The Federal Job Guarantee - What Heresy is This? (Exposing MMT for Conservatives Part 4)

[Dylan Lawrence Moore]

A philosophical analysis of negative and positive rights tells us that any time the government gets involved in PROVIDING something, it must be inherently oppressive because someone need merely demand it to create an obligation on the government to provide it, and the government must provide it by taking it from someone else.

The Bill of Rights enshrined the concept of negative rights in the US Constitution.

However... there's a weird one. The 6th Amendment. The government guarantees a right to a speedy trial. That sounds kind of like a positive right, doesn't it?

(NOTE: I totally say 4th Amendment in the video. Doh.)

Libertarian philosophy argues: if the government causes the problem, then the government has to provide the solution. If the government arrests you (problem), it has to give you a means to deal with that arrest (speedy trial). Thus it doesn't fit the category of a positive right.

...but what happens if government causes the problem of requiring citizens to pay taxes with money?

Discussion ensues.

 

 

[Hubot]

 First of all, thanks for exposing the libertarian community to MMT, understanding how money works has been a blind spot for freedom-loving people - especially when it comes to government money. I enjoyed your Mosler interview - I did not know how government currency is issued (spent into existence and taxed out of it), I only knew about credit money creation. Also the part how taxation (alongside with laws requiring people to accept legal tender) creates the demand for currency blew my mind - so simple yet so counterintuitive.

That said, here's my critique of your latest video about MMT - it's mostly just practical critique. In the beginning Nima explains how the government causes the problem of unemployment: Since everyone has to get tax tokens but getting a job is punished by taxation, private sector cannot offer as many jobs as without this intervention. As a solution he offers a Federal job guarantee program.

i) At 13 minutes he points out how the program "should not compete with private sector jobs". This is impossible. Since you get the resources to pay for these jobs by spending tax tokens into existence and robbing everyone else by inflation (which might just be lower deflation  (well, since we don't have a free currency system, we don't know how inflationary the free system would be - maybe rate of inflation would be naturally something as high as 5 %)), you already compete with everyone else who is forced to use your money system.

ii) At 14 mins: "These would be jobs where you have to show up etc." Government employees have all the economic incentives to work as little as possible and get paid as much as possible - getting fired would be nearly impossible if government actually guarantees a job. There's no way of making this happen unless you start using direct force. How else will these workers show up when there's a federal job guarantee?

iii) At 16 mins: "It would be important to pay less for these jobs than in the private sector in order not to compete with the private sector": Wishful thinking. All the practical evidence points in the other direction.

iv) 22 mins: Local government jobs paid by issuing tax tokens will supposedly create so much more new money, that net private savings go up and private sector starts hiring new people, thus balancing the new money creation to private sector's needs. Not necessarily - people tend to take mortgages and perhaps even take a loan to buy a sail boat once their income increases. This creates a massive amount of credit money, which might more make up for the decrease in government money creation.

v) 25 mins: "How can giving people gov jobs be worse than paying them for not doing anything?" Easily, make them work for harmful projects like building roads to nowhere (Japan), go to war or build 10's of GW's of wind power (Germany).

vi) 26 mins: Nima explains how this program will not cause inflation as long as you have underutilized capacity. Technically this would be correct, if increase in money supply (let's assume for simplicity that v(money) = constant) matches increases in production then no inflation would happen. But the most important component of that underutilized capacity is the human mind. For example, in programming, one talented developer can be 10^6 more valuable than an average one. And a bad developer is harming more than helping, perhaps only top 5-10 % of people can even work in the field. This is true even for other fields too, with different numeric values (which I just guesstimated). Given that 16 % of population has an IQ of 85 or lower (sd = 15) in the Western countries, even having a cleaning job might be challenging for these people. If they get guaranteed government jobs, it'll take more resources to support them at their jobs than they will ever create -> more tax tokens are used, but overall resources diminish or at best maybe stay the same -> more inflation.

 

So why not concentrate on cutting taxes to the abs. minimum while simultaneously not bothering about the deficits and supporting crypto developers by spreading general knowledge about MMT to them? It's only a matter of time when cryptos take over the monetary system, so if they don't figure their system - well government just might "help" them... and take over some coins in the process.

[Dylan Lawrence Moore]

Thanks for the response. These are awesome questions. One point before I get at them:

On 3/12/2018 at 12:11 PM, Hubot said:

In the beginning Nima explains how the government causes the problem of unemployment: Since everyone has to get tax tokens but getting a job is punished by taxation, private sector cannot offer as many jobs as without this intervention. As a solution he offers a Federal job guarantee program.

You almost have it here. The government causes the problem of unemployment this way: when the government demands a tax in tokens that it issues, people need to do something in order to get those tokens. This is called unemployment. Employment being defined in this case as working for the thing which you can pay your taxes with.

Now, at this point, there aren't any tax tokens in circulation. The problem isn't that getting a job is punished by taxation (that is a problem, by not the one relevant here), the problem is that you need a job to get the tokens to pay the tax at all. Further, the private sector cannot offer any jobs that pay in this tax token at all until there are tax tokens in circulation. Thus it stands to reason if the government is going to cause the problem of requiring the private sector to pay taxes, it has to give the private sector a means of acquiring tax tokens in order to do so. The federal transition job is sort of the "job of last resort" to catch the private sector if there isn't otherwise enough money in circulation.

The "federal job guarantee" is actually a bit of a misunderstanding by leftist MMTers (I use it in the title specifically to be inflammatory). The purpose is NOT to guarantee a job for everyone by the government, but to catch people who fall off the economic ship because there isn't enough tax tokens in circulation and get them back into the private sector. I think by answering your questions we'll get a better understanding of this situation.

On 3/12/2018 at 12:11 PM, Hubot said:

i) At 13 minutes he points out how the program "should not compete with private sector jobs". This is impossible. Since you get the resources to pay for these jobs by spending tax tokens into existence and robbing everyone else by inflation (which might just be lower deflation  (well, since we don't have a free currency system, we don't know how inflationary the free system would be - maybe rate of inflation would be naturally something as high as 5 %)), you already compete with everyone else who is forced to use your money system.

I recommend watching our previous videos to address inflation. One of the strongest issues that Austrians have screwed up is the effects of inflation. 

Image a movie theater with 500 seats. If the theater owner sells 50 tickets, selling 51 isn't going to devalue the tickets. In fact, there won't be any devaluation of tickets until the theater is full. Now, once he says 501 tickets, there becomes a hot potato situation where someone holding a ticket isn't going to get a seat. This devalues the tickets and is our analogical equivalent to inflation.

Similarly, the economy functions much like this, where instead of theater seats, there is the unemployed and underutilized capacity. These are signs that there are not enough tax tokens going around for everyone to get a seat in the economy. Until this is reached, there won't be significant inflation.

Thus when we say that the FTJ should not compete with the private sector, what we mean is that by setting the wage lower than the minimum wage, if the opportunity is available to work in the private sector, people will because it pays more even at the minimum end of the spectrum. However, if there are no jobs in the private sector, slightly-less-than-minimum wage is better than nothing at all. Furthermore, if there aren't enough jobs in the private sector to employ everyone, it means there isn't enough money in the system to employ everyone. Because the FTJ utilizes the money creation power of the federal government and is applied locally, when economic times are bad (not enough tax tokens), people will move to the FTJ to get work. This will create tax tokens that will be spent into the private sector. Once the private sector is earning enough tax tokens to feel comfortable hiring people, it will do so and the people working at the FTJ will decrease, which will also decrease the amount of money being created.

What's powerful about this idea is that it actually puts the money creation power more into the hands of the private sector: once the private sector feels comfortable hiring, it hires people out of the FTJ and halts the money creation.

On 3/12/2018 at 12:11 PM, Hubot said:

ii) At 14 mins: "These would be jobs where you have to show up etc." Government employees have all the economic incentives to work as little as possible and get paid as much as possible - getting fired would be nearly impossible if government actually guarantees a job. There's no way of making this happen unless you start using direct force. How else will these workers show up when there's a federal job guarantee?

Yup. Government sucks, not denying that. However, as a temporary worker in the government, getting fired is a lot easier than a permanent employee (I saw this when I worked for the city as a seasonal worker. One of the guys I was working with did get fired for not working). 

The reason people would show up is to get paid. You don't get paid if you show up.

As for the guarantee part, again, "federal transition job" is the proper term. Leftist MMTers use FJG because they're socialists and they love the government so much. I just used it to be inflammatory.

On 3/12/2018 at 12:11 PM, Hubot said:

iii) At 16 mins: "It would be important to pay less for these jobs than in the private sector in order not to compete with the private sector": Wishful thinking. All the practical evidence points in the other direction.

I... don't think this is an argument.

If the FTJ wage is set lower than minimum wage, then by definition it doesn't compete with the private sector.

On 3/12/2018 at 12:11 PM, Hubot said:

iv) 22 mins: Local government jobs paid by issuing tax tokens will supposedly create so much more new money, that net private savings go up and private sector starts hiring new people, thus balancing the new money creation to private sector's needs. Not necessarily - people tend to take mortgages and perhaps even take a loan to buy a sail boat once their income increases. This creates a massive amount of credit money, which might more make up for the decrease in government money creation.

The difference between credit money and government created money is that credit money needs to be paid back. When a bank loans you $20k to buy a boat, after you pay the $20k in principal back, that money actually gets destroyed. It returns to oblivion. The bank's profit is the interest.

Money that is created by the federal government doesn't need to get paid back because the government doesn't actually need it. They need SOME of it paid back to give value to the money in the first place (i.e. they need you to need it), but they don't actually need it to pay for anything. Thus federal debt IS net private sector savings. Private debt is a zero sum game, government debt isn't. Does that make sense?

On 3/12/2018 at 12:11 PM, Hubot said:

v) 25 mins: "How can giving people gov jobs be worse than paying them for not doing anything?" Easily, make them work for harmful projects like building roads to nowhere (Japan), go to war or build 10's of GW's of wind power (Germany).

I'm not saying that government makes good decisions with its resources, but remember that keeping someone employed is a resource in and of itself. The private sector doesn't like to hire people who are unemployed, and getting them with something on their resume helps massively to transition them to the private sector.

Furthermore, government projects can be hit and miss (often more miss than hit), but welfare is 100% miss. Thus yes, the FTJ can't be worse than welfare.

On 3/12/2018 at 12:11 PM, Hubot said:

vi) 26 mins: Nima explains how this program will not cause inflation as long as you have underutilized capacity. Technically this would be correct, if increase in money supply (let's assume for simplicity that v(money) = constant) matches increases in production then no inflation would happen. But the most important component of that underutilized capacity is the human mind. For example, in programming, one talented developer can be 10^6 more valuable than an average one. And a bad developer is harming more than helping, perhaps only top 5-10 % of people can even work in the field. This is true even for other fields too, with different numeric values (which I just guesstimated). Given that 16 % of population has an IQ of 85 or lower (sd = 15) in the Western countries, even having a cleaning job might be challenging for these people. If they get guaranteed government jobs, it'll take more resources to support them at their jobs than they will ever create -> more tax tokens are used, but overall resources diminish or at best maybe stay the same -> more inflation.

Remember, the FTJ doesn't compete with the private sector. It must pay less by definition. The goal is to get people back into the private sector, and it achieves this in two ways: 

1. It gets people working again and puts someone on their resume so make them more appealing for hire by the private sector.

2. It introduces more tax tokens (money) into the system so the private sector can afford to hire them in the first place.

This doesn't mean government doesn't suck and mishandles resources. Again, the FTJ is analogous to a court. The government causes the problem of arresting you, so it has to provide the solution of giving you access to a court. Government provides the problem of demanding tax tokens, so it has to provide the solution of giving you access to them. This is consistent with libertarian principles.

On 3/12/2018 at 12:11 PM, Hubot said:

So why not concentrate on cutting taxes to the abs. minimum while simultaneously not bothering about the deficits and supporting crypto developers by spreading general knowledge about MMT to them? It's only a matter of time when cryptos take over the monetary system, so if they don't figure their system - well government just might "help" them... and take over some coins in the process.

 That's... kinda what I'm doing.

Regarding cryptos: my opinion is that because no one understands what money is or how it actually works, crypto developers are constantly missing the point. They focus on making a coin easy to use (fast transactions, cheap fees, easy interfaces, open blockchain, whatever), but they don't address why people should be using them in the first place. If they're going to want to replace the current monetary system, they're going to need to understand how the current one works.

[Hubot]

 

First of all, thanks for the interesting fact-filled discussion - most people who I talk to about economics know almost nothing about it - which is alarming considering I never read any book about economics at all, I'm a total beginner myself. Just to clarify, I'm not an 'Austrian', I don't see inflation (or deflation for that matter) inherently as a problem, and I don't view the private credit creation - which I understood YEARS ago as I cursorily explained it in the chat this week (loaned into existence, paid back out of it) - as immoral and I don't think the gold standard in the 1800's was an example of a free currency system.

Unfortunately I don't have time to answer all your counter counter arguments - I need to get quite a bit of work done this weekend. But I summarize my somewhat incoherent counter*3 arguments here: 1. High unemployment might be a natural state of affairs in the modern world as a consequence of wide IQ differences, at least for a couple of generations. This is my strongest argument against FTJ. 2. A (morally) bad act does not automatically require a restitution as an equivalent product. 3. To 'counteract' government meddling in the free market, laissez-faire seems to work the best, both practical and theoretical evidence suggest this. So the cure for too much government is not even more government but less of it. 4. Historical evidence of what these FTJ programs accomplished (from the Nordic countries), i.e. how catastrophic they were.

FTJ (Federal transfer jobs) programs have been tried before, from the end of WWII to roughly 1970's many Western countries implemented these policies. For example, in Nordic countries a lot of the infrastructure in the more remote areas was built as a result of these programs. And most of it turned out to be a massive waste of resources, since people moved to big cities after a decade or two. A prime example of these lunatic works in Finland was the program to drain the swamps (this time literally) in order to have more sources of cellulose for the pulp industry.It turned out that many of the wet marks simply never could support any tree growth. Because of these programs, tens of thousands of young men spent their best working years doing something that only did damage - massive amounts of lakes and rivers got polluted, floods got worse and to top it all off, these persons decided to have kids when in a freer society they could not have afforded this, thus lowering the average IQ of the population (since intelligence is probably mostly genetic). If this is the government solution to the government-created problem, I'm fine without the 'solution'.

Regarding your argument about "If someone causes a problem he's also responsible to its restitution" (correct me if I understood you wrong there; you said solution, but based on how you continued I think this is what you meant by the word solution): Yes I accept that principle. I did not respond to it last time since I was too lazy to formulate a counter argument - also because I'm relatively bad in verbal intelligence. So here it is now: from that principle, it does not follow, that the form of the restitution needs to be creating new jobs. If a criminal steals a Michelangelo painting, covers it with gang tags and dog feces and then sets it on fire as a protest against 'the patriarchal rule of the society', we don't want the form of restitution to be a new painting from this individual. In fact, in this case the restitution can probably never be made - we have to just try to minimize the future damages somehow. In the government monopoly judicial system this means jail and fines, maybe in more free world it would mean getting all your deals with service providers cancelled or something similar, who knows. In a similar way, it is foolish to rely on the government to create a solution to the employment problem, it partially itself have generated - all the arguments why this is the case I've already mostly laid out: great share of low IQ people in a job market where they simply cannot contribute with much if anything, wrong incentives for government employees, evolutionary harmful cognitive effects to the population, stealing resources from the competent to the less competent. In a moment I will address your metaphor about the inflation. Instead of FTJ (which I think will be / has been only a massive government-generated problem on top of another government-generated problem (partially at least, the IQ issue may explain majority of it though) which it claims to solve) I would favor the other approach; minimizing future and current negative effects of government action in the economy (== form of human action which we choose to measure in term of prices). IMNSHO (in my not so humble opinion) this would entail, in no particular order of importance: slashing income taxes to begin with, getting rid of licencing and regulation in the job markets, not supporting 'higher education' with massive subsidies and liberating banking and currency issuing to the individuals and allowing people to pay their taxes in cryptos. And yes, I know you're already on board with most, if not all of these reforms. I think all of these should take precedence above FTJ even in the miraculous case where FTJ would actually work.

"The purpose of the guarantee is to catch people who fall off the economic ship because there aren't enough tax tokens in circulation and get them into the private sector." First of all, how would we know what the 'right' level of employment is? Or is your argument that since everyone is forced to use these tax tokens, they need an employment where they can get them (which I don't think follows, since people are 'forced' to work anyway just in order to exist in the world - or rely on other peoples' charity)? How would the recipients of FTJs - which are mostly low IQ persons - ever be able to contribute with something valuable? Even cleaning jobs today require at least reading comprehension, ability to understand maps and basic arithmetics - skills which might be hard if not impossible to learn for maybe 10 % of the population. I'd suggest that we let the markets decide what the 'correct' level of employment is and charities/relatives to care of individuals who can't get a job because they lack cognitive skills. I recognize this is a problem and because I have a low level of empathy myself, I might not give it enough weight. Anyway, a natural unemployment rate might be as high as 20 - 30 %.

What about the problem of not having enough tax tokens in the markets then? Well, a somewhat free market solution with limitations set by the government monopoly in currency issuing is decreasing price level. What matters is not the amount of money, but the purchasing power of the money you have. One ounce of gold can serve as a monetary basis for the economy of the whole world - it's just very unpractical. I know you already know this and I'm not advocating for PM standard - it's just a remark for the larger audience. And yes, I understand deflation is problematic when government has banned many forms of debt write-offs and that it might be a long process. So what? You cannot get rid off boom-and-bust totally, but at least you can stop making it worse. What Austrians got wrong are some methods by which the government makes it worse - by having a surplus of tax tokens for itself, thus lowering the buffers of safety reserves in the private sector needed for hiring new people and for investing. All this said, we have some examples of high growth combined with falling consumer prices: US in the 1800's comes to mind. And yes, I know gold standard was not a free market solution, but merely a government currency monopoly with a fixed gold price. A better solution would be, as I've argued before, to free the issuance of new currencies to people in form cryptos and deregulate the finance sector.

Lastly, to answer your metaphor of inflation where you use movie seats isomorphic to capacity units (job openings) in the economy. This totally fails to address different levels of skills among people and is therefore nonsense. 'Underutilized' (what ever that means) capacity has the human component to it, it is way more important than the machinery. Unlike in the movie theater, in the economy, it matters who fills these seats - everyone can consume, but only so many are able to offer a valuable service to other people. To take an extreme example, let's consider that we have only job openings in molecular modelling with the requirement of understanding Hartree-Fock methods and numerical techniques to solve integro-differential equations. If the pool of unemployed people has no individuals with an IQ of 130 or higher, no level of government created jobs will move any individuals in the private sector from this pool. This isituation is similar to the current job market - but here the cutoff is maybe 85 or 80 in IQ. No amount of government jobs will ever move these individuals to the private sector - the best we can hope for, is that their relatives or charities will take care of them. There exists no moral obligation to give everyone a job - as there doesn't exist any positive moral obligations. That said, I wouldn't hang out with people who let sufferers of a car accident die on the street and I think most people have some minimal, somewhat similar aesthetic preferences. Giving everyone a job doesn't even fit that category.

So how would this create inflation - which, as I've said now couple of times, isn't a problem itself, but rather, how it was created: was it created at the expense of every else forced to use tax tokens or otherwise - if there exists underutilized capacity? It wouldn't, but since there is an IQ-treshold to free market jobs, people who get employed in FTJ programs would not be able to contribute anything - it would simply cost resources to give them these jobs to begin with. So this underutilized capacity does not exist. Thus, since the wages of these people were paid by freshly created tax tokens and more resources (energy, raw materials, managers who lead these people instead of someone more competent, finished products functioning as their tools, buildings for their work facilities) were wasted in the process than created, larger amount of money now chases a smaller amount resources (assuming velocity of money stays the same for simplicity) manifesting itself in higher prices. It's not the inflationary force itself here that I think would be bad, but the fact that resources were wasted. Inflation would simply be a sign of it in this case. Having an employment is not a resource itself and does not have an inherent value - employers don't care what your resume says if your IQ level is not high enough to do even a good cleaning job - you simply won't get hired. Everyone does not get a seat in the economy - it's a sad fact we need to accept, the sooner the better. Wasting resources in the process of guaranteeing these unemployed hoards jobs are the mechanism which means these jobs 'compete' with private sector jobs. Ok, maybe the word 'compete' was a poor choice for my part, my bad. What I meant that wasting resources in FTJs means that there are less resources to the private sector, thus making hiring workers more expensive for it. It competes for the same resources, even if that resource isn't people for the most part - aside from the managers of FTJs. Therefore, it is totally possible that FTJ is an even bigger miss than just welfare. In welfare, these people only do the consumption part. Now they will do both the consuming part and some form of consumption (called production by the FTJ managers) which might be only 0.5 times the consumption of resources compared to their 'pure consumption' part. So effectively 1.5 times the wasting of resources compared to pure welfare. Also, it's very unlikely you get rid off welfare programs by introducing FTJ, most likely you'll get both programs in place, and now we have two ways of stealing other peoples' resources 'to combat the unemployment problem' instead of just one. For these reasons, FTJ is a horrible idea and should be thrown away immediately.