Coffee meeting

by Stubborn Mule on 30 November 2010 · 10 comments

No, I’m not writing this post over a macchiato. The title of the post has nothing to do with caffeinated beverages. Rather, it refers to the annual conference of “CofFEE”, the Centre of Full Employment and Equity, a research centre at the University of Newcastle.

The director of the center is Bill Mitchell, who may be known to Stubborn Mule readers as the author of Billy Blog. Two of Bill’s primary interests are the macroeconomics implication of the nature of money, a topic that comes up frequently here on the Mule, and the development of economic policies aimed at restoring full employment, chief among which is the idea of a “job guarantee”. For Bill these two areas are intimately linked. He argues forcefully that too much economic policy around the world today is mired in thinking that has not progressed past the days of gold standard currencies. A better understanding of the real nature of money in modern economies like Australia, the United States and the United Kingdom (but unlike those unfortunate countries struggling in the euro-zone) would release governments from baseless fear of government spending and the confusion generated by concepts like NAIRU (the idea that full employment would necessarily generate excess inflation) and empower more effective fiscal policy.

I will be attending the CofFEE conference later this week and the program reflects these twin themes of employment policy and the theory of money. Among the speakers are Marshall Auerback and Randall Wray who are both out from the United States and, along with Bill Mitchell, are well-known proponents of the “Modern Monetary Theory” approach to macroeconomics. Auerback and Wray will be sure to have some interesting perspectives on the financial crises and the failures of US policy responses to the ongoing recession over there.

I will be reporting back on highlights from the conference and, in the meantime, keep an eye out for tweets from @stubbornmule. If you have any questions you would like me to try to ask, let me know.

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{ 10 comments… read them below or add one }

1 Senexx November 30, 2010 at 6:08 pm

I await it with much interest.

2 An Anonymous Zebra November 30, 2010 at 6:11 pm

Will be interested to see what the definition of “full employment” is.

3 Stubborn Mule November 30, 2010 at 6:29 pm

Senexx and Zebra (and others) let me know any questions you would like answered. I’ve put the full employment one on the list.

4 Magpie November 30, 2010 at 7:10 pm

Hey Stubborn!

“Senexx and Zebra (and others) let me know any questions you would like answered.”

Although it doesn’t appear to be contemplated in the program, if you go to the “Internal migration in Australia: Does it exacerbate or mitigate regional skills disparities?” (Parallel Session B – GP 1.1 Chair: Riccardo Welters) any information about INTERNATIONAL migration and Australian labour market would be appreciated.

Have they conducted statistical analysis of the impact of international migration? In what industries do foreign migrants work? Are their skills marketable? Is there any link between migrant intake and wages/incomes? Anything, really.

5 Stubborn Mule November 30, 2010 at 9:36 pm

Magpie: I’ve added it to the list.

6 Senexx December 1, 2010 at 1:59 pm

Zebra, if we go by Bill Mitchell it’s 2% Unemployment with 0% underemployment.

Stubborn Mule: With all the technological advantages we have today where machines can increasingly do labour, why isn’t full employment considered only 0% underemployment as surely this efficiency increase would make frictional unemployment and voluntary unemployment higher than the 2% in Australia as historically indicated?

Also if the interest rate is arbitrarily set by the government how do budget deficits drive the interest rate down? [I figure the answer is something to do with the difference between the overnight and support rate but what is the difference between the two?]

7 pfh007 December 1, 2010 at 2:21 pm

A question.

I understand that the goal of high employment and low underemployment is a good one because it would minimize the under utilization of valuable human capacity but I am not clear as to how one would ‘guarantee’ a sufficient supply of jobs and what those jobs would be. Are these voluntary jobs or work for the dole type jobs?

I assume we are not talking about the construction of autobahn across the country (though a nice fast rail link between Newcastle/Sydney/Canberra would not go astray).

Is it simply a question of setting interest rates/labour market policies that induce private individuals or organisations to offer sufficient jobs or does it extend to the actual creation of job intensive projects and thus the jobs that go with those projects?

After all, the building industry and trades could be kept busy on an ongoing basis without any population growth or a mining boom by a simple policy that houses over 70 years old should be demolished and rebuilt. (With an exception made for buildings of clear historical or cultural interest).

Likewise, campaigns encouraging people to visit their physio, psychologist, doctor, re-model their gardens, get a back rub etc etc would stimulate demand for services.

Look forward to your posts concerning the robusta debates at Coffee (sorry).

8 Stephan December 2, 2010 at 6:26 am

I’m envious! Couldn’t make it this time. A cheers to Bill and his relentless fight against all these economic zombie ideas trotted out on a daily basis by the media and the zombies themself (Barro, …)

9 Senexx December 2, 2010 at 8:44 am

Here’s a good question to ask if you’re in an appropriate forum:

Although Rodger Mitchell and Warren Mosler both point to OPEC as a big factor in inflation, Warren believes that taxes serve to clamp down on private sector demand which in turns slows demand for good and services, cools off the economy and voila, inflation is subdued.

Your cure for inflation is totally different. As I understand it, you believe that higher interest rates will increase the demand/attractiveness for money itself which will in turn subdue inflation.

Your two theories will obviously require very different policies should inflation begin to rise. Taken from here.

Which party is correct? Or are they both correct depending on the circumstances?

10 Stubborn Mule December 6, 2010 at 6:35 pm

Zebra, Senexx, Paul and co. I ended up recording an interview with Bill after the conference. I’m in the process of editing it and will post it on the blog. It mainly focuses on the Job Guarantee, so it covers quite a few of the questions posed here. As Senexx indicated, Bill’s idea of full employment does amount to around 2-3% observed unemployment. This is because he defines full employment as everyone who wants a job having a job, and everyone working as many hours as they want (so zero underemployment). The 2-3% represents “friction” in that at any given point in time there will be people changing jobs or entering the workforce who have not yet got a job but will, in short order, get one.

Bill also discusses some of the sorts of jobs that the Job Guarantee would create. They would predominantly be public sector (multiplier effects mean that the very existence of the Guarantee would result in more employment, more spending and hence more private sector jobs too) and mostly coordinated at a local level. Examples would include environmental work or work in aged care services.

Senexx as for the question about deficits and interest rates, Bill’s argument is that deficit spending in the first instance increases bank reserves and (unless the central bank pays interest on reserves, which is the case in Australia), banks would compete to lend these reserves out in the interbank market and would offer a lower and lower interest rate to attract the funds. Of course, in practice, central banks like Australia’s do manage the process to target a particular rate through a combination of paying interest on reserve balances and open market operations (buying/selling bonds).

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