The Job Guarantee and Inflation
Professor L. Randall Wray discussing the Job Guarantee and inflation. Orthodox economists have enshrined the idea that there's a tradeoff between unemployment and inflation: they believe that if unemployment gets too low, it will cause inflation (because workers gain bargaining power, and fight for higher wages). Therefore, the mainstream approach is to try to keep unemployment at or above some minimum level (essentially prevent people from getting jobs, to weaken worker bargaining power) in order to fight inflation.
The Job Guarantee takes a different approach. It uses something called a "buffer stock." A buffer stock scheme is a price stabilization mechanism, which works like this. Suppose that some entity (it can be public or private) would like to stabilize the price of corn. It can do so by announcing a price for corn, then buying and selling any quantity of corn at that price. So if the market price for corn is $390 per bushel (you don't even want to know how much corn that is) but I announce a target price of $400, then I will have to buy corn continuously until the price rises to $400. Or, if the market price for corn were $410, then I would have to sell corn continuously, flood the market, until the price falls to $400. So, in a buffer stock, price stays fixed while the quantity in the buffer stock (how much corn I am holding) adjusts to clear the market. This stabilizes prices.
The Job Guarantee does the same thing with labor, by fixing a wage at which the government will hire workers. If the government stands ready to hire anybody who wants to work, at a wage of, say, $12 per hour, then if the market wage for comparable work is $7 per hour, everybody doing those jobs can quit their jobs and join the JG pool, until market wages rise to $12. Or, if the market wage was $15 but everybody in the JG pool was working for $12, the private sector would be able hire JG workers (essentially like buying corn out of the buffer stock) until the market wage for unskilled labor falls back to the JG wage of $12. The buffer stock stabilizes prices.
(This was exactly how the gold standard worked, except instead of a buffer stock for labor or corn, it was a buffer stock of gold, whereby the government would announce a price for gold, then buy and sell in unlimited quantities to maintain that price).
This is in contrast with the usual "Keynesian" or "pump-priming" method of government fiscal stimulus to create jobs, whereby the government builds infrastructure or war machines or just buys stuff, in the hopes that increased aggregate demand in the economy will create more jobs. The problem with that approach is that it leads to bottlenecks. For instance, if we try to create jobs by building bridges, then we'll need a lot of structural engineers. We might get into a situation where there are few or no more available engineers, which gives them substantial bargaining power to bid up their wages. This tends to happen before jobs are created for the lowest skilled workers, meaning the "Keynesian" "pump-priming" method does tend to be inflationary, as its critics have claimed. But the Job Guarantee by contrast takes a bottom-up approach, providing jobs directly where they're needed, in the exact quantity they're needed, and so cannot be inflationary.
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