



Recently there has been much discussion about whether a basic income [guarantee] or a job guarantee (JG) is the better option when unemployment is high, under-employment is pervasive and wages are low. Chris Dillow Paul Krugman and I have all argued for basic income on the grounds that modern capitalism either is, or will be, incapable of generating sufficient work to provide a living wage for everyone: while the Modern Money Theorist (MMT) school argues for a JG, claiming not only that it meets the moral objective of ensuring that everyone who wants to work can, but that the public sector providing jobs for the "reserve army of unemployed" can act as a form of automatic stabiliser.I do not propose to discuss here the moral arguments for job guarantees versus basic income. Chris Dillow has addressed the argument that basic income encourages "mass skiving" very well in this post , while various papers from MMT theorists have identified the fact that most people want to work - that providing for oneself rather than being dependent on others is important for human dignity. Personally I don't think the two views are incompatible: if most people want to work, as MMT suggest, then even if they are provided with a basic unearned income they will still find useful and productive things to do that could earn them additional money. And I don't think anyone from the basic income side would dispute that the public sector might need to help those who are not self-starters to find useful and productive things to do. The idea that people need to be compelled to work is fundamentally inconsistent with the idea that "good" work is fulfilling, enjoyable and contributes to self-esteem. Some people no doubt would choose to watch TV all day, though whether this is due to laziness or demoralisation is an interesting question. But both the "job guarantee" and "basic income" schools agree that in general people want to work and should be supported to enable them to do so. They differ only on how that support should be provided.However, MMT make claims for JG schemes that go beyond moral arguments and disagreements over the best method of delivering work. In this post on Economonitor, Randall Wray claimed that basic income was inflationary. And he and his colleagues in the MMT movement have adopted the concept of a Job Guarantee as the principal counter-cyclical fiscal policy tool in their macroeconomic theory. When unemployment is rising, so the theory goes, the public sector will buy up all the idle labour and put it to use in public sector or not-for-profit projects. This supports demand and therefore acts as a form of fiscal loosening. As the economy returns to health and the private sector starts hiring again, the excess labour hired under the job guarantee scheme finds private sector jobs, shrinking the public sector and acting as a form of fiscal tightening. It all sounds pretty sensible, doesn't it?The principle of JG as a fiscal policy tool rests on the following assumptions.1) The public sector is not financially constrained. It can create all the money required to pay workers under a job guarantee scheme.This does of course imply that the country has its own central bank which has full control of currency issuance and that the government is able to finance all spending by central bank money issuance. This is not true in the European Union (yes, I do mean the EU not the Eurozone, and yes, it does include the UK).2) There is no limit to the numbers or the types of job that can be provided by the public sector.3) The sort of public sector projects that would typically be staffed by job guarantee workers would never be undertaken by by the private sector, so there is no risk of "crowding out".I have considerable issues with all three of these. To my mind they raise serious questions about the relationship of the public and private sector and the nature of the work that each undertakes.Firstly, if the public sector really is financially unconstrained, why are there any jobs at all that can be taken on by the "army of unemployed" in an economic downturn? Why would there be a reserve buffer of public sector projects that in good times don't need to be done?If money is not a constraint and the amount of work is unlimited, then the only constraint on public sector projects is availability of labour (apart from self-imposed constraints such as byzantine regulations and idiotic planning restrictions). But if the public sector is financially unconstrained and there is so much useful and productive work to be done, then shouldn't it routinely outbid the private sector for labour? After all, the private sector is financially constrained - which is why it doesn't create enough jobs for everyone - so the public sector should always be able to get the labour it needs. There can't be any real labour constraint if there is no financial constraint. Yet the MMT theorists argue that job guarantees should be temporary jobs only, paid below the equivalent private sector level so that when employment picks up the JG workers return to the private sector. And they insist that that job guarantee projects should not "crowd out" private sector ones. The only explanation I can think of for this is that the MMT theorists don't consider public sector work to be as important as private enterprise. This is worrying. The public sector provides vital infrastructure without which private enterprise cannot operate, such as roads, rail networks, education (developing the labour force of the future), health care (keeping the workforce working). Is this work really not as important as private enterprise? And couldn't much of it actually be done by the private sector anyway, at least in good times? Most of it is not cyclical, either. Are we really only going to have teaching assistants and elderly carers in recessions? Are we really only going to do essential repairs to schools, hospitals and roads when there are lots of unskilled unemployed people in need of work? What a terrifying prospect.At the moment there are indeed many public sector jobs that need doing. But that is because dereliction of duty by politicians and executives in the public sector, and public sector budget constraints (unreal though MMT believe them to be), mean that essential infrastructure investment has not been done and public sector staffing is too low to do everything that is really needed. So yes, at the moment the unemployed could usefully be put to work doing things that have been left undone over the last few years. But this does not form the basis for a long-term flexible staffing arrangement. Once the public sector realises it is financially unconstrained, it has no reason to leave things undone in future. So in order to create a buffer stock of jobs for future unemployed, the public sector would deliberately have to leave things undone, or under-staff key functions such as education. This is madness. Either things need doing - in which case, if you have no financial constraints, you do them - or they don't.It may be that what JG proponents have in mind is some sort of two-tier job classification in the public sector: the vital jobs that are needed all the time, and the less important ones that only get done when there are unemployed people to do them. And there is the additional constraint that these less important jobs must not be ones that the private sector could take on (remember the stipulation that there must be no "crowding out" effects). I find myself struggling to imagine what these jobs might be that are so unimportant that the public sector doesn't bother to do them except when there happens to be a surplus of labour, and so unproductive that the private sector doesn't want to do them even in good times.Of course, there are always things that are "nice to have" but aren't essential. Unemployed musicians could provide concerts for schoolchildren: unemployed artists could brighten up run down areas with street art. I feel somewhat sad that these things would only be available when times were hard, but I agree that they are hardly vital functions. But I'm really not convinced that there would be enough of these "nice to have" things to occupy an army of unemployed, many of them unskilled. I suspect that what would happen in reality would be that the public sector would routinely under-staff itself and use the "army of unemployed" not as an automatic stabiliser, as MMT suggests, but as a cheap form of public sector labour, enabling them to cut costs by delaying essential repairs and maintenance until there were enough unemployed to do the work. And if - as some have suggested - the countercyclical labour buffer would exist ALL the time to a greater or lesser extent, then the temptation to drive down wage levels in the public sector as a whole to the JG level would be enormous. The JG level is supposed to be well below private sector remuneration levels to encourage them to move back to the private sector when employment picks up. But if there were always unemployed available to do public sector work - admittedly varying amounts of it - why would you bother to employ permanent staff at all, or if you did, why would you pay them any more than the JG level? Financially unconstrained the public sector may be, but there are enough politicians out there on cost-cutting soapboxes to ensure that the public sector will remain under pressure to keep costs down, if only so that taxes can be cut for those who fund politicians' campaigns. The result surely would be dissatisfaction and high turnover among public sector staff. I know the counter-argument to this is that only lower-skill functions such as teaching assistants, nursing auxiliaries and elderly carers would be affected, but does continuity and job satisfaction not matter for them and for the people for whom they care? Just because a job is low-skill doesn't mean it is unimportant. And anyway, who says teachers can't be unemployed?This brings me to another important point. The unemployed are not a homogenous group. Yes, a lot of the unemployed at the moment are unskilled - but that is because they are pushed out of jobs by people with greater skills, even if those skills are not needed for the job. If a JG scheme existed, we might expect that the skilled might be less willing to accept unskilled jobs, and the "unemployed army" might become more diverse. In which case we then have a problem. Is the public sector going to provide basic unskilled jobs to the skilled - in which case those people run the risk of skills decline and long-term unemployment? Or will it attempt to match skills to jobs, since it supposedly has no limit on the numbers and types of job that can be created? If the latter, then the statement in the above paragraph that only lower-skill functions in the public sector would have high turnover and depressed wages can't be true. It would be essential to keep wages depressed at ALL levels in the public sector to ensure that people did return to the private sector when appropriate employment was available. And there would be a real risk of chronic under-staffing of vital work such as teaching and nursing in the expectation that skilled unemployed people would be available to plug the gaps - and if they weren't, then either permanent staff would have to cover or the public sector would have to resort to private sector agency staffing. Once again, we hit problems with lack of continuity of care and the possibility of poor or inconsistent service.Some versions of the JG scheme include microfinancing of the self-employed, and allowances for training. And some envisage that people would be able to devise their own "jobs", although they would have to be approved as suitable by those who run the JG scheme. This seems more sensible to me - but it is getting much closer to the concept of basic income. And this is where I want to address Wray's complaint that a basic income would be inflationary.Wray's claim that basic income is inflationary rests on the assumption that people on basic income wouldn't work. As I've already explained, I don't think this is true. Yes, people on basic income would have to find things to do rather than be given things to do - although they could be helped. That doesn't mean they would do nothing, or that what they would do would be unproductive. And if the majority of people on basic income were doing useful and productive things, then it is hard to see how a basic income would be seriously inflationary.However, it is fair to say that a basic income does directly reflate the economy. Indeed as I've noted elsewhere , it is intended to do exactly that - to support demand. In that respect it is exactly the same as a JG. Wray's belief that basic income would be inflationary but a JG would not seems to stem from his idea that JG would be countercyclical, whereas basic income would have no cyclical effects. This would be a fair criticism if JG really did act as a countercyclical fiscal measure, but as I've explained above, I don't see how it could in practice. Therefore both basic income and JG have the same potential to be inflationary, because they both directly support demand. They should both be used therefore in conjunction with appropriate monetary policy and possibly countercyclical taxation, too (although this is perhaps of less value because of Ricardian equivalence). Tcherneva additionally suggests that JG wages should be variable to prevent the inflationary effects from debasing the currency. This is a nice idea in theory but I seriously question whether it could ever be implemented in practice. Cutting incomes that are already close to poverty level purely to support the currency is likely to be politically difficult and is certainly unacceptable from a humanitarian perspective.So to me, at any rate, it seems that basic income and JG would be likely to have similar economic effects.* I find it surprising therefore that the debate between the two sides becomes so heated. It seems to me that the fundamental difference between JG proponents and supporters of basic income lies not in their economics but in their view of human nature.JG proponents are essentially managerialist. They think that people have to be told what to do or they won't do anything useful. Basic income supporters, on the other hand, are liberals: they believe that if people are supported and their basic needs are met, they will find useful and productive things to do. I suppose which you prefer really depends on how much of a control freak you are. Personally I would prefer a basic income, and I admit that is because I am shockingly liberal and really don't like being told what to do. But even a JG scheme would be better than the present situation, where the threat of unemployment is used to force people to do unsuitable jobs for rubbish wages. Sadly I suspect neither a JG nor a basic income is likely to happen in reality. There are too many vested interests who are well suited by the use of unemployment as a labour market discipline. The case for basic income - Stumbling & Mumbling Time to take basic income seriously? - FT Alphaville Sympathy for the Luddites - Paul Krugman (NYT - paywall) The changing nature of work - Coppola Comment A surprising case for basic income - Samuel Brittan Are more jobs the answer? The BIG bait and switch - Randall Wray (Economonitor) Basic income vs capitalism - Chris Dillow (Pieria) The wastefulness of automation - Frances Coppola (Pieria) Job guarantee: it's really not that difficult - 3spoken Employment guarantee programs: a survey of theories and policy experiences - Kaboub Beyond full employment: the employer of last resort as a institution for change - Tcherneva Job guarantee or basic income? - Tcherneva Final report 2008 - Centre for Full Employment & Equity (Australia) In praise of idleness - Bertrand Russell ("chill, dudes....") Adios, el bonko - Guerilla Economist (nicely sceptical of both basic income and JG!)* I should add though that JG could actually have deflationary effects if public sector wages were kept permanently depressed in order to encourage migration of JG workers to the private sector. JG is I think a more complex tool and its effects would be less easy to predict than basic income.