Re: Full Employment is what?

[Warren Mosler <mosler@xxxxxxxx>]

Bill Mitchell wrote:

> Paul said:
>
> >Thst's right. Certainly if the minimum wage $5.25 it is significantly
> >lower than the Arithmetic mean of private sector wage rates (what we
> >euphomistically call the market wage rate).  I assume that the ELR wage
> >rate would not exceed the legal minimum wage rate -- in countries like the
> >US that have such minimums.
>
> The JG wage can be lower than the private sector wage because you free the
> distributional
> system from the wage system. That makes things entirely different.

And in any case 'market forces' will 'determine' the spread.

>
>
> Bill said:
>
> >>well not at all. it just has to generate a dynamic to ensure that
> >>the JG sector does not inflate above the inflation rate in the private
> >>sector.
> >
> >
> >But you have confused levels with rates of change.  The ELR rate level
> >must be significantly lower than the market wage rate (as is the minimum
> >wage rate in the US) -- but that does not per se prevent the ELR wage or
> >the minimum wage from rising more rapidly than the rate of inflation.
> >  First I thought Warren Mosler claimed that ELR would create full
> > employment WITH price stability, i.e., a zero inflation rate.  Do you
> > agree with Warren or not?
>
> I haven't confused anything. You are playing divide and conquer between
> myself and warren. tut tut.

Paul wouldn't do that!  My answer is yes, the JG does 'create' full employment
AND CAN result in 0 inflation as defined in FEAPS assuming a 'market economy'
and the political 'will' to keep the JG wage fixed and conduct discretionary
fiscal
policy to maintain a credible buffer stock/JG pool.

But that doesn't mean a Govt MUST use JG for 0 inflation.  That is a political
choice.
(And note that doesn't necessarily mean 0 cpi rates of change, etc.)   As
pointed
out, raising the JG wage redefines the value of the currency downward, again
as defined.  That may or may not be desirable, etc.

>
> Price stability is a term warren uses. My statements are:
> (1) The JG wage should be as high as is needed to drive the private sector
> high cost firms out.
> Thus it allows some industry policy influence.

This clearly falls within policy options with a JG.  The initial 'high' JG
wage is a 'shortcut' way to acheive the desired end.  An initially low JG
and appropriate fiscal policy would also get you there, though more
'painfully.'

>
> (2) Once established, the dynamics of the market will then set the
> differential between the private sector wage structure
> and the JG wage.
>

Right.  And 'market imperfections' will be a factor as well, of course.

> (3) The JG wage should grow with the level of labour productivity and some
> constant indexing rate (maybe zero).

Again, that is a political option that could remove a likely deflationary bias
in the system.

>
> (4) The Govt sets an inflation target beyond which it will not allow the
> economy to go.
> (5) This eliminates the variance and play of inflationary expectations
> because agents know rule (4).
> (6) Fiscal and monetary policy then ensures that private sector activity is
> adjusted to meet (5).
> (7) the compositional shifts in employment between JG and other ensure that
> employment adjust to (6).
> (8) Some inflation is possible but will be stable.
>

Yes, as by inflation here I assume Bill means CPI or some other index.


>
> So the second derivative of the price level will be stable. The level could
> be made stable but why bother.
>
> >It would appear that you think inflation can occur even with a
> >ELR  policy. So you appear to be adding another constraint on the ELR wage
> >rate -- namely that it does not increase more rapidly than the inflation
> >rate.
>

In the original papers the base case assumption is that the elr wage remains
fixed.
Remember, it is an exogenous, political, decision that 'defines' the value of
the currency.

 >

> >But in an inflation  spiral where some of the inflation is due (perhaps
> >sparked off buy costs other wages rising faster than productivity e.g.,
> >energy costs, import raw material costs, etc) and then workers in the
> >private sector try to catch-up and even protect themselves from future
> >inflation by demanding money wage (or cost of living increases) to
> >maintain the spiral [at least unil the central bank tightens the money
> >supply to, as Greenspan would say, strike at the inflation by pursuing
> >some higher rate of unemployment that keeps workers in their place (i.e.,
> >a natural rate of unemployment). This would swell the rnks of the ELR
> >labor force -- whose wages cannot rise faster than inflation.

Which presumably, as a standby pool of labor, would put a brake on
prices and wages in the private sector, depending on private sector
'market imperfections.'

>
> >Thus ELR becomes the natural rate of unemployment with a human face!

No argument there, if I read it correctly.  You have introduced a variety of
market imperfections and policy responses.  We all may argue about all of
those policy responses, but at least while we are arguing everyone has a
job.

> It becomes the level of employment that the private sector riddled with
> inflationary biases
> cannot carry.
>
> Bill said":
>
> >>The JG is also accompanied
> >>by a raft of social wage measures available to all lower income workers
> >>with a means test cut off to ensure
> >>that public education, health, etc are to be enjoyed. The point is that
> >>distributional issues are dealt with
> >>outside of the JG wage and therefore outside of the allocation system.
>
> Paul replied:
>
> >Interesting but do you  really think the politicians (and the remaining
> >employed) are going to finance such welfare benefits if Greenspan is
> >making a strike at the inflation rate?
>
> They do not have to finance anything. Only households and other spending
> agencies that do not have
> fiat currency issuing powers have to finance spending.
>
> Until PKT can come to terms with this and jettison the orthodox GBC stuff
> we won't make progress
> towards full employment.
>

We won't even stop the coming recession!

>
> Paul again (losing the plot)
>
> >That would be a great platform for you to make a run for office Bill.  I
> >suspect if you did -- you would take some marginal votes away from the
> >more liberal of the major parties and you would get a smaller proportion
> >of votes than Ralph Nader did in the last Presidential election -- and
> >just make it easier for "compassionate conservatism" to take the reins of
> >government
>
> Who ever said I would want to stand for US Government? I am a citizen of
> Australia Paul!!!
>

EVERYONE wants to be president of the US...
And the way you win here is to make sure you establish lock boxes for soc sec
and medicare payments...

>
> Paul (sounding more and more orthodox)
>
> >But given asll these caveats would these jobs produce what consumers
> >really want -- or would they, like their counterparts in the old Soviet
> >Union merely create the illusion of working with long queues at the shops.
> >(When I was a guest of the "party" at an economic conference in Budapest
> >in the early 1980s, the joke Hungarians told was, "They pretend to pay us
> >and we pretend to work".
>
> Maybe the hungarians lacked imagination.
> I don't really want to let the market determine all allocations because
> then public goods lapse
> in favour of more private goods driven by dollar votes. I don't support
> that sort of system.

It gets out of hand really quickly!  Institutional structure can't allow
markets
to 'price' everything accurately.  And just look at all the shopping centers
we build in the deserts during the S and L era, and the $billions of routers
built last year now worthless.  Market forces are like wild animals.  They
are very useful properly caged and directed, but continuously press the
envelope and are always ready to bite hard.

>
> Environmental concerns alone require us to change the composition of output
> towards more
> green things. We have to VOTE for governments who will take these decisions
> on our behalf
> rather than leave it to a private dollar-driven market. Profits are
> a  private concept. They don't
> send signals which are needed to increase employment in public good
> creating areas.
>
> JG workers would work. They would be paid. They would spend. They would
> have superannuation.
> They would have holidays and sick leave. They would have dignity in being
> productive and part
> of the future.
>
> all this stuff you raise Paul is part of the past that failed to generate
> full employment. We are pushing
> for a paradigm shift. It usually takes a long time to accomplish.
>

Paul, as you have stated, unemployment is a by product of the monetary system.
There wouldn't be any without one.  The unemployed have been moved out
of the private sector by the operation of the monetary system and are left to
rot.
Immediate JG employment rescues valuable resources NOW.  We can continue
to argue about higher levels of demand to shrink the JG pool to 0.  Fine.  But
arguing about reducing a pool of unemployed that could be JG workers while
we argue is economically inefficient and I personally find it perverse.  JG is
a clear benefit compared to the same amount of unemployed, not a cost.

Best,

w


>
> best wishes
> bill
>
> William F. Mitchell
> Professor of Economics and Head of Department
> Director, Centre of Full Employment and Equity
> University of Newcastle
> New South Wales, Australia
> E-mail: ecwfm@xxxxxxxxxxxxxxxxxxxxxxx
> Phone: +61-2-4921 5065
> Fax:   +61-2-4921 6919
> Mobile: 0419 422 410
>
> WWW Home Page: http://e1.newcastle.edu.au/economics/bill/billeco.html

--
Warren Mosler
Director of Economic Analysis
III Finance

http://www.mosler.org