I was chatting to my delightful friend and colleague Anne (co-host of the unmissable RadioMMT programme on 3CR — go listen to it now!) last night, and she asked me a question about the MMT Job Guarantee. I'd had a couple of pints (and a few hours of social interaction overwhelm) by then, so I'm afraid I didn't answer it adequately. And as I proceeded to have a couple of glasses of wine with a late dinner when I got home, I regret to say I now can't remember what the question was.
So I thought I'd quickly jot down what I think are the key general characteristics of public buffer stock programs — either existing, proposed, or just trapped in my muddled head struggling to get out — without cheating and looking anything up.
Stabilisation of Systemically Significant Prices
The primary function of buffer stock programs is to stabilise systemically significant prices. Systemically significant prices include those which:
- are associated with "ubiquitous inputs to production" (eg. energy, wages),
- are associated with goods or services essential to dignified human existence (eg. food, housing, healthcare, utilities), or
- serve as benchmarks in the determination of other prices (eg. interest rates, wages).
Sudden increases in systemically significant prices may:
- directly increase the cost of living,
- propagate through supply chains and cause a general increase in prices,
- be used as a pretext for increasing margins ("sellers' inflation"), and/or
- result in an misallocation of existing resources (notably labour, in the direction of the dole queue), and potentially cause a recession/depression.
Supply and/or Demand Guarantee
Buffer stocks stabilise prices by releasing goods at a fixed price when market prices rise above a policy threshold, and purchasing goods at the same price when market prices fall below a policy threshold. When the resources necessary to do this are primarily financial, a currency-issuing government can manage this trick relatively easily. As always, the constraints are real resources.
That is, a guarantee to purchase any unallocated labour is feasible under even the most extreme and implausible circumstances, such as a Utopia where everybody's needs are fully satisfied, and there is simply no useful work for those in the Job Guarantee program to perform. Given an adequate supply of shovels, any number of people may be employed digging holes in the morning and filling them in over the afternoon. At a pinch, some of these people could be employed to manufacture shovels.
However, a commitment to guarantee quality universal healthcare to all is rather more difficult to deliver, even under the most ideal conditions. This requires long-term strategic management of an enormous range of real resources. Nobody said being an economist was going to be easy. We're not in it for the cheap glory.
Such commitments must be universal, not humiliatingly means-tested and conditional charity. If you split a market in two — conditional public provision only for those in dire crisis, and the public sector for the rest of us — any improvement in the state of the one market does not "trickle up" to the other. That is, this public provision does not serve as a "price anchor" for the private market.
A Private Sector Price Anchor
The ideal state of buffer stock programs is to be as large as needed but no larger. They should work to regulate rather than aim to comprehensively compete with or dominate the private sector. (i.e. Industries that are natural monopolies should just be nationalised.)
Most modern industries consist of firms that do not compete on price. They compete for market share, which brings economies of scale, higher margins and greater access to the investment finance needed for further expansion. Their innovation and efficiency is largely confined to devising new means of exploiting their workers, suppliers, and customers to the greatest degree possible (as well as using their influence to distort public policy in their favour).
A "public option" employer, buyer, and provider of goods and services in key markets effectively sets benchmark prices, levels of quality, and contractual terms that the private sector cannot undercut without losing market share to the public sector.
For a public buffer stock program, idleness is the measure of success. It means that the private sector is meeting those benchmarks and operating efficiently in the public interest. (At least to the extent that the benchmarks reflect the public interest.)
Risk Pooling
Firms do not like to hold more labour, capital, or inventory than is necessary for the short term. This may be all very sound and cost-efficient under normal conditions, but when normal conditions cease to apply — for instance due to an interruption in supply, such as we saw during the pandemic — the fragility of this arrangement becomes apparent.
As Isabella Weber emphasises, we can expect such disruptions to become more frequent as we venture into an increasingly uncertain future. As each of these is likely to affect different geographical areas and different demographic groups unevenly, the currency-issuer is the appropriate level of government to finance programs which maintain supply.
An Economic Thermostat
Even mainstream economists commonly speak of certain forms of public spending and taxation as "automatic stabilisers". That is, increased tax revenue and decreased welfare payments during booms, and vice versa during recessions, tends to moderate the amplitude of economic fluctuations.
A buffer stock program is a more targeted intervention in a particular market. It maintains a given benchmark price/quality level until there is a public policy change (or until the exhaustion of the required real resources). It ensures that booms and busts do not occur in the first place, and that transient supply or demand shocks do not result in price hikes that propagate through the wider economy. It is a policy instrument analogous to a thermostat.
For example, a Job Guarantee can offer gruelling, unproductive work (eg. digging holes and filling them in) at miserly wages, or it can offer fulfilling work designed around the talents and interests of the particular job recipient at generous wages (perhaps even over a four-day work week). It all depends on where you set the thermostat.
Bill Mitchell has talked about how, throughout the post-war period until the 1980s, Australian governments ran a de facto Job Guarantee program by offering (fairly menial) public service jobs which always had room for one more worker. Similarly, public health care, public education, public housing, and so on can at present be seen as de facto buffer stock programs (if very imperfect ones).
The benefit of formalising them as such is that, once there is a broad public understanding of the above principles, it deprives the government of the argument that degradation of essential goods or services, or increases in their cost to the recipient, is the result of budget constraints or mysterious market forces beyond the feeble powers of government to resist.
Government creates and regulates it's domestic money and markets. Absent pressing real resource constraints (which can be a problem, notably in poor countries), the failure of government to meet fundamental social needs is nothing but a result of economic mismanagement.
If you are in the driver's seat of a car and take your hands off the wheel, declaring that you are simply following the conventional wisdom that cars naturally know the best route from A to B does not absolve you of blame for the consequences. You are still responsible for the direction of motion of the car.