Will workfare be well paid?

Aaron Peters has an excellent essay that I highly commed to you. His argument is that "workfare" - the policy of requiring people to work for their social benefits - must necessarily, in some form or other, be the future of not only of benefits, but of much "work". 

This necessity stems from the staggering advances taking place in production processes leading to technology substituting for labour. He is with Keynes in the analysis of the kind of economic problem we now face:

“Let us, for the sake of argument, suppose that a hundred years hence (2020) we are all of us, on the average, eight times better off in the economic sense than we are to-day. Assuredly there need be nothing here to surprise us...I draw the conclusion that, assuming no important wars and no important increase in population, the economic problem may be solved, or be at least within sight of solution, within a hundred years. This means that the economic problem is not – if we look into the future – the permanent problem of the human race....thus for the first time since his creation man will be faced with his real, his permanent problem – how to use his freedom from pressing economic cares, how to occupy the leisure, which science and compound interest will have won for him, to live wisely and agreeably and well.”

As both Keynes and Peters make clear - the problem stops being an economic one at this point. For Keynes it becomes the personal problem of how to occupy leisure. For Peters, it is the political problem of the distribution of social goods to the increasing numbers who no longer have access to the high quality jobs that the post-war "golden years" created in such abundance. He argues that a minimum social wage will keep the economy going - both in terms of producing demand for the goods that massively automated production processes churn out, and in terms of winning the social peace that unemployment on a huge scale will disturb.

It's all very persuasive. So how will the flow of funds work in this economy? How will the workfare be paid for? Taxation and transfers, of course, is one solution. But if we have a problem of permanently insufficient demand - the situation envisaged by Keynes and implied by Peters - then that's not going to solve the problem - taxation and transfer does not represent a net increase in demand.

An intriguing possibility is suggested by - of all people - Milton Friedman in a fascinating article from 1948 - "A monetary and fiscal framework for economic stability" - in which he argues that government deficits should be entirely funded by public money creation (and, as a requirement for the stability of this solution, that banks should not be allowed to create money - he wants 100% reserve requirements).

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This - barring the important restriction on banks' ability to create money - looks remarkably like the flow of funds that is starting to take shape. Deficits are financed by the issue of government debt at very low rates of interest which is bought by central banks, effectively implementing the Friedmanite proposal that budget deficits be reflected in changes the quantity of money.

How high can these deficits go and these transfers be? If we want lives based on minimum social income to be decent lives, we need to hope the answer is that the transfers can be quite high. Aaron Peters follows Robert Shiller in advocating that various types of highly valuable but unremunerated work ought to be paid for as part of a minimum social income:

As Robert Shiller has pointed out any potential ‘stimulus’ that might hope to work in the present context would focus on job creation rather than GDP. This would include, but would not be exclusively limited to, the remuneration of previously unpaid work – such as care work and unpaid internships.

So how much can care-workers, charity groups and bloggers be paid?

The answer is that the only limit to the level of money-financed transfers possible is set by runaway inflation. And where that is, we do not really know. One thing for sure is that it is higher today than it was in the 1970s. When, in Edward Heath's government, the UK's Chancellor Anthony Barber responded to the oil shock and the 1973 increase in unemployment with a massive debt-financed stimulus, high and rising inflation followed. Incomes policies were tried out, in an attempt to break the linkage between rising prices and rising wages, but failed. Of course, the shock then was one that decimated the productive capacity of the economy. And of course, the shock came at the end of a long period of near-full-employment. The nature of the shock and the economy were different - capacity had taken a big knock, so deficit financing led rapidly to price increases.

The question, therefore, is what happens to the level of spare productive capacity in the new world of hyper-automation: as long as it is high, money-financed transfers can be generous. Today, that capacity seems very high. The economy is operating well-below potential, there is involuntary unemployment and under-employment, and there still seems to be huge potential for growth in the emerging world and cheap imports from there. There is a happy irony, of course, in the fact that the very existence of the currently unpaid precariat - spare capacity - leads to the very conditions which allow that precariat to be paid through money creation. However, the more that precariat is paid, the less it contributes to the conditions for its own subsistence. 

This suggests to me that what will come out of the forces that are leading us to workfare or minimum social income will be a situation of low-income subsistence for a precariat engaged in mostly voluntary activities, who have periods of higher income spent in less voluntary activities. In this sense, Peters is absolutely right to castigate IDS for the quasi-penal view that he takes of what kind of work should count as workfare:

Cat Reily could have stayed at the museum where she was volunteering rather being forced to work at Poundland stacking shelves. While Iain Duncan Smith claimed that shelf-stacking is more important than geology (a discipline which is central to mining the minerals essential for fertilisers, obtaining metal ores, discovering the fuel which transports produce to the store etc) - stacking shelves is in any case quickly being, you guessed it, automated.

But note that the conditions for this economy also seem to be ones of very great inequality. As long as there are those whose desires are alligned with accumulating money wealth, there will be a part of the economy that will continue to look much like today's. And it will efficiently produce goods that are desired throughout society. So if the price of Keynes' (and more lately, the Skidelskis') vision is a global plutocracy, then maybe we can live with that - and even occasionally earn a few points of tax from it.