Universal Basic Income vs. (?) Employment Guarantee. A letter to my MMT friends

Before starting on what will be a long list of points, let me explain how I came to be involved in the debate between Universal Basic Income (UBI) and the Employment Guarantee (EG). I have been a long-standing believer in UBI and one day, I think it was reading The Nation, I came across the proposal of EG. If memory serves me well, it was a piece by Randall Wray. I liked the idea! Indeed, I still like it! I've never thought of myself as a foe of EG. So, imagine my surprise when, some time later I realized that anytime I try to get close to the EG crowd I encounter a very different reaction. (With one exception. I hosted a very civil debate in Fundación Alternativas with Stuart Medina Miltimore (no connection). It went swimmingly and a good time was had by all.)

I remember at some point being introduced to one of the greats of MMT. The person presenting me made the innocent mistake of saying that I was a UBI enthusiast. Well, I guess it would have been better to introduce me as a creationist, or an astrologer, or a straight-out fascist. I think that's what I'll do next time I ran into a pontiff of MMT. As it happens, that was just the beginning. Any time I check the production of the MMT crowd about UBI I find the same pattern: MMT hates UBI with a passion! Hates it. I keep thinking that if at some point an MMT party were to form part of a left-wing coalition government, it would rather make the government fall than introduce a UBI plan. 

So, with that background, here's my list of complains. Since they are a bit long, if you need to stop reading now, here's a summary: chill out! UBI and EG are not really that different. They both have advantages and disadvantages. They could actually complement each other well. Things are already hard enough as they are as to make them even harder by creating a whole storm of friendly fire within the left.

1. Theoretical dogmatism. In life it is always very hard to get people to do the right thing. So, in the rare occasions when they do, we shouldn't also expect them to do the right thing for the right reasons. Same with policy debates. If I get somebody to join me in pushing for some policy, why should I also insist on subjecting her to all sorts of theoretical tests to make sure that she arrives at the same conclusion through the same reasoning? Some MMT material reads like that. So, Bill Mitchell says that UBI "gives a lot of ground to the right" because its underlying theory of unemployment is different from the one of MMT. Van Paris even believes in firms as appropriating monopoly quasi-rents! The horror! Look, Paul Krugman is, basically a center-left economist that, as a result of the major debacle of the past decades has been on the left side at every step of the way. Someday we will find him on the other side of some issue we care about. Fine. But that's not reason enough to dismiss what has been an invaluable help to the left. He has criticized austerity, he has called for expansionary fiscal spending (that would work pretty much as an EG), he has defended the welfare state, etc, etc, etc. But he uses the IS-LM model!! He might as well be a Hayekian, for all MMT cares. 

The sad fact is that we live in a world where people see things from different perspectives. Sometimes they agree with our perspective, sometimes not. When it comes to policy, it is much more important to focus on the ultimate values, the goals and, yes, the prescriptions, rather than on the theoretical perspectives. MMT is a set of propositions about money. (I won't have much to say about that, by the way. Will try to stay away from that debate.) Fine. I disagree with MMT on that. But why should that be the litmus test to decide about issues of poverty and redistribution? Couldn't we come to agreements and compromises over these issues even though we arrive at those conclusions, at those policies, at those compromises, from different perspectives? The truth is that, like it or not, as a theory of money, MMT is very minoritarian. To turn the belief on the role of "chartal money" into the absolute criterion by which to chose allies is a recipe for long, long decades of isolation and ineffectiveness. I can relate. When I was young I remember all the discussions among Marxists about the implications of the "transformation problem" and how, depending on what you believed about, I don't know, Bortkiewicz, then you were either an agent of imperialism or not. That didn't work out well...

2. It's an imperfect world. UBI is an imperfect idea. But so is EG. No. I don't think that EG is "slavery." That's ridiculous. Neither do I believe that EG is just paying people to dig holes. Again, I like EG! If I were to have things my way, we would have a UBI program complemented with lots of ideas from EG. 

Here are a couple of difficulties I see. I don't mean them as in "Ha! I guess you can't solve that! See? EG is stupid!" No. I'm sure these are difficulties that can be addressed. But the point is that to address them we need flexibility, willingness to find common ground, humility and so on.

First: are we sure the government can find a job for everyone? Let me put you an example I know firsthand. A very close friend of mine is a self-employed psychotherapist. Given the horrible recession in Spain, she's having a hard time because she depends on clients (turns out that the word "patients" is falling out of use, don't ask). These days she has to slash rates by a lot. She has carved a niche for herself as a bilingual therapist, so her client base is mostly foreigners. Notice, she is not unemployed. She's underemployed. A UBI program would help her go through this rough patch. Can an EG program? Well, maybe you can say that she doesn't deserve the help because she's not unemployed. Fine. But I hope you admit that that is debatable. Or you could say that an EG program can accommodate that. All she has to do is to enroll in the closest EG program and the city will put her to work in a dignified position as a psycho-therapist in any of the many wonderful, socially useful programs the city can run. Great. But notice two things. First, she would have to wait a bit (say, a couple months) before she's deemed eligible. Second, to repeat, she already has a job! She has no problem seeing her current clients. There is no good professional reason why she should have to dump them so that she can join any of the great programs the city runs. If she had a UBI program in place, she could have been saving that UBI in the good seasons and she could supplement that with the current UBI and be more or less OK without having to go through all of the hoops of an EG or having the city go through a lot of hoops of its own to create the job she could do. 

I can think of many other examples. People who are working in activities for which there is hardly any existing government-run infrastructure, activities that would be hard to justify the government setting up and so on. How many graphic designers the government needs? How many pet sitters? Sure, you may say that society has no interest in preserving the jobs of pet sitters and that if they need help, better to get cracking and start serving food in homeless shelters. But, c'mon. Like it or not, society is willing to pay for pet sitters. A pet sitter is a person that has some skills that are deemed valuable by society and are actually useful. I don't see the ethical case for asking them to retool entirely because a recession hit. 

Further, what about cooperatives? We all love cooperatives! I do. Many UBI people do. EG-types do. I believe that UBI could be great for cooperatives (but I recognize that there are many wrinkles that need to be worked out). Now, you might say that EG is great for cooperatives because the government could work with them to create employment. That's true. But, to go back to my previous case, some cooperatives during a recession may simply need some cash. They may not need to hire more workers or anything like that. They might be going through a bad moment and if only their members could claim some cash benefit, everything would be OK. Why going through the whole process of enrolling them into an EG program, finding ways to expand and so on?

The bottomline is that, yes, unemployment is a scourge, it is a horrible thing and, certainly, it is nothing short of criminal the way European policy-makers have been so nonchalant about unemployment in Southern Europe. But unemployment is not the only disaster that recessions create. Other people are also badly hit by recessions and they also deserve help.

Second, what about prevention? Consider a plant with a lot of metallurgical workers that is at risk of downsizing. Not to worry, you might say. Once they're fired, the EG will take care of them. There are lots of wonderful things the government can put metallurgical workers to do. But notice that they will have to first go through the waiting period (one or two months, say). And then, they will start working somewhere else. Different commutes, different schedules, different workmates, all of these things require adjustments. Wouldn't it be easier for everybody to simply talk to the company and agree on not firing these workers and giving them a (gasp!) wage subsidy? Oh! But wage subsidies are neoliberal!! Oh well...

Again, these two difficulties are easy to solve. I'm sure that smart designers of EG programs can find ways to address them. And if they do, I'll support that. (Did I mention that I do like EG?). But there are two points that result from this. 1. EG is imperfect, like any other human creation. Any serious debate about EG needs to consider that other ideas have to be in the mix, ideas such as UBI, wage subsidies, participation income and so on. 2. The very best EG programs require a lot of institutional design. They are in permanent consultation with civil society, they are open to lots of bottom-up initiatives and so on. Great! But notice that all this is hard to accomplish. All this needs help from other political actors, from other constituencies, from, horror of horrors, people who may not care at all about MMT.

Somewhat connected to this is the idea, popular among MMTers, that UBI, while maybe well-intended (by those stupid leftists who do not realize that this is really a neoliberal ploy), is always in danger of been hijacked by the right. Sure it is! Everything in this world can be hijacked by somebody. "No!" MMTers say, "EG cannot be hijacked! It is fireproofed to revolutionize society in ways you cannot imagine." Well, I certainly can imagine them because there have been several EG programs in the past (such as the glorious WPA of the Roosevelt era) and, as far as I know, capitalism is still here. So let's not get carried away with the notion that EG (or UBI) is just so revolutionary that others can't simply handle it. But more to the point, there could be lots of awful EG programs. An EG that simply has a bunch of lazy government officials ordering people around in some "pretend work" would be awful. An EG that does not keep its ear close to ground to work with communities and see what they need, would be awful. In politics there is no formula so darn good that nobody can ever hijack it. Some Russians hijacked communism and a lot of mafia-type fat cats made off with public assets, even before they were privatized.

3. "Whack-a-mole" macro. There are many things to criticize of UBI. But for MMT it is not enough to discuss the issues at stake. It is also necessary to make up a whole set of other criticisms. To that end, many of the leading lights of MMT engage in what I would call "whack-a-mole" macro, which is a type of macro analysis that just keeps jumping at you from different sides. You hit one piece, then comes another maybe unrelated to the previous one, maybe even inconsistent with it. You whack that one, then comes another one, maybe the first one again. Two that really get at me:

"UBI is pro-cyclical." I'm not very familiar with the work of Paulina Tcherneva, but I'm sure she's a very smart and accomplished economist. Someone I would like to have on my side. But then, why oh why!, does she have to go on arguing that UBI is pro-cyclical because, supposedly, it withdraws the help during recessions? There is no friggin' UBI proposal I have ever seen that does that. Every goddamn UBI plan ever put on the face of this blue earth says that UBI is an unconditional transfer of income that people receive, regardless of the growth of GDP or the unemployment rate or any other business-cycle measure. As such, it is an "automatic stabilizer" just like social security is. I don't understand what is the need to create such a specious argument. Of course, a UBI could be pro-cyclical: it could be designed with a formula that says: "Dear citizens, your monthly transfer is a defined percentage of GDP, which means that when GDP contracts, your transfer contracts. Good luck!" But nobody is proposing that.

"UBI is inflationary." This is an article of faith among MMTers. But, sorry, it makes no sense. Let me try several lines of attack. 

The first line is the qui prodest one. It's not rigorous. It's not scientific. But I guess it says something. According to MMTers, a huge argument against UBI is the fact that many right-wingers have endorsed it. (Many right-wingers endorse universal suffrage as well and that has never bothered me.) But then, if someone like, say, Milton Friedman, endorses UBI, shouldn't that alert us to the fact that maybe UBI is not inflationary? Here's a guy who spent much of his long life in a veritable crusade against inflation, which he hated with every fiber of his body. Don't you think that if UBI was really inflationary, he would support it? But of course this doesn't go to the essence of the argument so let's try something more serious.

According to MMTers, UBI is inflationary for two reasons. First, because it increases demand without a corresponding increase in supply. Second, because it sets off a wage-price spiral. 

Let's start with the second argument. I'm glad that MMTers recognize that UBI would raise wages. Of course it would. An EG would also raise wages, a point proudly made by MMTers. As well they might. The whole point of all this is, precisely, to increase labor income at the expense of capital income so if your proposal raises wages, go ahead and gloat. But it's weird that the EG does not set a wage-price spiral whereas UBI does. Why would it? Well, you may argue, because firms will react to increases in wages by increasing prices. But notice that this doesn't depend on what caused the increase in wages. It doesn't matter if the increase was caused by a UBI, an EG, or simply because people decided that they wanted to spend more time with their families. The effect should be the same. Plus, it is plainly not true that any increase in wages gets simply passed on to consumers. If that were true, firms would never bother trying to stop unions or lobbying against them. Just accept any union demand, raise prices, rinse and repeat. No. Wage increases do bite into profits precisely because they cannot simply be translated into higher prices.

"Ah!" you might say, "but you're ignoring the supply side. UBI creates demand, but without supply to go with it, unlike EG." Let's see. Let me start with an absurd EG, an EG that nobody has ever proposed and that is so ridiculous that no one will ever propose. But it will help us fix ideas. Imagine an EG where the government employs workers and assigns them to the task of twiddling their thumbs, stare at the ceiling and occasionally play solitaire in the internet. That EG would have all the horrible macro effects of (supposedly) UBI. (Because, remember, according to MMTers nobody wants UBI to work. People will only use UBI to idle at home.) So, I guess, it stands to reason that such horrible EG would be inflationary. More precisely, if UBI is inflationary, that type of EG is also inflationary. 

Ok. But then this means that before we conclude that EG is not inflationary, we have to pay attention to lots of details. (I don't think so, but humor me on this one for a moment.) Because we can continue with this exercise for quite a while. For example, suppose that only half of the EG participants are assigned to twiddling their thumbs while the rest engages in some productive activity. Is that inflationary? Maybe. Maybe not. One fourth? Who knows? It will depend on many factors. An EG would increase demand, there's no question about it, but it would also increase supply; that's the argument. But EG increases supply of some goods and demand of other goods. That is, it will lower the price of some goods and increase the price of others. If we run a wonderful EG, one that I would support, where, for example, we end up retrofitting lots of schools, giving a facelift to a lot of community center buildings and so on, those things increase supply. In a way. But I have no idea if that increase in supply will offset the increase in demand on goods such as food, clothing and housing that the EG would create. If you get hung up on the logic of tracing effects of transfers on demand and supply you fall down a rabbit hole where you have to keep in mind each and every good to see if the net effect is inflationary or not. What is the price elasticity of the coats of paint in schools that the EG jobs create compared to the price elasticity of the groceries they will demand? I have no idea. In fact, for reasons I will explain shortly, I do not care. But MMTers need to care if they want to be consistent with the argument that UBI is inflationary, especially because in their strong version UBI is always inflationary and EG never is. 

Why do I say that I do not need to care about this? Because in my view (but then again, I'm just a mainstream economist that has been either brainwashed by, or bought by, neoliberals) if UBI, or EG, or pensions, or any other government program increases aggregate demand (which they all do), we have two options. One: let them. A bit of inflation might be OK. I never get this whole panic about inflation. A little bit of inflation may actually be a good thing. Now, that's just me. So the second option is: counteract inflationary pressures with the usual tools. For example, we can raise taxes on the rich to finance UBI and make it budget-neutral. Or if, for some reason, in some year things didn't quite work out that way and demand got a little bit out of hand, the central bank can raise interest rates a little bit to bring it down. I know that this is anathema for MMT. But, again, that's a problem of MMT's own making. Those of us who don't believe in MMT are perfectly reconciled with the fact that sometimes interest rates go up and sometimes they go down. 

Ok, Ok. Maybe I'm completely wrong on all this. But if you're going to argue that UBI if inflationary you need to offer an argument that meets several requirements: a. explain why UBI is always inflationary, EG is never inflationary, pensions are never inflationary, any other way of transferring income to citizens, apart from UBI, is never inflationary, b. it should not depend on theoretical elements that are so exclusive to your own paradigm that they cannot be understood within any other framework. That's, to me, a big problem when arguing with MMTers: the huge entry cost. You have to buy each and every piece of the logic (which has many faults but I promised I wouldn't get into monetary issues because that's not my beat) to even be considered worthy of debating. Sorry but real life doesn't work that way. Policy issues are complex, with lots of room for disagreement. But one thing they are not is so opaque that only initiates can get them. Tariffs, taxes, monetary emission, redistribution and so on are things that economists have been debating for centuries, even before either MMT or neoclassical economics or what-have-you came along. It just can't be that all these theoretical moving parts must be in place, in exactly the way you want them before anything else can make sense.

Rant over. Now let me get to the conclusion. Let's face it: UBI or EG or whatever else will take time, patience, effort, political will, lots of setbacks and, like it or not, experimentation. True, some right-wing libertarians like UBI. Like I said, many right-wing libertarians like universal suffrage, or gay marriage, or many other things. That is no reason to oppose those things. But also, a lot of UBI supporters come from the left (like yours truly) and we share the goals and values of the EG defenders: we want a society geared toward the satisfaction of basic needs for everyone, a society where opportunities for self-realization through dignified work take precedence over economic profits, a society that makes clear to all its citizens that their humanity will not be sacrificed at the altar of some market imperative, and so on. We want a robust welfare state with guarantees of public provision for, say, education, health care, a right to housing and many other things. We do not want to voucherize everything and are willing to oppose those who want to. Those goals are hard. We need all the help we can get. Certainly EG is a very good tool in that fight. I like the basic ideas of EG. We might quibble with details, but those are minor. So, instead of throwing up all kinds of loyalty tests, especially tests that involve arcane minutiae of monetary theory, instead of making up all sorts of convoluted economic arguments, why not thinking of ways in which EG and UBI can indeed supplement each other and ways in which political support for one can help the other?

Many MMTers complain that they are rejected and scorned by the UBI camp. That's not what I've seen, but then I don't go out a lot. Probably there's some ultra-libertarian UBI crowd that bashes EG all the time. It's a nasty world out there. But, again, that's not always true. Many UBI defenders would welcome collaborating with the EG camp. I, for one, have learned somethings from the exchange. Arguing with EG has helped me see some of the problems that UBI still needs to work on and, yes, those are things where some EG component would help. 

In other words, I'd like the EG camp to abandon the siege mentality and to join the rest of us. For all its drawbacks, UBI has gained momentum lately. There is a real prospect of making progress in the years ahead. That's both an opportunity and a challenge. The opportunity is the obvious one: moving a little bit away from the current system. But the challenge, which many in the EG camp have rightly pointed out, is to avoid this new push for UBI to become just more ammunition for some right-wing libertarian project. The way to meet that challenge is by having more forceful left-wing alternatives, to build coalitions, to make clear the ultimate values that the left wants to defend. But this is not possible if at every step there is a bunch of gratuitous mutual sniping.

I like EG. I like the ideas that animate it. I share the values of EG. I find problems there so that, in the end, I'm still a UBI supporter but I would like to work together with the EG camp. If only the EG camp would not make it so hard!