You would be hard pressed to find someone happier than me over Sen. Cory Booker signing on to Bernie Sanders’ proposed job guarantee (JG) bill. The fact that the progressives in the Democratic Party are able to drag a lifelong neoliberal like Booker to the left on this issue is a sign that there is a now an influential social-democratic trend within American politics again.
However, my happiness has been blunted by the realization over how impossible actually implementing such a policy would be. This impossibility is not just limited to the Sisyphean task of building the kind of political support it would take to pass such legislation through Congress, though that itself is hard to imagine. The reason that such legislation will ultimately fail is that it is impossible to run a sustained full-employment economy in capitalism, without further politically confronting capital and the profit motive. This is a structural feature of capitalist economies that many on the post-Keynesian left who support using state action to run a full employment economy ignore at their peril. I daresay this feature has been the major structural barrier for social-democratic governments the world over.
Profits are the lifeblood of capital. Without profits, capitalists become vulnerable to one another and economic growth slows as capitalists are unable to reinvest their profits into the economy. One way that capital is able to turn a profit is by extracting surplus labor from their workers. This takes place when workers are reimbursed in wages less than the amount than the labor is worth that it takes to produce the goods and services that the capitalist sells into the market. In order for this process of surplus labor extraction to work, capitalists need to keep labor costs as low as possible.
One of the best tools for keeping labor costs low is the threat of unemployment. When workers risk unemployment, they are willing to settle for less than they would otherwise, as after all, some money is better than no money. A JG bill would effectively destroy what Marx referred to as the “reserve army of labor.” But the unemployed serve an important function in a capitalist economy in keeping labor costs low, and therefore keeping profitability high.
It is worth quoting at length from Michael Kalecki’s 1943 paper Political Aspects of Full Employment. In it, Kalecki points to this dynamic that confronts capital as primarily a social, not economic, class conflict between labor and capital: “[T]he maintenance of full employment would cause social and political changes which would give a new impetus to the opposition of the business leaders. Indeed, under a regime of permanent full employment, the ‘sack’ would cease to play its role as a disciplinary measure. The social position of the boss would be undermined, and the self-assurance and class-consciousness of the working class would grow. Strikes for wage increases and improvements in conditions of work would create political tension. It is true that profits would be higher under a regime of full employment than they are on the average under laissez-faire; and even the rise in wage rates resulting from the stronger bargaining power of the workers is less likely to reduce profits than to increase prices, and thus adversely affects only the rentier interests. But ‘discipline in the factories’ and ‘political stability’ are more appreciated than profits by business leaders. Their class instinct tells them that lasting full employment is unsound from their point of view, and that unemployment is an integral part of the ‘normal’ capitalist system.”
Kalecki is right about class instincts compelling capitalists to oppose full employment, as well as full employment shifting the politics of the workplace in favor of labor. Where Kalecki is wrong is in assuming that profits will remain higher under federally guaranteed full employment. This is only the case while productivity outpaces the growth in labor’s wages. Destroying capital’s threat of unemployment would drastically increase the labor share of profits, as workers would be able to always fall back on a federally guaranteed job. Capital would lose the threat of unemployment in various sectors of the economy where wages are their lowest, and workers would feel emboldened to demand more from their employers like higher wages, benefits, and greater control over the workplace. This will naturally cut into capital’s profits.
All things being equal, when this happens capital will be forced to raise prices on goods as high as they can, causing inflation. But there are limits to raising prices to return profitability to a firm. When wages rise, lifted by both the JG bill and the enhanced confidence of labor to demand more because of the bill, economic productivity will slow due to the decline in profits and the result will be stagnation, as capital is forced to raise prices to turn a profit.
This dynamic has played out before in the US, when the Keynesian New Deal collapsed in the 1970s into stagflation. Capital was forced to raise prices on goods in order to turn a profit without cutting costs, while their fall in profitability prevented economic growth. Their only recourse was a political backlash in the form of neoliberalism, which broke labor’s capacity to demand high wages and workplace standards, globalized production, and created new markets in previously nationalized sectors of the economy, all while keeping interests rates on the US dollar low. This returned profitability to capital and productivity to the economy, but at the cost of destroying the veneer of social democracy that the United States had during the New Deal era.
What worries me about the support that people like Cory Booker is giving for a JG bill is that they either are unaware of this fact about capitalist economies and don’t know what they are getting into…Or they do understand this and have no intention of actually implementing it, but feel the need to appease the progressive left of the Democratic Party with radical policy pledges. Contrary to what some leftist critics of the JG bill have said, it is not that the bill is insufficiently radical; It is in fact too radical to be implemented on a sustained basis within a capitalist economy. Actually implementing the bill would mean an eventual political confrontation with capital and a market society built around the profit motive. If it chooses to go this policy route, the newly emerged social-democratic trend in American politics will run into the same stagflation snag that the New Deal order did in the 1970’s, and will be confronted with the same choice: Do we somehow move past capitalism, or do we roll back the humanizing reforms to capitalism in order to keep the whole capitalist system afloat?