Alan Kohler, The Australian
Stephanie Kelton professor of economics and public policy at Stony Brook University, New York. Picture: John Staines.
Instead of thrashing about trying to figure out what to do with the JobKeeper allowance and JobSeeker supplement after September, the Morrison government should turn them into a permanent federal job guarantee.
Scott Morrison should go down in history as the first leader in the world to implement the great economist Hyman Minsky’s vision of the government being “employer of last resort”, as a better way of dealing with poverty than welfare.
He wouldn’t be the last if he did: we are moving inexorably into a world of Modern Monetary Theory (MMT) and much greater government involvement in the economy. It’s just a matter how much of a mess there is before the political classes actually do what’s necessary.
Qantas raised the prospect this week that high unemployment is going to be problem for years, and that even if the $10bn per month JobKeeper is continued it won’t help — potentially to the point where the health crisis turns into a financial crisis because of a wave of mortgage defaults.
That’s because JobKeeper relies on the company continuing to exist and needing the same number of employees as before. What Qantas showed is that companies will make their own judgments about staff numbers based on their own long-term business plans and prospects, independent of the government support.
In any case, if JobKeeper continues, even if it’s just focused on a few hardest-hit industry sectors, it will simply prop up zombie companies that are no longer viable and never will be. It already is doing that. For recovery to take place, non-viable companies need to stop trading.
And what is the government going to do about the five million people currently getting JobKeeper and the JobSeeker supplement after September? Simply hope they get a job, and if not just shrug and pay them the dole, and let the banks pick up the pieces, selling their houses, causing a housing collapse and financial crisis?
It happens that the JobKeeper Allowance is about the same as the minimum wage — $750 per week versus $740.80 — presumably on purpose.
The obvious thing to do is for the government to become employer of last resort at the minimum wage. Those who can get a better paying job in the private sector do so, but those who can’t have a guaranteed job with the government at $740.80 per week.
Doing what? Well, this week I spoke to one of the world’s leading proponents of MMT as well as the idea of a federal job guarantee, Dr Stephanie Kelton of Stony Brook University in New York. She told me: “There’s so much work that needs to be done and a lot of it is an ageing society as well, and should be oriented around care.
“We’ve got an ageing population, we have a climate crisis. We have unmet needs across almost every community in this country.
“The idea would be for the federal government to provide the funding, but for the local communities themselves to weigh in and to design and call for the types of jobs that would bring the most value to those communities.”
In her book published this month about MMT, called The Deficit Myth, Kelton writes that an employer of last resort policy would “effectively establish a public option in the labour market, with the government fixing an hourly wage and allowing the quantity of workers hired in the program to float.
“Since the market price of an unemployed worker is zero — that is, no one is currently bidding on them — the government can create a market for those workers by setting the price it is willing to pay to hire them. Once it does, involuntary unemployment disappears.”
The reason the proposal has become part of the MMT is that it relies on the fact that a government can’t run out of money.
The money created to pay the people employed under a job guarantee can’t cause inflation or debase the currency because by definition it involves mopping up slack in the economy — it generates both the wages to be spent on goods and services, and the goods and services themselves.
A flint-eyed Treasury official would no doubt protest that a job guarantee at the minimum wage would simply involve increasing the unemployment benefit from $565.70 per fortnight (pre-the $550 coronavirus supplement) to $1481.60 (the minimum wage).
Yes, but instead of requiring the recipient simply to look for work, the job guarantee would actually be work — after all, as Scott Morrison often says, the best form of welfare is a job.
Obviously, there would have to be some effort put into making the work useful, but there is so much important unpaid work done at the moment that it shouldn’t be too difficult, and as Kelton says, that could be left to local communities to figure out.
Of course, doing this would require an acceptance that deficits and debt are not a burden on future generations and do not have to be repaid as quickly as possibly through lower spending and higher taxes — that is, that MMT is correct, and Milton Friedman’s dictum that excess money causes inflation was a gigantic mistake.
We are still a long way from that acceptance, particularly among conservative politicians, but MMT is gaining momentum around the world as the only logical way forward.
As Kelton told me: “It turns out (inflation is) much more complicated than (Friedman thought) … you can get too much money in concert with too few goods, but it’s really the too few goods part that people are missing. It’s your supply, your productive capacity has been undermined, and you couldn’t produce the output and that led to hyperinflation.”
In any case, it comes back to the question of what the Morrison government is going to do come September: sit back and allow high unemployment to cause a financial crisis, or do something truly creative?
Alan Kohler is the editor in chief of Eureka Report