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Tackling Urban Homelessness the Green Way

The US housing affordability crisis is driving more and more of the working poor to live out of cars and squatter homes- the solution seems to be creating more affordable homes in both urban and suburban areas where there is a high level of homelessness amongst the working poor but this means more carbon emissions and pollution in urban areas the long run. A green alternative needs to be found if both homelessness and pollution are to be solved simultaneously.

By Athullya Gopi | The US housing affordability crisis is driving more and more of the working poor to live out of cars and squatter homes- the solution seems to be creating more affordable homes in both urban and suburban areas where there is a high level of homelessness amongst the working poor but this means more carbon emissions and pollution in urban areas the long run. A green alternative needs to be found if both homelessness and pollution are to be solved simultaneously.

Homelessness is a growing global phenomenon. In the United States (US), its rampant increase is most evident in urbanized areas along the East and West coasts. Homelessness in the US does not only occur as a result of an individual’s perceived social and economic problems such as mental health and substance abuse issues or the stagnation of incomes, it is also the result of long-standing imperfections in the private US housing market that prevent everyone in the economy who demands housing as a dependable and primary source of shelter from accessing it. Such market imperfections limit the number of affordable housing units supplied by the private sector to urban low or very low income households – often making such individuals or households highly susceptible to homelessness as both incomes stagnate and rents or home values spike. An ideal long-run solution to reducing this type of homelessness is to employ federally mandated policies designed to increase the supply of available affordable housing units to those needing dependable shelter. The idea of increasing the number of physical dwelling spaces in already congested and polluted urban areas, however, implies an added burden to carbon emissions and energy utilization in cities at a time when careful consideration needs to be given to the latter. Is there a green solution to solving homelessness caused by the housing affordability crisis in the US?

The rapid growth of urbanization is most evident in the rising number of people living in cities – by 2030 it is estimated that at least 27% of the world population will be concentrated in cities with a population of more than 1,000,000. It is also clear that the rapid growth of urbanization is increasingly becoming a contributor to global climate change – although cities only account for less than 2% of the earth’s surface 71 to 76% of the world’s carbon emissions originate from urban areas. The impact of climate change is being increasingly felt in urban areas including its homeless. Since 2016 the number of homeless individuals in urban areas perishing from being unsheltered in extreme climate conditions has been increasing.

However, it is not just in urban areas that homelessness is growing. Poverty and homelessness have been increasing in suburban areas in the US over the last 15 years. With homelessness on the increase as a social ill not necessarily constrained by population density or geography more and more households/individuals who find themselves chronically unsheltered as a result will also be directly exposed to the increasingly devastating effects of climate change. A sustainable and joint solution needs to be found to address both problems, one that envisions more eco-friendly homes for those who need them as a source of shelter when they have no recourse to one.

To start formulating such a joint solution we must begin with understanding the source of growth in homelessness over the last few decades. While foreclosures in the post-recession era have largely been responsible for people losing their owner-occupied homes, the source of homelessness relating to economic conditions extends beyond mere market forces that are freely operating. In the United States, the private housing market is an imperfect one, meaning that there are constraints imposed upon it that prevent demand and supply of housing from fully clearing. The imperfect housing market leads to renters being priced out of housing that is affordable when they are faced with either income shocks (like being made redundant when the economy goes down) or rental price shocks (when an upturn in the economy leads to a surge in property prices and therefore rents). This leads to a growing number of individuals/households that are at risk of becoming temporarily homeless. The Department of Housing and Urban Development (HUD) refers to such individuals as “transients”. Modern-day representations of homelessness are no longer restricted to the visibly homeless woman forced to live in her car while working as an adjunct professor and the army veteran who can only afford housing through a gofundme crowdfunding campaign. The housing crisis is one that is increasingly an affordability crisis.

The imperfect market leads to demand for housing persistently remaining relatively higher than the supply of available housing at any point in time. Often this mismatch between housing demand and supply is the result of the relative inelasticity (low sensitivity to price changes) of housing supply. Generally speaking when the price of a good or service increases, the supply of housing should respond over time by increasing too and vice versa. Housing supply, however, is relatively quite slow to respond to price signals due to a number of factors that do not directly impact the housing market. For example state regulations regarding land use vary across the United States and often favor the use of land in urban areas for commercial purposes rather than for housing, making it difficult to quickly increase housing supply in such areas in response to a sudden surge in housing real estate prices.

Additionally, the increasing use of housing real-estate as sources of investment leaves more and more units either vacant or used in a way that allows investors to gain higher than market returns – such as converting them to “AirBnB” units. This indicates that the market is biased towards those in the economy who demand housing real-estate as an investment good rather than as a basic form of shelter. This bias towards housing investors is clearly seen in urban areas by the rising levels of gentrification in cities – a way of making housing investments more attractive and therefore valuable to investors. Ultimately the existence of this bias means that richer entities/households that can afford to purchase or rent more than the one unit of housing they need for shelter gain access to the additional units they demand more readily than the relatively poorer households that need at least one unit for basic shelter. With a ‘sticky’ housing supply and a bias in how demand for housing is met, poorer households are ever more at risk of transient homelessness and not receiving at least the single unit of housing they require to meet their need for basic shelter.

Furthermore federal government safety nets for low income and very-low income households have been declining over the years instead of increasing: there have been no significant increases in federal housing voucher funding to make housing more affordable and more public housing units have been retired or demolished than built between 2000 and 2016 leading to an overall drop of around 200,000 units during this time. All of this implies a greater need for more physical housing units to be supplied outside of the imperfect private sector – to be made available ideally through federal government-led policy intervention that creates housing for the growing population of working poor that are most likely to be made transiently and then chronically homeless.

Increasing the supply of affordable housing to meet the real demand for housing as a source of shelter is only one half of a joint solution – the second half must resolve how to achieve this in a sustainable manner without adding to pollution levels. In this regard, special emphasis needs to be made on urban as opposed to rural areas mainly because the former are focal points of energy and durable goods consumption, both of which contribute significantly to the overall carbon footprint. For example, concentrated energy consumption in urban areas tends to create enough heat to change their surrounding microclimates, even causing them to differ in temperature on average by more than 1 degree Celsius than neighboring rural areas. Urban areas also generate undesirable runoff patterns in water – the way urban landscapes are constructed means that less water gets filtered back to replenish the local water table. At the same time urban areas, because of their warmer microclimates, generate more rainfall, meaning that run-off containing pollutants from industrial sites occurs more quickly and intensely than rural industrialized areas and significantly reducing water quality.

Innovative sustainable construction methods are becoming more popular. One example of a green construction standard is the Living Building Challenge, a green building certification program that outlines how sustainable built-up structures that are net water and energy positive (i.e. water is re-treated onsite and that more energy is generated onsite than consumed). This building standard was successfully used in a sustainable affordable housing project is present in Minneapolis. In 2015 two local nonprofit organizations, Aeon and Hope Community launched “the Rose”, a 90 unit mixed-income apartment complex with half the units assigned as affordable housing at a monthly rent of around $636 for a single bedroom apartment. What is remarkable is that the per square foot cost of constructing the Rose was less than a half that of a similar conventional high-end sustainable building. While it was 20% more expensive and more complicated to build than a comparable code-compliant building the Rose was intended to offer long-term cost-effectiveness by being up to 75% more energy efficient.

Affordable housing is largely not a favorable investment option for real-estate developers and so its sustainable development must be incentivized through policy change – one option would be through tax credits. However future policymakers must remain cautious about private investors using green building techniques in the name of climate change to deliberately ramp up property values.

Such an example appears in a case study of a multifamily residential property development supported by the City of Portland Oregon Department of Environmental Services. The latter is responsible for managing the city of Portland’s wastewater and stormwater infrastructure. In the Barrington Square Apartments project, the property owner retrofitted stormwater controls with greener technology that enabled the removal of more than 350,000 gallons of runoff with pollutants. While at first glance it appears that the Environmental Services Department that supported the project successfully promoted the implementation of green technology in the private sector to clean up of the environment, the project report indicates that the property owner was motivated to make these changes to increase the value of the property itself – an idea that is counter-intuitive to the expansion of sustainable affordable housing.

About the Author
Athullya is originally Indian, born and brought up in the United Arab Emirates. She joined the Levy Masters Program in 2016 after leading a successful career in credit insurance. The choice to swap her role as the head of commercial underwriting with that of a full-time student came after being inspired to see how Economics works in the real world. She now works at the Institute for New Economic Thinking in New York.

For Bold Solutions We Ought To Include MMT in Economic Discourse

By Justin R. Harbour, ALM

In a recent Financial Times article, Martin Sandbu identifies three major economic failures of competitive capitalism in the West: growing inequality; the disproportionate effects of The Great Recession on young people; and the threat of displacement in labor markets brought by improving technology and the presumed ubiquity of artificial intelligence. Sandbu connects these failures to recent victories of populist “extremist” parties in the EU, UK, and US, and asserts that if liberalism and competitive capitalism are to remain a viable and persuasive platform for the next generations a bolder thinking from the Western political economy is now more necessary than ever.

This need to revamp Western capitalism has brought renewed attention to Modern Monetary Theory (MMT), a school of thought that offers an important and bold perspective on economics and policy solutions. A universal basic income (UBI), universal basic services (UBS), and a job guarantee by the State are most commonly cited as a bold fix to current problems. So, it is worth asking, what are the merits of these aforementioned proposals, through the lens of MMT?

The Failures of Competitive Capitalism

To answer this question, we first look at the failures of the competitive capitalism. Growing inequality is nearly universal. According to the Organization for Economic and Cooperative Development (OECD), the growth in inequality between the incomes of the top 10% of earners and the bottom 10% has not stopped since 1985:

The Great Recession accelerated this trend and brought into stark relief the confounding need of the West to rescue and protect the Recession’s primary contributors (i.e., “too big to fail” banks). This approach made the resulting trends in unemployment all the harder to take, especially for the West’s younger workers. A 2012 report on the employment effects of The Great Recession by Stanford University found that those groups hit hardest were found those 25-54 years of age (i.e., the “prime working age” range, and hence a significant variable in overall economic growth). The report also found that minority groups found themselves bearing more of the burden than their racial-majority peers. A similar report from the Federal Reserve bank of St. Louis found that the recovery rates from unemployment after The Great Recession were lowest amongst younger prime-age workers and older workers. In Europe the young have fared even worse, according to a recent report from Eurostat:

The story for wealth creation and asset acquisition for younger citizens homeownership is similarly alarming. Since World War II, homeownership has been considered to be the financial outcome indicative of a successful economy due to its positive value as a long-term asset. The decline in home ownership thus includes a worrying picture, ceteris paribus. As shown in the graph below, declining home ownership in the United States accelerated during the Recession, and remains at a rate not experienced since the economic boom of the nineties:

Though homeownership is less likely to be understood as a sign of economic success and health in Europe, research suggests a similar trend in declining home ownership in the aftermath of the Great Recession was also seen in the EU. Taken together, these trends make a generation’s economic skepticism of the ability of our current economy to deliver prosperity more of a logical first principle than not.

Three bold proposals to address this skepticism have become nearly commonplace in such reform-minded discourse: a UBI, a UBS, and a job guarantee. What does each propose, and which is best suited to address the issues identified above?

Three Bold Proposals

A UBI offers all citizens a basic level of income. UBI’s proponents commonly claim that this income is necessary for a variety of reasons. The fear of artificial intelligence taking over traditional labor tasks is commonly cited in defense of UBI. Some UBI proponents also argue that such an income would enhance human freedom by providing an option free from coercive and freedom-reducing labor arrangements. A UBI could also streamline social entitlement spending to be more efficient and less bureaucratic. A UBS does not offer income, but a variety of services deemed essential to maximize freedom and economic potential. Though the services offered differ between advocates, they often include improved and free public transportation, access to the internet, and job training, among others. A job guarantee is just as it sounds: anyone needing or wanting work but currently out of work would be offered a job by the local government to provide labor and/or services toward local projects that a community needs.

Each of these proposals includes explicit costs that must be heavily weighed. For example, the literal cost of providing a UBI substantial enough to achieve its purpose is very high. Some have suggested that its cost could range in the 30-40 trillion-dollar range in the United States. Cost-of-living variations also diminish the streamlining argument for a UBI since adjusting it for regional purchasing parity may make it even more complex bureaucratically than the current system. Explicit costs also represent an issue for UBS, though ostensibly less so than a UBI. Though the job guarantee does face some cost concerns, important work has recently demonstrated that the opportunity costs of such a program are well worth the explicit costs it may incur.

Though each proposal is bold in its promises and its trade-offs, the more important question here is which offers a better redress of the concerns raised by the Great Recession. It appears that the job guarantee is the better situated to address all those concerns on both explicit and implicit cost fronts. The job guarantee addresses the unemployment problem and wages problem directly. The job guarantee has the additional appeal of making it more likely that the newly employed will accumulate enough wealth to make home ownership an attractive option, and thus satisfy the third concern. Conversely, a UBI only deals with the wage issue directly and therefore the unemployment problem indirectly, while a UBS program does not address any of the problems directly. There are several other variables at play that strengthen the argument for job guarantee over the others. Most importantly, the job guarantee is the only one that signals the value of work – an implication necessary for future growth if an economy hopes to move beyond its current frontier. In doing so, it is more likely to find traction in our polarized political paradigm by avoiding the typical debates associated with strengthening social safety nets.

The Rise of Modern Monetary Theory

The economic school most strongly advocating for the affordability of a job guarantee program – Modern Monetary Theory (MMT) – has been experiencing a surge of public interest and acceptance as of late. This is not to say it is brand new or has not been trying to advocate for the policies its theory substantiates for a long time. But its appeal since the experience of the Great Recession is obvious once one digs into it. MMT is a theory of sovereign monetary policy that asserts that sovereign nations that issue debt in its own fiat currency cannot ever run out of money. Any restraint by a nation on their spending for any reason, including to stimulate demand or provide needed relief is, therefore, a purely political decision, and only restrained by the availability of real resources. MMT’s advocates thus model how under MMT’s reorientation of fiscal perspective, a nation’s fiscal and monetary policy options are much broader than under older and perhaps more dominant paradigms. The implication is that there are bolder and further reaching policy options always available to state to provide relief for distressed citizens during downturns if they can move beyond the unnecessary concerns for debt and deficits during such times.

The most notable of MMT’s more active contemporary economists include L. Randall Wray, Warren Mosler, and Stephanie Kelton. There are several websites dedicated to the defense of its theory by these authors and others: one by another of its theorists Bill Mitchell; and The Minskys, so named to honor one of the more prominent economists to set the foundations of MMT, Hyman Minsky. Of additional note would be Ms. Kelton’s work with the campaign of Bernie Sanders in 2016 and her recent inclusion into Bloomberg View’s stable of writers – an inclusion suggesting that MMT’s theories are gaining traction. There have also been recent news items such as a history of MMT in Vice News and a review of its contemporary appeal in The Nation. Finally, there has been the consistent work and advocacy of the Levy Economics Institute of Bard College. MMT, in other words, appears here to stay.

Important work has been produced recently by MMT economists as well. In the United States, the Levy Institute recently published a report on the macroeconomic effects of canceling all student debt. The report finds that effects of such a policy would have a greater economic stimulus on employment and GDP than its costs can reasonably argue against. So too did the Levy Institute publish a report on the feasibility of the guaranteed job program discussed above. The job guarantee has helpfully garnered bipartisan support from the political right, left, and center.

Though popular within certain corners of the public sphere and gaining traction, it is not without its legitimate faults and challenges. Nonetheless, an undergraduate or higher level secondary student is unlikely to be exposed to MMT during their introductory training. I am not here suggesting that the more traditional curriculum is not appropriate for introductory students, nor universally ambivalent about the inclusion of emerging theories. But I am saying that for some teachers and some curriculums, finding ways to include such exciting emerging work with profound implications on their economic thinking and potentially their communities are harder the more they are not engaged with by “mainstream” outlets. What’s more, some of the more ubiquitous and far-reaching introductory curriculums (Advanced Placement in America, for example, or the International Baccalaureate program) don’t consider it at all.

At a time when some are rightfully calling for economists to better communicate economic concepts, ignoring newer and bolder conceptions of economic pillars that have popular momentum and real-world applicability behind them – such as MMT – leaves a fruitful learning opportunity to advance economic thinking and communicating skills for the youngest of economists at the door. Mr. Sandbu is right; the experience of the Great Recession by Gen Xers, Millennials, and those closely on their heels demands bold reform to reanimate the economy’s perceived legitimacy. A generation of economists and their work will be informed by their experience with the Great Recession. Let us all hope that MMT and its similar promising competitors are taken as seriously as the older theories so that we can rethink and rebuild economics in a way that makes economic thinking and understanding economic theory a universal pillar to our civic discourse.

About the author

Justin Harbour is currently an Instructor for Advanced Placement Economics at La Salle College High School in Philadelphia, PA. Having studied history, government, and political economy at UMASS, Amherst and Harvard University, he has previously published book reviews on teaching and education for the Teacher’s College Record and essays in CLIO: Newsletter of Politics and History, The World History Bulletin, and Political Animal. Justin lives in Philadelphia with his wife and two children. Follow him on twitter @jrharbour1

It’s Time to Guarantee Jobs

The first half of the twentieth century was a challenging time for economics. The Great Depression wiped out incomes, investments, and most importantly, optimism. But when the traditional laissez-faire approach proved ineffective, the work of Keynes and FDR showed that there was another way. The New Deal employed American workers directly and restored confidence among business owners. Today, we could benefit from a similar program. It’s time for a new New Deal, or a Job Guarantee Program, that secures employment to all who are able and willing to work. We’ve done it before, and we can do it again. By Johnny Fulfer.

What We Learned from the Great Depression

According to the National Bureau of Economic Research, the U.S. economy was in a recession just over 48 percent of the time between 1871 and 1900. But none were as bad as the crisis that followed The Great Crash of 1929. Nevertheless, orthodox economic theorists urged policymakers to maintain the status quo and argued the economy would return to normal as long as it was left alone. This perspective was influential and often framed the ways in which political leaders such as Herbert Hoover understood the crisis. Hoover was not only politically committed to free-market ideas, he was psychologically invested in them, urging Americans to show thrift and self-reliance, practices which later resulted in more turmoil.

Elected president in 1932, Franklin Roosevelt did not have an all-embracing theory that would solve all America’s problems. Rather, he employed a wide range of policies, some of which failed, while others were successful in getting people to work. Perhaps the greatest impact Roosevelt’s New Deal had on American society was the change in perspective policymakers had toward government intervention. Earlier leaders like Theodore Roosevelt and Woodrow Wilson had had only moderate success producing government initiatives to restrain the predatory nature of American capitalism. But after the Great Depression, FDR helped policymakers and citizens markedly change their views in favor of government assistance, temporarily pushing the conservative opposition to the margins.

As such, FDR’s New Deal momentarily ended the ‘rugged individualism’ of the Hoover era and demonstrated that free-market economics could not be relied upon in a time of crisis. When the economy falls into a slump, the government must be used as a source of relief.

This, too, is the argument that John Maynard Keynes makes in his influential 1936 book, The General Theory of Employment, Interest, and Money. Keynes challenged the neoclassical principle that the market naturally adjusts itself to full employment. Along with the two held theories of unemployment—voluntary and frictional—Keynes wrote, there is also the involuntary, which was the result of a shortfall in aggregate demand.

The volatility of investment, Keynes argued, is dependent on our expectations of the future. The only way entrepreneurs would invest is if they expect sufficient demand for goods and services. This was a problem during the Depression—spending money was scarce. When people are unemployed, or fearful of losing their jobs, they are likely to reduce spending. This creates a cycle of insufficient demand, bringing profit-expectations down. Increasing savings, Keynes showed, would only make things worse. A rise in savings would reduce spending, and thus bring down the total level of employment and income. Surplus inventories with nobody to buy commercial products would force firms to contract operations and lay off even more workers.

Therefore, Keynes concluded, there is no automatic recovery from depression; supply does not create its own demand. The only solution is for the government to heavily invest in public works, creating jobs and increasing demand to rebuild confidence in the business community.

Roosevelt’s New Deal did exactly this. It produced nearly 13 million jobs, over 60 percent of which came from the Works Progress Administration, an organization which hired a wide range of individuals, from artists and writers to laborers who constructed roads, bridges, and schools. An incredible number of public goods were provided through these programs, and money was placed in the hands of the workers, whose purchasing power gave business owners’ profit expectations the much needed boost.

Why We Need a new New Deal

The U.S. Bureau of Labor Statistics recently published a report examining the current employment conditions in the United States. The unemployment rate stands at 4.1 percent, the BLS reports, which is roughly 6.6 million people in the labor force. While the unemployment rate is relatively low from a conventional perspective, Dantas and Wray argue that this does not consider the falling participation rate for prime-age workers and wide-spread income stagnation.

Moreover, we often gauge the economy based on the unemployment rate, although, this economic indicator does not consider the fact that 40.6 million Americans remain in poverty. A job paying the current federal minimum wage doesn’t mean a worker will make enough money to live without relying on various forms of welfare. In order to turn this around, we need a new New Deal.

While the New Deal of the 1930s was a centralized program, controlled by the federal government, Dantas and Wray propose that a “new New Deal” would be more efficient by creating a more decentralized workforce, hired by state and local governments to meet the needs of the local communities, with wages paid by the federal government. They propose a Job Guarantee program.

The idea behind this policy is that those who are involuntarily unemployed don’t have to be if the government supplied them with a job. Economist Carlos Maciel further argues that the Job Guarantee program would cost around 1 percent of the U.S. GDP, providing additional jobs through the multiplier effect. When the government invests $1, it multiplies through consumer spending, turning into $2 or $3 in the real economy. In his General Theory, Keynes estimated the multiplier to be somewhere between 2 ½ and 3.

Employment works in the same manner. If one new job is created from the initial government investment, the consumption created by the additional worker will produce more jobs in other industries, whose consumption will take the process further, until the multiplier is reached. Moreover, this program would redistribute money from current welfare programs toward the Job Guarantee program. Those who are currently under the poverty line will not need traditional welfare benefits if they have jobs that pay a living wage.

Perhaps the reason U.S. policymakers are hesitant towards a Job Guarantee program has less to do with economics, and more about an investment in the status quo, whether politically or psychologically. Many Americans are invested in the idea of ‘free markets’, whatever they envision that to be, pushing rational economic discourse and the notion of social justice to the margins, and elevating the politically constructed parallel between self-interest and the partial idea of the American Dream. We must move beyond the free-market ideology, which views everything as profit or loss, win or lose. Only time will tell how this polarized form of reasoning will impact the American people, especially the 40.6 million Americans that are currently below the poverty line, who stand to suffer the most.

About the Author: Johnny Fulfer received a B.S. in Economics and a B.S. in History from Eastern Oregon University. He is currently pursuing an M.A. in History at the University of South Florida and has an interest in political economy, the history of economic thought, intellectual and cultural history, and the history of the human sciences and their relation to the power in society.

What is the Minimum Wage that Will Employ Everyone?

It is official, the unemployment rate in the US has dropped to its lowest level in 16 years. Economists all around the country must be tapping themselves in the back and buying each other drinks in congratulations, right? Wrong. Despite the official drop in joblessness, we have a decline in labor participation, an increase in the “skill gap” in the labor force (i.e. unemployed workers’ skills do not match those needed by open jobs) and, arguably most importantly, wages that fail to rise fast enough.

For starters, the latest reports show that the year-over-year wage growth rate has been stagnating; it reached 2.5 percent since last year, which is just marginally above inflation. It is difficult to determine exactly why people drop out of the labor force, but we can speculate that some do so because of the lack of pay increases. Whatever the reason, the dropout is a significant part of the declining unemployment rate—e.g. the May report shows that 429,000 people dropped out of the labor force. A nation with a population that is actively leaving the labor force and that deals with stagnant wages is a nation facing serious socioeconomic problems.

The problem at hand, then, is a question economists have been dealing with for ages: how can we increase earnings and employment at the same time? Common economic understanding would argue that we have to choose between higher wages and more jobs. The main argument against minimum wage hikes is that it would increase unemployment. That claim is factually untrue (just look at Seattle) and there are a number of ways to address the issue. At The Minskys we have tackled this topic several times, and shown that a decent minimum wage does not have to reduce the number of jobs out there. One way to have both is with a Job Guarantee (JG) program.

One of the more interesting consequences of a JG program is that it would create a de-facto minimum wage without the need of actually raising the minimum wage. The JG wage would become the minimum wage for the entire economy. Workers receiving less than the JG wage would be inclined to take a JG job, and employers would have to raise their salary offers in order to keep their workforce. Given the impact of the pay offered by the program, it is important that the JG wage rate be thoroughly discussed.

The JG literature has a large number of works focused on the topic of wages. Some suggest the pay to vary with skill-level. Others advocate for JG wages to be the same as they would be in the market. But having multiple compensation packages would make the logistics and application of a JG program much more complicated.

To find the best wage rate for JG jobs, a few parameters should be considered. First, the JG framework is to create jobs that provide at least a minimum “subsistence” rate, so that workers can live a decent life. As such, it is clear that the JG wage should at least be the current federal minimum wage of $7.25 an hour. Second, the goal of the JG is not, and should never be, to replace the private sector. So, the JG wage should not exceed the average wage paid in the private sector ($25.31 in 2016). This creates an upper limit.

With these lower and upper limits in place we can raise the floor or lower the ceiling, ultimately arriving at the proper wage rate paid by this full employment policy. Recent polls show that Democrats, Republicans and Independents—in their majority—all support raising the minimum wage to $10.10 an hour, which suggests that there may be widespread political support to increasing the minimum wage.We can raise the lower limit further after we consider the per capita income in the US, which would put the fair minimum wage at $12.00 an hour. The lower limit of $12 an hour is appropriate since it is marginally above the poverty rate of $11.53 for a household with two children where only one of the parents is employed.

A good point within that range is the $15.00 hourly wage rate. Legislation regarding this wage rate has recently been approved in cities such as Seattle, Los Angeles, and the state of New York. There is also a movement by workers demanding that it becomes the floor in the fast food and retail industries. It seems appropriate, therefore, to follow these cities and movements by determining the going wage rate for a JG program to be set at $15.00 an hour. After all, a national JG cannot pay less than locally established minimum wages. On the other hand, the guarantee of a job in, for example, Seattle paying $15.00 per hour, while surrounding areas are offering lower pay could saturate one area in detriment of another.

As previously discussed, the JG wage would become the minimum wage to the entire economy. Consequently, workers who currently earn less than the $15.00 an hour rate would receive a raise. In total, accounting also for the ripple effects faced by workers in the $15.00 to $19.00 range, roughly 64.7 million workers would receive a wage increase, which means 43.5 percent of the labor force would see their wage income go up. To avoid inflationary pressures, allow for seamless implementation, and contain possible—albeit historically improbable—negative employment effects from the minimum wage hike, the transition to this wage through the implementation of the JG program will have to be done incrementally.

The Job Guarantee is an effective way to solve the three major problems currently facing the American labor market: the skill gap, the dropout of workers from the labor force, and most importantly the stagnant wages. We have empirically observed that wage increases not only do not increase unemployment, but they also serve as a catalyst for economic growth and towards social equity. The US economy has plenty of needs that can be fulfilled by giving well-paying jobs to its unemployed. The $15/hour wage is not only fair, it is a necessary measure to ensure the prosperity of this nation.

In the Spotlight: Pavlina Tcherneva

If I ask you to picture an economist, chances are you’ll visualize an older white male who makes you feel bad for failing to understand mysterious diagrams. Those certainly exist. But so does Pavlina Tcherneva. Chair and Associate Professor of the Economics Department at Bard College, Pavlina spearheads the group of faculty that convinced me (daughter of graphic-designer-dad and dancer-mom) to get a degree in Economics, and then another.

Pavlina’s Work in a Nutshell
Pavlina is comfortable in many unconventional territories of economics. She can tell you why the government should be your backup employer, why the federal budget really need not balance, and what money really is. Besides the US and her native Bulgaria, she’s consulted policy makers in Argentina, China, Canada, and the UK. Her work has been recognized by a wide range of people; most recently by Bernie Sanders, who used her graph to illustrate his point on inequality.

Current Research
Pavlina’s current research focuses on the “Job Guarantee” policy, which recommends the government acts like an employer of last resort by directly employing those people looking for work during economic slowdowns. In 2006, she spent her summer in the libraries of Cambridge, examining the original writings of Keynes. She offered a fresh interpretation of his approach to fiscal policy, and got a prize for it, too. Today, she investigates what the policy can do for economic growth, the unemployed, and in particular: women and youth.

Path to the Present
If you’re feeling inspired, take note: Being like Pavlina doesn’t happen overnight. In her case, it began with winning a competition that sent her to the US as an exchange student. She then earned a BA in math and economics from Gettysburg College, and a PhD in Economics from the University of Missouri-Kansas City. Her undergraduate honors thesis was a math model of how a monopoly currency issuer can use its price setting powers to produce long-run full employment with stable prices.

As a college student, she helped organize a conference in Bretton Woods around this idea, which became the inaugural event of what has become known as Modern Monetary Theory. Then, there were a few years of teaching at UMKC and Franklin and Marshall, and a subsequent move to the Levy Economics Institute and Bard College several years ago. In the midst of all that, she was a two-time grantee from the Institute for New Economic Thinking (INET) in New York. Today, Pavlina lives in the Hudson Valley, together with her husband and daughter.

Eager for more?
If you’re curious about the Job Guarantee policy, here is both a 15 minute video, and a 150 page book. To understand Pavlina’s take on the Federal Budget, this article goes a long way. And to figure out what’s the deal with money, read this chapter of her book. Her work on inequality was featured in the New York Times, NPR, and other major media outlets. She has articles published by INET, Huffington Post, and over a dozen works on the SSRN.

The Job Guarantee: The Coolest Economic Policy You’ve Never Heard Of

When you think of economic issues what are the first things that come to mind? Poverty, inequality, unemployment, inflation, and crisis are all common answers to the question. Wouldn’t it be great if there was a policy that could address all of those issues (and more) in a cost-effective manner? In this piece I will give a very brief introduction to Job Guarantee (JG) schemes, the proverbial economic silver bullet.

Hyperboles aside, Job Guarantee proposals (which may come in many different names such as Employer of Last Resort, or Public Service Employment) are a remarkably good way to address many of the social economic problems current faced by populations all over the world. Ideas about JG programs date back to as early as the 1600s, they have been implemented in many nations during a variety of different stages of the business cycle – and usually to a great deal of success.

Simply put, JG is a direct public employment policy where all of those people who are willing and able to work are guaranteed a job given that these individuals meet some basic employability requirements. Most proponents of JG establish that these jobs should pay a basic, fixed, uniform wage plus full medical coverage and free child care (the latter can be provided by JG workers themselves). The goal of the program should be to ensure that all full-time JG workers are able to obtain a living standard that is above a reasonable poverty threshold. Thus, this sort of program go a long way in addressing poverty. Furthermore, it would also target another major economic problem, the stagnation of real wages and the currently low minimum wage granted to US workers. The JG wage would instantly become the minimum wage for the entire economy: workers in other sectors that are receiving less than the JG wage would be very compelled to take one of those guaranteed jobs, and employers would have to raise their salary offers in order to keep their workforce. Finally, the wages would also act as price anchor, which improves upon the stability of the economy.

The first question I usually get when telling someone about the Job Guarantee is “yeah but, how can we afford it?!” Questions about the deficit and national debt have been put to rest previously on this blog (see here), hence I shall focus on other questions regarding its affordability. For starters, it has been shown elsewhere that JG is remarkably cheaper and more effective than other proposals, such as Basic Income and Negative Income Tax, in achieving lower poverty and unemployment rates (see here, and in many pieces by Rutger’s Phillip Harvey). Secondly, the newly employed JG workers would bring in savings in many different ways: they would get out of unemployment insurance, food-stamps, and other such programs; they will pay income tax, medicare and social security tax, as well as more consumption related taxes; and the government would spend less on issues that are related to poverty, such as higher crime rates. In addition, employment multipliers would make it so the JG program would not have to employ the entire unemployed population. The extra consumption and production related to the JG will create indirect and induced jobs which will represent a significant portion of the job creation from the program. Finally, yours truly is among a number of economists who have modeled the implementation of a a JG for the US and found that eliminating unemployment at a living wage would cost just around 1% of the American GDP.

At this point many say something like “but employing everyone while raising the minimum wage has to be inflationary!” the answer to which is a simple “nope”. First, we have to bear in mind that in the current system the economy’s most precious resource – workers – is being wasted in unemployment, while under a JG program it will be put to use. Orthodox economic thought claims that millions of people need to be unemployed in order to contain inflation, that it is financially “sound” to a tenth of the population in idleness for an unknown period of time. It comes from the idea that the economy is always operating at full capacity, which then brings the inflation problem to being a matter of equilibrating the demand and supply forces of the economy. Both of these assertions are, to quote Keynes, “crazily improbable – the sort of thing that which no man could believe had not his head fuddled with nonsense for years and years.” Government expenditure is as inflationary as any other sector expenditure. Unemployed workers are spending in consumption either way, being sustained by welfare or, dangerously, by credit – and there’s nothing financially “sound” about that.

A JG program would in fact control for inflation by proving a minimum wage anchor for prices and by increasing the productive capacity of the economy through its projects. It would take off the pressure put on demand from the unemployed by increasing supply of goods and services by incorporating those idle workers in the productive structure. Furthermore, even if we assume it to be inflationary it would be a “one-time” increase in inflation, and not an accelerating type one, meaning that demand (and inflation) wouldn’t rise above the full employment level.

In that sense, the costs associated with a JG program (increasing budget deficit and inflation) are not more than ideological myths that obscure the true social costs of unemployment and poverty and curtails any innovative attempts to deal with them. Indeed, generating aggregate demand, employment and inflation is all what the US economy has tried to do since the 2008 financial crisis, but through the wrong ways. A JG program would be extremely more efficient and less costly than QE or negative interest rates. As the world crumbles in economic and political instability, guaranteeing jobs would surely deal with most of its problems. It is up to governments to load and shoot that silver bullet. I don’t think there’s a more appropriate time than now.

Written by Carlos Maciel & Vitor Mello
Illustrations by Heske van Doornen