Objections to the Job Guarantee

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On Thursday I went to Sheffield to watch an excellent lecture on the Job Guarantee by economist L Randall Wray. It was a good chance to meet some Twitter friends in person for the first time and also to see in the flesh someone whose work I’ve been following for the last three years and whose ideas I’ve blogging about for the last two. Wray was talking about the key policy proposal of Modern Monetary Theory – the Job Guarantee. The Labour Party are proposing something called a Job Guarantee, but isn’t really worthy of the name, so I was interested in what the other people at the lecture thought of the idea when fully fleshed out. The people there were probably already pretty sympathetic to the idea, and most did seem positive, asking what other economists thought of it and whether businesses would object. I also wanted to see what people who may not have heard of the idea would think of the Job Guarantee when first exposed to it, so I canvassed for some views on Reddit. Here is what I posted:

…I would like to hear your opinions of an alternative policy, which would be a job guarantee scheme. What is a job guarantee? Here are the main features:

  • The government would offer a job to anyone willing and able to work.
  • The government would pay the wages, but it would be up to local communities to design the jobs
  • The jobs would be paid at a living wage
  • On the job training would be provided

What are your first thoughts/objections?

I got a modest number of responses which were along the lines of what I expected. These are a few of the responses:

Non jobs

If a government creates jobs they will be non jobs equivalent to digging holes and filling them back up again. This argument is often used, and is kind of a misunderstanding of Keynes who said:

“If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coalmines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again (the right to do so being obtained, of course, by tendering for leases of the note-bearing territory), there need be no more unemployment and, with the help of the repercussions, the real income of the community, and its capital wealth also, would probably become a good deal greater than it actually is. It would, indeed, be more sensible to build houses and the like; but if there are political and practical difficulties in the way of this, the above would be better than nothing.”

Source: Book 3, Chapter 10, Section 6 pg.129 “The General Theory..”

So Keynes was arguing that even paying people to perform useless tasks would be better than nothing, but something useful would be much more sensible. Similarly, even if all jobs created under a Job Guarantee were indeed non jobs, that would still be preferable to leaving people unemployed. But with clever job design though and a bit of imagination, we can do much better than that!

Too expensive

This argument is that it would be too expensive to create jobs to hire unemployed people, so it’s better to keep them on the dole and hope things pick up. But how much would it actually cost? At the moment there are around 2.1 million unemployed people. The living wage is around £7.65 an hour (higher in London, but I’ll use the lower figure here. So if we gave all the unemployed full time jobs (35 hours pw) paying the living wage this would cost:

2.1m x 7.65 x 35 (hours pw) x 52 (weeks per year) = £29.24bn. Wow, that’s a lot! But that’s only the gross cost. For the net cost, we need to deduct the cost of paying unemployment benefit (the number claiming unemployment benefit is only around half the total unemployed figure). This is:

1.01m (on JSA) x 72.4 (weekly JSA for someone over 25) x 52 (weeks per year) = £3.8bn

£29.24bn – £3.8bn = £25.44bn

There are some other costs not included about like management, administration and training costs, but there are other savings that may mean the final cost would be even lower because don’t forget, these 2 million now working will be paying income tax and national insurance. Not all will want to work full time, so the average hours worked per week on the Job Guarantee would be less than 35. You wouldn’t need to offer all 2 million a job though because as the newly employed spend their wages, this will create additional jobs in the private sector as sales increase.

Ignoring all that though and using the higher figure, for a net cost of £25bn, we could have a economy in which everyone who wants a job has one. This is about 1% of the UK’s GDP, or less than half our defence budget, or less than 20% of the welfare budget. When you look at that in context, it doesn’t seem that expensive at all. Don’t forget too, this £25bn is much higher than it would be in normal times. As the economy recovers, private businesses would be able to hire from the pool of job ready Job Guarantee workers, and the number of people in Job Guarantee jobs would shrink.

Training and education not subsidised jobs

This is what I would call the neo-liberal line. It says that unemployment mainly occurs because the unemployed do not have the right attitude or the right skills to get the jobs that are there for people who do have the right attitude and the right skills. Those who subscribe to this view argue that the role of government should be to train the unemployed to to find work. This is the strategy we have employed in the UK for at least the last 15 years. The problem is, it’s nonsense. If the jobs don’t exist, no amount of training will help every unemployed person into work. Some of them will always fail. It’s really rather cruel.

Jobs would need to be economically viable

I’m not quite sure what this means, but I think it’s the view that for something to be worth doing, it must make a profit, and that the private sector creates the wealth with which the public sector uses to provide public services. This is just not true though. Government should not be run like a business. The things it decides to fund should not rest on “economic viability”, but on whether the funding will improve the general welfare of the country.

Sounds like communism

Didn’t really get this one, but I suppose it’s a reaction to the government increasing its payroll by up to a couple of million more workers. The Job Guarantee though would only be the offer of a job. No one has to take up the offer. And rather than being communist, it’s actually pro-business in a lot of ways. Businesses often complain that the people they hire lack basic skills or the right work ethic. They view hiring the unemployed as often a risk not worth taking, so they should welcome a job ready pool of workers with recent work experience from which to hire. They just have to make the workers a better offer to the one they get in the Job Guarantee. A little competition in the labour market would be a good thing. The wages paid to Job Guarantee workers would also bolster the sales of private sector businesses.

I guess I can understand a lot of the knee-jerk reaction to the idea that the government should be prepared to give jobs to all the unemployed, but I hope the above has answered why I think these objections are ill-founded. Those who are unemployed and on benefits are already on the government’s payroll, it’s just that we are wasting their talents. Why not pay them a decent wage and get them engaged in useful work? Sounds like a win-win to me.

Wading through the fog of the Scottish referendum debate

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I can’t claim to have a particularly strong view either way over Scottish independence. If I lived in Scotland, I’d probably vote yes, and then pray the SNP saw sense before independence actually became official. I feel for those in Scotland who remain undecided though. They are being bombarded with bullshit from all angles. It’s clear virtually all of the media and political class are desperate for a No vote, and are coming up with ever more apocalyptic arguments to try and persuade Scots of the consequences of a Yes vote. Recent polling suggests that if anything, their efforts have resulted in a slight tightening of the polls, so they may be as well to just shut up. As for the Yes side, it seems obvious, they are not actually prepared for what comes next if Scotland does vote Yes, and some of their stated positions particularly their desire to keep the pound in an independent Scotland would worry me if I lived north of the border. 

In this febrile atmosphere then, it’s very difficult to get objective information about the consequences of Scottish independence. On the No side we just hear blatant scaremongering, and from the Yes side quite vague promises about what an independent Scotland would look like. With that in mind, here are a few links I have found interesting in recent weeks mainly focusing on economic aspects of Scottish Independence. I post these mainly because I judge the sources to be objective in the sense that they don’t have any skin in the game, although they are obviously not value-free.

First, this post from the Southampton University politics blog written by someone familiar with independence referendums in Quebec, Canada:

What can the 1995 Quebec referendum tell us about the Scottish referendum?

This recent post by Australian economist Bill Mitchell explains why – given the SNP’s plan for the currency – he would vote No if he were a Scot:

I would be voting NO in Scotland but with a lot of anger

Another economist Paul Krugman gives his own view in a column in the New York Times earlier this week:

Scots, What the Heck?

And finally, Neil Wilson has written a series of posts on his 3Spoken blog trying to dispel some of the (what he calls) myths of the Scottish Independence debate:

How to buy imports?

The currency board

The national debt

 

 

Unhelpful things lefties shouldn’t say part 3

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Part 3 of this 3 part series. Here are parts 1 and 2. This part is about probably the most common thing my fellow lefties get irate about, but in a way I think is unhelpful. What is it? Tax avoidance. Here is the line I often hear:

3. If [INSERT COMPANY NAMES] paid their taxes austerity wouldn’t be necessary. In parts 1 and 2 I used pieces by two journalists I quite like as examples, but for this one, I’ve chosen one I have less time for, Polly Toynbee. I wouldn’t say she’s a lefty, more all over the place, but a lot of left-wingers seem to like her work. This piece is a general rant about Amazon, Starbucks etc, but it contains this sentence:

The culture of getting away with what you can has to give way to a popular understanding that one man’s tax dodge is his own community’s lost children’s centres, libraries and swimming pools.

This is the idea I find unhelpful. That tax avoidance means we can’t afford things like children’s centres. libraries and swimming pools. It just isn’t true.

That’s not to say we shouldn’t get annoyed about tax avoidance (although I don’t think shaming companies into paying more tax a la UK Uncut is particularly effective). It’s about fairness rather than needing the money to pay for public services. Government needs to collect tax, but if tax is seen as optional for one section of the economy, why should any of us pay what the government says we owe? So that’s the issue, and one which is more something the government needs to sort out through its tax laws rather than the companies doing the avoidance (which is legal and a perfectly rational thing for them to do).

So why doesn’t tax avoidance mean less money for public services? Most people think that the government must first tax us before it has any money to spend. You often hear it said that it’s “your money” the government are spending. In reality though, money goes round the economy in a big circle. Just as we could start with tax providing the money for government spending, we could equally start the circle with the government spending some money into the economy which then comes back to it in the form of tax. I think Peter Martin explains this idea quite well in this post when he writes:

“When sovereign governments spend they simply credit bank accounts as we know from MMT. Much of their spending is on wages and salaries. Straightaway about 30% or so comes back in tax and other Government deductions, like National insurance in the UK. The remainder gets spent and respent. After a few respendings there’s not much left after the government has taken its cut at each stage. 20% VAT, fuel duty, corporation tax etc etc and yet more income tax… Eventually nearly all spending goes back to government as taxes regardless of the level at which they are set, providing they are finite.  It just takes longer if taxes are lower.

Peter goes on to say:

There are two exceptions to the rule that issued money always comes back to government. Money which is saved by individuals and private companies, and money which is net spent on imports. The taxman can’t get that back.

So you get a deficit when individuals save and/or when we import more goods and services than we export. The impact of tax avoidance in this story will depend on what happens to the potential tax that is avoided. If it is taken out in profits by shareholders and spent into the economy, it will be taxed at at later stage and returned to the tax man. This won’t impact on the deficit, but it meant some people unfairly had their spending power increased because they were able to avoid a portion of tax that would otherwise have been due.

What if the additional money gained from tax avoidance was just saved though? If this was the case that would cause a government deficit larger than would have resulted if the tax hadn’t been avoided. In this instance would that mean public services would have to be cut to make up the difference? Again no. There are a number of reasons why governments need to tax, but paying for government spending isn’t one of them. As most transactions in the economy are taxed, as Peter Martin shows us for every £1 the government spends, it will get back £1 in tax, only not in the same time period. Individuals saving and imports exceeding exports extends the time it takes for that £1 to come back to government, but the delay doesn’t prevent it from funding the programmes it wants to fund.

Lefties should be aware of this because once understood, each possible spending programme can be argued for on its merits rather that whether it can be afforded. “Affordability” is measured in real resources – people and stuff – rather than pounds sterling. If we use (for example) building materials and labour (which is finite) to build more council houses, that might mean less private houses can be built, if it results in a shortage of those things. If we spent (say) £10bn on housebuilding though, that doesn’t mean we have £10bn less to spend on other things (unless those other things were other construction projects). Again, the trade off is over the use of real stuff, and the government can always create enough money to use those resources any way it sees fit.

In part 2 I objected to Zoe Williams writing that free school meals shouldn’t be extended because the money could be better spend on other stuff. The cost of providing those meals is the probably next to zero, because presumably those kids were going to eat something at lunchtime anyway, it’s just someone else is paying for the food. The amount of food consumed will probably be unchanged. The government providing free schools meals doesn’t reduce the government’s ability to spend in other areas by a single £1, and equally, Amazon avoiding tax also doesn’t reduce its spending power.

Hopefully that all makes sense, but the short version would be: by all means campaign for government to simplify the tax system, to close loopholes and make tax avoidance more difficult, but don’t link it to the provision (or lack of provision) of public services. The two are not linked, but by trying to link them it perpetuates the myth that for every £1 the government wants to spend, it must first raise £1 in tax from all of us. We hear this from politicians all the time. It is really annoying! 

 

“Charities should ‘stick to knitting’ not politics, minister says”

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From the Daily Telegraph:

Campaigning charities should “stick to their knitting” instead of getting drawn into the “realm of politics”, the new minister for civil society has said.

 

Brooks Newmark warned charities against “straying” into politics instead of “helping others” during a question and answer session following a speech.

Reminds me a bit of the famous Helder Camara quote:

“When I give food to the poor, they call me a saint. When I ask why they are poor, they call me a communist.”

That seems to be exactly the attitude of our Government. They are quite happy for charities to fill in the gaps left by their policies, but if those charities dare to question the policies themselves, they are shouted down for ‘having an agenda’ or being ‘Labour stooges’.

Unhelpful things lefties shouldn’t say part 2

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This is part 2 of 3. Part 1 is here. The second unhelpful thing I often hear from people on the left is:

2. [Insert universal benefit] should only be for people who need it. Helpfully, Zoe Williams provided a good example of this in yesterday’s Guardian in a piece titled “Free school meals should be for those who need them, not those who don’t”. I’m a fan of Zoe Williams, but I don’t agree with this piece. She was writing about the new policy starting from this week that all young primary school kids will be entitled to a free school meal. This is an idea dreamed up by Nick Clegg. Zoe argues that because things for the poorest kids is really bad, we should not be spending £1bn on free meals for kids, when many of their parents can afford to pay for their kids meals themselves. She does say that she normally defends universal benefits, but that “…things have become so bad I wouldn’t make a defence for any universal benefit at the moment”.

So the argument is we should take the £1bn being spent on free school meals and spend it on the poorest kids instead. You can hear similar arguments made about other universal benefits like free bus passes, winter fuel allowance etc. Is this a good argument though? Again, I don’t think it is. Firstly, as with part 1, the argument mirrors that made by those on the opposite side, who want public services to be cut. Old Tories are often popping up to say they don’t need their £250 winter fuel allowance. It may be true that they don’t need it, but their motives for mentioning it are so these things will be means tested, the budget will be slashed and then they think they can ask for lower taxes, or more ‘contributory benefits‘ (code for benefits not available to the ‘undeserving’ who’ll need to rely on charity).

So let’s remind ourselves why universal benefits are a good thing.Firstly, means test is complex and costly. It results in people who need the benefit not claiming it because the process of claiming is too complex or intrusive. This New Statesman article summarises it well:

“The left most of all, should be wary of abandoning the principle of universalism. History shows that a narrower welfare state soon becomes a shallower one as the politically powerful middle classes lose any stake in the system and the poor are stigmatised as “dependent”. The “paradox of redistribution”, as social scientists call it, is that provision for some depends on provision for all. A Fabian Society study of 11 OECD countries found that greater means-testing led to increased levels of poverty as the value of benefits progressively withered. In the UK, we are already witnessing this phenomenon at work. While removing child benefit from higher-earners (a measure defended by Beveridge’s ostensible heirs, the Liberal Democrats), the coalition has simultaneously frozen it in cash terms for three years, a real-terms reduction of £1,080 for a family with two children. As Richard Titmuss observed more than forty years ago, “services for the poor end up being poor services”. “

So we should defend the principal of universal benefits at all costs from those who want to undermine the whole welfare state. By arguing for their removal, we are doing the right’s job for them. Zoe’s article was titled  “Free school meals should be for those who need them, not those who don’t”. If we accept this as a valid argument, why shouldn’t the same logic be applied to health services for example?

But what about the argument that spending money on universal benefits means we can’t afford to target spending at the poorest? This overlaps with the argument I want to discuss in part 3, so I’ll leave that for anther day.

Unhelpful things lefties shouldn’t say part 1

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Here’s the first of three blogs on three arguments I often hear people on the left make and why I think they are unhelpful. An example of the first argument comes from today’s Guardian in a piece by a columnist whose work I like a lot. 

1. Government has taken on some additional debt and this means we all owe an extra £x each. In this piece, Aditya Chakrabortty uses the argument as a way to draw the reader’s anger about the way the UK’s railways are run, and in particular Network Rail, whose £34bn debt was this week officially put on the Government;s balance sheet. Chakrabortty explains this means we now all owe an extra £539 each. This may be a successful way to provoke our outrage about rail privatisation, but is it a good way to frame the argument? 

I’m not sure it is. For starters, it’s exactly the argument those on the right often use to scare us about government debt with the aim of getting us to accept austerity. Here’s an example of this. Repeating this line just reinforces people’s fear of government debt. In what sense does each UK citizen ‘owe’ a portion of the national debt? When people think about their own debt, they know that they need to keep up the repayments or they may have to forfeit goods (or even their home) to repay the debt. Failure to pay could even lead to bankruptcy. This is not true of government debt though. There is no burden on individual citizens to repay this debt. We pay taxes, but this is not linked to repayment of government debt, and if we lose our jobs, we don’t have to keep paying tax at the same level as before. Government debt is also a private asset. Holders of government debt tend to be pension funds. So anyone with a pension is also ‘owed’ government debt. So that £539 you owe for Network Rail is owed partly (or mostly or wholly depending on the size of your pension) to yourself. Doesn’t sound a lot like a debt in the commonly understood way. 

In deploying the image of the national debt being a burden on each and every citizen, Chakrabortty is using the framing of those who want to move more resources from the public realm to those at the top. This what he is arguing against, but the framing is the same as those on the other side of the argument.

The issue around rail privatisation is one of who is best able to run the railways to serve to public good. Chakrabortty goes on to argue that the debts built up by Network Rail are a product of the discounts it gives to private rail companies to use the track it owns. This transfer of resources from public to private is sufficient to get angry about. Talking about how much money this mean we now each owe as a result just muddies the waters, and isn’t even true.

So how should we frame the issue of rail privatisation? Suggestions in the comments are welcome, but I would be talking about how the railways are a natural monopoly, that competition is non-existent and that in those circumstances it’s better for the public sector to run the railways to avoid a fragmented, high-priced rail network. It’s certainly crazy that public money is being used to subsidise private local monopolists, but the issue is who the money is going to, not the ‘debt’ that results from it. 

Best of US news networks geography fails

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This photo just popped up on my timeline. It’s got to be either photo-shopped or the graphics guy taking the piss right? US news networks do have a reputation for not really knowing where stuff is though. Here are a few more examples.

View image on Twitter

Perth is in Tasmania? Also “Seach”?

London calling: CNN's graphic pinpointed the capital city as being situated in Norfolk

London is in Norfolk?

Iraq, Egypt. What’s the difference?

Ukraine, or Pakistan?

Don’t think that’s quite right either.

Nearly all of these are CNN by the way. You’d think after the first couple of times they’d actually start checking these things before they go out.