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Employer of Last Resort: a Completely American Solution to Unemployment

An Employer of Last Resort, also known as a job guarantee (JG), is exactly what it sounds like. It is a promise by the government through either private partners or government institutions to provide a job to any worker who is able and willing to work but cannot find suitable (or any) employment in the private sector.

In December of 2014, well before his decision to run for President, Bernie Sanders appointed Stephanie Kelton to be the Chief Economist for the Democrats on the Senate Budget Committee. Dr. Kelton is a Research scholar at the Levy Economics Institute of Bard College, the founder and Editor in Chief of one of the world’s most prescient economics blogs New Economic Perspectives and an Associate Professor at the University of Kansas City Missouri. She is also one of the leading proponents of a federally funded ELR.

As one of the world’s most prominent experts in the field of Modern Monetary Theory (MMT) she is fully aware of the policy options available to a sovereign country which issues its own free floating currency. That is a country like the United States which issues money in its own unit of account- the Dollar- and does not tie the value of the currency to any commodities like gold or to foreign currencies through a peg (like the Chinese do with the Renminbi).

Dr. Kelton was also among a select few to predict the Eurozone financial crisis and to explain why the currency zone has been impotent in its ability to adequately deal with the ongoing economic crisis. She predicted that Quantitative Easing would not cause general price inflation and would be inadequate to get the U.S. economy back to full employment, the meaninglessness of the downgrade of U.S. treasuries by S&P, and that deficits caused by the 2008 financial crisis would not cause a rise in the interest rates of U.S. Federal debt.

The United States Federal Government as the sovereign and only issuer of the dollar is, like all nations, subject to fiscal policy constraints, just not the one that makes most politicians scream bloody Mary for the sake of their grandchildren. Financing is not an obstruction to enacting policy, in fact, money is created every time the Federal Government spends above the amount it taxes from the public.

The Federal Debt and Deficit are accounting entities with the Federal debt being equal to the net financial savings of the non-government sectors and the debt or surplus being equal to the net change in those savings.

Instead real resources such as labor, capital, natural resources, along with technology, imagination, and the laws of thermodynamics place constraints on the amount of money that can or should be created in order to move resources in order accomplish the public purpose, whatever that may be.

The public purpose could be anything from invading a foreign country, or taking care of hundreds of thousands of veterans with PTSD, finding a cure to HIV, full employment, or transitioning away from fossil fuel consumption.

Which leaves plenty of policy space for a nation as rich in all of the aforementioned real resources such as the United States, there is no reason why eliminating involuntary unemployment should not be one of those. Particularly if as a society we want to reduce the negative psychological and community consequences of unemployment.

As her esteemed colleague Dr. L. Randall Wray has written “For most people, the greatest challenge to near-and-dear convictions is MMT’s claim that a sovereign government’s finances are nothing like those of households and firms. While we hear all the time the statement that ‘if I ran my household budget the way that the Federal Government runs its budget, I’d go broke’, followed by the claim ‘therefore, we need to get the government deficit under control’, MMT argues this is a false analogy. A sovereign, currency-issuing government is NOTHING like a currency-using household or firm. The sovereign government cannot become insolvent in its own currency; it can always make all payments as they come due in its own currency.”

This is not true of countries in the Eurozone which have to tax or borrow Euros before they can spend them into the economy and which rely on private bankers to create money through loans. It is also not true of countries which try and maintain a foreign exchange peg with another currency such as Argentina’s once had with the U.S. Dollar.

So what does this have to do with a job guarantee?

This is important for many reasons when discussing economics and what the responsibilities the government of a modern industrial society should have. As long as there are unused resources, capital, labor and unmet problems such as providing adequate healthcare and social services to impoverished communities then there is policy space for the issuer of the currency to employ those resources and to do so in a way that promotes the general welfare of society.

The size of a JG would also be relatively small, around 1-2% of GDP because it corresponds with huge savings in unemployment insurance in a way that pays people to work rather than to not work.

By being federally funded an ELR program will also help the budgets of every state in the country as incomes from employment add to the tax revenue of states and local governments. This is not an unreasonable estimate, the WPA ran on a budget of $1.4 billion during its first year in 1935 or about 1.9% of nominal GDP as a federally funded Jobs program.

Often left out of public discussions regarding unemployment, the WPA employed 3.3 million workers at its peak, brought living standards in the South out from Third World levels, and provided some of the first opportunities for white-collar employment to both blacks and women.

We did this during the Great Depression when we were on far more uncertain terrain politically, less technologically advanced, far less educated, and had to try new solutions at enormous scales that had never been attempted before.

Dr. Kelton has been an advocate of a Job Guarantee for a long time and as her colleague at the Levy Economics institute, Pavlina Tcherneva, argued in her article Why Bernie Sanders Should Add a Job Guarantee to His Policy Agenda “Bernie has unapologetically rejected sclerotic visions of what is ‘politically possible’.  And now he should add the Job Guarantee (JG) to his list of issues. Indeed, he already has the key ingredients—a bold proposal to eliminate unemployment by creating 13 million decent-paying jobs, a living wage, and a federally-funded youth job guarantee, which Sandy Darity correctly called a stepping stone (a pilot program) to a blanket job guarantee for all.”

But more importantly by implementing a definitive cure for involuntary unemployment a JG creates much better hiring conditions for workers and employers. There will be more income in circulation which drives sales (capitalism runs on sales, not lower tax rates), workers will be able to maintain and expand their skills on the job and employers will be able to know that the workers they hire are willing, able, and ready to work. Continuing Tcherneva writes:

“a permanent JG will be relatively small and will oscillate comparatively little, because it stabilizes economic conditions, private spending, profit expectations and, importantly, employment.  The amplitudes of the economic volatility we observe today will be much smaller, precisely because the JG tackles all the vile consequences of mass unemployment (on private sector spending and expectations, and on people and communities).  The JG is also good for the private sector and ensures more stable and plentiful private sector employment because it guarantees that domestic demand never collapses as much as it does today with mass unemployment.”

There is also no reason for a JG to be administered by the Federal Government. While the funds required to make such a program possible must come from the issuer of the currency, local governments and institutions should implement a JG in order to streamline administration and adequately provide the unique services that different localities desire. Doing so would make those who run and work for the program directly accountable to their communities.

Anyone who is serious about preventing the rerun of visceral pain that the 2008 financial crisis caused hard working families should be interested in the creation of permanent Employer of Last Resort. There are jobs all over this country in depressed communities that need to be done but are not because currently there is no private profit to be made.

Programs of the past provided employment primarily in physical infrastructure which is a male dominant sector. Because the demographics of the workforce have changed we should focus on social infrastructure so that adequate employment opportunities are also provided to women.

Cultural programs such as the WPA Theatre Project which provided “living” newspapers and access to the arts for the poor should be resuscitated to provide income for local artists and enrich the lives of our neighborhoods.

We could take care of the elderly, of young children, employ the poor in our inner cities on urban renewal projects, teach immigrants English, and provide literacy programs to millions of adults. Just as we could employ people to directly undo some of the ecological harm that fossil fuel production is causing in a 21st-century version of the Civilian Conservation Corps which provided 3 million young men with food, clothing, shelter, and a wage to plant 3 billion trees and build 800 parks across the country.

Now that the primaries are over we need to see significant pressure from the remnants of Bernie Sanders’ “political revolution” advocating innovative policy proposals such as the Employer of Last Resort. Such programs are as American as it gets, we have done them before. At the very least, a public discussion of policy proposals put forth by his staff needs to be highlighted if we are going to deal with the very serious economic crisis that millions of American’s have been in since at least 2008, many for far longer.

More articles by:

David L. Glotzer writes for Déclassé Intellectual

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