Money for Everyone, or Jobs for All.
Putting workers before owners is essential, but it does not guarantee that everyone has a job. It does not eliminate poverty. That is also essential. We hear a lot about preserving and supporting the middle class, but the poor are often forgotten.
There are two significant proposals being floated about how to help the economy from the bottom up. First idea: Every household is given a basic income check—say $10,000 or $15,000—every year. Second idea: Government as employer of last resort. Guarantee a job at a basic minimum salary—but enough to live on— to anyone who wants it.
It is a curious fact that the first idea has gotten much more traction than the second. We will talk about why that might be later.
Guaranteed Income for All. This idea has been popping up in left and libertarian circles for awhile, but it has recently been brought to the attention of the so-called “mainstream media,” witness an essay by Betsy Isaacson in Newsweek called “How to Fix Poverty,” and a column by “Free Exchange” in The Economist (May 23-29 2015). This is basically free money for everyone. While it may seem a radical, even crazy, idea, something like it was suggested more than a century ago by John Stuart Mill and has been recommended by such diverse minds as John Maynard Keynes and Milton Friedman. The basis of the idea is fundamental economics: recessions are often caused and prolonged by lack of demand, a lack brought about by lack of spending money.
There are a number of selling points. For one, it is extremely simple and thus likely to create minimal administrative costs. Since it would replace other forms of welfare, the costs would be relatively small. Studies have shown that such a program would provide little or no disincentive to work (unlike some present welfare programs which are reduced or eliminated when the recipient gets employment income.) People who do quit work as a result are likely to do so in order to go to college or vocational school and thus become more valuable to the economy.
There are questions to be raised. Beware of unintended consequences. What is the definition of a “family” or “household.” Will this be an incentive to break up families into inappropriately small units? Will there be an upper income limit, say $100,000, to qualify? And of course many conservatives will simply not be able to stomach the idea of giving away free money.
Government as Employer of Last Resort. The idea is simply to offer a job at a basic, minimum but livable wage to anyone who wants it. This idea was originally formulated and advocated by the American economist Hyman Minsky (1919-1996). The most eloquent and persistent promoter of this approach at the moment is L. Randall Wray, a professor of Economics at the University of Missouri-Kansas City. This approach has many virtues: not only would it eliminate poverty, but it would be a stabilizing force in the economy. When the economy takes a downturn and private sector employment drops, the government takes up the slack, and when the economy picks up again the private sector will hire away from the ELR program at slightly higher wages, so that the ELR program will shrink accordingly. This will essentially stabilize the price of unskilled labor. Labor being a major component of any economy, that would go a long way toward stabilizing the economy. It would also maintain effective demand. Low-wage earners tend to spend all or most of their money, so ensuring that they have money to spend keeps money in circulation, creating a further stabilizing effect.
Critics argue that it would be inflationary, not stabilizing. It is true that any sudden large infusion of money into the economy would likely cause prices to rise temporarily, so it would make sense to institute such a program gradually to avoid creating an inflationary psychology (but politics almost guarantees gradualness of any progressive program.) But once in place, it would not be inflationary. Conservatives who argue that full-employment causes inflation are worried that if labor becomes scarce workers will demand ever higher wages, causing higher prices that lead to further escalation of wages and a continuing upward wage-price spiral. But the ELR only pays a minimum. When that minimum is no longer attractive, it will cease to hire. As the private sector demand for unskilled labor increases, the demand from the ELR will drop accordingly, stabilizing the bottom of the labor market.
Unlike the free-money-for-everyone proposal, this would not be particularly simple to administer, although probably simpler than it might look. Wray provides the most thorough argument in his two books, Understanding Modern Money, and the more recent Why Minsky Matters. A shorter, but still quite comprehensive description of how such a program would work can be found on his website, CFEPS.