“Unemployment holds a ‘special’ status in economic theory, compared to other social deprivations. Economists do not speak of the natural rate of hunger, or the natural rate of illiteracy, or the natural rate of homelessness. Whatever the challenges of eradicating them altogether, the policy stance is that they must be eliminated, not maintained at some positive level for the purposes of economic and price stability. Only working people are called upon to serve as sacrificial offerings in the fight against inflation.” – Pavlina Tcherneva
The Job Guarantee is an elegant, humane solution to achieve price stability while eliminating the so-called ‘trade-off’ between unemployment and inflation. It also works to reverse the damaging effects of over 40 years of non-accelerating inflation rate of unemployment (NAIRU) based policy. In this final installment we are going to tie together everything you’ve discovered so far, giving you a firm, basic understanding of both how the economy actually works and what we must do to ensure a situation of stability and prosperity for all. We begin the final installment to the series with a look at the concept of price stability.
What is price stability?
Simply put, price stability means that the prices of goods and services do not fluctuate wildly up and down (inflation/deflation). They remain relatively stable. In a monetary economy, the problem of price stability can be addressed by what we call a ‘currency anchor’, also known as a ‘price anchor’. Keep this in mind as you read because it will be instrumental to a proper understanding of the Job Guarantee. Next, we need to understand something called, ‘fiscal space’.
Fiscal space is the extent to which a government can spend to acquire and deploy or redeploy real resources without destabilising the economy. It all comes down to ensuring where scarce real resources are deployed and for what purpose they are deployed.
For example, the ability to produce steel is limited to the raw materials, machinery, required labour for manufacture, and however much a nation can obtain through imports. So, given that steel is finite, you must decide how best to deploy it. You could choose to build an adequate number of hospitals, houses, and flats, or you could choose to use the most of it to build hundreds of unsightly grandiose monuments to greed shaped like a pickle in London. Or, in the case of the United States, you could use a large chunk of it to build a war machine that rivals the Klingon Empire’s.
Politicians have a choice between fully ensuring the public’s well-being or neglecting it in favour of directly ensuring the interests of the wealthy who want to profit from things like healthcare and other public services. You know who I’m talking about. Those who offer politicians second jobs and high-paying careers as lobbyists after they leave the Commons to ensure that the privatisation train keeps moving along, and corporations who want government handouts and special policy favours. It’s really not a tough decision for MPs. Hence, British Rail is gone, the NHS is on the chopping block, David Cameron wound up as a lobbyist for a US Biotech firm, and you have an enormous, unsightly pickle-shaped building in the middle of London.
There is nothing natural or necessary about any of this. It is the result of political choices made by human beings. With the coming of Thatcher, the establishment sought to impose its neoliberal ideology on us and on our economy, it has told us that there is no alternative, and it uses the budgetary rule for government spending to enforce that false narrative.
The nonsensical budgetary rule for government spending
In reality, all central government spending is about real resources, not money. Money is merely a tool that the government creates and then spends to allocate and deploy those resources. However, the establishment makes it about money, claiming that money is just as scarce as the things that money can buy. In this manner, politicians have a convenient, manufactured excuse called ‘affordability’, which allows them to grossly underfund or to privatise public services, and to fully-fund the demands and desires of corporate, financial, and wealthy interests.
Government spending is, therefore, deliberately forced to operate on a budgetary rule. Politicians pretend that the quantity of money that the government can spend is limited to what it brings in through taxation or borrowing.
When the government does spend, it is not only making a political choice to underfund the public’s well-being, but also to pay market prices even though as the Pound Sterling monopolist, it is the price-setter and doesn’t need to. It always has the power to choose the price it will pay for anything. It’s very simple to understand.
The central government’s price-setting authority
If the government spent £900 billion last year, but this year it balances its budget and spends £0, then the government chose to pay £900 billion less than it paid a year ago. That massive drop in private-sector income translates to severely reduced private-sector spending and high unemployment. Therefore, the government’s reduced spending manifests itself as a deflationary environment. The government chose to pay less, so prices fell.
Conversely, if the government spent £0 last year and this year it spent £300 trillion, then the private-sector’s net income would increase substantially over last year’s, and along with that, private spending would soar. The price government paid would manifest itself as inflation when the price level of goods rose. The government chose to pay more, so prices increased.
Having said that, I do not mean to imply that there aren’t other factors which can influence the price level. For instance, as we’ve seen in the recent pandemic and with the war in Ukraine, supply chain issues can arise causing inflation. The point here is to highlight the fact that in a modern monetary economy, the UK government is the currency authority which has a fundamental command of the price level. It begins there. Other forces and situations can and do modify prices, but the government has the ultimate authority to override those modifications, even though doing so might result in less than desirable outcomes.
Furthermore, this isn’t a question of money per se. Rather, it is always a question of spending. Money, in and of itself, is not the same as a computer or a car. Currency is a monopoly product and, therefore, it doesn’t lose value or gain value based on its supply. The government alone constantly redetermines the pound’s value up or down every time it spends.
So, all spending carries with it the risk of instability, and therefore, we need a price anchor for the Pound Sterling. The major problem we face with our economy today is the establishment’s preferred price anchor.
Unemployment is the modern price anchor
In the past, the government used gold as the currency anchor in an attempt to achieve price stability. In the modern era, the establishment maintains a flexible currency using unemployed people as the Pound Sterling’s price anchor. Hopefully, by now you can understand why both NAIRU and mainstream economics are grossly offensive. Using unemployed persons as a price anchor is related to a mainstream economics concept called ‘the Philips curve’.
The Philips curve and inflation
The Philips curve says that there is a trade-off between unemployment and inflation. Should the government attempt to spend for full employment, then the closer we get to it, the higher inflation will rise until, eventually, inflation will accelerate. The reason why, according to mainstream theory, is that in a situation of full employment, workers have greater power to make demands on employers for better wages. The demand for increased wages will then cause employers to pass on the higher costs to consumers through price mark-ups. When prices rise as a result, workers will then make new demands for greater pay to meet the rising cost of living.
Mainstream economists will then tell you that if the situation were allowed to continue, wages and prices would spiral upwards out of control. At that point, the only thing that the government could do to end the inflation would be to reduce private-sector spending to such a level that it induces an economic downturn, causing millions of people to lose their jobs. Demand for labour falls, workers lose their power to push for higher wages, and the inflationary episode is brought to an end.
So, according to the establishment, we can’t have both full employment and price stability. Therefore, governments must ensure that a certain percentage of the workforce is always kept in a condition of involuntary unemployment and poverty to avoid inflation. That is what NAIRU is all about. It is the modern price anchor, and all of it is, ultimately, political and ideological nonsense.
There is an alternative
Organised crime is no way to operate an economy. We intend to do away with it in favour of something efficient and worthy of a sophisticated, dignified and advanced society based on the following simple premise:
If you anchor the Pound Sterling to gold, that means full employment for gold, because economic stability will then require that all available gold be put to use. In the same way, if you anchor the Pound Sterling to labour, that means guaranteed full employment for people, because economic stability will require that all available labour be put to good use.
We intend to deploy a superior currency anchor; an economic stability framework designed by Bill Mitchell and Warren Mosler called the “Non-Accelerating Inflation Buffer Employment Ratio” (NAIBER), or more commonly known as, “The Job Guarantee” which will replace NAIRU.
Employed, paid labour will become the new price anchor for the Pound Sterling.
Government spending by price rule
Instead of observing the nonsensical budgetary rule to government spending and paying market prices when it spends to pursue lower rates of unemployment, the central government will set just one price; the base price of labour, and then allow the market to adjust. In doing so, we cause the central government to spend based on a price rule, pursuing price stability by maintaining a buffer stock of employed, paid workers. What is a buffer stock? Glad you asked.
NAIBER (The Job Guarantee) works in the opposite way to NAIRU. NAIRU maintains a pool of unemployed, unpaid persons. NAIBER maintains a pool of employed, paid persons. In economic terms, both pools are known as ‘buffer stocks’. A buffer stock is a concept stretching back thousands of years. An excess amount of a particular good, like grain, would be deliberately held back and stored away in the event of a future shortage. A simple example of the concept is the story of ancient Egypt when Pharaoh ordered a portion of the grain harvested to be set aside in case of a famine.
In modern times, certain goods (corn, oil, grain, etc.) are stored up by the central government during times of excess, and when a shortage in the market occurs, that particular good is then sold by the government at a certain price into the economy to ensure an adequate supply, which, in turn, also stabilises that particular good’s price.
In this case, instead of a commodity like corn, the government will be storing up labour. The central government buys all excess labour during periods when the demand for workers is low, paying those workers a fixed wage, and then when the economy improves, it releases those workers back into the private sector for a certain price when the demand for labour is high. That certain price is the Job Guarantee’s fixed wage. The wage is ‘fixed’; meaning that the wage is set at one rate that doesn’t change. It is fixed to a certain rate to achieve price stability.
Rather than relying on continuously sacking workers when inflation rises, the Job Guarantee instead simply reorganises how workers are employed in the economy. It moves them out of the inflationary private sector to a new branch of the public sector; The Job Guarantee sector, and then any wage-price, or spending-driven inflation falls.
Therefore, it should be quite clear that the Job Guarantee is not just a job creation scheme, or a scheme to create a safety net for working people in and of itself. That’s not exactly what it is about. It is a price anchor; anchoring the Pound Sterling to labour, and in order for the new anchor to function, it will require the government to create a public-sector employment pool because stability will necessitate a permanent situation of full employment. Job creation and the abolition of involuntary unemployment, to community beautification and betterment are just activities that will occur as a result. Let’s have a look at how the anchor will work.
The dignified wage rate
The fixed Job Guarantee wage will become the UK minimum wage. But, as privation, misery, and struggle are not our objectives for the economy, we will want the floor price of labour to be dignified; that is to say, a wage high enough to address involuntary poverty.
As an example, let us assume a fixed wage of £20 per hour. Since the market cannot pay less than £20 per hour, the immediate effect will be that low-wage employers will either be forced to raise their wages, or they will be forced out of the economy, and I say good riddance to rubbish. Employers in need of labour must now pay a wee bit more than £20 per hour when they need to entice Job Guarantee workers out of the pool.
Automatic budget deficit management for full employment
You will recall from part II that benefits are an automatic stabiliser. When more people need assistance, the central government’s budget deficit automatically rises, and the deficit automatically falls when people no longer need benefits. The Job Guarantee works the same way.
Picture the economy going into a downturn and the private sector is sacking workers. Workers who lose their jobs will now seamlessly enter the Job Guarantee and continue earning an income, working as many or as little hours as they choose. When workers enter the pool, that means the central government has more workers to pay. So, the budget deficit will automatically increase. Government-paid wages now fill the gap created by fewer private-sector paid wages, ensuring that private-sector spending continues, and price stability is maintained.
Now, picture the economy in recovery and the private sector is in dire need of workers to meet consumer demand. Workers will now leave the Job Guarantee for higher paying private-sector work as employers make offers to them, again without a pause in their income. When workers leave the pool, the government has fewer workers to pay, and the budget deficit will automatically decrease. Government spending now decreases as there are more workers receiving private sector paid wages, thus ensuring that price stability is maintained.
Just like shock absorbers on a car that expand and contract based on the state of the roads, the Job Guarantee pool of workers will expand and contract freely based on the state of the economy which automatically causes the central government’s budget deficit to adjust up or down, keeping it at just the right level to maintain a situation of full employment. But what about inflation?
First off, understand that the Job Guarantee does not, and will not prevent inflation. Rather, it provides the government with a superior option of last resort to manage an inflationary event without causing unemployment. Thus, the government will ensure that the pool of Job Guarantee workers is kept small until it becomes absolutely necessary to increase its size to ensure price stability. The small pool will contain mainly disadvantaged workers and those who’ve decided to remain in the Job Guarantee.
Should it become necessary for the government to exercise the last resort option, it will adjust its fiscal policy which will reduce private sector spending. Doing so transfers workers out of the inflationary private sector and into the Job Guarantee sector. The rate of inflation then falls. When recovery is underway, the demand for labour will increase, and workers will then leave the Job Guarantee pool for better paying private sector work.
Faster turnaround times
Typically, when the economy enters a recession it takes quite a while for recovery to get underway and finally return to an expanding economy. Here’s why that is; because politicians make false claims that the government’s finances must be put in order. They unnecessarily inflict austerity on the people, and as a result, the private-sector’s income is reduced, mass unemployment ensues, and the economy takes forever to recover.
With the Job Guarantee, private-sector spending remains relatively healthy which means that far fewer workers are given the sack. Hence, the Job Guarantee helps keep the output of goods and services moving along, resulting in faster recovery times should an economic downturn occur.
A completely voluntary initiative
Lastly, I wish to reiterate that the Job Guarantee is not forced work. It is a completely voluntary initiative for those who are willing and able to work. Therefore, we intend to keep and strengthen benefits and other forms of welfare, and we will make them much less of a hassle to obtain for those who refuse to work, and for those who aren’t able to work.
“The Job Guarantee promotes a transition from unemployment to private sector employment. A UBI doesn’t. With the Job Guarantee, government buys people’s time thereby defining the value of the currency. A UBI is only a distribution.” – Warren Mosler.
Some UBI advocates believe that the Job Guarantee is just another ‘make-work’ government policy, which demonstrates that they’ve completely failed to understand what the Job Guarantee is. That’s ok. Perhaps this series helped to resolve that matter.
As Mosler says, the UBI is just a distribution of money. Because of that, the UBI can’t act as a price anchor for the Pound Sterling. It is inherently inflationary and, therefore, it cannot end poverty. A UBI cannot achieve lasting prosperity, nor can it modify the economy to make it function properly. To have a functioning monetary economy, people must be doing something to earn the government’s currency which, in turn, benefits the whole of society and also defines the value of the Pound Sterling. That is how modern monetary economies properly function, whether we’re talking about Capitalism, Socialism, or any “ism” for that matter. Economies require production to provision society with goods and services, and to do that requires human effort.
Remember, the central government is the price-setter. So, if government dramatically increases its spending for the purpose of a ‘living wage’ UBI, in conjunction with everything else it must spend on, then the Pound Sterling won’t have much value and the evidence for that will manifest itself as inflation. Consequently, sadly, inflation will be the downfall of the UBI. In summary, the UBI is merely an aggregate demand enhancement tool. NAIBER (the Job Guarantee) on the other hand, functions as a superior price anchor.
The Job Guarantee marks the beginning of change – a step in the right direction. It is not the silver bullet solution to all our problems. We still need banking regulations to happen, private debt levels need to be reduced substantially, monetary policy at the BoE needs to be made secondary to fiscal policy as the preferred economic management tool. The NHS and public services need to be restored and fully funded, university tuition must be abolished, and we must also nationalise several items, from energy and other utilities to transportation. But the Job Guarantee is the starting point on our journey to doing great things.
Well, that’s it. It’s been a long series, and I hope that you have learnt something useful. If you have, then please take what you’ve learnt and put it to good use.