“The beauty of public employment schemes”

More great blogging from Bill Mitchell today over at Billy blog. Bill somehow manages to produce 2,000+ words of daily economic analysis, and I often reblog parts of his posts for those without the time to read the whole thing. Today’s blog discusses some long-term economic projections published by the OECD. He offers an alternative to the implied future of continued austerity suggested by the OECD. Hidden behind the innocuous title “MMT is not conservative”, here is Bill on public employment schemes, which is a good antidote to today’s politicians who think governments “don’t create jobs”:

“The beauty of public employment schemes is that they can be evaluated on totally different criteria than the decision by a private employer to take on an extra worker.

There will be a massive number of jobs in areas of environmental and personal care services over the next 50 years as the climate and land-use damage from capitalism takes its toll and the population ages. There is significant scope to offer well-paid and secure employment to those being rejected by the private sector as robots take over assembly line and other work.

The OECD conception of growth is one driven by profit. My conception of growth is unrelated to that. If the population increases, then economies need to grow to provide income earning opportunities for all. But growth via public service oriented employment leaves a totally different footprint than that driven by private market incentives.

That is what I tell green-followers who demand no growth. There has be growth, the challenge for progressives is to channel it into green-consistent activities. The government sector has to lead the way in that regard and use its currency-issuing monopoly to mobilise productive resources that the private sector chooses to leave behind (lower skilled labour etc).

There is massive scope to redefine what we mean by productive work – artists, musicians etc – can become public servants on secure pay, which would transform the green-quotient of the real GDP growth rate.

Jazz and reggae concerts and art displays and circuses (without animals) are less environmentally damaging than smokestacks! But the dollars spent on them woud deliver the same growth rates as a dollar of coal exported.

Inequality can also be reversed if governments use their fiscal capacities to advantage and ensure that all workers have opportunities to earn decent incomes. Banning most of the financial speculation will also help.

This also ties in with infrastructure. The trend to privatisation and public-private partnerships has undermined the quality and scope of major infrastructure in the advanced world.

Governments should take back control of that development and use major infrastructure projects as vehicles for employment, wages growth, and altering the nature of urban centres. More public transport, better energy systems, better communication systems, etc can be spawned through public sector leadership.

One of the big claims that the privatisation lobby made was that private firms faced ‘unfair’ competition from public enterprises. I always found that ridiculous.

Using our real resources in the best way possible at the lowest cost is the aim of any economy. Waste is typically bad. So if a public firm can access funds cheaply relative to a risky private firm but produce something people want then that is to be applauded. Capitalists are always looking for subsidies as long as they only go to them! Leaving the market free to them is a form of public subsidy.”

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Osborne says he won’t take us back to square one. We never left

George Osborne has been coming under increasing pressure to change course of his austerity strategy. Even the IMF – who originally backed austerity – have deserted him. Osborne is sticking to his guns however and last night, in a speech at the annual CBI dinner said:

“Now is not the time to lose our nerve. Let’s not listen to those who would take us back to square one. Let’s carry on doing what is right for Britain. Let’s see this through.”

So the message is that doing anything additional to help the economy would “take us back to square one”. But how does “square one” compare to now? Assuming square one would be the situation Osborne inherited in May 2010, have far have we come since then? Here’s a few quick stats and commentary.

1) The Deficit

2009/10: £159bn

2012/13: £121bn

So the deficit down by a quarter. This seems to be the thing Osborne is most proud of, but – putting aside the fact that the deficit on its own is neither good nor bad – this reduction has been achieved primarily by cutting capital expenditure in half. From right to left, almost all commentators believe capital spending is precisely the thing not to cut, so in trying to lower that headline deficit figure, he’s actually setting us up for problems further down the road. Square one with double the capital spending actually sounds quite attractive.

2) Unemployment*

3 months to March 2010: 2.51m

3 months to March 2013: 2.52m

Yes, you read that right. Unemployment is actually higher now than in the comparable quarter in 2010. We are still at square one!

3) Employment*

3 months to March 2010: Employment rate – 72%; Total Employed – 28.83m

3 moths to March 2013: Employment rate – 71.4%; Total Employed – 29.71m

The Coalition like to say it has created 1 million private sector jobs. The net additional jobs since March 2010 though has been just under 1 million, and the working age population has risen faster than that, so the employment rate has actually fallen. Square one would actually be an improvement here.

4) Real Incomes

Median hourly earnings 2010 (constant prices): £11.92

Median Hourly earnings 2012 (constant prices): £11.21

Real incomes then have fallen since 2010, so again, square one doesn’t look too bad.

5) Interest Rates 

10 year bond yield May 2010: c3.6%                                          

10 year bond yield May 2013: c1.9%

Interest rates are another success Osborne likes to trumpet, and they have come down since 2010 (although by May 2010, they were already coming down). Whether this is a good or a bad thing depends on whether you are a borrower or saver, but assuming they are a good thing, how much credit should Osborne take for them? According to Jonathan Portes, not much.

In conclusion then, if Osborne were to change course, taking us back to square one, what would that look like? The deficit would be higher, but so would capital spending. Unemployment would be slightly lower, and a greater proportion of people would be employed. They’d also be paid more for that work. Interest rates would be higher (although on a downward trend). So the overall economic picture has barely changed since May 2010. I haven’t even mentioned the almost complete absence of economic growth since then. It looks like we never left square one. Going back there would actually be a slight improvement, and if we could go back there, but deploy our resources smarter than Gordon Brown in 2009/10, a huge one.

* Labour market figures sourced from ONS here: http://www.ons.gov.uk/ons/rel/lms/labour-market-statistics/index.html