This post contains a summary (with sources to learn more) of how our current neoliberal system stabilizes prices (avoids inflation) for only the privileged by causing mass suffering among the disadvantaged. It does this by guaranteeing unemployment for millions in the name of avoiding the never-before-seen Boogeyman of runaway inflation. MMT instead recommends its job guarantee, which stabilizes prices in the only humane way possible: for all. By sacrificing no one.
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This post was last updated October 22, 2020.
Disclaimer: I have studied MMT since February of 2018. I’m not an economist or academic and I don’t speak for the MMT project. The information in this post is my best understanding but I don’t assert it to be perfectly accurate. In order to ensure accuracy, you should rely on the expert sources linked throughout. If you have feedback to improve this post, please get in touch.
A brief overview of the problem and its solution
We incorrectly believe that the only way to care for human beings is to “prevent inflation.“
We incorrectly believe that the only way to “prevent inflation“ is for millions to be forced into unemployment (and underemployment). Involuntary unemployment causes untold suffering for individuals, families, communities, and society as a whole.
So, according to this theory, the only way to “care for human beings” is to force some human beings to suffer. The truth is that fearing the boogeyman version of inflation is nothing more than a ruse and a tool to elevate those at the top by crushing those at the bottom.
The only way to truly care for human beings – and the only way to prevent actual inflation – is to prevent suffering for all human beings. In other words, the only way to care for all human beings is to care for all human beings. A critical way to stop mass suffering is to prevent involuntary unemployment for all.
Bill Mitchell and Warren Mosler: Unemployment is always a much bigger problem than inflation.
A summary of our current system
In our current neoliberal era, prices and wages are managed only for some. Pavlina Tcherneva: “Policy makers stabilize prices on the backs of the unemployed” (2020, pg 5). This is done by forcing almost all real and financial costs (including inflation) onto society’s most vulnerable – that is, those farthest away from the levers of power.
Even as scientists and engineers constantly innovate, creating new medicines, technologies, and techniques to eradicate diseases and solve human problems, the majority of economists remain wedded to a fifty-year-old doctrine that relies on human suffering to fight inflation.
Millions are kept deliberately unemployed and underemployed, resulting in what Karl Marx calls a “reserve army of labor.” This bufferstock of the unemployed is used by employers as a weapon to “discipline” their workers for daring to stand up and demand better wages and treatment. Those currently unemployed and desperate for a job (involuntarily unemployed) or unhappily employed and desperate for a better job (involuntarily underemployed) are always ready and waiting to “underbid” the less desperate – eager to work for even less or, more generally, to tolerate more abuse.
(A related concept is how healthcare in the United States is employer-based. This means that losing one’s job [such as by being fired for standing up and demanding better*] often results in losing healthcare for one’s entire family. In other words, providing healthcare is not just about “making people healthier,” it’s about power. The same is true with education and even providing clean water. The latter of which is a primary tool of gentrification in Flint, Michigan and elsewhere.)
(*or due to a forced quarantine in response to a global pandemic, coupled with a central government that didn’t prepare and won’t use its immense powers to help.)
The effects of involuntary unemployment (and underemployment) are absolutely devastating to both individuals and society as a whole.
What this all means, is that inflation is substantially a reflection of class conflict. Those with the most power, and with the legal and military support of the government (which they bribe), are the most able to push real and financial costs onto those with less. Maximizing profit and economic flexibility (Forstater 1999) for businesses is considered paramount by those in power (who are not-so-coincidentally bribed by those same businesses owners). Sacrificing millions (of workers and those desperate for work) on the alter of “fighting inflation,” is therefore considered a necessary evil.
The MMT-designed job guarantee
It boils down to this: There are only two choices (Mitchell 2011): you can stabilize prices and wages for all, or only for some. You can provide a good job for all (who want and are able), or only for some. MMT chooses – a civilized society requires – the latter (Davidson 2016). The MMT-designed job guarantee stabilizes prices in the only humane way possible: by eliminating involuntary unemployment and underemployment – for all.
The MMT-designed job guarantee replaces the reserve army (bufferstock) of the unemployed with a reserve army of the employed. It replaces NAIRU (as discussed below) with NAIBER. The NAIRU is targeted by the Fed, and that (theoretical!) level is imposed onto the real world, damn the (real world!) consequences. MMT targets one thing only: truly full employment. NAIBER is nothing more than the current ratio of JG employment to total employment.
Academic justification for mass suffering
The academic justification for prioritizing minimizing inflation over maximizing employment is a theory called the non-accelerating inflation rate of unemployment, or NAIRU. NAIRU is further justified by an incorrect and highly-simplified interpretation of the Phillips Curve. It essentially boils down to the fear that “too-high employment/too-low unemployment is the primary cause of runaway inflation”. Since the United States has never experienced* runaway inflation (which is essentially hyperinflation), the fear is entirely unfounded.
(*The US hasn’t even experienced severe inflation since the OPEC oil shocks of the 1970s – which were caused by something completely unrelated to the employment level.)
According to original MMT developer William Mitchell, NAIRU is “a crock!” (Mitchell 2009) Here’s a fuller take on NAIRU by Mitchell (2013). In her 2020 book, The Case for a Job Guarantee, Pavlina Tcherneva says, “It is hard not to conclude that NAIRU has provided cover for the profound policy failure of tackling unemployment head on.“ The late Columbia University economics professor William Vickery calls the natural rate of unemployment ”one of the most vicious euphemisms ever coined” (Forstater 1999).
Finally, here’s the last paragraph in a 2017 article by Matthew C Klein:
NAIRU isn’t just a useless concept, it’s a counterproductive one that encourages policymakers to focus on the jobless rate as a means to an end (price stability) even though there is zero connection between the two variables. The sooner NAIRU is buried and forgotten, the better.
It should also be mentioned that official unemployment statistics are overly rosy (Wray 2017), ignoring millions of the most disadvantaged.
“…there are no economic, social, or moral reasons for using the unemployed as a bulwark against inflation”
— Tcherneva 2020
Addendum: From page 66 in Stephanie Kelton’s 2020 book, The Deficit Myth.
MMT fights involuntary unemployment by eliminating it. In our view, the most effective full employment policy is one that targets the unemployed directly. Instead of aiming spending at infrastructure and hoping jobs will trickle down to the unemployed, MMT proposes what Bard College economist Pavlina Tcherneva describes as a bottom-up approach. It takes workers as they are, and where they are, and it fits the job to their individual capabilities and the needs of the community. We’re not talking about creating just any old job. This isn’t a make-work scheme, aimed simply at giving the unemployed a shovel in order to justify paying them a wage. It’s a way to enhance the public good while strengthening our communities through a system of shared governance. As Vickrey put it, these public service jobs would enable us to “convert unemployed labor into improved public amenities and facilities of various types.” The idea is to task people with useful work that is valued by the community and to provide compensation for that work in the form of a decent wage and benefit package. If the economy were to crash the way it did in 2008, the federal job guarantee would catch hundreds of thousands of people instead of allowing them to fall into unemployment.