I was watching a TV documentary on the history of engineering car safety. It talked about the really good inventions like better brakes, steering, suspension, and tires, that help the driver avoid an accident. And things like safety glass, crumple zones, seat belts and air-bags that help you survive an accident you don't avoid. Then right at the end it talked about the ultimate engineering problem: the loose nut behind the steering wheel. It showed cars that could drive themselves, and said all cars would be doing this sometime in the future, so fewer of us would die on the roads.
My reaction was immediate and visceral. "I hope I die before that happens".
I'm probably in a minority, but I'm not alone. I don't want a computer to drive my car for me, even if it could do a better job. I want to drive myself.
Paul Krugman doesn't agree. He prefers taking the train, precisely because it leaves him free to read a book or do other things. "…the thing about cars is that you have to drive them, which kind of limits other stuff." To me, what's so great about cars is precisely that — you have to drive them.
That's OK. Nobody says we all have to enjoy the same things. This is not really an argument with Paul Krugman (though reading his post got me thinking about this). This is not even an argument about cars vs trains and planes. Though that makes a good example.
What I'm worried about is that standard cost-benefit analysis may be leaving something out.
Suppose I were doing a standard cost-benefit analysis of cars vs trains and planes. Or of adding computers to cars that did the driving for you. And I wasn't aware of the fact that some people just liked driving themselves. I would underestimate the benefits of cars vs trains and planes. I would overestimate the benefits of adding computerised chauffeurs to cars.
The mistake is obvious in that example. It would be even more obvious in the example of games like crossword puzzles. "I know, why don't we just print the newspaper with the crossword puzzle solved, so people don't have to waste their time solving it themselves?". But are there examples where it's less obvious that people sometimes just like doing things for themselves? They want to be in control of their own destiny, even if the decisions they make aren't better than a computer or someone else would make for them?
We aren't consequentialists. We don't just care about the results. We care about the process of getting those results. And, in particular, we like to have some sort of control over our lives. Because having control over our own lives is part of what makes our lives worth living.
Ideologically, there's a couple of different ways you could take this argument. Libertarians would approve, of course. But so would advocates of participatory democracy. Central planners would disapprove. So would technocrats.
I insist on driving a car with a manual transmission. I have always argued that it's because manual transmissions are better. The newest automatic transmissions (unlike traditional automatics they are really manual transmissions inside with a little computer working the gears and clutches) have made my argument hollow. The newest automatics are able to do everything better than I can. But I still don't want one, even for free. That's not real driving.
And I don't want a GPS either. I'm not going to ask for directions. I want to get lost by my own efforts. And I want to fix my car myself, or at least try.
Most new cars, despite everything they can do, don't tempt me at all. But there is this one:
Now, put that in a cost-benefit analysis!
Worthwhile Canadian Initiative 
edeast
Motor or non-motor bike, forget it.
Just to increase the challenge : ther are only two places witth tow trucks : baie-Comeau and Fermont at botth ends. If you ditch, somebody has to find you , go to Baie-Comeau, Fermont , Relais Gabriel or the dams (Manic 2,3,4 or 5)and call. The trucks will come within 4 or 5 hours (The Baie-Comeau guy also covers a segment of the 138 about 100 klics east and 50 west so he may be busy…).
Injuries: Ambulances in Baie-Comeau, Fermont and Relais Gabriel 300 klic between each . They pick you up ( as soon as they are noticed and can get through )and bring you to the (very) small facilities in Fermont and then Wabush where the plane will bring you to Québec City ( 1 1/2 hr by jet…) or to Baie-Comeau and posssible transfer ( 1 hr). Like the prospect? Now think about winter…
Correction to my last post : I read fast and thought Nick was writing so I should have said “Nick’s most famous post”…
dbonar
“I generally wonder why those who think that managers are all short-sightedly ripping off workers, don’t think the same of union organizers.”
I just showed the extent of my ripping-off..
Following up on Mandos’ and RSJ’s thoughts, I have always had a nagging problem with Guaranteed Annual Incomes. Stephen has come out in support of the idea, but there is still something that bugs me about it. Why on earth are we OK with a system that can guarantee an annual income to everyone yet not guarantee work for that income? If we accept that we can give everyone a GAI, or a guaranteed annual consumption allowance in other words, why on earth can we not ensure that everyone has work and is therefore able to contribute to society in their own way?
BTW I am very sympathetic to the Capability Approach. No, scratch that, I am extremely sympathetic to it.
“I generally wonder why those who think that managers are all short-sightedly ripping off workers, don’t think the same of union organizers”
Actually, I think I said that they are ripping off shareholders (that’s where RSJ and I disagree I think). And big unions’ management is, of course, no different than any other management.
Nothing new or deep, I don’t think. It’s mostly just the agency problem.
why on earth can we not ensure that everyone has work and is therefore able to contribute to society in their own way?
For pretty much the same reason we can’t ensure that everyone has a life partner. Oh, it’s easy enough for a central planner to assign everyone a job and/or a partner, but somehow I don’t think that’s what you had in mind.
It’s a hard problem, and one that no-one yet has solved.
But reducing unemployment to a infinitesimal fraction of what it is is hardly a problem anywhere close to running a top-to-bottom command economy or calculating exactly how many size 8 shoes you’ll need to produce next quarter with no shortage or surplus.
We have so very many great potential social, scientific, artistic, educational projects, add-ons if you will, that are practically “low-hanging fruit” that we choose not to do in the name of a dubiously metaphysical notion of economic efficiency.
Unemployment of any kind is a totally pointless loss with no justification whatsoever.
I mean, we do some of these kinds of projects already. We have the planning facilities to do them. The only thing we are confronted with is a series of arguments that we should not. Not usually because anyone has any inherent objection to doing any and all of them. But because “deficit” or “Soviets!” or some other ephemeral excuse, that’s what.
A year ago I attended this, by the way, on how to fund and create a zero-unemployment world, and I broke my bloggy silence at the time to take detailed notes at my normally-quiescent blog on it. I don’t agree with all of it but I agree with the overall principle of it: there isn’t a reason not to give everyone a job, and a useful one at that.
Not usually because anyone has any inherent objection to doing any and all of them. But because “deficit” or “Soviets!” or some other ephemeral excuse, that’s what.
Where do deficits come from? Deficits come because people lend money. Why do they lend money? Because they’re promised more money for doing so. They give up having goods/services now for having more things later.
If we can’t promise more things later, then how do we get people to give the money? It’d be really easy to get near-full employment if everyone just agreed to give up some of the stuff they currently enjoy. That is one option. It’s related to Nick’s previous point about unions: if everyone asked for less, we’d get more as a society.
But getting people to part with their money is not usually that easy…. I mean, look at the HST in BC, and the HST is revenue neutral!
What is it about work that you guys like so much? Just give me the income and I’m happy.
Ooops, in my first post I was supposed to put quotation marks around that first paragraph.
My answer starts with the second paragraph.
Now, onto this post:
” I have always had a nagging problem with Guaranteed Annual Incomes. Stephen has come out in support of the idea, but there is still something that bugs me about it. Why on earth are we OK with a system that can guarantee an annual income to everyone yet not guarantee work for that income? If we accept that we can give everyone a GAI, or a guaranteed annual consumption allowance in other words, why on earth can we not ensure that everyone has work and is therefore able to contribute to society in their own way?”
Well, we can. There are lots of volunteer positions out there. I work with people with intellectual disabilities, and they receive a pension (like a GAI), and there are more volunteer jobs out there than could ever be filled.
We could just say, “To receive this GAI you need to do 20 hours of volunteer work a week.” This is akin to Mike Harris’s Workfare programs, as Ontarians will remember. http://en.wikipedia.org/wiki/Workfare
Really, we could just get all people who currently receive welfare and make them volunteer, and call the welfare payments their job payments. Full employment! All we had to do was force people to volunteer and redefine welfare!
So, it’s quite easy to ensure that everyone supports society. But I don’t think that this is quite what you had in mind. These jobs would be volunteer jobs because people don’t value them enough to pay for them. This takes away from time spent searching for a job that our society values enough to pay for.
Also, in my workfare comparision, I know I am making a bit of a straw man. But I maintain that the straw man is essentially accurate.
Yes, the volunteer jobs I am talking about do benefit society. And yes, we could pay people more to do those jobs. It is entirely possible we could pay them minimum wage. There is no reason why we could not do so… except that everyone else would have to give up some of their consumption.
Yes, in the current economy, which is demand constrained, this might be a good idea because we can borrow and then pay back when demand has recovered, thereby avoiding any loss in consumption because we stimulated demand.
But the usual state of the economy is supply-constrained. There is not enough supply, and creating more jobs simply means everyone who is working gets a smaller piece of the same pie.
This brings me back to the example of the HST.
The problem is not getting full employment. That’s easy to do. The problem is getting people to want to pay for it.
The government doesn’t need to borrow money from individuals. This is a purely a notional construct to which we have hitched our social wagon.
When we have our world of equitably distributed leisure, I would be happy to support such a proposition. Insofar as we do not have such a thing, our equitable alternative is full employment. I suggest that it is far easier to reach full employment than to construct a system that distributes leisure equitably. The latter problem is more akin to the central planner’s shoes-for-next-quarter problem.
Like Determinant, I have nagging doubts about GAI, even though I generally support it. Two doubts actually:
1. It shouldn’t be seen as an excuse for not fixing unemployment. Fixing unemployment would be good, in principle, because: the unemployed could be producing something we want in exchange for the money we give them; the unemployed, or at least some of them, might want to be driving stick instead of just being passengers in the bus.
2. Just as the idle sons of rich men, who don’t need to work for a living, and lottery winners, can sometimes lead degenerate and miserable lives, some might do the same under GAI.
Mandos: there are two different unemployment problems:
Cyclical unemployment, like we’ve faced over the last couple of years.
The natural rate of unemployment, which is there on average over booms and recessions.
The fix for cyclical fluctuations in unemployment is better management of Aggregate Demand. In a recession, print money and throw it at the economy. The only difference between Monetarists, Keynesians, and MMTers concerns details about how to throw money at the economy to increase AD. But that doesn’t fix the natural rate of unemployment. MMTers duck that question, by implicitly assuming the natural rate is zero (as far as I can interpret what they are saying). If the rest of us thought the natural rate were zero, we would all agree to keep on printing money and throwing it at the economy until unemployment hit 0%. No Keynesian or monetarist would say “we can’t afford it”. Paper and ink are very cheap. We could let the unemployed themselves make the paper and ink and print the money!
Off-topic, but can’t resist: I now have this indelible image of Jacques as Jonathan Bailey Draeger, the long-suffering president of the logger’s union, driving his big Pontiac up and down the winding Oregon coast road, staying in cheap damp motels, in Ken Kesey’s novel “Sometimes a Great Notion”. (It’s a sympathetic portrait).
Nick:
A citizen’s dividend could enable reforms, like ending the minimum wage and other labour market rigidities, which would have a significant impact on reducing unemployment. And what if there comes a day when there is no useful productive capacity for any of us? Do we make a policy of making stick shifts just to keep everyone occupied with an illusion of productivity or do we let them make honest choices about what to do with their own time? Between now and then we are going to find ourselves in a state of constantly reducing employment. We need to develop policies that embrace this fact rather than struggling against it.
As far as your second point goes, having lots of money is no guarantee of happiness; some people are just going to be miserable no matter what their wealth. But I’m still pretty sure that, on average, the idle sons of the rich are happier than the idle sons of the poor.
K: Hmmm. Yes. good points.
I would change this to “And what if there comes a day when there is no useful productive capacity for all of us?”
Nick: It does sound more ominous that way. But I do wonder if that day wont come long before the so called singularity (when machine intelligence exceeds human intelligence). Production, after all, may not require anything like a conscious intelligence especially with some minor modifications to what is produced. Today’s plumbing, e.g., may be hard for machines, but might become quite easy with a radical redesign of how houses are manufactured. Almost anywhere you look, it’s hard to imagine that a task couldn’t be done by a machine that might be available in the next few decades, especially with a little bit of redesign of the task (machine design itself being an obvious exception). I think The Day could be relatively close, but given the relatively low level of intelligence that might be required for the vast majority of the transformation, it ought to be far less ominous than the usual scifi dystopia (see Terminator). But it will be an economic dystopia for the vast majority of us unless we move towards a method of resource sharing not based principally on exchange of goods for labour.
[Patrick:] ” [dbonar:]”I generally wonder why those who think that managers are all short-sightedly ripping off workers, don’t think the same of union organizers”
Actually, I think I said that they are ripping off shareholders (that’s where RSJ and I disagree I think). And big unions’ management is, of course, no different than any other management.
Nothing new or deep, I don’t think. It’s mostly just the agency problem.”
I agree it wasn’t a deep statement. I just get tired of people not seeing it in organizations they like while attributing agency issues to more active malevolence in organizations they dislike. Which seems to be already concluding there is no win-win answer or accepting the inferior outcome of the prisoners’ dilemma rather than trying to see if you can find a way to get the superior one.
“is no useful productive capacity for any/all of us”
Most of us already spend most of our time doing nothing productive or useful (TV, Facebook, YouTube, driving, etc). Isn’t that kinda the goal though? Seems a little odd that on the one hand we laud how great technology is for productivity and output and on the other lament the inevitable consequence that technology replaces human labour, and as technology replaces more and more sophisticated human labour it’s not surprising to me that at some point the obsolete humans find that there is nothing productive for them to do given their abilities. It happens with old machines all the time and we aren’t surprised by it. Why would humans be any different?
Oops. Looks like I just talked myself into the zero marginal product corner. Damn.
Patrick: “Oops. Looks like I just talked myself into the zero marginal product corner. Damn.”
Yep! My morning laugh.
I am too old now to Kesey my life.
Though as we veterans say “If you didn’t went to Limoilou Cegep in the ’70s, you didn’t went to Cegep. Everything they say about Limoilou is wrong. It was much worse…”
This is an interesting way of putting it: I mean, it’s the crux of the entire discussion on unions, minimum wage, unemployment, etc. I’m well aware that mainstream schools of economics believe that involuntary unemployment has a “natural rate”. The rest of us vehemently disagree that there is anything “natural” about it, to put it very, very mildly.
Mandos: “natural”, in this context, does not mean “good” or “immutable” or “god-given” or even “independent of policy”. It means a long run equilibrium independent of monetary policy.
Some prefer the words “NAIRU”.
Yes, this is a crux.
I am aware of NAIRU, and I am aware of what “natural” means here; I’ve been at this for quite a long time. The crux is how “real” we think these equilibria are, and how much they are simply a consequence of how we choose—politically—to arrange our society.
Ultimately we are arguing about whether there is some kind of Impossibility Theorem, kind of akin to Arrow’s Theorem (which is another discussion), that prevents us from having a well-ordered, economically-stable society with no involuntary unemployment.
More disturbingly, we are arguing about whether economists in deploying these concepts have actually helped in shaping [speaking of cars] a world in which such concepts have a prior reality when we had the possibility of building a world that did not.
Put yet another way, some of us—I guess you can call us, if you want, the adversaries of economics in se—are not willing to accept that there are limits on work beyond some hard physical (thermal) ones and perhaps some abstruse factors rooted in computational complexity, and that any other analytical concept deployed as an observed limit or derived theorem places on its users a burden of proof that has not satisfactorily been met.
Why it has not been met should be obvious: if it had, Brad deLong wouldn’t be bustling about giving speeches as to his continuing state of surprise.
I agree with Mandos: I know “natural” means the long-term equilibrium rate of involuntary unemployment, but I maintain that to assert that there is such a thing outside of our control, that we can’t do anything about it and that some people must be placed in this appalling situation is a cruel and terrible conclusion to make. As such I don’t hold that conclusion.
Nick once said that Keynes advocated a very humane philosophy, that the state should drive investment when the private sector failed to do so in a recession caused by deficient demand and so alleviate suffering. Mandos and I are simply extending that thought to saying that full employment should be a goal for all time, not just a remedial action in a disastrous downturn.
Which, if I recall, was fashionable thought 40 years ago, until Milton Friedman & Co. had their way. Maybe I’m part of a pendulum swing away from him, if so I’m happy with that.
If there are technical reasons why NAIRU is positive then the goal of economics should be to identify and rectify those problems. Keynes didn’t accept that the economics of his day were giving acceptable solutions. I don’t accept the present state of economics that says we have to life with a positive NAIRU. Keynes was happy to climb on the bulldozer and demolish convention in his day, why can’t I climb on the bulldozer today?
Lastly, we as a society and economists in particular spent a generation since the 1970’s putting Inflation Hawks in positions of power. Now they rule the roost. These people live by Friedman’s statement that “Inflation is always and everywhere a monetary phenomenon.” The statement implies that Inflation Is Bad. When economists like Nick advocate printing money i.e. inflating the money supply why do we expect the modern Inflation Hawk set to go along with such a proposal?
Mandos: “I am aware of NAIRU, and I am aware of what “natural” means here; I’ve been at this for quite a long time. The crux is how “real” we think these equilibria are, and how much they are simply a consequence of how we choose—politically—to arrange our society.”
I would assert (and so would every other economist I know of) that the natural rate of unemployment is an equilibrium that does depend (a lot?) on how we choose, politically, to arrange our society.
Determinant: “I agree with Mandos: I know “natural” means the long-term equilibrium rate of involuntary unemployment, but I maintain that to assert that there is such a thing outside of our control, that we can’t do anything about it and that some people must be placed in this appalling situation is a cruel and terrible conclusion to make. As such I don’t hold that conclusion.”
And (it should be obvious?) I don’t hold that conclusion either. Nor does any economist i know of. The natural rate is not outside our control. It may be outside the control of a purely monetary policy, but that does not mean it is outside our control.
“If there are technical reasons why NAIRU is positive then the goal of economics should be to identify and rectify those problems. Keynes didn’t accept that the economics of his day were giving acceptable solutions. I don’t accept the present state of economics that says we have to life with a positive NAIRU. Keynes was happy to climb on the bulldozer and demolish convention in his day, why can’t I climb on the bulldozer today?”
Well, you guys weren’t very happy with me when I gently pointed to a bulldozer that might do just that, now were you? 😉
You really sure you want to go there? Or would you rather defend the conventions?
In other words, whether you agree or disagree that some potential cures would or would not work, some might still argue that the cure would be worse than the disease.
If you are referring to your thread against unions then that wasn’t a cure. It was unrealistic economics. From my personal perspective as a former member of CUPE, the best way to deal with a large elephant of a university administration was with an equally large elephant of a union local.
The fact that management doesn’t have enough gumption to handle their unions is another problem entirely. Which is why I blame GM’s management far more than I blame their unions for the woes that befell that company.
Nick Rowe
“Bean: from my small random readings in accident research, one of the biggest problems is “distracted driver”. Which probably means bored driver who doesn’t want to be driving, so is texting or mentally wandering off in some way. They would be happier as well as safer on a bus. But if we could make driving more challenging, so they didn’t get bored??? Who knows.”
So does that this mean that people who don’t (unlike me) find driving stressful, shouldn’t be allowed to drive? (Or at least face higher insurance premiums). I suppose making insurance premiums depend on how much you drive is something similar (assuming people have a choice).
“What I’m worried about is that standard cost-benefit analysis may be leaving something out.”
I’m a cost benefit cynic. Cost Benefit analyses ALWAYS leave something out. Have you ever actually done one in business? What you do is you ask the manager making the decision what decision he wants to make, and then you work out what to put in or leave out in order to give the answer he wants.
It’s very rare that a case is so clear cut that there aren’t different results possible if you fiddle the assumptions a bit.
Nick: Well, you kind of restate the point again. The disagreement is over whether reducing involuntary unemployment to zero has unacceptable negative consequences in one dimension or another. Some of us, including but not only MMTers, don’t believe that there is any necessary reason for this to be the case.
reason: yep, I expect this is just one more item to add to the list of things that a CB might leave out.
Mandos: let me re-frame. We can’t really talk about the negative consequences of reducing the natural rate. It depends on how we do it. Different policies that would reduce the natural rate would have different negative (or positive?) consequences. For example, jailing the unemployed would probably work, and some countries have done it. But most of us would be against it.
But, from my reading, arguing with MMTers on this question is like arguing with a Keynesian economist from the 1960’s, before we learned the very costly theoretical and empirical lessons of the 1970’s. They seem to think you can just increase AD and permanently reduce unemployment to 0% that way. They are in a pre-natural rate world. They aren’t talking about reducing the natural rate. They reject the concept.
And at least 1960’s Keynesians actually said what they thought the Long Run Phillips Curve looked like, and why. Even if it turns out they were wrong. The MMTers don’t even address this question, AFAIK. They just don’t want to think about it, and prefer to blame unemployment on the big blue meanies who think there’s some sort of financing cost to increasing AD.
In short, the MMT model is missing an equation. Here is my old attempt to engage them on this question. I failed. http://worthwhile.typepad.com/worthwhile_canadian_initi/2010/04/a-question-for-modern-monetary-theorists.html
Yeah I remember that thread. And that thread has quite a lot of respondants; but yes, none of the main protagonists showed up, unfortunately.
I am not emotionally attached to MMT, except in that it recognises certain aspects of economic analysis and discussion as purely epiphenomenal outside of, as I said, directly physical and computational constraints—though I’m not convinced it goes far enough. The fallout of that is that it is willing to propose that it is possible to guarantee a job and a decent living.
My understanding is that none of the MMTers advocate private sector unemployment of zero, they advocate a government employer of last result at the prevailing minimum wage. They also talk about the proportion of the workforce employed in the ELR program as the replacement of NAIRU. In other words, they believe that it is inhumane and unnecessary to maintain unemployment as means of controlling inflation.
You can disagree with the benefits of this approach, but I don’t see any missing equations.
RSJ: There’s a missing equation in that proposal. Suppose, for example, the government offers employment to all at (say) $10 per hour. Never mind the practical questions. Financed by money creation. What happens to the price level? What happens to the real value of that minimum wage? Will the price level rise so high, and the real minimum wage fall so low, that almost nobody accepts work at that wage?
Or, if they index that minimum wage to inflation, will it cause a price-wage spiral that eventually leads to hyperinflation? If not why not? Is there some level of an indexed minimum wage at which it would create a price-wage spiral? If not, why not? If there is some maximum safe level, what determines it, and how would we know what it is?
Until they answer the question about the missing equation, they are totally ducking this.
I can give an answer to all those questions (at least in principle, though it would be a complicated answer outside of a simple model economy). My answer might be wrong, but it is an answer. They don’t. AFAIK, they haven’t even tried.
From my summary from last year:
Let me try it this way:
There is P and Q. Price and quantity. (or inflation and (un)employment) if you like. With 2 unknown variables you need 2 equations to solve for the equilibrium. A demand curve by itself doesn’t work. You need a supply curve too. Or some other equation to replace that supply curve. What is the LRAS curve the MMTer’s use? Is it vertical? If not why not?
And the reverse-L-shaped LRAS curve that is implicit in Mandos’ comment above, where it’s horizontal up to 0% unemployment, and vertical at 0%, just won’t cut it any more. We learned that in the 1970’s. It makes no sense theoretically or empirically. We learned you could get inflation and unemployment together. We learned it depends on money-illusion — on not getting the units right, and not understanding the distinction between real and nominal variables. That’s what I used to believe as a teenager. I’ve learned something since then. Not just by studying economics, but by looking out the window. It’s like a time-warp.
Nick, you should read the proposals before accusing them of being incomplete.
* They do not advocate indexing the ELR wage to inflation. That would be stupid. In fact they view the ELR wage as a price anchor.
Bill Mitchell has been studying this problem for over 30 years now, with a host of publications as well as field work. Here are some papers:
Fiscal Policy and the Jobs Guarantee
A Comparison of the macroeconomic consequences of basic income and job guarantee schemes
And in response to the charge that “They seem to think you can just increase AD and permanently reduce unemployment to 0% that way. They are in a pre-natural rate world. They aren’t talking about reducing the natural rate. They reject the concept.”
Take a look here: Full Employment through Job Guarantee: A Response to Critics
“We do accept the ‘Keynesian’ argument that unemployment in capitalist economies results from insufficient aggregate demand. However, we do not accept the Bastard Keynesian belief that simple pump-priming is an effective remedy. First, it is possible (and even likely on some institutional arrangements) that pump-priming will hit an inflation barrier long before full employment is approached.”
And so they advocate a targeted ELR program instead. Just the notion that we have to waste 10-20% of our labor resources every year in order to control inflation seems insane. The social pathologies and harm to human capital caused by lack of work is not a justifiable price to pay for inflation control, particularly as we are giving up the benefits of public works that buffer stock could do.
I am not on good personal terms with the organizers of that conference or I’d have tried to send them a bat-signal to come to this thread, as it’s probably they don’t read Canadian econ blogs…
What about institutional solutions?
In particular. What if the corporate tax rate was sensitive to inflation? Both in terms of the individual firm raising prices and the aggregate inflation rate. That would be a pretty strong signal to the actors that have first approximation control of prices.
“Just the notion that we have to waste 10-20% of our labor resources every year in order to control inflation seems insane.”
10-20% is a bit of a hyperbole though, unless you’re talking about severe short-run shocks. But AFAICT, this ELR is just a workfare program by another name, or more precisely a 19th-century workhouse. It works well if the government can readily provide work to anyone who applies, regardless of his ability, skills or productivity. Otherwise, not so much.
We have very large-scale and very necessary social projects in which it is quite possible to accommodate skill-sets at all levels of education and across a variety of fields. In developed countries in particular, there is the urgent and necessary project of retrofitting our technological/industrial/thermal infrastructure for a post-oil world.
Elsewhere, Scott Fullwiler has advocated indexing a whole host of government measures to the target inflation rate — e.g. 2%. That would include benefit payments that are currently indexed to inflation, as well as tax brackets, the ELR wage, etc.
I mean, it’s as though unemployment actually reflected a real, physical lack of things that need doing or are worth doing. It’s as though existing employment were some form of set-theoretic closure on things to do.
10-20% is U-6, not U-3. In terms of “workhouses”, well again, read the proposals. There is extensive literature out there. No need to reargue the first few thoughts that pass through someone’s mind when they first think of this: hyperinflation! boondoggles! Serious people have been studying this for several decades, and there are field tests in a variety of nations that show the positive benefits of providing income earning opportunities and public works to disadvantaged workers or those in depressed regions.
RSJ: There was a lot of waffle. But then I found this one argument on page 6 in the Mitchell-Wray piece that might have actually have some substance:
“The JG workers comprise a credible threat to the current private sector employees because they represent a fixed-price stock of skilled labour from which employers can recruit. In an inflationary episode, business is more likely to resist wage demands from its existing workforce to achieve cost control if it has the option of hiring out of the JG pool. In this way, longer term planning with cost control is achievable. So in this sense, the inflation restraint exerted via the NAIBER will be more effective than using a NAIRU strategy.”
WOW! Oh Christ!
I was not expecting that! Just assume they’re right about the “credible threat” argument (I don’t quite get how it works in practice, but never mind). Do you guys understand what that means???? It is not unrelated to my previous post that you all enjoyed so much. 😉
This is very very different from all that lefty stuff you all think it is. They’re talking about creating a government-sponsored pool of scab labour! My God! They make me look like a raving pinko!
As opposed to the private pool of scab labour we have now?
I worked for a company once that took a year-long strike, fired every member of its union, and declared itself decertified and union-free. That was four years ago in Ontario.
Union protection ain’t what it used to be.
Any time a private employer offers a wage premium (or a wage, period, to the unemployed) that is less than the striker’s demands, scabbing will ensue in the absence of legislation to the contrary and with sufficient employer will to break the strike at hand.
I’m not all pie-in-the-sky you know.