The JG is getting a lot of press. This is an attempt to call attention to it. I submitted it to the News & Observer but they didn't bite. Perhaps I pack to much information in it. An article could be written on almost any paragraph.
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Political discussions are sizzling as politicians listen to academics touting the advantages of a federal Job Guarantee to target full employment.
For decades the Fed has raised interest rates to fight inflation. After all, the Fed’s mandate is to maximize employment and achieve price stability. So, when the Fed thinks inflation is lurking, it raises interest rates to slow economic growth. Its rationale is based on the out-dated Phillips curve that indicates inflation increases as unemployment decreases. Accordingly, the obvious solution to rising inflation would be to increase unemployment.
Conventional economists seek the elusive NAIRU (Non-Accelerating Interest Rate of Unemployment). It sounds spooky and is spooky. It posits that there must be some level of unemployment at which prices are stable. The Fed seeks that level through adjustment of interest rates.
That’s right! The goal of the Fed is to reduce job opportunities in order to control prices and maintain the value of the dollar. In doing so, it ignores the tremendous costs of unemployment. Not only does an idle worker contribute nothing to GDP, unemployment payments rise, and the sociological costs are huge. Adding to the misery, the victims of enforced unemployment are often looked upon with scorn.
In the end, the Fed’s action is counterproductive. Increased interest rates raise the price of everything, which is the very definition of inflation. And, through the resulting increased rents people pay, it provides more opportunities for the rich to disadvantage the less fortunate. It is a national policy that most conventional economists support. But it just doesn’t work.
Fortunately, there is an alternative. Marriner Eccles, FDR’s Chairman of the Fed understood it. We named the Fed building in Washington after him and forgot that he knew our great nation has the productive capacity and ingenuity to provide a decent living for everyone.
During Eccles’ tenure the WPA (Work Progress Administration) thrived and offered jobs to the able and willing. In the 1990s, Warren Mosler, a hedge fund manager, reawakened economists to Eccles’ insights.
Academic authors see the JG as a federally funded, locally administrated program to hire any willing and able worker at a living wage with benefits. The range of possible jobs would have few limits and could include filling potholes to replacing water and sewage systems. And from directing traffic to providing health care.
The JG would set the minimum wage and a standard for working conditions. Private firms would be free to offer higher wages or better working conditions to hire the workers.
The JG would be countercyclical to and dampen the business cycle by expanding in down times and contracting in good times always maintaining full employment.
Perhaps most important, the JG would counter the corrosive sociological consequences of unemployment and inequality. Critics citing the costs of the JG should first consider the costs of these consequences. The costs and benefits of a JG have been researched thoroughly in the academic community.
Fundamental to the thinking behind a JG is the realization that our economy is not driven by production as viewed by advocates of trickle-down economics. Instead, the economy is driven by sales, which in turn, stimulate production. So, by providing work and wages the federal government stimulates demand to which production responds.
It is time to make a choice. We can keep the system of enforced unemployment, with all its sociological consequences, to provide a pool of unemployed workers looking for work at low wages. Alternatively, through the JG we can establish a pool of employed workers willing to accept work at wages above a livable minimum.
Academics pushing the JG idea are Professors Darity and Hamilton at Duke University, Tcherneva at Bard College, Kelton at Stony Brook, Fullwiler at University of Missouri, Wray at Levy Institute, and others all of whom are looking at our economy in a refreshing and enlightened way.
Dan Metzger is a retired physicist, living in Chapel Hill, with an interest in how the economy works.
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