Below is a very technical and concise summary of the MMT-designed job guarantee. To better understand this summary, the rest of this post defines and discusses each of the its terms.
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. To ensure accuracy, you should rely on the many expert sources linked throughout.
The MMT-designed job guarantee is a permanent, countercyclical, automatic, macroeconomic stabilizer for prices and wages, using a bufferstock of the employed to even out the business cycle, thereby preventing the majority of inflation – ex ante.
(To hear my (then) ten-year-old son speak this summary for you, take a listen to my intro-to-MMT song.)
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Related post: What is the MMT-designed job guarantee? (with sources)
MMT-JG term: Countercyclical
The MMT-designed job guarantee is a permanent, countercyclical, automatic, macroeconomic stabilizer for prices and wages, using a bufferstock of the employed to even out the business cycle, thereby preventing the majority of inflation – ex ante.
Wiktionary definition: “Moving in the direction opposite to that of the overall state of an economy.”
When private industry (for-profit businesses) is doing well, it is because there is an increase in demand. This new demand is met by businesses hiring more workers and paying their existing workers more. It is at this point when the JG is at its smallest – when more workers choose to leave the JG program and instead except a better paying (or somehow more appealing) job in the private sector.
Conversely, when the private sector is struggling, there is less demand. Workers are let go and the pay of existing workers is reduced. (Businesses must do these things to survive, because they must earn a profit, and must compete against other businesses which must also earn a profit.) This is when the JG is at its largest, because it is when more workers choose to leave the private sector and choose to accept a job in the JG program.
The JG program is designed to have many off-the-shelf jobs, ready and waiting, in every municipality around the country. A laundry list of tasks is decided upon by local officials and non-profits, that are valuable but not profitable (see especially question 8 and 8a in Pavlina Tcherneva’s JG FAQ for more many examples). JG jobs also not time critical (such as painting, cleaning, extra assistants, etc.).
The job guarantee is always there and ready to catch more workers (those who choose to leave the private sector and/or choose to enter the job guarantee). It is a permanent program in this sense – there in good times and in bad, with many jobs at the ready.
MMT-JG term: Automatic
The MMT-designed job guarantee is a permanent, countercyclical, automatic, macroeconomic stabilizer for prices and wages, using a bufferstock of the employed to even out the business cycle, thereby preventing the majority of inflation – ex ante.
The MMT-designed job guarantee is an automatic program because the people themselves choose when (and if) to enter a job in the JG program, or one in the private sector. In addition, the MMT-JG is both 100% voluntary and supplemental to our current system; it does not alter or eliminate any existing federal program or benefit. If you choose to not participate in the JG program, then you will be supported by the same exact federal safety net(s) as today.
If you do choose to participate in the JG, then you will receive a living wage (currently proposed to be $15 an hour) and benefits (such as healthcare, childcare, and on-the-job training).
MMT-JG term: “Macroeconomic stabilizer for prices and wages”
The MMT-designed job guarantee is a permanent, countercyclical, automatic, macroeconomic stabilizer for prices and wages, using a bufferstock of the employed to even out the business cycle, thereby preventing the majority of inflation – ex ante.
The MMT-designed job guarantee is not a jobs or training program, it’s a stabilizer for the entire economy. According to Pavlina Tcherneva: “The program serves as an ongoing shock absorber and powerful tool for economic stabilization, which is perhaps its most important macroeconomic feature” (Tcherneva 2020, pg 5).
Without a job guarantee, the only entity that can hire the unemployed is for-profit business. As stated above, for-profit businesses must be profitable in order to survive. This means that when the private sector (“the economy”) is struggling, they must reduce their workforce. Unfortunately, this is also when workers are most desperate for a job.
Therefore, the only institution capable of hiring these workers at the bottom of the business cycle, is a fully-sovereign currency issuer such as the central governments of the United States, United Kingdom, Australia, Canada, Japan, and etc. Sovereign currency issuers do not need revenue or profit, and can do what’s best for society as a whole, even when businesses are struggling. In other words, only a sovereign currency issuer has perfectly-elastic economic flexibility (Forstater 1999). Only it can spend even when it doesn’t have money and only it can achieve things that are desperately needed but not profitable (Sekara 2014). This includes building tornado shelters for public schools; cleaning poison water, air, and soil; building and maintaining critical network-based systems such as the electrical grid, internet, water and sewage systems, postal service, roads, trains, etc.; national defense; and preventing and mitigating climate devastation.
Because of these many others powerful benefits (Forstater 1999), a federally-funded job guarantee will in fact, greatly enhance the private sector (Mitchell 2015).
(Prices are what average people pay for products and services. Wages are what is paid to workers in exchange for their labor and productivity.)
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MMT-JG term: Bufferstock
The MMT-designed job guarantee is a permanent, countercyclical, automatic, macroeconomic stabilizer for prices and wages, using a bufferstock of the employed to even out the business cycle, thereby preventing the majority of inflation – ex ante.
See this 1998 paper by original MMT developer Bill Mitchell, called The bufferstock Employment Model and the NAIRU: The Path to Full Employment. In MMT, the concept of labor bufferstock originated with Bill in the 1970s. Here is an excerpt from his 2009 post, When is a job guarantee a Job Guarantee?:
the JG works on the “bufferstock” principle. I first thought of this idea during my fourth year as a student at the University of Melbourne (in the late 1970s). The basis of the policy came to me during a series of lectures on the Wool Floor Price Scheme introduced by the Commonwealth Government of Australia in November 1970. The scheme was relatively simple and worked by the Government establishing a floor price for wool after hearing submissions from the Wool Council of Australia and the Australian Wool Corporation (AWC). The Government then guaranteed that the price would not fall below that level by using the AWC to purchase stocks of wool in the auction markets if demand was low and selling it if demand was high. So by being prepared to hold “buffer wool stocks” in low demand and release it again in times of high demand the government was able to guarantee incomes for the farmers. However, with some lateral thinking you can easily see that what the Wool Floor Price Scheme generated was “full employment” for wool! If the Government fixed the price that it was prepared to pay and then was willing to buy all the wool up to that price then you have an equivalent scheme.
This works just the same for labour resources – just unconditionally offer to buy all labour at a stated fixed wage and you create full employment.
MMT-JG term: ex-ante
The MMT-designed job guarantee is a permanent, countercyclical, automatic, macroeconomic stabilizer for prices and wages, using a bufferstock of the employed to even out the business cycle, thereby preventing the majority of inflation – ex ante.
Steps taken reactively, after the fact, are called ex-post. Preventative steps is called ex-ante. These concepts are further discussed at the bottom of this post: Federal taxes only redistribute wealth *indirectly* (audio compression).
…still needs some work…
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