the center left. And at its Ideas Conference this week, it embraced one idea that has been kicking around the left for a long time: guaranteed employment for anyone who wants a job.
In “Toward a Marshall Plan for America”, CAP frames this as an answer to growing despair and acute economic pain bred by stagnant wages and lack of opportunity. But few advocates who have been pushing a federal-job guarantee for so long were considered or even cited in the proposal. And while they’re generally thrilled that their life’s work has entered a broader conversation, they’re concerned that something is getting lost in translation.
The federal-job-guarantee concept goes back to Huey Long’s Share Our Wealth plan in the 1930s. The Rev. Martin Luther King Jr. endorsed “employment for everyone in need of a job” in the civil-rights era. Under this framework, the government would fund jobs with a living wage and benefits similar to public-sector workers’. The open-ended program would be funded as needed, expandable in recession, and contractable when the economy recovers. Government would become the employer of last resort.
CAP’s version is somewhat targeted. Its focus is on non-college graduates specifically, which it says have been disproportionately left behind economically. Real income fell for workers without a college degree from 2000 to 2016, and mortality rates for this subset have grown. So CAP proposes a commission for a “national Marshall plan” to fund living-wage jobs at $15 an hour. “An expandable public employment program could, for example, have a target of maintaining the employment rate for prime-age workers without a bachelor’s degree at the 2000 level of 79 percent,” according to the policy brief. Right now, that would mean 4.4 million jobs at a cost of about one-quarter of Donald Trump’s tax cut.
I talked to several supporters of public jobs and the federal-jobs-guarantee concept. All of them welcomed CAP to the discussion. “They’re invoking the language of a job guarantee which is a permanent program, that’s great,” said Pavlina Tcherneva of the Levy Economics Institute at Bard College. But while the adoption shows the momentum for public job creation as a political force, job-guarantee supporters had several concerns about CAP’s formulation.
“Their discussion was heavily focused on the provision of employment for those with a high-school diploma or less,” said Sandy Darity of Duke University, one of the job guarantee’s greatest champions. To him, this leaves behind large segments of the population who might need jobs. For example, Darity points out, the unemployment rate for African Americans with some college education is higher than for whites who have never finished high school. (Racial issues are “really repressed in their analysis,” Darity noted.) The recently incarcerated and recent veterans also have high unemployment rates. “We think anybody who cannot find work in the private sector should have the option,” Darity concluded.
Solely targeting non-college graduates, a measure clearly designed to serve a political goal (much of the CAP paper details the shift of the working-class vote in the Midwest from Barack Obama to Donald Trump), necessarily limits the reach of the program. “How would this plan have helped after the Great Recession [or Global Financial Crisis], when 80,000 people a month were losing jobs, including skilled workers with college degrees?” asked Stephanie Kelton, economics professor at the University of Missouri-Kansas City and former budget aide to Bernie Sanders. “If we’re genuinely trying to achieve full employment, we shouldn’t be targeting 79 percent labor-force participation. We should eliminate involuntary unemployment.”
Learn more at THE NATION.
[The “UMKC Economics” image was created by the UMKC Economics Club during 2013, when your author was studying economics, including modern monetary theory, at the University of Missouri-Kansas City, where he earned his degree in Economics and graduated with honours. Your author was a member of the UMKC Economics Club at that time.]
[20 MAY 2017]
[Last modified at 19:34 PST on 20 MAY 2017]