No, The Government Didn’t Cause Unemployment

There was a big blogosphere kerfuffle in the last few weeks between some Modern Monetary Theory (MMT) people and a bunch of economics and finance people I greatly respect (Simon Wren-Lewis, Jo Michell, Steve Keen, Frances Coppola, etc). MMT was, at times, pushing an extremist and combative narrative that I found deeply misleading so I wanted to discuss this a bit.

For the uninitiated, MMT is an extremist economic movement mostly supported by Marxists, Socialists and Democratic Socialists and they have some rather unusual views. I find some of those views interesting and useful (I’ve even promoted some of those views here, especially after the financial crisis when big deficits made a lot of sense), but I think other parts are taken too far.

Part of that aforementioned kerfuffle was related to a central topic in MMT – the idea that the government creates unemployment. This is a bold claim and one that I think is not just wrong, but demonstrably wrong. The MMT argument, in a nutshell, is that the financial system is imposed on us. So, the government establishes property rights and taxes and that forces people to obtain an income denominated in the national currency. If you can’t obtain a job and income then you’re unemployed and the MMT people would say that the government caused this by imposing property rights and taxes on you.

There’s a huge problem with this theory – if this is true then you should be able to sue the government and make them give you a permanent income and/or job because they are liable for causing your unemployment. However, you cannot, at present, sue the government and force them to give you a full-time job and income. So the crux of MMT is bunk. And it’s not just wrong in theory, but in reality.

Of course, this makes perfect sense. If Joe Schmo has talents and wants an income, but doesn’t want to work because he’s feeling a little lazy this year then he can’t just sue the government for an income and job because Joe is the cause of his unemployment. The government didn’t cause Joe to be unemployed. Joe chooses to be unemployed. A similar argument can be made for involuntary unemployment. For instance, if you attend college majoring in turf management for 4 years and you can’t find employment when you graduate then you don’t get to turn around and sue the government because you have no talents that match up with existing job opportunities. You get the point.