MMT, but Not a Jobs Guarantee - Australian Fabians
21 May, 2023

Modern Monetary Theory, but Not a Jobs Guarantee by Daniel Gerrard


In the first two editions of the Fabians Review, we have had articles about Modern Monetary Theory (MMT) and a Jobs Guarantee (JG). Firstly, from our ACT Convenor Lachlan McCall, and then academic Steven Hail. They contain a similar, sound, and consistent development of ideas. 

As Fabians, full employment should be an issue close to our hearts, and at the forefront of our thinking. A society where everyone is able to fully contribute, and share in rewards is central to our concept of equality. 

Having read the work of Lachlan and Steven, and on Lachlan’s recommendation read Stephanie Kelton’s The Deficit Myth, I’ve become very sympathetic to the way they think about money.

The third edition of the Fabians Review includes an article by Ben Picton, in which he accurately describes the Quantitative Easing policy of the US Federal Reserve after 2008’s financial crisis as being related to the argument that Modern Monetary Theory makes. Unfortunately, after making the argument well for some pages, when he goes to the punchline, the relationship with inflation, he transitions from serious commentary to name-calling. His insight appears to be that increasing the money supply can cause inflation — a point central to the argument that advocates of modern monetary theory propose — that adjusting the money supply is a good tool for economic management, and not one that should be left to corporate bankers.

Whilst I do have strong sympathies for the way McCall, Kelton and Hail describe the function of money in society, I am increasingly skeptical of what they propose to do with their insight — the Jobs Guarantee. Whilst I agree that ensuring everyone can get a job is important, and that the government has the key role in doing so, I do not agree that an understanding of the money supply naturally leads to a Jobs Guarantee, or that a Jobs Guarantee is a good way to alleviate unemployment.

The problem with the Jobs Guarantee is twofold. First, because of what is often touted as a feature — that it is an automatic stabiliser of the economy. Second, for what it does to the labour market. This is not a matter of the proponents of these ideas having badwill, or those policies being poorly intentioned, but of needing to create policies for how they will be implemented, rather than how they should be implemented. 

This naivety is not great or unusual. In 1945 Prime Minister Curtin and Treasurer Chifley inserted into law what is now the Charter of the Reserve Bank, responsibility for: (a) the stability of the currency of Australia; (b) the maintenance of full employment; and, (c) the economic prosperity and welfare of the people of Australia. Since then, those words, and that purpose of monetary policy, has survived the ravages of such Prime Ministers as Menzies, Howard and Abbott, and such Treasurers as McMahon, Howard, and Costello. And yet, considering the policy implemented, rather than the policy stated, it may as well have been deleted in the 1970s.

At first informally, and then aloud, and eventually formally, the policy of the Reserve Bank of Australia is now to protect the value of the currency against inflation. Rather than protect the welfare of all of the people, or ensure there is plentiful employment, the policy implemented by the bank, with near universal support in Parliament and the intelligentsia, is to protect the value of private savings against devaluation by inflation. What was a 2-3% target set under Keating, and formalised by Costello, has informally been lowered to far nearer zero. Rampant inflation can cause great hardship and difficulty… a problem last known in Australia when Leonid Brezhnev was reaching out for a meeting with Ronald Reagan, and caused then, and in the 1970s more by oil shocks and middle eastern wars than monetary policy.

The justification for managing monetary policy for the benefit of the holders of private savings, rather than the legally mandated purpose of benefiting the people, is frequently discussed, and well expressed by Lachlan, Steven, Stephanie, and many others. The Non-Accelerating Inflation Rate of Unemployment (NAIRU) suggests the rather circular logic that there must be a rate of unemployment high enough to prevent inflation in order to prevent the unemployment that would be caused by inflation. But there are far more complex and less easy to ridicule versions produced by the finest economists that money can buy. All of them however, find a way to take the legislated purpose of monetary policy — stability, jobs, and welfare — and pervert it into ensuring that those who hoard money can live at the expense of those who must work to earn it.

The history of this process of erosion and perversion of the legislated purpose of monetary policy, set by those who had experienced two world wars and a great depression, is a cautionary tale for automatic stabilizers in an economy. Automatic stabilisers have administrators, in this case the Treasurers of Australia and Reserve Bank Boards, and those administrators are informed both by their own will, class and social connections, and by the fashions of economists and other thinkers. While Curtin and Chifley had the will, and Menzies kept it going, even by the time of Whitlam, the stated purpose had been lost. 

These cautionary tales of the perversion of policy intent are not alone, and can be seen in many areas. These include the transition of state aid to Catholic schools building the class-based private schooling system in Australia, the Higher Education Contribution Scheme, and of the United States’ Military Industrial Complex. When democratic governments legislate purposes, they delegate their delivery, and remove them from democratic contestability. When important social issues such as unemployment are removed from the democratic contest, they are removed from democratic accountability as well, which often leads to an erosion of the right that was sought to be established.

The second problem with a legislated Jobs Guarantee is how it affects the labour market. Its stated goal of eliminating involuntary unemployment is laudable. The critique its advocates provide of the economic policy idea that some unemployment is a natural and good thing, often called the Non Accelerating Inflation Rate of Unemployment (NAIRU),, is correct. Saying that ‘some people must be unemployed, otherwise inflation will make more people unemployed’ is a shocking idea 

The issue with the Jobs Guarantee is that it deals with a different problem than the one our economy is actually experiencing, and potentially makes that problem worse. Whilst involuntary unemployment, and all of its horrific consequences, does exist in our economy, the scourge of underemployment, with much the same consequence, is far more widespread. Underemployment exists in two forms, those who cannot find enough hours of work, and those who cannot obtain secure enough employment to receive income security. Those who suffer income insecurity frequently have higher living expenses due to their inability to plan, or invest in quality products or housing, but also cannot borrow at reasonable rates. Where they can obtain credit, it is a debilitating, rather than liberating experience.

Where Jobs Guarantee proponents argue that adding an employment floor will see workers shift away from insecure work to the more secure JG, we need to be realistic aboutthe likely pay rate of such a scheme. They will face the choice of a few hours of better paid work, or the stability of the JG, rotating, or not, between one and the other, living a life just as disrupted as the underemployed do now, and with just as little ability to plan and invest in the basics of life like reliable transport and housing.

A further key question immediately arises. What work are the JG participants likely to be doing?. Here there is a dilemma. If it is work that is not otherwise being done, and therefore not considered necessary, this risks deskilling workers, as well as stigmatising them. Alternatively, if it is skilled work, then it will be a labour force created, at a cheaper rate than the people currently doing that work. Basic administrative work, and labouring jobs such as cleaning are often proposed for the JG. There are people doing those jobs now, and in the medium term it is likely public service executives would be tempted to use JG workers to do some of those tasks. The same people currently suffering underemployment in these industries would likely be tempted by the higher security, if lower waged, JG role doing the same work. The jobs guarantee therefore will likely drive a transition from the current problem of insecure work, to a new one, creating a permanent underclass of JG workers: Workers with a fundamentally different relationship with the labour market, fewer rights, and fewer options. The one thing that casuals have in Australia today, mobility, would be stripped from them.

So, whilst Modern Monetary Theory does suggest a valuable insight into how money works for a country with fiat currency (like Australia), the concept of a Jobs Guarantee, often promoted as a natural extension of that idea, is not desirable. The key feature suggested, that of an automatic stabilizer, is a worse option than traditional stimulus programs. Yes, traditional stimulus in times of unemployment, can be wasteful. Infrastructure programs, whether they be steel and concrete, or education and services, can be poorly targeted, but moving their delivery further from democratic accountability will change the culture of government for the worse, and create a permanent underclass. 


Daniel Gerrard is the convenor of the ACT Fabians.

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