Fiscal policy and the job guarantee

Most OECD economies have suffered from persistently high unemployment since the mid-1970s as a result of demand deficiencies promoted by inappropriate fiscal and monetary policy. Governments have failed to understand the opportunities that they have as the issuer of the currency. In this paper, a framework for analysing these opportunities is presented. We compare two buffer-stock means of stabilising the price level: (a) the NAIRU approach, which uses a buffer stock of unemployed; and (b) the Job Guarantee, which is an open ended, fixed wage buffer stock of employed workers. The government offers a fixed wage to anyone willing and able to work, and allows market forces to determine the total quantity of government spending. This option is available to the government as the monopoly issuer of fiat currency. We show that budget deficits are necessary to maintain full employment if the private sector is to pay taxes and has a positive desire to net save. In this regard, the orthodox treatment of the accounting relation termed the government budget constraint as an ex ante financial constraint is in error. We show that government spending is only constrained by what real goods and services are offered in return for it. There is no financing requirement. Debt issuance is seen as part of a reserve maintenance operation by the RBA consistent with their monetary policy cash rate targets. "The political revival of free-market ideology in the 1980s is, I presume, based on the market's remarkable ability to root out inefficiency. But not all inefficiencies are created equal. In particular, high unemployment represents a waste of resources so colossal that no one truly interested in efficiency can be complacent abut it. It is both ironic and tragic that, in searching out ways to improve economic efficiency, we seem to have ignored the biggest inneficiency of them all". Alan Blinder (1987, p. 33