The Job Guarantee and Inflation
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- Опубліковано 20 вер 2024
- Professor L. Randall Wray discussing the Job Guarantee and inflation. Orthodox economists have enshrined the idea that there's a tradeoff between unemployment and inflation: they believe that if unemployment gets too low, it will cause inflation (because workers gain bargaining power, and fight for higher wages). Therefore, the mainstream approach is to try to keep unemployment at or above some minimum level (essentially prevent people from getting jobs, to weaken worker bargaining power) in order to fight inflation.
The Job Guarantee takes a different approach. It uses something called a "buffer stock." A buffer stock scheme is a price stabilization mechanism, which works like this. Suppose that some entity (it can be public or private) would like to stabilize the price of corn. It can do so by announcing a price for corn, then buying and selling any quantity of corn at that price. So if the market price for corn is $390 per bushel (you don't even want to know how much corn that is) but I announce a target price of $400, then I will have to buy corn continuously until the price rises to $400. Or, if the market price for corn were $410, then I would have to sell corn continuously, flood the market, until the price falls to $400. So, in a buffer stock, price stays fixed while the quantity in the buffer stock (how much corn I am holding) adjusts to clear the market. This stabilizes prices.
The Job Guarantee does the same thing with labor, by fixing a wage at which the government will hire workers. If the government stands ready to hire anybody who wants to work, at a wage of, say, $12 per hour, then if the market wage for comparable work is $7 per hour, everybody doing those jobs can quit their jobs and join the JG pool, until market wages rise to $12. Or, if the market wage was $15 but everybody in the JG pool was working for $12, the private sector would be able hire JG workers (essentially like buying corn out of the buffer stock) until the market wage for unskilled labor falls back to the JG wage of $12. The buffer stock stabilizes prices.
(This was exactly how the gold standard worked, except instead of a buffer stock for labor or corn, it was a buffer stock of gold, whereby the government would announce a price for gold, then buy and sell in unlimited quantities to maintain that price).
This is in contrast with the usual "Keynesian" or "pump-priming" method of government fiscal stimulus to create jobs, whereby the government builds infrastructure or war machines or just buys stuff, in the hopes that increased aggregate demand in the economy will create more jobs. The problem with that approach is that it leads to bottlenecks. For instance, if we try to create jobs by building bridges, then we'll need a lot of structural engineers. We might get into a situation where there are few or no more available engineers, which gives them substantial bargaining power to bid up their wages. This tends to happen before jobs are created for the lowest skilled workers, meaning the "Keynesian" "pump-priming" method does tend to be inflationary, as its critics have claimed. But the Job Guarantee by contrast takes a bottom-up approach, providing jobs directly where they're needed, in the exact quantity they're needed, and so cannot be inflationary.
Watch the whole video here: • Randall Wray
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I understand how it isn’t inflationary in the sense that he describes here, but what about the recourses required to put everyone to work, won’t the prices for these things go up? Also, won’t the private sector have to raise wages to compete with a guaranteed job, when no private sector job is guaranteed, thus increasing prices? I’m pretty new to economics, just trying to understand
Resources required can also be extracted using a Job Guarantee, it would need to be specific though and of course, fixed minimum wage. So for example if there's a shortage of food, the government can set up farms and put the unemployed there and pay them the livable minimum wage.
TheRealNoodles why have wages at all? If government can “extract” all the recourses it wants, why not just divide them up fairly?
@@soulfuzz368
Why not the Govt divide them resources up fairly instead of pay wages?
What, do you want to have a Govt job and they pay you in things that you goods you don't want, or would you like a wage for the work you did, so you can decide what you buy?
That seems like an odd question...
Answering your main comment:
Job Guarantee and your question about the resources required to put everyone to work:
Yes, for a short time if it was on a massive scale before supply caught up.
Keep in mind this usually isn't on a massive scale and just means maybe 3% that would be unemployed now do environmental projects, start study or trade or get employed for agricultural labour or something.
Now a little more demand for tree seedlings.
It isn't on a massive scale.
Supply soon catches up coming from Private Enterprise.
Let's look at that question in regards to COVID-19 times where unemployment is on a massive scale:
Let's use the example of the Govt paying some people to do environmental projects, while keeping hygiene requirements.
This would mean more face masks and hand sanitizer, as ppl may not be able to supply them.
So the price for that resource goes up, as it had already.
But what has happened in Australia is the Govt asked Breweries and other private sector companies to make hand sanitizer on a large scale, which the Govt bought off them.
Likewise for masks, which also can be made by a granny sitting at home.
Or the Govt can contract a business with that experience to make a million of them which it would promise to buy.
So no, it doesn't create inflation - in fact it may mean that the private enterprises can respond even quicker to create more supply.
Does that make sense?
If your new to Economics:
Look I find that MMT is the only economic theory which makes logical sense in answering basic questions.
But keep in mind that some people are very ideologically opposed to it.
And IMO, it is mainly ideologically opposition to the idea that a Currency Issuer doesn't have the same constraints or job as a Currency User. It seems unfair or scandalous or even. A conspiracy Communist or Capatalist plot (I've seen both views) or something.
But really, it is just that the Currency Issuer has a different Job, and different Constraints which a Currency Issuer does not have or need to worry about.
Does that make sense?
"Full employment" and a job guarantee was a solution during the great depression. They're not realistic solutions today with automation/ AI/ technological unemployment.
communist lies