Spending to create jobs is economically efficient

Spending to create jobs is economically efficient
Posted on November 6, 2020 | Larry Kazdan | Written on November 3, 2020
Letter type:


Toronto Star

     Re:  Chrystia Freeland wants to spend more — lots more, Heather Scoffield, Oct. 28, 2020


    The "fiscal" anchor of a sovereign country should be determined by the spending gap after the private sector has made its investment decisions. The government should fill that gap to ensure all domestic resources are productively and sustainably employed. This includes labour.

    The government can target expenditures to ensure that everyone who wants a job can be offered one either by the market or by a Job Guarantee (JG) program that provides a livable, minimum income. JG community work could include help to the aged, public arts, and environmental stewardship.  A fully functioning economy means vastly reduced poverty and a general increase in living standards.

    This regime is not contingent of the size of the public debt or rate of interest. The government owns the Bank of Canada and can always redeem its bonds. The important question is: How much should the government spend? Is it spending too much and causing inflation?  Or is it spending too little and tolerating mass underemployment as has been the case for decades?



    1. BoC Annual Report 2011


            Given the Bank’s ability to create virtually unlimited quantities of

            settlement balances ..... its operations are not constrained by its cash flow

            or by its holdings of liquid assets.....


            The Bank collaborated with the federal government in the development and

            implementation of the government’s prudential liquidity plan, ensuring that

            the government can meet its financial obligations even during periods of

            market stress.

    2. Alan Greenspan, "We can always print money..."


                "The United States can pay any debt it has because we can always print money to do that. So there is zero probability of default." 

    3. Abba Lerner:  Functional Finance


>         The central idea is that government fiscal policy, its spending and taxing, its borrowing and repayment of loans, its issue of new money and its withdrawal of money, shall all be undertaken with an eye only to the results of these actions on the economy and not to any established traditional doctrine about what is sound and what is unsound. This principle of judging only by effects has been applied in many other fields of human activity, where it is known as the method of science opposed to scholasticism. The principle of judging fiscal measures by the way they work or function in the economy we may call Functional Finance … Government should adjust its rates of expenditure and taxation such that total spending in the economy is neither more nor less than that which is sufficient to purchase the full employment level of output at current prices. If this means there is a deficit, greater borrowing, “printing money,” etc., then these things in themselves are neither good nor bad, they are simply the means to the desired ends of full employment and price stability … --

    4. William Mitchell is Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE),

    University of Newcastle, NSW, Australia, http://bilbo.economicoutlook.net/blog/?p=31487

        The economy is either subject to a spending gap – where total spending is insufficient to absorb the available productive capacity – and or it is not.

        So when we worry about austerity it is because policy choices are deliberately forcing the economy to operate at below potential and mass unemployment is one of the consequences of that policy failure.

        Accordingly, when there is a spending gap, the fiscal deficit is too small, given the spending decisions of the non-government sector.

        There needs to be more net public spending.


        There is no shortage of ‘money’ per se for a currency-issuing government. 

    5. Learn To Love Trillion-Dollar Deficits


                                                                                                                                                                                                                                                                                           "Politics aside, the only economic constraints currency-issuing states face are inflation and the availability of labor and other material resources in the real economy.


                    If any government tries to spend too much into an economy that’s already running at full speed, inflation will accelerate. So there are limits. However, the limits are not in our government’s ability to spend money or to sustain large deficits. What M.M.T. does is distinguish the real limits from wrongheaded, self-imposed constraints."

    6. The Social Enterprise Sector Model for a Job Guarantee


            "Imagine 25 million people with no income or precarious forms of income. Now imagine 25 million with a decent base wage. The effect on the private for-profit sector would surely be more stable demand, ringing cash registers, increasing profits, growth and, yes, a lot more better-paying private sector jobs.


            The experience of the New Deal and Argentina’s Plan Jefes shows that such programs can be up and running in 4 to 6 months and useful tasks can be performed even by the least skilled and least educated citizens."

About The Author

Larry Kazdan's picture

Larry Kazdan has undergraduate degrees in history and sociology, is a retired Chartered Professional Accountant and runs the website
Modern Monetary Theory in Canada.... More