Money is No Object: Why We Should and How We Can Achieve Full Employment

Why We Should and How We Can Achieve Full Employment Stephanie Kelton, Associate Professor, Univ. of Missouri-Kansas CityPresentation to the Jobs Now! Coalition, in Memory of MLK and FDR, January 19, 2012

Since the Start of the Crisis• The world has added 27.6 million people to the unemployment rolls• Produced a vulnerable employment rate of 50.1%• Created an additional 40 million working poor• Led 1.7 million youths to simply drop out of the labor force altogether - United Nations, Non-Governmental Liaison Services (NGLS) 2011

Share of People Unemployed 12+ Months Nearly one-third of Americans have been looking for work for a year or moreIn the US, more than 1.4 million (15% of total) have been unemployed for more than 99 weeks.

The Cost of Persistent Unemployment Social and Economic • Direct Costs – Lost output/income • Indirect Costs – Social exclusion and the loss of freedom – Skill degradation – Psychological harm, including increased suicide rates – Poor health and reduced life expectancy – Loss of motivation – The undermining of human relations and family life – Loss of social values and responsibility • The indirect costs are often hard to quantify but clearly substantial given qualitative evidence

The Cost of the “Lost Youth”Includes the 6.7 million American youths (16-24 yrs) who are out of work and out of school Total cost to society Source: White House Council for Community Solutions, January 17, 2012

The Aggregate Loss of Output Pre-Crisis Path Actual Path

The Daily Cost of Unemployment“Just say it to yourself – every day, the US government is allowing $9.7 BILLION to go down thedrain in lost income just because they are too stupid to implement sensible direct job creationstrategies.” ~ Bill Mitchell

What IS a Sensible Job Creation Strategy?

Corporate Profits and Hiring Since 1990 Growth of Corporate Profits Employment growth

The Lesson• Simply making businesses more profitable will not create the millions of new jobs our economy needs• Businesses hire more people when they are swamped with demand not when they have higher profits• Our problem continues to be a lack of aggregate demand

We Need More Demand!• Sales Create Jobs• Income Creates Sales• Spending Creates Income

But Who Will Spend? Households Account for• Consumption: If unemployment 70% of Total Spending remains high, home prices remain depressed, and the price of oil remains high, consumption will not improve significantly• Investment: If consumption is weak, businesses will have little reason to invest in new capital or hire additional workers• Government: The bulk of the stimulus has ended, and the federal government is looking for ways to cut the budget. Not much appetite for further stimulus.• Net Exports: The US is a net importer and has been for several decades. We aren‟t going to export our way to prosperity. 12

Spending Cuts Lead to Unemployment• Spending creates the income that leads to sales• Unemployment means there are people who want to work to earn dollars• When the government cuts spending, it limits income, which reduces sales• The result is unemployment

“The government, just like every American household, has to live within its means.” -- Ross Perot Why Does the Government Limit its Spending? The United States government has run “out of money.” -- President Barack Obama

Is the Federal Government Like a Household?• No – not anymore• We abandoned the gold standard• We ended Bretton Woods• We have “modern money” that is created by keystrokes on a computer• But we act as if we are still hamstrung by the past

Afraid of Becoming the Next Greece

Why are the PIIGS in Trouble?• All 17 members of the Eurozone gave up their keyboards• Now Ireland is like Idaho. And Greece is like Georgia.• They can’t spend more than they can collect or borrow from others – and lenders know they don‟t have keyboards!• That‟s why the bond markets have so much power• And why so many governments have been forced to adopt job-killing austerity programs

The US is NOT Like Greece• The US Government cannot go broke• It cannot “run out” of money• It spends modern money• It cannot run out of keystrokes any more than Arrowhead Stadium can run out of points!

Money is No „Object‟• As Chairman Bernanke explained on 60 Minutes in 2009:• (PELLEY): Is that tax money that the Fed is spending? $29 Trillion? (BERNANKE): It‟s not tax money. [W]e simply use the computer to mark up the size of the account.

The ISSUER of the Currency Can‟t Go Broke“[A] government cannot become insolvent with respect to obligations in its owncurrency. A fiat money system, like the ones we have today, can produce suchclaims without limit. ~ Alan Greenspan, 1997

Why Do We Run Flat Earth Policy?• Policymakers (and most economists) don‟t understand how our monetary system works• They think the government faces the same kinds of constraints that a household or a private business faces• They say we can‟t afford to care for the sick and the elderly, rebuild our crumbling infrastructure, provide our kids with a world-class education, etc.• They tell us There Is No Alternative – TINA• And they ask for “shared sacrifice”

What Would MLK and FDR Say?• Dr. Martin Luther King, Jr. had seen enough sacrifice for a lifetime• He called upon the government to create jobs using the power of the state• FDR‟s vision for a Second Bill of Rights also emphasized the importance of economic security though job creation“We have come to a clear realization of the fact that true individualfreedom cannot exist without economic security and independence."Necessitous men are not free men." People who are hungry and outof a job are the stuff of which dictatorships are made.” ~Franklin Delano Roosevelt

How do We Get There?• We begin by recognizing that Money is No Object• And then we institute: 1.) A full payroll tax holiday – Employer and Employee 2.) $150 billion in revenue sharing, distributed on a per-capita basis to state and local governments to alleviate on-going budget woes 3.) A federally funded job guarantee for anyone who remains unemployed after 1.) and 2.) have been implemented

Money is No Object: Why We Should and How We Can Achieve Full Employment

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