Our proposals are aimed at allowing the public to more fully take advantage of the opportunities presented by our government’s role as currency issuer.
First, this means exercising the power of money creation to attend to public priorities on a larger scale than we currently do. Second, it means asserting public control over the creation and allocation of what is essentially public money, by the financial sector. This amounts to preventing the banks from allocating public funds on their own private behalf, and cracking down on this kind of activity in the rest of the financial sector as much as possible. Crucially, these two aspects must be coordinated so that restricting private allocation of public money does not cause deflation.
This would be achieved by the implementation of a federal job guarantee. This program would ensure that any deflationary pressure created by restricting private allocation of public funds would be counterbalanced by increased public spending to fund public employment.
A Federal Job Guarantee
The Job Guarantee is a proposal to establish the legal right to a job to all who want one. These jobs would be administered by local governments and funded federally without any tax offsets. These jobs would be similar in character to those offered under the Works Progress Administration during the New Deal, in that they would be on behalf of public priorities. These jobs could be in schools, hospitals, community centers, and nursing homes, or building infrastructure, installing solar panels, or even in the arts. Unlike the WPA, the program would be open to all who wished to participate, and would be permanent. These jobs would pay a living wage with full benefits, thereby setting a floor under wages that the private sector would have to compete with.
The monetary significance of a Job Guarantee is that it, in part, provides an alternate mechanism for fulfilling the Federal Reserve’s dual mandate of minimizing unemployment and providing price stability. Of course, a job guarantee´s unemployment minimization feature is self explanatory. However, less obvious is that it would help promote price stability as well.
Econ 101 classes often use the punch bowl analogy for explaining monetary policy. According to this analogy, the Federal Reserve “brings out the punch bowl to get the party started” by lowering interest rates, which increases lending and stimulates the economy. Then the Fed “takes away the punch bowl before the party gets out of control,” raising interest rates and decreasing lending in order to prevent an upsurge of inflation in the economy.
A job guarantee mimics this punch bowl analogy mechanism. It does this by responding to downturns with increased public spending which would be automatically triggered by increased public sector employment when the private sector lays off workers. Conversely, as this stimulus relaunches private sector hiring, public spending on job guarantee employment would decline, averting excessive inflation. This stabilizing mechanism is key to ensuring that money creation through public spending and through private lending combine to achieve a balance that is neither deflationary nor excessively inflationary.
Public Money for Public Interest Uses
Our complementary proposal is to restrict the creation and allocation of public funds by the banks and other financial institutions to public interest uses. This is meant to impose the burden of checking inflation on the financial sector that has used the public infrastructure of our money system to create money for uses with little public interest justification.
In the traditional banking sector this would entail credit controls, which are simply controls on the allocation of credit by banks. In the non-bank financial sector, the policy regime would be more complex, though there are a number of measures that could be applied towards this general end. More detail on this with be forthcoming as our academic allies release formal academic proposals.