Blog on the Run: Reloaded

Monday, February 22, 2010 5:48 am

How to keep the sky from falling

Marshall Auerback is a Dirty F—— Hippie Denver-based global portfolio strategist for RAB Capital plc who has conceived the unlikely notion that if we want government to do something about unemployment it should just, well, hire people:

The U.S. Government can proceed directly to zero unemployment by hiring all of the labor that cannot find private sector employment. Furthermore, by fixing the wage paid under this ELR [Employer of Last Resort] program at a level that does not disrupt existing labor markets, i.e., a wage level close to the existing minimum wage, substantive price stability can be expected. A sizable benefits package should be provided, including vacation and sick leave, contributions to Social Security and, most importantly, health care benefits, providing scope for a bottom-up reform of the current patchwork health care system.

Government as ELR would not be introducing another element of intrusive bureaucracy into our economy, but simply better utilizing the existing stock of unemployed, who are now dependent on the public purse — especially the chronically long-term unemployed. The current system we have relies on unemployed labor and excess capacity to try to dampen wage and price increases; however, it pays unemployed labor for not working and allows that labor to depreciate and develop behaviors that act as barriers to future private-sector employment. Social spending on the unemployed prevents aggregate demand from collapsing into a depression-like state, but little is done to enhance future growth and demand, which can be done via the ELR by providing the currently unemployed with jobs, greater education and higher skill levels.

The ELR program would allow for the elimination of many existing government welfare payments for anyone not specifically targeted for exemption. It would also command greater political legitimacy, as society places a high value on work as the means through which individuals earn a livelihood. Labor would welcome the safety net of a guaranteed job, and business would recognize the benefit of a pool of available labor it could draw from at some spread to the government wage paid to ELR employees. Additionally, the guaranteed public service job would be a counter-cyclical influence, automatically increasing government employment and spending as jobs were lost in the private sector, and decreasing government jobs and spending as the private sector expanded. It would therefore remain a permanent feature of our economy. In effect, it would act as a buffer stock to put a floor under unemployment. The program helps maintain price stability whereby government offers a fixed wage that does not “outbid” the private sector, but simply creates a stabilizing floor and thereby prevents deflation.

A more or less “free market” system does not (and, perhaps, cannot) continuously generate true full employment. And no civilized nation should allow a large portion of its population to go without adequate food, clothing and shelter. One of the best features of the ELR program is that it creates a stock of employed people, rather than a buffered stock of unemployed, where social capital depletes rapidly, and several long-term social pathologies develop.

The way we’re approaching our labor force now isn’t working. It’s time to try something that can put as many Americans as possible into productive employment.

I know the philosphical arguments against this suggestion; indeed, I share some. But what are the practical objections, can they be overcome, and what would a rigorous cost-benefit analysis on this proposal and existing alternatives show us?

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