Noel Pearson and the job guarantee

Nov 25, 2022
Noel Pearson

Indigenous leader Noel Pearson’s third Boyer lecture, first broadcast on ABC on 18 November 2022, is worthy of much praise. It is titled ‘The first game changer: a job guarantee for the bottom million’.

In it he reprises his long-held belief that welfare dependence has been a disaster for his people, just as it has been for other groups. It is associated with a large range of vices stemming from poverty, boredom and erosion of self-respect.

Pearson is brilliant in his oration, as few can be.

But in recent years he has gained new insights into the structural nature of poverty and unemployment via his reading of, and meeting with, professor Bill Mitchell from Newcastle University.

Unemployment is ‘structural’ because orthodox economics believes some unemployment is essential to control inflation. Some heterodox economists, like Mitchell, deny this and say unemployment is a policy option.

Mitchell’s policy solution to involuntary unemployment is the federal government job guarantee.

Mitchell has specialised in labour-market studies over his long career. He says he came up with the idea of government as ‘employer of last resort’ having studied the way the government had guaranteed to buy from graziers any of the wool clip left unsold.

The wool was stored in large government warehouses, including warehouses at the port of Newcastle. When the wool market recovered, the government sold the wool.

The government was big and rich enough to hold the buffer-stock of wool and forgo income until the market improved.

Mitchell thought: if the government can be a buyer of last resort for wool, why not for labour? Instead of a buffer stock of unemployed to control inflation, why not a buffer stock of employees in the job-guarantee pool?

The advantages to society are fairly obvious but it challenges the mainstream notion of the ‘natural rate of unemployment’ (also called the non-accelerating inflation rate of unemployment, NAIRU).

For the mainstream, the natural rate varies somewhat but inflation would result if the government tried to artificially lower the unemployment rate below the natural rate.

Hence central banks are more likely to raise their interest rate target as a hedge against inflation if unemployment (and now underemployment) was felt to be drifting too low.

Instead of telling ordinary folk this entrenched dismal theory of necessary unemployment, governments go through the charade of assisting the unemployed via an increasingly for-profit service industry.

The assistance reinforces the supposed failings of the unemployed rather than admitting that more than a million Australians of working age (but usually not economists) need to be out of work and in poverty at any one time.

Pearson seems to have discovered all this via exposure to Mitchell’s co-created and ground-breaking modern monetary theory (MMT), which exposes the full options governments have and how the federal government can afford to employ any number of unemployed if it chooses to.

Mitchell’s job guarantee concept is similar to US economist Hyman Minsky’s (1919-96) full-employment ideas, as pointed out in particular by US MMT populariser Stephanie Kelton, so it may be that Mitchell and Minsky came up with similar concepts independently because they saw the economy and money creation in similar ways. (US publications on the job guarantee can be found here.)

In his lecture Pearson wisely steers clear of subjects he is not qualified to publicly talk about – such as the details of debates between orthodox and heterodox economists – but he is correct to call for a change from Paradigm A to Paradigm B, as he calls it.

Paradigm A – the status quo – has failed for decades, as his mob know only too well. Constant ad hoc tweaks to Paradigm A will not fix the core problem, where chronic unemployment is just one manifestation of dysfunction. For Pearson, it is Paradigm B or continued entrenched poverty and hopelessness for his people.

What Paradigm B is exactly – besides a Voice to parliament – is not spelled out fully in this lecture, but those with knowledge of Mitchell’s work might make guesses.

Mitchell’s co-authored textbook, Macroeconomics (Red Globe Press, 2019), is a fairly definitive statement, although his ideas are constantly evolving and available via his personal blog.

I strongly agree with Pearson on the many benefits of a federal government job guarantee, available to all. Extreme power would shift away from business and back towards the centre. Wages would increase and the share of national income going to profits would be moderated. We could go a long way to eliminating poverty.

But a shift to a full Paradigm B is the main game: ending the war on nature as well as ending poverty.

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