Yesterday, the Bank of Japan increased its policy target rate for the first time in…
Q&A Japan style – Part 3
This is the third part of a four-part series this week, where I provide some guidance on some key questions about Modern Monetary Theory (MMT) that various parties in Japan have raised with me. Today I am in Tokyo and doing a day of press interviews and some TV filming to promote MMT within the Japanese media. I had been very clear in press interviews already (yesterday) that I hope they they represent our ideas correctly to the people of Japan. For example, at yesterday’s press conference, after my lecture in the Japanese Diet (Parliament), I said that I didn’t want any of the many journalists present to leave the room and write that ‘MMT thinks that deficits do not matter’ or that ‘MMT was about governments printing money and spending it’. I hope the message gets through. As I noted in Parts 1 and 2, many people have asked me to provide answers to a series of questions about MMT, and, rather than address each person individually (given significant overlap) I think that answering them in some depth is the more efficient way to help them to better learn and understand the essentials of MMT and real world nuances that complicate those simple principles. These responses should not be considered definitive and more detail is available via the referenced blog posts that I provide links to. Today, the question is another one about the Green New Deal and the Job Guarantee with a diversion into basic income.
Job Guarantee and Green New Deal (continued)
Question:
On January 19, 2019, there was a joint-statement published by the Wall Street Journal – Economist’ Statement on Carbon Dividends – which was signed by more than 3500 US economists including 4 former FRB chairmen and 27 Nobel Prize laureates. It recommended that carbon tax be implemented “to reduce carbon emissions at the scale and speed that is necessary” and to “maximize the fairness and political viability of a rising carbon tax, all the revenue should be returned directly to U.S. citizens through equal lump-sum rebates.” In other words, they recommended a modest basic income guarantee be provided from the revenue raised by the carbon tax. Japan emits around 11 billion ton of CO2 and a carbon tax of $US100 per ton of emitted CO2 would generate 1,100 billion dollars in revenue, which equates to a monthly dividend per person of slightly less than $US100. Are the MMT economists in favour of this proposal?
There are several considerations to this question.
First, MMT economists, in general, do not consider that essential equity measures that a government might desire to set in place are contingent or dependent on the government first raising revenue from other sources.
If it was desirable to provide a basic income guarantee of $US100 per person in Japan, then the Japanese government has the currency-issuing capacity to make that possible.
The consideration then, which is to really reverse the logic of the question, is that if that desirable intervention strained the relationship between nominal spending growth and the real productive capacity of the economy then to avoid inflationary pressures from demand-pull forces developing the government may have to consider changing the tax structure and implementing new or higher taxes (among other anti-inflationary measures).
But this in no way implies the ‘taxes’ would be ‘funding’ the desired social measures.
Which raises a more general point that is often being debated in social media.
There appears to be a defensiveness among some activist proponents of MMT about the likelihood of governments having to raise taxes as one weapon to curtail a demand-pull inflationary episode.
The core MMT economists have always been clear on this.
At times, governments have to take difficult (and possibly unpopular) decisions to maintain price stability. One powerful policy tool they have at their disposal is the tax system.
MMT economists talk about the rise in the buffer stock of jobs under a Job Guarantee as being an integral component of the proposed price stability framework but what must be understood is that the increase is to be engineered by shifts in government policy – in this case, a contraction in the net spending position of government.
That contraction would in all likelihood involve some tax hikes.
I sense that the need among some activists to address specific political issues within a specific political context (say, the current US Presidential race) leads them to adopt these defensive positions (that tax increase offsets would not be preferred or required) and then attribute that view as being representative of the core MMT view.
It is not the core MMT view.
Second, MMT economists, in general, do not support the introduction of basic income guarantees. Instead, the solution to joblessness and the income insecurity that accompanies that status, is best dealt with by the introduction of a Job Guarantee.
As I have explained many times, a basic income guarantee surrenders to the neoliberal myth that government can do nothing to create more employment.
It is an individualistic rather than collective approach to the problem of poverty and inequality.
It thus constructs the problem of unemployment as an individual issue (‘blames the victim’) and proposes an individual solution – in this case, to create a number of passive consuming agents – whose only need that is recognised is that of a minimal stipend to avoid starvation.
This is instead of recognising, as economists before the neoliberal era understood full well, that mass unemployment could only be understood in structural terms – a systemic failure to create enough jobs.
And, after the non-government sector has determined its spending and saving decisions, if total spending is short of what it has to be to ensure all productive resources are employed, then there is only one other sector that can make up that shortfall – the government sector.
So the existence of mass unemployment tells us at least one other thing – that the fiscal position of the government is too tight and the government needs to reduce its surplus or increase its deficit (depending on the starting point).
So blaming the victim for this systemic failure is core neoliberalism and all progressives should eschew that tendency.
It is also clear that the introduction of a basic income guarantee would not provide a nominal anchor against inflation and so the nation would still be functioning within an ‘unemployment buffer stock’ world, where the government would have to increase unemployment in times of inflationary pressures that were due to excessive nominal spending (relative to the productive capacity).
Finally, and I address this issue in detail in the blog posts cited below, there is more to work than income. We gain social identity and self-esteem from our work. We broaden our social networks and our children do not inherit the disadvantages of growing up in a jobless household.
Basic income advocates overlook those additional advantages of employment.
An additional reason for preferring employment guarantees over basic income guarantees, is that within the context of a societal preference for work and an antagonism towards a ‘handout’ culture, the Job Guarantee can serve as a framework for re-evaluating what we mean by productive work.
At present, we are dominated by the ‘gainful work’ concept which considers an activity to be productive if it contributes to private profit.
This bias means we dismiss a huge number of activities that add social value as being unproductive or ‘make work’ or any of the other negative terms that public sector job creation elicits from conservatives (and many misguided progressives).
The Job Guarantee would allow a host of activities to be included in the Job Guarantee that do not support capitalist profit seeking and would thus provide a framework for expanding the range of functions that we consider to be worthwhile and productive.
The examples I often give are musicians and surfers. These activities are not normally considered to be ‘productive’ in the same way as a steel worker or a teacher is considered to be productive.
But there is tremendous scope for using these workers to expand well-being (for example, surfers could be employed to surf (duh) and also conduct water safety lessons for school children to avoid the drowning deaths that plague Australian summers).
And, as time passed, society would begin to recalibrate its sense of worth and broaden its notion of productive work.
This sort of transition will be essential as we move forward to addressing the massive climate change issues confronting us.
So for these reasons and many others (see cited blog posts below), income guarantees are inferior solutions to mass unemployment.
Further reading:
1. Basic income guarantee progressives cosy up with the worst CEOs in the world (April 4, 2018).
2. A Basic Income Guarantee does not reduce poverty (May 31, 2017).
3. A basic income guarantee is a neo-liberal strategy for serfdom without the work (April 5, 2017).
4. Why are CEOs now supporting basic income guarantees? (March 28, 2017).
5. Is there a case for a basic income guarantee – Part 1 (September 19, 2016).
6. Is there a case for a basic income guarantee – Part 2 (September 21, 2016).
7. Is there a case for a basic income guarantee – Part 3 (September 22, 2016).
8. Is there a case for a basic income guarantee – Part 4 – robot edition (September 26, 2016).
9. Is there a case for a basic income guarantee – Part 5 (September 27, 2016).
10. Employment guarantees are better than income guarantees (January 5, 2011).
11. Mass unemployment – its all about demand (February 13, 2013).
12. The possibility of mass unemployment – Part 1 (December 14, 2012).
13. What causes mass unemployment? (January 11, 2010).
Conclusion
The final part in this four-part series will probably appear next Monday as tomorrow I have to travel a long way and have other commitments to attend to before I do that.
That is enough for today!
(c) Copyright 2019 William Mitchell. All Rights Reserved.
Bill, you wrote here, “We can social identity and self-esteem from our work.”
It is incomplete.
“We can [missing word or words] social identity and self-esteem from our work.”
Maybe ‘derive’?
“If it was desirable to provide a basic income guarantee of $US100 per person in Japan, then the Japanese government has the currency-issuing capacity to make that possible.”
Did you not mean ¥10000?
Mel: What was probably meant was: “a basic income guarantee of [the equivalent of] $US100 per person in Japan …”.
Taxes are a very blunt tool.
When it all boils down to skills and real resources debates need to be had.
For example is it right that private healthcare uses up both skills and real resources that could be used by the NHS just so rich people can jump the cue.
Taxation can help the government redistribute resources in that regard by depriving private spending into areas where resources need to be freed for other (more desirable) purposes. Which is still a blunt tool.
Better just to get rid of some things all together. Private healthcare being one of them.
“MMT economists talk about the rise in the buffer stock of jobs under a Job Guarantee as being an integral component of the proposed price stability framework but what must be understood is that the increase is to be engineered by shifts in government policy – in this case, a contraction in the net spending position of government.”
This sentence is unclear to me. It sounds a little like the supposed ‘expansionary fiscal contractions’ many Euro nations were supposed to experience when they cut government spending. How could implementing a Job Guarantee be considered as a contraction in the net spending position of the government? It seems to me it would be the opposite. Or are you saying that the increased government spending might be inflationary and as a result government might need to reduce private sector demand through tax increases?
The argument on work was more thoroughly discussed in Reclaiming the State.
I’d say nowadays a lot of people even look down on teachers.
Its pretty crazy how toxic and narrow-minded the culture is.
CEOs are supporting UBI because its like charity they they do to quell public anger. Behind every fortune is a great crime. These big business are the problem. Whatever they support should be viewed with caution. In this case, UBI is a crappy solution. Maybe instead of focusing on making money, they should listen to the teacher and learn a bit before mouthing off about UBI.
Jerry Brown- I think Bill is just saying that in case of inflation, and in the further case that the inflation is to be treated by taxation or a contraction of the net spending position, that the JG will be there to prevent unemployment. So probably some people will be shifted into nominally lower paying jobs, the fixed wage JG pool will grow. But they will be paid in money that is not inflating. So the effects on real income might be mixed or unclear.
The general idea is that MMT is not old Keynesian aggregate demand management, and its full employment policy doesn’t necessarily mean increases in government spending. Though they might usually.
Whether or not that is what is meant, I find this passage not too clear also.
Jerry,
Makes no bones about causing unemployment if it is necessary to quell a bout of inflation.
The unemployment so created is to be soaked up by a JG programme.
Dear Jerry Brown and others (at 2019/11/07 at 12:53 am)
I think the quotation is fairly straightforward and is regularly stated in the (real) Job Guarantee literature. The Job Guarantee is an anti-inflation tool that delivers superior outcomes to the unemployment buffer stock approach.
Instead of shifting employed workers into unemployment as aggregate spending contracts, the government shifts them into the Job Guarantee.
While the Job Guarantee expenditure would boost the net spending position of the government that doesn’t necessarily mean the overall net position would rise if the situation called for an overall contraction.
So JG pushes deficit up, other policy shifts push it down by more.
While we never think that would be typical it is a logical possibility. We were fighting critics many years ago who claimed the JG would always be stimulative irrespective of the inflationary situation.
best wishes
bill
Thank you all for the replies. I guess Henry put it most succinctly. But I didn’t understand that Bill was discussing policy options after the JG had already been up and running, should we ever get there.
I still don’t see how, that at least initially, a JG policy with a wage above existing minimum wage wouldn’t be an expansionary fiscal policy. And all else equal, a government with a JG in place has a larger permanent fiscal bias to overcome should it seek to lower inflation by causing people to lose their jobs. I mean it would have to cause more people to get fired in order to adequately lower aggregate demand if it was sort of partially financially compensating those who got fired than a government that did not. Talk about framing issues. If you accept the ‘Phillips curve’ framework.
But is it really necessary for MMT to stick with ‘Phillips curve’ explanations of inflation being caused by not enough unemployed people? Hasn’t that curve been almost as broke as NAIRU for the last thirty years?
I have also noticed Bill talk about the JG inflation anchor as a response to the Phillips curve.
A problem in framing, maybe as a result of clinging to an academic economic fantasy of equilibrium.
I’m very sure that ALL MMTers think that the ‘Phillips curve’ is just bullsh*t.
Like all mainstream economics when it comes to specific predictions, it falls flat on its ass.
I’m no expert but Is there even one specific prediction over the last 40 years that was even close to the number or percentage that a mainstream economic theory predicted? Even one?
Steve and Kevin, I regret implying that Bill and/or MMT use anything similar to NAIRU as an explanation for inflation. And while a part of Bill’s explanation reminded me of Phillips curve type thinking about the relationship between inflation and unemployment, it is probably warranted. At the very least, the issue of excess demand possibly causing inflation has to be addressed even if only because that is what mainstream critics of a JG are going to throw at you.
And so while I personally hate to think that the government should ever try to cause ordinary people to lose their jobs, I guess that is what contractionary fiscal policy meant to control inflation is all about. And if it has to happen, it is far better that it happens with a Job Guarantee in place.
And after all, MMT always (except for one particular Quiz question) places the blame for unemployment squarely on the government in the first place.
So I think parts of my previous comment were unfair to Bill and, um, apologize for that.
I don’t understand why Prof. Fujii of Kyoto University in Japan made movie with Mitsuhashi who is alternative right, after Prof. Mitchell left Japan.
Mitsuhashi was arrested by Japanese Takanawa police department charging domestic violence to his teens wife.
See the movie, you can understand well. The left side is Mitsuhashi and right side is Prof. Fujii.
It’s not a normal.
https://www.youtube.com/watch?v=2Xn3FAOqRPE
I hope polite academic peoples of MMT will not to be ground Japanese group, like Mitsuhashi and Criterion magazine.
In Japan, another many groups will deeply understand MMT, please do not focus on that kind of right groups.
Dear Fumio Tanaka (at 2019/11/10 at 7:29 am)
Many thanks for your comment and expression of concern.
First, I appreciate your concern about having dealings with the Alt Right in Japan. You should understand that before I agreed to come to Japan I required a number of conditions to be met by both Professor Fujii and the Rose Mark group.
In the former case, I declined to have any personal contact with Mr Mitsuhashi, including appearing on his program, meeting him, being photographed with him, and significantly, accepting any funding from him. The last decision cost me several thousand dollars in airfares which I understand would have been funded by Mr Mitsuhashi had I been willing to cooperate with him.
The footage in the video from Mr Mitsuhashi’s TV program was taken from the major Press Conference following my presentation in the Diet and was by definition open footage for any news media agency to use.
Do you advocate press censorship for Japan? I hope not.
Second, censorship is a tool of the Right and it is not for me to be constantly monitoring where MMT is being discussed and by whom. MMT is now appealing to people on all parts of the political spectrum and I welcome that because it will improve the quality of our democracies.
Third, and following the last point, the progressive groups in Japan (and around the World) are still relatively small in numbers but growing. People have been mislead into believing the neoliberal way is the best but they are, increasingly, realising that they have been lied to.
In that context, the only way for our side of the debate to grow in influence is to (by definition) attract numbers from the other side. That means we have to have dealings with more conservative forces to educate them and persuade them of the error of their ways. I do not include the Alt Right in that group and I have never had any dealings with them nor would I.
But the fact that Professor Fujii and Kyoto University were able to stage an event at the Diet last Tuesday where I spoke to more than 300 people across all viewpoints tells you something. The events (as I stipulated in my agreement with Professor Fujii) had to be openly advertised and free for all. There was nothing Alt Right about them.
And after the presentation, I spoke at length privately, with many senior members of the Japanese government and outlined my 10-point plan to them for Japan based on an MMT understanding. They indicated they would be pressuring Mr Abe in the next few days to change economic policy in Japan. And on Friday, the stimulus was announced in principle. The details have to be determined which tells you that this decision was, probably, determined fairly quickly, especially given, that the politicians I spoke to had indicated the current state (on Tuesday) was for there to be no immediate stimulus.
Yet, on Friday, the stimulus was announced.
So, I agree with you that dealing with the Alt Right is to be avoided. But we have to have dialogue with all sides of politics to improve our influence.
As far as I can tell, my visit was beneficial to progressive forces in Japan.
best wishes
bill
Dear Prof. Michell,
I thank you very much and appreciate your faithfully comments for my post.
Of course we know Prof. MIchell had visited Japan cautiously about many things.
I don’t want make this thread longer, so I trust you and your groups activities and I’ll enlarge MMT as much as possible.
With greatest regards.
Fumio Tanaka
“The crux of the matter is that fossil fuels continue to be the cheapest energy source, and as long as they remain so, people will continue to prefer them over others solutions.” – Dr James Hansen
Likely acceptance by the general populace is the other main point in favour of a carbon fee and dividend with monthly payments likely to be well received and increasing fees/dividends over time also likely to be popular.
Even though the MMT truth is that national taxes don’t pay for anything and a UBI is fundamentally flawed, nevertheless a carbon fee and dividend does provide a powerful cost effective market mechanism to reduce fossil fuel usage across the entire economy, and the size of such a UBI remains small and is in no way incompatible with a MMT compliant national Job Guarantee program.
Hello.
I’m reading and writing by machine translation.
Is the purpose of your opinion about inflation as follows?
“From a logical point of view, tax increases may be required to prevent demand-pull inflation.”
“From a logical point of view, we must not deny the possibility of tax increases to prevent demand-pull inflation.”
Is my understanding like this correct?