Notes on the Meija Albrecht MMT Paper

While the paper is good, it does reflect some inconsistencies in the way MMT discusses stabilization

Jackson Meija and Brian Albrecht published a paper on MMT titled “On Price Stability with a Job Guarantee”. The latest revision is dated January 2022. Their conclusion is that a Job Guarantee is not an effective stabilization of the price level.

The glaring issue with the paper, is that it takes a neoclassical approach to analyzing the price level and inflation dynamics. So it is neither a test of MMT theory against empirical data, nor an attempt to model inflation dynamics according to MMT theory. However, this is completely fair and justified and a huge step forward in mainstream discourse related to MMT.

Unfortunately, in reading sources like the textbook Macroeconomics, by Mitchell, Wray, and Watts, and a 1998 paper by William Mitchell: “The Buffer Stock Employment Model and the NAIRU: The Path to Full Employment” Meija and Albrecht naively replicated this model and in doing so missed the basic dynamic of a Job Guarantee as a Price anchor.

Specifically, a Job Guarantee can be used in a similar fashion to the NAIRU, to actively manage the level of economic activity. MMTers like Mitchell have made this direct comparison, which is useful. However, this is not the most fundamental mechanism under which to understand a Job Guarantee.

When the Job Guarantee is used with such active stabilization and demand management, then the ratio of workers on the Job Guarantee should increase when demand reduction policies are put into effect. This may include other automatic stabilizers. But in general, it is not increasing “Buffer Employment Ratio” by which the Job Guarantee manages inflation, but in fact the reverse.

The simplest example of a Job Guarantee is a “nominally anchored” one. This means that the wage is fixed, perhaps raised slowly over time according to an inflation target, but explicitly it does not follow realized inflation.

So as inflation happens, the real minimum wage / job guarantee wage is lowered. The Job Guarantee expenditure then decreases in two ways, both the number of Job Guarantee workers should decline, at the lower wage, and the real expenditure declines as well.

The Job Guarantee is simply the most universal and flexible example of a “price anchor”, which is a stable…

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