Why a Job Guarantee will require higher taxation

Ever since I wrote Work for All with John Langmore back in 1994, I’ve been pushing the idea that a path to full employment requires an expansion of publicly provided services. For about the same length of time, Bill Mitchell has been putting forward similar (but not identical) proposals. At some point in this process, Bill became one of the advocates of what’s called Modern Monetary Theory, which makes the point that taxes don’t (directly) “fund” public expenditure. Rather, they ensure that the total demand for goods and services (for consumption and investment) don’t exceed the productive capacity of the economy, thereby generating inflation.

This reframing raises the question: does a Job Guarantee require higher taxation? The answer, using MMT reasoning, is “Almost certainly, yes”.

Suppose the economy initially has two groups of workers, employed and unemployed. Employed workers produce some quantity of marketed goods and services, as well as freely provided public services. They receive a wage, while unemployed workers get a (low) benefit. As well as workers, there are people receiving profits, interest and so on.

Now we introduce a Job Guarantee in which all unemployed workers are hired, at the minimum wage or more, to produce public services (say, extra contact tracing for pandemics), that would otherwise not be provided. The newly employed workers spend their wages (over and above previous benefits) on marketed goods and services. But where are these goods and services to come from? It can only be from reducing the consumption of those who are already receiving wages or other market incomes. Shifting the consumption to public use is the job of taxation (alternatively, the government could cut existing services, freeing the workers there to produce market goods and services, but I won’t explore this).

We can refine this a bit by allowing for a multiplier effect. Instead of employing all the previously unemployed workers, the Job Guarantee would only need to employ some. Their demand would increase employment in the market sector, providing jobs for the remaining unemployed workers. But it would still be the case that the additional output of marketed goods and services from those workers would be less than the total wage being paid to all formerly unemployed workers. The only exception is in situations where the unemployment benefit is very high relative to the minimum wage, so that the extra consumption of all the newly employed workers is less than the extra output of those who go to work in the market sector.

That doesn’t mean a Job Guarantee is a bad idea. The newly employed workers would be better off, and those already employed would get additional services in return for their higher taxes. But this isn’t a free lunch. As Oliver Wendell Holmes put it, taxes are what we pay for civilised society.

23 thoughts on “Why a Job Guarantee will require higher taxation

  1. Ideally, the newly employed people could do productive work thus ensuring total supply matched the increased demand. Practically, but, maybe not.

  2. I’m (perhaps optimistically) allowing for the work to be productive. The problem is it can’t produce marketed goods and services, only public services.

  3. In terms of real resource savings, ecological gains and improved human welfare, ceasing a wasteful activity like professional sports and replacing it with a useful activity like extra contact tracing for pandemics, is a clear win. It is only the specious accounting and valuation system of capitalism which makes this look like a trade-off problem. In fact it’s a double-gain: the removal of a dead loss to society (professional sport) and the addition of a useful service.

    The tax is a political and nominal system problem not a real economy problem. Tax the 1%. If 99% of the people used their brains they would agree. That’s our problem of course. A majority of the 99% have not been taught to think critically about the system they are in.

  4. “But where are these goods and services to come from? It can only be from reducing the consumption of those who are already receiving wages or other market incomes.”
    What about excess inventory and underutilised capacity? And when that slack is taken up, why woudn’t labour take-up out of the JG pool be part of further increase in goods and services?

  5. Professional sport isn’t a wasteful activity. Also they’d be terrible contact tracers. We aren’t going to fix the coming environmental tragedy by playing one section of the community off against another. Failure lies that way. Furthermore, and as I keep telling you Ikonoclast, you have to think about climate justice. It’s completely wrong for older people who had their cake and ate it to be telling younger people that they can’t do the same things because “it’s wasteful”. It’s not just. You have to find a solution that works for everyone.

    John, how does the digital economy change this calculus of total consumption being limited? For example, if 10% of the population who’re being paid a minimum benefit get jobs as contact tracers, they will have more money, some of which they can spend on things like digital books, digital music, computer games etc which don’t actually have any physical limit on their production. When one of these newly-rich contact tracers buys a david bowie album from the apple store they don’t actually change the total production of david bowie albums, so there isn’t one less for someone else. I wonder if the digital economy has yet reached the size where this matters to the calculations people do?

    [And an unrelated question – does traditional economics have a handle on the digital economy at all, given that scarcity doesn’t exist? How does supply and demand work when the supply is infinite?]

  6. faustusnotes,

    Professional sport is a wasteful activity. Nothing of genuine value is created. It’s also an avenue for advertising, promotion of over-consumption, unnecessary merchandising, wasteful travel to and from venues, plus massive state subsidies for stadiums to assist the already rich guys who own teams. It’s a tremendous waste and misdirection of scarce resources. I was not suggesting that professional sportspersons directly become contact tracers. Rather that the resources freed up could employ other suitable people as contact tracers.

    Actually, we old people didn’t do the same things as young people do today; not because we were more virtuous but because many consumption opportunities simply didn’t exist back then. There was little to nothing in the way of professional sport when I was young. Professionalized sport is a more recent aberration, arising as an aspect of late stage neoliberal capitalism. I would expect that as a lefty and student of history you would realize that. 😉

    Born in 1954, I never owned a PC or a mobile phone or had internet when I was young for the simple reason that they did not exist. I walked kilometers to school; no drop-offs by mum in a family second car. No two-car families back then. And the only family car stayed in the garage all week until the week-end and rarely came out even then. Also, no TV (last in the street to get one), no heaters, no fans in our house and a tiny hot water system and tiny fridge by modern standards.

    My brothers, only a few years older than me, can remember the wood burning copper cauldron in the backyard for the washing, the hand wringer or hand mangle and an ice-box instead of a fridge. Most Chinese urban kids today would think their throats were cut if they had to live like I did in 1960 – 1971 as a school student in Queensland. There really is no comparison. My youthful and young adult carbon footprint was far lighter than modern kids/young adults (not by virtuousness but by historical circumstance of course). The way I and my generation lived as young persons and young adults was little like the way nearly everybody lives today in carbon footprint terms. People tend to forget that.

    My way of life was quite spartan, by moden standards, until I was about 30. My consumption back then was nothing like consumption in the 2000 to 2020 period for young people today. I think I got my first home PC at about age 35. My first home internet connection at age 40 IIRC. Always commuted to work by bus or train. Owned 10 year old plus second-hand clunkers (automobiles) for most of my life and rarely drove on the weekend. So please, don’t talk to me about climate justice. I had less consumption cake at a similar age than the young people today. I did however get a free tertiary education and the rent and houses were a lot cheaper. It’s certainly not fair that young Australians have HECS debts and can’t afford rent and mortgages. And at university we did have recreational drugs, free love and less diseases to worry about. I don’t deny that.

  7. Does this miss the feedback loops? A better-organised economy is empirically much more productive than a less well-organised economy, even if the organisation itself (and the organisers) do not visibly contribute to ‘productive activities’ as such. If people are contributing by, eg ecological restoration and maintenance or care of public facilities they create niches in which other production can thrive.

    Taxes are more than a deadweight – compare the productivity of higher taxed societies around the world to that of lower ones (would you rather be in Sweden or Pakistan?)

  8. Hate to break it to you Ikonoclast but if you got your first pc in 1989 you weren’t living a spartan life, and you almost certainly weren’t using it for anything except a wasteful purpose.

    “Activity X is wasteful and should be banned because I don’t like it” isn’t a political theory, it’s an aesthetic theory. I’m sure you read books and watched tv – just as wasteful as professional sport. The fact you don’t see that doesn’t make it not true. You can’t build a politics on an aesthetic theory of what should be dumped as “wasteful”.

  9. Are professional sports more wasteful than the performing arts? They are both a form of entertainment. And is entertainment of some value to society (e.g. increasing emotional health)?

  10. Within the current political economy system, namely mixed economy capitalism, I certainly accept that a Job Guarantee will require higher taxation. This then raises the issue of where to levy the higher taxes and where to withdraw existing subsidies, which latter is also a logically necessary action. Higher taxes should be levied on;

    (a) the richest 1%, persons and corporations;
    (b) fossil fuels;
    (d) properties and land;
    (e) health damaging and environment damaging consumption.

    In addition, all existing subsidies from ALL sectors of the economy should be withdrawn (outside of UBI and/or JG).

    The above encapsulates the required ecological, equality-promoting and general pigouvian measures. The real outcomes will be much the same as my criticized “aesthetic theory of the wasteful”.

    Footnote to faustusnotes: To compare like to like, compare the first 30 years of my life to the first 30 years of life of a person born in 1990. My first 30-years ecological footprint was much lower. This was not by any virtue on my part, as I say, but simply by my historical spatiotemporal location in so-called civilization. Everybody today wants to live at an unsustainable level. That can’t and won’t happen long term because of earth system (biosphere) limits. Those born in 1990 will live their last 30 years which much less of an ecological footprint than I am living my last 30 years. This is inescapable due to the catastrophic collapse to come.

    There is a reputed Arab saying: “My grandfather rode a camel. I drive a Mercedes. My grandson will ride a camel.” That sums it up. (BTW, I personally don’t drive a Mercedes in case anyone gets that silly idea in their head.)

  11. “But where are these goods and services to come from? It can only be from reducing the consumption of those who are already receiving wages or other market incomes.”
    I agree with Alan what about excess inventory and underutilised capacity? And when that slack is taken up, why woudn’t labour take-up out of the JG pool be part of further increase in goods and services? The JG is supposed to be permanent but only a small pool of workers would remain. As the demand for goods and services picks up , there would be a transition across into the private sector to meet this demand.

  12. Evidence I see indicates there’s a high risk of civilisation collapse within this century, unless humanity can rapidly reduce human-induced GHG emissions by at least 50% by 2030, and down to zero a decade later.
    See my comment: https://johnquiggin.com/2020/07/22/end-oil-imports/#comment-226225
    See also: https://www.ipcn.nsw.gov.au/resources/pac/media/files/pac/project-submissions/2020/03/vickery-extension-project/20200706t154229/submissiongeoffrey_miellssd7480vickery_extension_project.pdf

    An increasingly more hostile planetary climate due to the current GHG trajectory path means it’s likely civilisation as we know it will falter and decline, and I’d suggest that means there will be no chance of supporting job guarantees (and many other things we now take for granted) in a civil society later this century.

    So I think the highest priority is to effectively deal with the escalating challenges of human-induced climate change and energy security first. The rest is secondary.

  13. Geoff Miell,

    I absolutely agree with your central thesis.”The highest priority is to effectively deal with the escalating challenges of human-induced climate change and energy security…” Agreed. However, even an absolutely essential course of action, in any complex situation, is path dependent.

    Let me propose this analogy. Imagine I am on a remote beach, wandering along the littoral at low tide. Furthermore, I am at the base of a large, vertical cliff, un-climable by a slightly overweight but otherwise moderately fit 66 year man (that’s me) with no climbing equipment. Ahead of me is a rocky, near-impassable promontory jutting out into the sea. Behind me is a mile of open sands leading to a path I can climb and then follow to the highest local prominence behind the cliff. At this moment, I become aware that the sea is running out to a level much lower than even the lowest possible “spring” ebb. I deduce a tsunami is headed my way. Clearly, my only option is to run back a mile, seek the path and attempt to ascend it as rapidly as possible to the peak. I cannot scale the cliff and I cannot negotiate the rocky promontory ahead in anywhere near quick enough time, with it rocks, some as big as cars and even small buses.

    Humanity is trapped in precisely this kind of predicament. Our escape IS path dependent. One path which clearly will not work is capitalism; a system predicated on anything BUT measuring real system trajectories. Capitalism simply does not measure real system trajectories and indeed is predicated on the denial of real system trajectories (and the asymptotes as limits). Capitalism measures only nominal values and nominally predicated trajectories within its formal, axiomatic system. It derives its calculations and prescriptions for action and response only from those fallacious axioms and mathematico-deductive formal systems. It measures all things in the social-fictive dimension of the numéraire and not in the real scientific dimensions (in SI base units) employed for scientific explanation, prediction and prescription for real actions based on reliable models of cause and effect in the real dimensions.

    Increased application of neoliberal capitalism is the impossible climb up the cliff, ignoring all physical realities. Tentative reform of capitalism is leisurely walking towards the pretty much impassable promontory and deludely thinking we have still have plenty of time to pick our way over. Radical reform is the sprint back for the physically feasible path and hoping that the current resources of our system and our emergency improvisations to same can get us back there and up the climb to safety.

    Our best hope is that as we stand dithering, a terrifying but survivable lead wave (and this is in reality the COVID-19 pandemic as a zoonotic disease “emerged” and powered by our encroachments on wilderness and global travel movements) will convince us to turn and run via radical socialist and statist measures along the only potentially survivable path. Sans this we are all dead. The extinction of homo sapiens will be assured.

  14. Ikonoclast, through your entire life you were likely in the top 5% of ecologically destructive people on earth, no matter how “frugal” you think you personally were. You eat meat, don’t you? There you go. THere’s nothing about the lives of anyone here that is frugal. I was vegan for 7 years and vegetarian for 6, and during that time traveled overseas precisely twice (once to meet my family, natch, not even my choice). I think I was probably more frugal than most westerners. But I was still likely in the top 5% of ecologically destructive people on earth. I am not, however, going to go back over my life now that I’ve done the things I enjoyed in my 20s and 30s and 40s and say “nobody else in any other country and any other generation should be allowed to do these things”. You can take my boxing gloves from my cold dead hands!

    I’m actually incredibly surprised at how incredibly conservative your statement about professional sport is. It’s astoundingly conservative, in a way that would make even arch-haters of the arts and fun (like the Mad Monk Abbot) cringe. I thought you objected to the reduction of human life to economic issues, but that’s what you just did, while also combining the sneering aesthetic judgment of a high-class British prude (Scruton springs to mind – he hates heavy metal) with the typical small-minded upper class British hatred of boxing or football because they’re working class sports. The statement also has a shuttered, classist aspect too, since professional sports are one of the few ways remaining for poor people to make it good, and of course in the US for indigenous and black people to either become rich or get a voice in public debate (Kaepernick has done more good for black people than every black theatre performer, for sure). It’s telling that you’ve singled out professional sport – the sole remaining form of cultural expression for poor men, and a major form of cultural activity for indigenous Australians – while ignoring the tasteless, crass, vulgar and disgusting bastions of upper class cultural life, opera, plays and musicals, which make only a negative contribution to human progress. Musicals have to be the most useless waste of human energy every invented, and if all of Disney and broadway were wiped off the face of the earth human society would progress significantly, but you’ve singled out professional sport, which is vastly more beautiful and meaningful in every way than Mama Mia! or (ugh) the Pirates of Penzance. And don’t even get me started on opera!

    [I promise JQ, further discussion of the cultural wasteland that is musicals will go to the sandpit! But this part is relevant to the aestheticism of the response here]

    It’s a shameful statement! I hope you will rethink your environmental principles in light of this terrible attack on human culture!

    To get more back on track while remaining on Ikonoclast’s response, the problem for me with a jobs guarantee is what the jobs would be. Obviously contact tracers is a good one now, but whatever job you guarantee, someone will find issue with it. Imagine the conservative uproar if the unemployed were guaranteed jobs in the arts? Or how farmers would react if teh govt formed a green army to repair the damage farmers do? What if we paid them to do professional sport, thus giving ikonoclast an aneurysm? It’s a very politically fraught idea in this regard. As an alternative though, an education guarantee – where people are paid to study during a pandemic – is a very good one. No one can attack education, and the more educated people are, the harder they are to fool, and the better they can engage with democratic society. I think Corbyn proposed an education guarantee in the last election. Labour should run on that here!

  15. faustusnotes,

    If you knew anything about the growth of professional sport (that’s sport played for money, income and livelihood just to spell it out) you would know how it is intimately connected to, predicated on and conditioned by the rise of capitalism, especially neoliberalism under which professional sport has really exploded. If you knew anything about capitalist and socialist theory you would understand these plain facts. To take your own words, I am actually incredibly surprised at how incredibly conservative and capitalism-centric your statements about professional sport really are.

    I don’t ignore “the tasteless, crass, vulgar and disgusting bastions of upper class cultural life, opera, plays and musicals” just because I don’t mention them all in these particular posts. Instead, I deliberately mentioned a scared cow of modern capitalist middle-brow, low-brow and false-consciousness working class life. Clearly this is a sacred cow as proven by your intemperate and personal attacks on me. Obviously, I have struck a nerve: a nerve in you conditioned by your own false consciousness indoctrination by capitalism which you clearly lack the learning and self-insight to examine and overcome. I actually agree with you about much in opera, ballets and musicals for example. However, professional sport too, especially elite professional sport, is just another capitalist con. I am really surprised actually that you can’t see it. How about you start thinking properly instead of vituperatiavely attacking the messenger who is exposing another failing of capitalism.

    I use professional sport (and a few other examples I mentioned) as examples of non-essential eonomic activity, especially relative to a crisis. In your emotive ad hominem and straw man attacks on me you fail to notice this fact. I have not solely singled out professional sport as you allege. Your defense of professional sport as giving black people in the USA (say) a path out of poverty is extremely non-cogniscent of the facts and shows you have little to no grasp of the capitalist nexus around professional sport. In turn that shows you have little to no analytical grasp of capitalism itself from a socialist, Marxian or Veblenian perspective.

    The NFL and NBA of the USA are highly subsidized sports, especially in terms of the venues and stadiums built (up to billion dollar stadiums with $500 million subsidies). These subsidies go directly to assist the growth of wealth of the multi-millionaire and billionaire owners of the teams. There are many other state subsidies to professional sport in the system. For every one black man raised up by elitist capitalist-organized sport, a thousand are ground down and very often incarcerated too in the American penal system. All the wealth misdirected into professional sport (most of it accumulated by white billionaires) could make a real difference in grass roots health, welfare and education programs if spent in a socialist manner.

    In addition, the (mostly black) stars of the NFL have been suffering horrendous levels of CTE (Chronic Traumatic Encephalopathy) while the (mainly) white hierarchy have been denying the problem as long as possible and attacking those who attempted to expose it. NFL has often been a path to terminal brain damage for young black, indigenous, latino and white men in America. How you can support all this and maintain that you have a socialist viewpoint is beyond me. That you support another brutal brain-battering sport (boxing) and you do so by channeling a slogan from the arch-conservative National Rifle Association (NRA) (dead cold hands etc.) only illustrates how ideologically and socially tone deaf you really are. I begin to suspect you are suffering brain damage from your chosen, capitalist and gangster (the terms are almost synonymous) dominated sport.

    Don’t direct any of more of your vituperative, ignorant and ill-thought out personal attacks at me. This is not a boxing-ring where you can batter one of your victims with crude blows as in your adopted bloody sport. This is a forum where ideas matter and numbskulls like you get disposed of with ease.

  16. Chill out Ikonoclast, that paragraph was obviously intended as comedic hyperbole, including the dumb NRA thing which has been re-used a million times by people who don’t support the NRA, i think the kids call it a meme. I’m not doing any ad hominem attacks, just pointing out the consequences of what you wrote. I’m not, for example, saying “Ikonoclast is wrong because he hates boxing” (ad hominem, Iguess) but “this idea ikonoclast presented is classist”. That’s not ad hominem. And yes, I am well aware that professional sport is part of capitalism, all social activities (including musicals) are part of and constructed by capitalism. So what? The solution to capitalist corruption of cultural activity is not to end the activity [except in the case of musicals, obviously, which are irredeemably corrupt in their very essence] but to get rid of capitalism.

    Also I’m not sure what you intended originally in saying “get rid of sport it’s wasteful” but it seems like if you’re going to say that you expect people to discuss and debate it, and when people point out to you that your view is a common form of aesthetic prejudice amongst rich people, you shouldn’t think they’re being vituperative, they’re simply pointing out what’s wrong with your view. That is why you’re here, right? The only ad hominem I can see on here is to say I’m ideologically and socially tone deaf for being a kickboxer. How does that work, exactly?

    More seriously, I would like to see significant reform of the kickboxing industry, which can be very hard on the less successful participants, and all professional sport needs better mechanisms for supporting players after they leave the sport. In fact it could be said that a Jobs Guarantee would be a big encouragement for professional sport, because people could commit themselves when young to 10 or 15 years of professional sporting activity safe in the knowledge that once they were too old, no matter how successful their sporting career, they could have a job to go to. A Jobs Guarantee might see a new renaissance in small sports the way we saw in the 1960s and 1970s that the free and easy economic times enabled people to build up the sports of surfing, free diving, kickboxing, and skateboarding. I think it’s sad that the economic walls have closed in on modern young people so that they’re not able to take time out from their lives to take risks on a new sport the way older people could (my former kickboxing teacher in Australia, for example, spent 10 years in the 1970s traveling Asia doing no rules kung fu fights, and when he returned to Australia was able, along with his teacher, to set up a long and successful tradition of Shaolin Kung Fu – something no modern working class boy could do).

    Also, as I mentioned above, an Education Guarantee like Corbyn’s would also enable this kind of security. A lot of young people who don’t do well in education end up in sport – recall there are mltiple tiers of football in the UK and only the top 2 make a lot of money – and after they’ve matured through 10 years of sport it would be good to be able to help them catch up on the skills they missed while dedicating themselves to their sport.

    So, I think, if you support a jobs guarantee, you might need to accept it will lead to more professional sport, and more kinds of professional sport, not less.

  17. I have nothing against amateur sport, competitive or non-competitive, provided reasonable safety measures are met, no significant externality nuisance is caused and that children are protected from predatory adults and over-pushy and aggressive parents. In many ways, amateur sports and old farts like me doing their riparian walks, are all positive activities.

    Professional sports on the other hand and professional musicals, to name two items – since the latter seems to be a particular cultural bete noir of faustusnotes and indeed of myself for that matter – should receive zero subsidies from the state. Indeed, they should be heavily regulated for safety, insurance and worker/performer income and rights reasons. If they are viable on that basis (appropriate regulation and user/fan pays) then I would certainly place no further impediments or obstacles in their path.

    To dredge up Prof. J.Q.’s old idea of “paying people to surf”, that’s okay as follows. Surfers, like anyone else, should get a UBI or a JG if needed (as appropriate and as legislated). These work activities (or non-activities) would and should leave them with enough leisure time and spare money to own a surfboard and surf. I have no problem with this. I’m a little worried by the dangers of fiber-glass and resins to human health and the environment but that’s another issue to be dealt with on its merits.

    It’s not classist or racist to point out the capitalist-nexus problems of professional sports. Indeed, such analysis operates in the other direction to uncover further ways the working class and its social consciousness formation are constructed, exploited and manipulated by capitalists.

  18. @Alan Luchetti Excess inventory is a short-run problem at the beginning of a recession, not a potential source of sustained extra consumption. Similarly for capacity utilisation.

    As a general point, MMT doesn’t give any license for wishful thinking, but that seems to be characteristic of its advocates.

  19. J.Q.,

    Do you feel confident that your economic models and theories can capture what is happening now? I mean with respect to the entire COVID-19 crisis and the further bush-fire crises and other climate change induced crises which we know will follow on from or indeed coincide with and magnify this crisis.

    Look, I agree that we need a JG and higher taxation right now or very, very soon. That is implicit in our current political economy and financial systems structures. That is a given to anyone who makes logical deductions about our situation and our extant systems. However, it will also prove, I argue, to be just the first necessary step (albeit a major step) in profoundly transforming our entire political economy to meet the coming challenges.

    Where would your theory and advocacy take us after that?

  20. Please take this, and anything similar in future, to the sandpit. That’s what it’s there for. JQ

  21. Your essay sounds like a zero -sum game, in part at least. But let me suggest to you that The Constitution does give us free money. I Think there is confusion between free and unconditional. We are gifted by the Constitution, but it’s not unconditional, Currency exists with debt.The overriding condition is that money or currency can exist as long as resources are available to purchase the debt. no debt = no money

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