Financial Stabilisation

When you move from the JG to the private sector, government spending reduces as the private sector spending increases. This is because your wage is now paid by the private sector, not the government.

When a private sector firm goes bust, you lose your private sector wage and get a job guarantee wage - which may be lower. That increases government spending as the private sector spending is withdrawn, and nips back any boom wages that may not have been justified since the bust operation failed to push forward productivity.

Those payments and reductions are spatially targeted precisely where they are required. So you can have an area where private sector employment is increasing. Government spending on JG jobs will reduce in that area. While at the same time, the JG is increasing spending in a weak area elsewhere in the country.

That’s the financial stabilisation half.

Expectation Stabilisation

The JG wage is a fixed living income wage. It never competes on price.

Because there are people on the JG, working and turning up every day, that is a greater threat to the living wage worker in the private sector - since they can be more easily replaced if they ask for more money.

However, the worker doesn’t have to put up with sweat shop wages and can move to the JG at will. So Uber et al have to pay a wage that reflects the risk and reward of the job or they won’t get any labour.

Similarly if a firm tries to raise its prices because they now can’t pay sweat shop wages, then that negates the “non-competitive” protection in the JG and JG labour can be used by social enterprises/local democracy to replace the operation trying to raise its prices.

The result is that firms that drive quantity expansion by automation are favoured. Firms can shed labour as automation proceeds, safe in the knowledge that the JG will catch those people and make sure they have a job and an income in the area they want to live in.

Demand stays up and productivity is driven forward, and that is where the higher level wage increases can come from.

That’s the expectation stabilisation half.

Which Means…

JG is a credible threat to both workers and firms. The only degree of freedom left is to do more with less.

Both the financial half and the expectations half work together to anchor wages and prices.

Either you have an unemployment buffer doing the stabilisation (as we have now) or you have an employed buffer. The MMT analysis is that the employed buffer is superior, to the extent that it can replace the interest rate targeting mechanism we have now and base rates can be left at 0% permanently.

Which ensures mortgages remain low.