Neoliberal versus Keynesian Views of Unemployment

August 7th, 2012
in Op Ed

by L. Randall Wray, New Economic Perspectives

EurosExcellent piece up by Bill Mitchell on the Neoliberal “work for the dole” scheme (called the Community Action Programme). Neoliberals first throw millions of workers out of their jobs with fiscal austerity. (Note: the UK is monetarily sovereign, so this is a policy choice–there is no economic necessity to adopt austerity.) Next, they tell those who lost their jobs that if they want to collect the unemployment benefits to which they are entitled, they’ve got to work for the dole–for much less than the minimum wage.

Tom Palley calls this British ELR.

Follow up:

Mike Norman’s readers are trying to correct Tom’s errors. Neil Wilson’s comments are particularly spot-on (as usual). The British program bears no resemblance to any ELR/JG proposal. Apparently Tom does not see any difference between a neoliberal supply side policy and a Keynesian demand side policy.

The neoliberals blame the unemployed for their unemployment. They need a combination of punishment and destitution to properly motivate them. More compassionate neolibs want to train and educate the unemployed. But they still see unemployment as the unemployed’s fault.

By contrast, the Keynesians see aggregate unemployment as a problem of too few jobs. Certainly individuals may be unemployed because of personal characteristics–there is sorting in hiring–but the normal situation is that there are far too few jobs to go around.

MMT, following Minsky and ideas that circulated in the Great Depression, have come up with the ELR/Job Guarantee proposal. It offers a job to anyone–operating on the demand side to ensure a “perfectly elastic demand for labor” at the program wage. That in turn becomes the de facto minimum wage. The goal is to make it a living wage.

But Tom opposes jobs for the unemployed. He says they’ll then want “meals”, “electricity”, and, God forbid, “television”. Once they have jobs, they’ll have income they can spend, on food, electricity, and television. That would be a bad thing, in his view.

I’ll admit I’m a bit ambivalent about the last one given the offerings on the American TV networks. But if we let all other Americans purchase TVs it would be morally reprehensible to single out the poor to say they should not have the jobs that would allow them to purchase TVs if they want them.

The anti-JG critic’s belief is that it would be inflationary to give jobs to the unemployed. For some reason producers would not be able to meet additional demand for food, electricity, and TVs. Hence, the newly employed would get in a bidding war with the already employed. So, best to leave them hungry, cold and in the dark, and without entertainment. To be sure, I have not seen critics of the JG/ELR opposed to allowing Wal-Mart or other private employers from offering jobs to the unemployed. For some reason, it is OK for Wal-Mart or Wall Street employees to bid for food and electricity and entertainment.

Inflation that results from food purchases by low-paid workers in dead-end jobs in the private sector is apparently OK. And as well, it is perfectly fine for Wall Street’s fat-cats to buy petrol for their gas-guzzling stretch limos. That sort of competition for scarce food and energy and manufactured products is apparently fine to our inflation-worrywarts who hate the JG. .

I’m not sure why. Seems to me that if one believes more employment necessarily creates an inflationary bidding war for scarce output, then one ought to oppose any additional employment, period. Some critics refer to sectoral effects and bottlenecks–which are supposed to be bigger problems when government provides the jobs than when the private sector does.

For example, if we increased employment to produce more food, then surely when those new workers receive income they can buy the food they produced without sparking inflationary pressures. Or, new workers to produce TVs can buy their output of TVs. That wouldn’t be inflationary.

Fine and dandy. But new traders on Wall Street? New nightwatchmen at Wal-Mart? Burger flippers at Burger King? Not likely that they’re going to spend much of their own salaries on their own output. If we had a highly centralized economy we could allocate the new jobs “just right” so that output of everything that all the new workers would buy would be increased by just the right amount to exhaust their salaries. We don’t have that, thank goodness! Instead, we HOPE that as new Wal-Mart employees spend on the full basket of consumer goods, producers of all those goods receive price signals and start increasing production.

Presumably this is what critics have in mind–this is why we don’t have to stop Wal-Mart from hiring new workers. The “market” will react “optimally” to new demand coming from new workers in the private sector.

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