Is the Job Guarantee a Ponzi Scheme?
“The basic idea is that the government can’t run out of money. It creates money just by spending.” — Stephanie Kelton
This is true. Government cannot run out of its own money. But what is money? It is a token or pledge that can be redeemed for something of value. If government creates much more money than there are things of value to redeem it for the prices of those things go up. Not to worry, Zach Carter assures us:
But even inflation doesn’t impose a hard limit on policy options. The Federal Reserve can raise interest rates to deal with it, Congress can raise taxes to pull money out of circulation or even impose price controls.
Hyman Minsky expanded on this explanation in his financial instability hypothesis:
The first theorem of the financial instability hypothesis is that the economy has financing regimes under which it is stable, and financing regimes in which it is unstable. The second theorem of the financial instability hypothesis is that over periods of prolonged prosperity, the economy transits from financial relations that make for a stable system to financial relations that make for an unstable system.
In particular, over a protracted period of good times, capitalist economies tend to move from a financial structure dominated by hedge finance units to a structure in which there is large weight to units engaged in speculative and Ponzi finance. Furthermore, if an economy with a sizable body of speculative financial units is in an inflationary state, and the authorities attempt to exorcise inflation by monetary constraint, then speculative units will become Ponzi units and the net worth of previously Ponzi units will quickly evaporate. Consequently, units with cash flow shortfalls will be forced to try to make position by selling out position. This is likely to lead to a collapse of asset values.
The financial instability hypothesis is a model of a capitalist economy which does not rely upon exogenous shocks to generate business cycles of varying severity. The hypothesis holds that business cycles of history are compounded out of (i) the internal dynamics of capitalist economies, and (ii) the system of interventions and regulations that are designed to keep the economy operating within reasonable bounds.
“But even inflation doesn’t impose a hard limit on policy options. The Federal Reserve can raise interest rates to deal with it, Congress can raise taxes to pull money out of circulation or even impose price controls.”
Yep, these guys always talk about the ability to raise taxes to slow inflation. Course, raising taxes is not an easy thing at all. Further, it has to happen fast, therefore it would have to be an automatic stabilizer.
As mentioned in the other topic, no government I even imagine existing would make a law that has tax rates controlled by inflation measures.
Not a chance in hell, or anywhere else for that matter.
Indeed. The old “fine tuning” gambit. We just need to program an AI RoboCrat with the right algorithm: “the fundamental are sound… the fundamentals are sound…”
The progressive tax code of the 1960s did raise taxes in response to inflation. It was called bracket creep. One would pay a higher marginal tax rate on higher income, even though that income had not gained purchasing value. I think they redid the tax code in the 1970s some time to mitigate this.
I can only imagine the “guaranteed government job” interview: “So why do you want to work here?” “A: I got this job, guaranteed, so STFU.”
Portland OR has about a 3% unemployment rate, which means 97% of people that want a job, have a job. The rest are in transition, or are pretty unemployable.
So, at $15/hr (minimum wage is $10.25) you would be rounding up homeless people. “Hey bud, put down that bottle and put on a shirt, I have a gubment job for you. Guess what? It’s guaranteed!”
Sammy:
The state rate is 4.1%. Oregon has similar issues to what Michigan has, U3 varies across the state going as high as 9%. Portland is a few tenths of a percent below the state rate at 3.7%. U6 for Oregon is greater than 6%. This is ridiculous stuff you are posting and I am surprised Sandwichman has not booted you and EMichael for some of the comments.
Run,
??
I am basically agreeing with Sandwichman.
The problem is that Portland is not all of Oregon, which is why the minimum wage differs east and west of the Cascades. Eastern Or while quite beautiful is mostly desert and empty (like most of Nv to the South outside Clark and Washoe Counties). Lots of miles and miles of miles and miles. In fact eastern Or still has a couple of communites that have dorms for High School students due to 100 mi 1 way bus rides. This of course is part of the issue of looking state wide in parts with very different economies, just like in MI the Upper Penninsula is very different than the southern half of the lower penninsula, or various parts of Tx.
A Ponzi scheme sells shares of a company and uses that money to pay dividends rather than to fund the operations of the company. A better example might be the Earned Income Credit. If we think of paying one’s taxes as buying a share of the nation, though with limited voting rights, then returning that money to some taxpayers as a tax credit is like a Ponzi dividend.
In the 1930s, the government created a lot of jobs. A lot of them were considered boondoggles, a term which now means a waste of money. In fact, the term boondoggle originally meant a clever folk hack, like tying an interesting not, rigging up an alarm from a milking pail or such. One make work job was tracking down boondoggles in the back country and recording them. When the term showed up during a committee hearing on government waste, its new meaning was cemented.
In practice, there are many ways of creating government jobs, and a lot of the jobs created in the 1930s left us with useful things like hydroelectric dams, theaters, national park infrastructure and so on. I’m sure we can find useful stuff for people to do, if only by having the government print money to pay them for it.
I want to repeat that I am not opposed to expanding public employment to sop up surplus labor power or to deficit spending to pay for it. What I question is half-baked panaceas that make exorbitant claims and yet overlook other potentials. For example, the MMT crowd starts off from some perfectly valid criticisms of conventional wisdom about money and government deficits but drives the argument to a reductio ad absurdum where there are no constraint, either political or financial. I exaggerate of course but so do they.
“hydroelectric dams, theaters, national park, infrastructure and so on” may all be good things but so is LEISURE — wealth is disposable time. If one policy proposal overlooks reduction of working time, it is an oversight. When virtually all of them do, there is prima facie evidence of systematic bias.
32 hour work week . . .