Flat White

Their ABC’s latest magic pudding economics

22 November 2018

7:00 PM

22 November 2018

7:00 PM

You may be tempted to stop reading after the oxymoron “Bernie Sanders’ economic adviser”, but if you are as tolerant of differing viewpoints as The Spectator Australia please do press on:

The radical idea of offering every person a government-funded job is finding new supporters in Australia as proponents claim it could eliminate unemployment overnight.

US economist Stephanie Kelton, who served as Bernie Sanders’ economic adviser during the 2016 presidential campaign, is currently touring Australia to promote the concept she says isn’t too good to be true.

“There is nothing to prevent the Australian government, if it chose to do so, from funding a large-scale government job program that would offer employment to anybody who wanted work and couldn’t find it anywhere else in the Australian economy,” she said…

The plan — commonly referred to as a “jobs guarantee” — works like this: every one of the 700,000-odd unemployed Australians would be offered a job that would be funded by the government but managed by local communities.

“We want the local communities being the ones to imagine the kind of work that is going to provide the most value,” Professor Kelton said.

“So it’s not a top-down government, bureaucratic [model] … they just provide the funding and the community decides what needs to be done.”

The idea is part of the modern monetary theory (MMT) school of thought that has been developing since the early 1990s.

Seeing that the minim wage in Australia at the moment is $719.20 per week and it’s impossible that the unemployed would be paid any less, “employing” our 700,000 unemployed would cost the budget at minimum $26.2 billion per year – that’s providing they are only paid a minimum wage and not more, and doesn’t include any other associated costs of the scheme, including the humongous administration of a social program involving nearly three quarters of a million people.

So where is the money coming from?

A core belief of MMT is that countries that control their own money (like Australia) face no purely financial budget constraints because they can always print more cash.

Ah, easy! So money doesn’t necessarily grow on trees but grows in the Canberra mint. Just crank up those machines and spew out more of that plant-polluting plastic. It’s a true and tried remedy, as seen in the Weimar Germany or the contemporary Zimbabwe and Venezuela.

Professor Kelton doesn’t ignore the inflation issue, but said it was simply a factor that would have to be managed if the jobs guarantee concept was implemented.

“The trick really is, can you strike an appropriate balance where the government is hiring enough people to give everybody an opportunity … without creating the inflation problem,” she said.

And a trick it is, most likely in a sense of a magic sleight of hand.

Apart from the cost, there are many other issues with the “work for all” scheme. Would it be voluntary or compulsory?

Amongst the 700,000 there are many short-term unemployed who are just “in between jobs” and would consider digging ditches for the local council to be a distraction from looking or waiting for their next proper job.

If the scheme was voluntary, there would also a number of people who are, for a number of different reasons, not interested in working or at least working in the type of jobs that would be “managed by local communities”.

Even those who want to do some work might be short-changed in terms of square pegs for round holes of the community-designed jobs. Do you force people into jobs they don’t want to or are not qualified for because there are no other proper jobs locally available?

Then there is the administrative nightmare for the “local communities” – whoever they actually are; local councils or whatever – in managing the whole program: they are the ones who have to dream up all the jobs and then supervise the army of the local unemployed.

And then there is the substitution problem, namely how to guarantee that with some jobs and some kinds of jobs, the local councils won’t substitute the unemployed for the employees or contractors currently performing these jobs at much higher wages, saving themselves a lot of money in the process – while pushing others into unemployment and creating a never-ending cycle of creating and filling low-paid jobs?

The surest way to prevent that would be to pay the unemployed not the minimum wage but the market wage for the particular kind of work, but this would cause the explosion in the cost of the program – take that $26 billion and multiply it by two. We would need to buy more printers for the mint.

Not that the “profit is the same as revenue” magic pudding economics types at the ABC would guess any of this.

But, how about instead of modern monetary theory we do what we actually know generates jobs and reduces unemployment: creating good economic conditions for businesses large and small to hire people to do real work for real wages.

All it takes is political will – which is probably why it’s getting increasingly difficult to get our parliamentarians interested in the notion.

Arthur Chrenkoff blogs at The Daily Chrenk, where this piece also appears.

Illustration: Norman Lindsay/Angus & Robertson.

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