Re: [OPE] Limits of Minsky

From: wpc <>
Date: Tue Dec 15 2009 - 03:28:57 EST

Patrick Bond wrote:
> Great paper, very needed... but you'd agree that the limits of Palley
> are that he doesn't take on board Marxist crisis theory based on the
> overaccumulation-financialization links?
> Cheers,
> Patrick

I was asked to forward this to the list to give a more +ve impression of

  Public Employer of Last Resort for Consumer Services

“But if a surplus labouring population is a necessary product of
accumulation or of the development of wealth on a capitalist basis, this
surplus-population becomes, conversely, the lever of capitalistic
accumulation, nay, a condition of existence of the capitalist mode of
production. It forms a disposable industrial reserve army, that belongs
to capital quite as absolutely as if the latter had bred it at its own
cost. Independently of the limits of the actual increase of population,
it creates, for the changing needs of the self-expansion of capital, a
mass of human material always ready for exploitation.” (Karl Marx)

In Chapter 25 of Volume I of /Das Kapital/, Marx made this damning
observation of a phenomenon that, until the advent of the capitalist
mode of production, existed only as a result of natural disasters and
wars: structural unemployment. Meanwhile, and earlier in this work, the
question of comprehensive labour reform in the form of both living-wage
minimums and deflation-protected, accurately measured cost-of-living
adjustments for various kinds of compensation took into consideration
the necessity of applying these towards unemployment insurance and
voluntary workfare benefits. Additionally, the question of unemployment
arising from workplace closures, mass sackings, and mass layoffs was
addressed by means of partially rehabilitating Lassalle’s political
agitation for the formation of producer cooperatives with state aid (in
this case, pre-cooperative worker buyouts of existing enterprises and
enterprises just like what happened in the Paris Commune). However,
these two measures would still be insufficient to tackle fully the
problem of unemployment. In the first instance, the mention of voluntary
workfare benefits refers to pay levels and not to operational aspects of
the government programs themselves. In the second, unemployment can
arise from other situations.

In the recent economic crisis, there has been much discussion in the
United States about all the measures of unemployment used by the Bureau
of Labor Statistics:


      U1: Percentage of labor force unemployed 15 weeks or longer


      U2: Percentage of labor force who lost jobs or completed temporary


      U3: Official unemployment rate per the International Labour


      U4: U3 + "discouraged workers", or those who have stopped looking
      for work because current economic conditions make them believe
      that no work is available for them


      U5: U4 + other "marginally attached workers", or "loosely attached
      workers", or those who "would like" and are able to work, but have
      not looked for work recently


      U6: U5 + Part time workers who want to work full time, but cannot
      due to economic reasons.

At the end of 2009, U6 was well over 15%.

Now, consider a similar downturn elsewhere and a few years back. Towards
the end of 2001, the Argentine economy went into a nosedive after two
decades of privatization and liberalization. Official unemployment
jumped to 21.5% by the middle of 2002, and over half the population was
living in poverty. However, local currency alternatives to government
money flourished and, not unlike the workers of the Paris Commune,
Argentine workers reclaimed many abandoned factories to form the
cooperative movement in that country. Moreover, in April 2002 the
government created the Heads of Household program, providing part-time
work for all household heads who met various family requirements. This
part-time work consisted of participation in nonprofit-administered
training programs and, more notably, provision of community services.

In the March 2008 issue of /Dollars and Sense: Real World Economics/,
Ryan A. Dodd described the above before making a general point about
that program:

/Not surprisingly, as Argentina's economy has recovered from the depths
of the crisis, the government has recently made moves to discontinue
this critical experiment in direct job creation./

/*The Argentine experience with direct job creation represents a
real-world example of what is often referred to as the employer of last
resort (ELR) proposal by a number of left academics and public policy
advocates.*// Developed over the course of the past two decades, the ELR
proposal is based on a rather simple idea. In a capitalist economy, with
most people dependent on private employment for their livelihoods, the
government has a unique responsibility to guarantee full employment.
This responsibility has been affirmed in the U.N. Universal Declaration
of Human Rights, which includes a right to employment. A commitment to
full employment is also official U.S. government policy as codified in
the Employment Act of 1946 and the Humphrey-Hawkins Act of 1976./


/Today, the ELR idea is mostly confined to academic journals and

Because it is long overdue for the class-strugglist left to commit to
programmatic clarity, quoted at extensive length is L. Randall Wray of
the Levy Economics Institute of Bard College on the subject:

/The mainstream interpretation of Keynes’s economics seemed to offer
theoretical justification for policies that could tame the business
cycle, promote full employment, and eliminate poverty. The two main
levers to be used would be fine-tuning of investment spending to keep it
at the full-employment level, supplemented by welfare spending to keep
aggregate demand high while protecting the unfortunate who might be left
behind by a rising tide. While Hyman Minsky is best known for his work
on financial instability, he was also intimately involved in the postwar
debates about fiscal policy and what became the War on Poverty. Indeed,
at Berkeley he was a vehement critic of the Kennedy/Johnson policies and
played a major role in developing an alternative./


/Minsky argued that we need a “bubble up” policy, not trickle down
economics (Minsky 1968). Spending should be targeted directly to the
unemployed, rather than to the leading sectors in the hope that tight
labor markets might eventually benefit lagging sectors and poor
households. For this reason, he advocated an [//*Employer of Last
Resort*//] program that would take workers as they are and provide jobs
that fit their skills (Minsky 1965, 1968, 1973, 1986). He argued that
only the federal government can offer an infinitely elastic demand for
labor, ensuring that anyone willing to work at the going wage would be
able to get a job. Further, he argued that in the absence of tight full
employment, the true minimum wage is zero; however, with an ELR program,
the program wage becomes an effective minimum wage./


/ELR could include part-time work, child maintenance, and a discounted
youth wage, if desired. In addition to providing jobs where they are
most needed, ELR would also provide public goods and services where most
needed – in urban ghettos – to help quell unrest./

/To ensure taxpayer support of the program, it would need to provide
readily visible public benefits. Minsky advocated a progressive income
tax, and would distribute the benefits of publicly produced goods and
services progressively (Minsky no date). Hence, taxpayers would get
something for their taxes – parks, safety, clean streets, education,
child care and elder care, etc. – but there would be a strong
redistributive bias. He recognized that the program would probably need
a permanent cadre to provide critical services – as the public becomes
accustomed to receiving public services from the ELR program, these
cannot be suddenly shut off (Minsky 1973)./

/One of the goals of the program would be to make labor more homogenous
through education and training, but Minsky opposed any education or
skills requirement for admission to the program (Minsky 1965). He also
opposed means-testing, which would turn the program into what is now
called workfare […] He recognized that the nation would still need some
programs for skilled workers who lose high wage jobs and fall into the
ELR program. As discussed, a dynamic economy would always be creating
structural unemployment, so retraining programs would be needed to
ameliorate skills mismatch. He also recognized that the nation would
still need welfare for those who could not, or should not work […]
However, he showed that an ELR program by itself would solve most of the
poverty problem […] //*He saw ELR as an alternative to the dole, arguing
that unemployment compensation just institutionalizes unemployment. By
contrast, jobs affirm the dignity of labor and allow all to participate
more fully in the economy.*/

This particular kind of job creation program is a major leap in
approaching structural unemployment. Traditionally, public works
programs have been initiated to get people back to work, but in the
recent crisis have been on the whole ineffective because of their
treatment as being little more than short-term stimulus spending by
governments. Moreover, public works themselves do not take into account
the skill set of most workers in developed economies, which is not in
manufacturing or construction trades, but rather in skilled and
unskilled services. Consequently, grassroots agitation for public works
– much less for the traditional Trotskyist call for fully implementing a
sliding scale of hours – tends to not win solid support from these
workers, to say the least.

Because this is the most that bourgeois capitalism can accommodate with
respect to unemployment, this reform – *for the* *expansion of public
services to include* *employment of last resort for consumer services* –
does not meet the Hahnel criterion for facilitating other threshold
demands or even immediate and intermediate ones. The biggest stick of
bourgeois capitalism is unemployment; without this threat of employees
entering unemployment, employers can only resort to carrots. Other
reactions by employers would have to be pre-empted or dealt with
swiftly, and a number of measures should be implemented beforehand to
prevent capital flight, investment strikes (not investing as required by
government plans), and other economic blackmail on the part of the
bourgeoisie and petit-bourgeoisie.

Some will undoubtedly rush to say that this proposal is little different
from the post-modernist call for unconditional basic income as discussed
in Chapter 2. Recall that this scheme would, under bourgeois society,
result in both the monetization of social benefits through their
privatization and a universally downward shift in wages. Moreover, with
jobs come certain psychological benefits not found in mere welfare
receipts, not to mention the usual skills development, as demonstrated
aptly by the rejection of welfare receipts by some of the very same
participants in the Argentine government’s job creation program (who in
turn preferred work). The brief implementation of proposal in places
like Argentina and even in the Depression-era US also means that this
threshold demand is, as mentioned earlier, not directional or genuinely

How, then, does this reform enable the basic principles to be “kept
consciously in view”? Besides the obvious call to class strugglism
against the biggest of bourgeois capitalism, consider the approach to
zero unemployment by an economy operating on the principle(s) of social
labour, as explained by Paul Cockshott in a video on socialist economies:

/One of the key differences between a socialist economy and a capitalist
economy is that, in a capitalist economy, there is always unemployment.
This unemployment acts as a stick to beat the worker to work harder.
//*Now, in a socialist economy where the allocation of resources is
being planned, you tend to get full employment*// [...] However, full
employment could come in two forms. It could either come because, in the
economy as a whole, there was sufficient demand for labour to take up
all the people willing to work – or it could come because people had a
right to work at one particular workplace where they started work. Now,
if you have the latter form, you run the danger that the economy will
become set in concrete; it becomes very difficult to reallocate
resources to new industries and to run down old industries as tastes
change or technologies change. //*So, it has to be the case that the
state guarantees people a job, but doesn't necessarily guarantee them a
job at the same place indefinitely.*/


/Das Kapital, Volume I/ by Karl Marx


/A New WPA?/ by Ryan A. Dodd

/Minsky’s Approach to Employment Policy and Poverty: Employer of Last
Resort and the War on Poverty/ by L. Randall Wray

/Towards a New Socialism/ (video) by Paul Cockshott

> GERALD LEVY wrote:
>> FYI. / Jerry
>> From:
>> Subject: Limits of Minsky
>> Date: Fri, 11 Dec 2009 12:33:51 -0500
>> Dear Friends and Colleagues,
>> The economic crisis has directed much attention to the work of Hyman
>> Minsky. That attention is deserved, but I also believe Minsky’s theory
>> provides an incomplete explanation of the crisis.
>> I have therefore written a paper (see attached) titled “The Limits of
>> Minsky’s Financial Instability Hypothesis as an Explanation of the
>> Crisis”.
>> I hope you find it interesting.
>> Sincerely,
>> Tom Palley
>> Thomas Palley
>> Schwartz Economic Growth Fellow
>> New America Foundation
>> Tel: (202)-667-5518
>> e-mail:
>> ------------------------------------------------------------------------
>> _______________________________________________
>> ope mailing list
> _______________________________________________
> ope mailing list

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Received on Tue Dec 15 03:39:12 2009

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