Scott Sumner has a guest poster today who is, as one might say, a bit rough around the edges. Morgan Warsler has a grand plan to auction off the unemployed while paying a guaranteed wage in exchange for 4.5% NGDP level targeting. His current plan looks much better than earlier iterations; however, for regular readers of Sumner’s blog, you probably understand my skepticism and hestiation to consider a plan that is agenda driven rather than designed to do the right things for the right reasons.
The reason Morgan would settle for a 4.5% NGDP level target is because he understands that subpar NGDP growth equals tighter money than optimal. He wants tighter money and sub optimal growth in order to put pressure on labor and government transfer programs. Never mind that it would be artificially subpar for political reasons, and that probably isn’t the right way to put pressure on labor and government transfer programs – by putting pressure on all economic participants.
It is a kin to having tight money to prevent bubbles or keeping gas prices low, or keeping average people from distributed investment channels, and socking it to the population at large in order to achieve a narrow-minded goal.
To someone like me who sees things through the lens of markets, the better way to put pressure on labor and government transfer programs is to have ample NGDP growth so that market forces put pressure on labor organizations and render government transfer programs irrelevant. All through the Great Moderation we saw the waning of the membership and power of labor unions. Why? Markets work when they are given room to function. Compare that to the events of the last five years that we have had ultra-tight money, and we see resurgence in labor union power and influence.
Taking into consideration the preamble to the National Labor Relations Act as I have posted previously here, we can see that the effects of tight money only fuel the rhetoric that revolves around the topic of unionization.
The inequality of bargaining power between employees who do not possess full freedom of association or actual liberty of contract, and employers who are organized in the corporate or other forms of ownership substantially burdens and affects the flow of commerce, and tends to aggravate recurrent business depressions, by depressing wage rates and the purchasing power of wage earners in industry and by preventing the stabilization of competitive wage rates and working conditions within and between industries…
In addition, while I think the government could do a much better job of pairing job seekers with opportunities on a voluntary basis, I like the idea of leaving people alone much better than treating them like cattle after they have been victimized by tight money – the very tight money that would instituted by design.
This plan is not a solution to anything, but rather a plan that purposely designs in excess slack in order to meet a political end. I could never agree to such a narcissistic plan. It won’t work and I think it sucks.