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It’s Just Not That Simple

So, someone shared the following pic on Facebook:

Some things are a red rag to a bull. I replied:

Um, Jacqui Lambie has been out of parliament since 2016, but more importantly, this is a stupid idea. Perhaps run it past the ADF? They may not be all that keen on an influx of 100,000+ youth to house and train! (Spoiler: they hate this idea. ADF is very selective about who they take.)
Unemployment is rarely personal failure. We all know people who don’t want to work, but the overwhelming majority do, and cannot find it. This country has over 750,000 unemployed and around 150,000 advertised jobs. You can’t tell me they’re all dole bludgers. That scale of wasted labour is just hopeless economic management.

They replied:

This post is not claiming unemployment as person failure? And what she said a number of years ago isn’t the issue. The idea of requiring unemployed youth to do military service (army reserves could be an option) could give this demographic, experiences and better equip them for their future and help them develop. (It would also get them away from technology long enough to learn to think for themselves, and develop their brains, decision making, self discipline etc). If you work with people on Youth allowance/Newstart it gives you a perspective that political statistics don’t!

All well and good, but there is a cost to implementing such a programme that needs to be considered. It’s asinine to expect that the ADF (or Reserves) can just accommodate this number of people without provision of resources. And why on earth would ADF want to deal with 100K youth who want a real job, and simply are not army material? It’s just not in anybody’s best interest. EXCEPT THOSE WHO VIEW UNEMPLOYMENT AS PERSONAL FAILURE and wish to make that state even more unpleasant than it already is, based on the misguided idea that you can penalise people into jobs.
There are plenty of useful things that people who don’t have a job could be paid to do that don’t involve military service.

There is a cost involved in any case! I believe it is in the countries interest to have the younger generation resourced to be productive members of society. If they aren’t then the future generations will were the consequences. I can’t speak for the ADF as I am not qualified to do that. 
Like any large scale change it would be wise to do it in increments, not all at once ?
As we are discussing this, I need to clarify, I do not see unemployment as a personal failure (you don’t have to yell). 
If there are plenty of useful things that people could be paid to do, were would the money come from to pay them?

To answer your second question “where would the money come from?” first, it comes from the same place all money comes from. The federal government authorises the spending and Treasury instructs the RBA to increase the numbers in various people’s accounts. Money is the one thing the federal government can never run out of, any more than Coles could run out of Fly-Buys. Of course they could issue too much, but they can also issue not enough, and both scenarios create problems: too much creates inflation, too little creates unemployment.
But to your main question, consider that the unemployed are already on the federal payroll. Instead of paying them a pittance to do nothing, we would be far better off paying them a decent wage to do something useful. There’s no shortage of worthwhile things that could be done to improve our communities: things that no private business will do because there’s no profit in it.
Imagine if you went to the Mayor of Dubbo and said, “if you had a standing army of people willing and ready to work and the federal government would pay them $20/hour on your behalf, what could you do to improve the Dubbo community?” I daresay it wouldn’t take long to come up with ideas. Obvious ones are land care, aged care, child care, but there are plenty more community programmes and other services that we can provide each other.
Anyone who truly wants to work will take that offer and be found work that suits them and allows them to use or develop their skills. Anyone who truly wants to be a layabout still has the choice to do that too. You’d soon see how many people really want to be layabouts.
All these people now earning a decent wage have the opportunity to participate in the economy, spending those wages (which in turn becomes the wages of others), paying taxes etc. That increased demand for goods and services leads to more private sector employment opportunities, which draws people out of this Job Guarantee programme again.
This is not something I’ve dreamt up, by the way. It’s been developed, researched and costed over several decades, by serious economists. Yes, paying people who want to work and cannot find private sector employment will cost the government money, but so does paying unemployment benefits, and so does dealing with the results of poverty: crime, malnutrition, domestic violence, alcohol and drug dependence, homelessness and so on.
I’ll finish with this last point. How many people leave rural and regional areas for the big cities in search of work, by necessity and not by choice? Instead of talking about forcing migrants to come to regional areas, what if the federal government offered paid work to regional locals who want it?
If you’re interested I can post some links to more material on these ideas.

Such as: A Job is the Best Form of Welfare, by Joe Zabar, the deputy CEO of Catholic Social Service of Australia.

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UBI gets the city press, but the bush wants a JG scheme

UBI continues to capture the imagination of people searching for ways that the status quo could be improved. As I’ve argued before, UBI is superficially a good idea, but ultimately will fail to produce the outcome its proponents suggest.

A perfect example is Tim Dunlop’s ‘Something big has to change’: could Australia afford a universal basic income? that appeared in yesterday’s Guardian. In arguing the pros and cons, he hits the problem on the head:

Although at first blush, UBI sounds like some idealistic, leftwing idea, the reality is it has long had support in rightwing politics and economics. Richard Nixon nearly introduced a type of basic income when he was the US president, while Milton Friedman – one of the most influential champions of “free” markets and small government – promoted a basic income scheme known as a negative income tax. Even today, right-of-centre organisations such as the Adam Smith Institute argue for the introduction of such a scheme.

This rightwing pedigree makes many on the left suspicious of UBI, and former union head Tim Lyons speaks for many when he says he is “deeply unconvinced by the push for a universal basic income”.

What the left fear, not without some justification, is that instead of UBI being used as a supplement to other forms of service provision, it would be used to replace them. Citizens would then be forced to use their UBI to buy health, education and pension services from private providers. This sort of rightwing UBI would simply be a transfer of public wealth to private businesses, a further marketisation of democratic society.

Of course, a UBI needn’t work that way, but such concerns mean the design and implementation of a scheme – the politics – are as important as the economics.

It needn’t work that way, but you know that’s what will happen. The demonisation of the unemployed as the architects of their own penury, refusing to work and just bludging off the taxpayer are neoliberal mythology that has become very hard to shake.

The problem with the UBI is that it does not directly solve the problem of unemployment. Yes, additional spending power at the lowest echelons will lead to increased sales and therefore might result in more workers being hired. But it can just as easily lead to price increases for the more inelastic products and services, as demand increases but supply cannot meet it. A good example of this is dental services, something that the poor are known to skimp on due to cost. There aren’t too many unemployed dentists that can be brought into “production” to meet an increased demand for their services if there is suddenly more disposable income that could buy it. The natural outcome will be a rise in price for dentistry.

And it strikes me as fanciful that giving everyone a living wage is going to somehow lead to some nirvana where we all just do charitable works and produce creative output, as people allegedly have their basic needs met by the UBI and can spend their time doing other worthwhile things. This argument is often linked to the rise of the machines – that robots are going to do all the work anyway, and there won’t be any need for jobs.

Well, for a very narrow definition of the word ‘job’, maybe. Automation has been happening since the industrial revolution, and there are always new jobs to replace old ones. I’m not sure why we simultaneously panic about automation and the ageing population issue: the idea that there won’t be enough workers to support the retired. Surely one offsets the other to some extent?

The Job Guarantee Concept.

If you’re going for radical change, a Job Guarantee scheme is a far better solution than UBI. Most advocates of a JG recommend that it be federally funded and locally administered. So that the local community can make the determinations on what services they require.

Put it this way. If you said to your local council: “here’s a standing army of people that the federal government will pay the wages for as long as you can put them to doing meaningful work, what services could they perform to improve your area?” Look around – what could be done to improve the amenities, functions and services in your area if there were people available to do them? Pretty much anything that would be considered socially “good” but won’t ever be done by the private sector because there’s not a quid in it would be a candidate for JG programme.

A JG scheme sets a minimum price for labour, and effectively buys all excess labour off the bottom. It is not competing with the private sector for labour, it is just mopping up the excess labour that the private sector cannot employ. As a result it’s not inherently inflationary (beyond some adjustment to its initial implementation – the likes of 7-11 might get a rude shock when no-one is prepared to work for less than the minimum wage offered by the JG scheme). Like the Wool Board, it buys excess when it exists so it can be released when demand returns, to smooth out the effects of the business cycle.

And of course there’s no coercion here. If you really are a bludger, you’re likely to stay in your current circumstances. On the other hand, if you don’t have a job but you do want to work, JG employment will be given to you. In the best possible scheme, a job that makes use of your existing skills, or trains you in new skills. Ultimately it keeps you job-ready, and employable, for when a better paid private sector opportunity comes along.

None of this is my idea, far brighter minds than I have been developing the JG scheme for years. The Centre of Full Employment and Equity and the work of Dr Bill Mitchell is largely the home of this concept, and there’s no shortage of research material available. Including costing, which shows such a scheme could be implemented for less than what a UBI would cost.

But it was very interesting to hear ABC PM yesterday, and in particular the segment Aboriginal groups call for alternative employment model. Unfortunately the ABC has cut their transcription of news stories, so the piece is only available as audio. (Another example of a socially good job that someone could be doing!) There is also a related article here.

The crux of the story is that rather than penalising or “breaching” the unemployed in aboriginal communities who are expected to travel vast distances to work for the dole, the local community has no end of useful things those people could be doing in their own area, and are calling on the federal government to allow them to find work for their unemployed community members. Breaching them (denying them welfare) is leading to greater hardship, and increased property crime. What this community is asking for is the Job Guarantee Programme!

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Define Employment, if you would

Before the Garage Death Match that was the contretemps between SA Premier Jay Weatherill and Federal Energy Minister Josh Frydenberg (as it might have well have been given the way it consumed all available journalists  for days), something else noteworthy happened in Adelaide.

Former Treasurer Wayne Swan gave a very thought-provoking speech at Flinders University where he argued that full employment needs to be an active strategy for governments, not a passive one.

As usual, this was met with howls of “government interference in the markets”, make-work schemes, communism, end-of-the-world-as-we-know-it and so on. This particular example is fairly typical:

What a ridiculous idea, you may as well employ people to dig up holes and then fill them in again, employment for the sake of employment, similar to countries like the USSR and other command economies. The problem is that this involves siphoning money away from the private sector which could be used to create new products and services that improve living standards.

I never cease to be amazed by the lack of imagination on display in comments like this. Why must government provided employment be make-work?

Just take a walk around your community, and ask yourself what could be done to improve the place if there was a standing army of people willing and able to do them? If your local council had the human resources (paid for by the federal government) to call on to provide services to the community, what would they be able to achieve?

Virtually anything that the private sector wouldn’t touch because there’s not a quid in it is a candidate for a Job Guarantee Programme. Think big.

Because the fact is every single unemployed person is already on the government’s payroll. It would make so much more sense to pay them a living wage to do something useful than pay them a miserable pittance to do nothing.

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UBI and Inflation

In this article, there’s a “debate” on the pros and cons of UBI, or Universal Basic Income. I don’t find either side of the argument compelling, but there’s been some spirited discussion in the comments. Here’s an exchange that I thought worth keeping:

From “MrMustard Magoo”:

Would it necessarily be inflationary if we just printed it so to speak? Wouldn’t businesses just sell more stuff? It seems to me they struggle somewhat to sell what they have now.

Another participant “Balthazars” responds (incorrectly in my opinion):

Err, yes it will be inflationary if the government just printed the money (or credited bank accounts, as the article notes some had suggested).

When you ‘create something out of nothing’ and make it available to the market, you have increased the supply of something. More supply, means the individual value of each ‘unit’ of the item decreases in value because.

Business’ won’t just sell more stuff, they’ll tend to increase their prices, either because in bidding for scarce resources, buyers will bid higher (due to having more cash), or because the seller knows the buyers have more cash and can try to squeeze more out of them.

Printing it isn’t going to be viable, especially not given the printing would have to happen every year. Creating $200-$400 billion every year and sending it directly to households would have huge inflationary impacts.

So here’s my reply:

Hang on a minute. The term ‘printing money’ should be avoided: it refers to fiscal operations that applied under a gold standard, where the size of the economy was constrained by the amount of gold the government held (or the currency your currency was pegged to). These days all money is printed.

The laws of supply and demand suggest that prices increase if demand is greater than supply, and vice versa. But defining the demand for money itself is not that straightforward, is it? It’s not easy to conceive a situation where the demand for money is less than the available supply.

Furthermore, assuming businesses can adopt a monopolist position and just charge more for the same thing is not valid. Unmet demand leads to greater supply, as new businesses enter the market, and existing ones ramp up production to take advantage. If widgets are profitable, selling more widgets = more profit. Indeed, increased production can lead to lower per-unit cost of production.

Increasing the amount of money increases the aggregate spending capacity. That will increase aggregate demand, and increased production will follow. That leads to more employment, as firms need more workers to make more stuff.

It’s a virtuous cycle, until you run out of the fixed resources, be they raw materials or labour. That’s when you get inflation: when there’s no more idle labour and production to be put into service, and any further injection of cash into the economy will lead to too many dollars chasing too few goods. So whilst adding $200-$400BN to the net financial assets of the economy is not endlessly sustainable, the progressive nature of income taxes will attenuate that spending and drain a significant portion away again.

All that said, I don’t agree with the UBI concept. But for entirely different reasons, and this post is long enough already.

 

Ellis Winningham neatly encapsulates the issues with UBI in this Facebook post. I highly recommend it. Like Ellis and other proponents of Modern Monetary Theory, I believe the answer lies in a Job Guarantee Programme.