MMT's Concept of Unemployment

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Cullen Roche has this criticism of the MMT concept of unemployment:

The MMT argument, in a nutshell, is that the financial system is imposed on us. So, the government establishes property rights and taxes and that forces people to obtain an income denominated in the national currency. If you can’t obtain a job and income then you’re unemployed and the MMT people would say that the government caused this by imposing property rights and taxes on you.

I suppose, one should explicate Roche by adding that certain adherents of MMT tend to refer to the hut tax to explain how government — historically, in the case of the hut tax in Africa — and in principle induces people to seek/accept employment to be able to pay government its dues (especially taxes). I guess, the reason Roche mentions property rights is that the hut tax implied loss of the property right to a hut if the tax liability is not settled.

I would argue even more generally, the imposition of tax liabilities on the citizenry is tantamount to charging them a fee to be free, i. e. not to be incarcerated, otherwise punished or restricted in the liberties of ordinary life.

I shall discuss the MMT account of unemployment more fully at the bottom of the post.

Cullen Roche goes on to argue:

There’s a huge problem with this theory – if this is true then you should be able to sue the government and make them give you a permanent income and/or job because they are liable for causing your unemployment. However, you cannot, at present, sue the government and force them to give you a full-time job and income. To date, no one has been able to successfully make this case in court resulting in a permanent full-time job/income as a result of government liability. So the crux of MMT is inconsistent with the actual legal precedent in the USA.

I disagree. First, let us assume that the MMT argument is correct, i. e. government is responsible for unemployment — for your unemployment. I do not see how the economic argument necessarily implies a legal judgement. Some people may conclude from the economic argument that the government is culpable and that, therefore, it is just to legally force it to indemnify the victims of government-induced unemployment. In fact, a lot of people take that attitude, expressing it in a whole range of different forms. Some demand the right to work, others insist that the unemployed must receive social benefits. Also, I am sure there are countless legal battles going on relating to the governments duty to compensate those disadvantage by unemployment — and a number of these grievances will or may be based on the economic argument that government causes unemployment. But once again, I cannot see how MMT commits its adherents to only one interpretation of the economic argument.

Leading proponents of MMT do not seem to recommend individual legal action to remedy the disadvantages of unemployment but propose a Job Guarantee, which I would classify as belonging to the broad category of social insurance — so in this sense it is nothing out of the ordinary in the era of the welfare state, other than being designed to be a more extensive and effective form of social insurance guaranteeing continuous full employment (see below).

To be sure, MMT in tune with longstanding social convention in the era of the welfare state does not recommend individual legal bit collective social action to come to grips with the negative effects of unemployment

Roche then writes:

The problem with the MMT argument is that they ignore the fact that, when you create a monetary system you also have to choose the type of economic system that that monetary system serves. Is it a socialist system? Is it a capitalist system? If one chooses to make a monetary system in a capitalist world then unemployment results.

MMT would disagree, claiming that permanent full employment is within the possibilities of capitalism, as government determines the level of employment in an economy and has always the means to employ and pay the wages of those who do not find employment in the private sector. It is unfortunate that Roche does not even mention this important piece of MMT. You may question the argument but it is pertinent in the present context and should not have been omitted by Roche.

The interesting issue, to me, is whether government does cause unemployment. Roche does not think so, he believes unemployment is a necessary feature of capitalism and hence created by the latter rather than the state. That is an interesting debate.

MMT would argue, I think, that the state can create unemployment in two different ways: 

(1) It can provoke unemployment by demanding taxes in a currency not yet available to the tax debtor. 

(2) It can fail to ensure full employment, even though it is within the means of government to achieve it.

These seem to be two different, though related and not mutually exclusive things.

Ad (1)

Think of the hut tax. The British demanded from the indigenous population of an African region to pay a tax on their huts on penalty of losing the hut. The tax was payable in the currency determined by the British. The Africans did not have that currency. They needed to get hold of it. They had to earn it. Not being in a position to earn income denominated in that currency meant people were unemployed — without work from which only they could uphold their livelihood.

Remember, only the state can issue that currency. If the state does not offer this money to its tax debtors, people are not only unemployed (without work that pays the kind of money needed to honour the tax liabilities that the stationary bandit imposes on the citizenry), they are criminals liable to lose their freedom. Taxes are a price one pays to remain free and unpunished. That is the nakedly coercive side of modern tributes called taxes.

Like any good old stationary bandit, the modern state uses its coercive power to extract wealth from its subjects. In order to avoid imprisonment or worse, people must offer the state something it wants. Goods, services, labour used by the state to pursue its purposes. In return, the providers of these inputs receive that very special kind of money issued by the state which is uniquely authorised to redeem the tax debts imposed on the population. Serving the state, they receive state money which they can use to pay for the right to remain free and unpunished.

Ad (2)

I will not elaborate on this point, except to point out that from this perspective too the state is clearly responsible for unemployment.

Why is the thesis — in the form put forward by MMT — that the state creates unemployment a little hard to grasp or liable to leave one with a feel of incongruousness?

As for point (2), the most obvious objection will come from those — like Cullen Roche — who do not believe that government has the ability to ensure full employment at all times. I shall not delve in to that topic here.

As for point (1), in an African community not yet integrated into a modern monetary economy, people will tend to have employment nonetheless in the sense of earning a living, presumably at least physically, and perhaps partly in terms of their traditional money. So, the parallel meanings of one and the same term — unemployment — may have a jarring effect on the reader.

Clearly, MMT reduces the meaning of employment to the ability to earn — by engaging in paid work — the money in which tax debts are to be settled.

One might ask, are there people who can be said to be in employment who are not threatened by the inability to pay taxes? I think, there are such people. Those exempted from taxation, say, because their earnings are too low to be taxable or people subject to other reasons for exemption. Is unemployment always caused by an inability to earn "tax credits" (money that can be handed over to settle tax debts). You may lose your job, yet still have enough money to pay taxes, and if you stay unemployed will not be required to pay taxes.

I suppose, it is this sort of noise in the background (minor exceptions) that makes us feel uncomfortable with the proposition here discussed.

In the main, however, I hold the MMT thesis to be warranted.