Re: Economic reform policy: Some views and proposals

[John Vertegaal <vertegaa@xxxxxxxxx>]

For what it's worth, I side entirely with Professor Davidson on this
issue and agree with everything he says below.  His "incomes policy"
approach to inflation would have to come into play anyway as soon as JG
proponents would have to admit that putting a growing buffer of highly
educated/skilled workers into the program is a terrible wasteful way to
fight inflation.  Furthermore, since highly educated/skilled workers are
much more likely to be employed in "inflation-biased" industries, and
incomes policies affect those industries in a direct way instead of being
influenced by an industry-wide integrated JG approach, an incomes policy
approach is superior from the outset.

So I see the "buffer stock" aspect of the JG proposal mainly as a play
to the nairu crowd, as JG is supposed to be a more efficient inflation
control measure than nairu.  Given that the "naturalness" of nairu has
been pretty much discredited already, the entire buffer stock/inflation
argument is a red herring, and only a JG program based solely on humane
grounds, is perhaps justifiable.  But in that respect I don't have
anything to add to what I said previously.

John V


--- Original Message ---

>Trond Andresen wrote:
>
>>Another positive example is the "employer of last resort"/job guarantee
>>proposal, that has been argued for by Randy Wray, Bill Mitchell and
>>Warren Mosler.
>
>>IMO, this should also be part of an economics reform package that
>>progressive economists ought to be able to agree on.

We can all agree on the neeed for full employment-- for it is like
motherhood
a wonderful social value --. The problem is how to get to full employment
and
who should be the employer, and when do we need an employer of last
resort.
In the case of some (the above?) full employment POLICY PROPOSALS the
GOVERNMENT EMPLOYED LABOR FORCE IS A BUFFER STOCK.  But what is it
supposed to
buffer?

It is my understandng that the Mosler-Mitchell-Wray government wage is
to set
a floor on wages -- and to hire all those who can not get a job given the

existing level of aggregate effective demand and wage structure.  All
that is
to the good!

But isthe size of the pool of government employees hired to be in the
last
resort workplace to be buffer to prevent wage inflation? If the pool of
workers employed in this last resort sector falls too low, i.e., private
aggregate demand is too high, then wage inflation is likely to occur.
Thus, in
my understanding of this proposal, the employer of last resort workforce
is a
buffer to prevent wage inflation. Is that a desireable goal? [ Is this
a form
of the natural rate of unemployment with a humane face?]

The question is why not increase aggregate demand for private sector
employment so as to reduce the government employee labor force only to
the
necessary volume to carry out the norm al functions of government, e.g.,
national defense, the national park service, congressional personnel,
normal
civil servants in the Dept. of State, Treasury, etc.

I think these questions have to be sorted out! Especially in these days
when,
according to today's New York Times, 4 million discouraged adults have
left
the labor force since January 2001 -- including skilled engineers, etc
-- and
2 million jobs have been lost since January 2000.  While the unemployment
rate
still hovers around the 5.6 to 5.8 per cent range -- and outsourcing --
not
only of simple goods like cut and sew clothing but also computer
programming,
etc -- to foreign workers in low cost countries like China and India and
even
Russia, are the buffer stock holding down wages in the US.

Paul

Paul Davidson
Editor, Journal of Post Keynesian Economics
University of Tennessee
SMC 503
Knoxville, Tennessee 37996-0550
office phone #;(865)974-4221; office fax# (865)974-1686 or (865)974-4601
home phone and fax # (865)692-0802
email pdavidson@xxxxxxx
http://econ.bus.utk.edu/davidsonextra/Davidson.html