Modern Monetary Theory and the job guarantee: A new way of thinking for the social sector
As part of her popular Green New Deal platform, the US member of Congress Alexandria Orcasio-Cortez has been utilising Modern Monetary Theory (MMT) to explain how governments can fund environmental policy reforms. But could MMT also be used by the social sector as a message frame to promote social policy reform? In today’s blog post Dr Andrew Joyce from the Centre for Social Impact and Celia Green from UNSW discuss the how the social sector could leverage insights from MMT to promote paradigm shifting social policy reforms.
Employment is considered one of the critical social determinants of health, without which many of the other social determinants of health cannot be met. The social and health costs of long term unemployment are well documented. There are numerous programs and policies addressing unemployment with popular approaches addressing training and skills of individuals, organisational barriers preventing employment for people from disadvantaged backgrounds, and place-based approaches seeking to improve employment rates and other social factors in communities experiencing disadvantage.
Each of these approaches addresses micro and meso factor levels and while each are important, they do not address the root cause of unemployment at the macro level and thus cannot hope to achieve full employment at a societal level. This piece will outline how the idea of a government backed job guarantee can meet full employment goals while still ensuring inflation is kept under control. Utilising insights from Modern Monetary Theory and the job guarantee idea we show what this perspective can offer the social sector.
What is Modern Monetary Theory?
Modern Monetary Theory (MMT) has recently captured attention of progressive politicians in the US although as these articles highlight this approach to economics does not necessarily align with any particular political ideology:
https://www.nytimes.com/2019/04/05/business/economy/mmt-wall-street.html
This approach to thinking about macroeconomics has significant implications for social policy due to how we conceive of government spending and debt. MMT focuses in part on the flow of money within the economy and the counterintuitive way in which government spending enables taxation, rather than the commonly perceived notion that taxation enables governments to spend. A sovereign currency issuing government (like Australia and the USA) has no fiscal impediment to spend, only the real barrier of resource constraints. Further, there is no sense in which governments can save money in their own currency, and no tangible problem with continuing yearly deficits.
Government policy needs to ensure that its spending does not lead to inflation and that social goals are met (such as full employment and eradication of poverty). Taxation is a vehicle through which to manage inflation (as well as other policies), create ‘space’ for government spending on social purposes, and provides the currency legitimacy. Taxes do not provide the basis for spending.
A recently published textbook on macroeconomics from an MMT perspective outlines these propositions:
http://bilbo.economicoutlook.net/blog/?page_id=33139
Modern Monetary Theory and a job guarantee
One of the key ideas emanating from an MMT perspective, is a job guarantee policy funded through government spending. All people unable to gain employment through the private sector would be provided with a guaranteed job at the prevailing minimum wage. Unlike other strategies for job creation this is the only one that would ensure full employment with the social and public health benefits that flow as a consequence. There are also benefits to the private sector of preventing the creation of groups of people and communities where long-term unemployment is endemic which leads to significant costs in supporting the re-entry into the workforce of such groups when the economy picks up.
Opponents to such an idea often raise the idea of the costs of such a program, but from an MMT perspective, there is no financial barrier from a deficit perspective given a sovereign currency issuing government faces no such problem. The balance lies in ensuring that inflation is kept under control. The authors of the MMT Macroeconomics textbook outline how a job guarantee that focuses on the unemployed and pays the minimum wage will not be in competition with labour from the private sector and would thus be unlikely to trigger wage demands that could drive inflation.
Another risk to inflation would be that spending on the jobs guarantee could put too much money into the economy relative to the ability of the economy to absorb that spending, which again would drive inflation. However the appropriate use of taxation can reduce private sector consumption to ensure that inflation is managed. Thus through prudent spending and taxation policy both full employment and low inflation can be met.
How could the social sector utilise the ideas from MMT?
One of the benefits to the social sector of the job guarantee idea is the singular focus it provides for advocacy and message framing. We know from our own research that social sector organisations are not consistent in how they frame and communicate their recommendations for policy reform. Without a consistent message frame that can be delivered by diverse groups, it is much more difficult to get policy traction and advocate for more significant policy reforms.
Many of the reports we have analysed focus on micro and meso reforms, each with their own specific ideas. There is no overarching framework to present recommendations and no consistent idea for macro-economic reform which the job guarantee provides. The authors of the text on MMT have already done much of the work on how to frame the economic narrative to assist advocacy efforts for more progressive social policy.
For example, a chapter in the text discusses message framing of economic ideas using research on cognitive science. This highlights how humans erroneously use existing mental frames related to concepts such as household budgets and apply them to thinking about government spending. This occurs even though the economics of a household and government budget are completely different given that governments can issue currency and obviously households cannot.
More perniciously, the chapter outlines how message frames that focus on things like debt reduction and reducing welfare are framed as economically responsible and that when these ideas are not challenged they limit social policy thinking. Rather opponents to neoliberal policy still often debate using the same language frames as those they are attempting to challenge which limits their ability to counter these neoliberal arguments.
We would recommend that social sector organisations take an interest in MMT and consider what it could offer them in how they could better communicate around social policy reform. At a minimum, this reflection should include organisations considering how they can communicate with greater clarity on social determinants reform using the research on cognitive science to assist them in this work. More boldly, we recommend that social sector organisations consider adopting the idea of a job guarantee as one central plank of their advocacy which should also assist their micro and meso program and policy initiatives.
Moderator: Celia Green
@CeliaEGreen