Great Leap Forward

Minsky and the Job Guarantee

I’ve already mentioned Hyman Minsky’s new book on what he called the “employer of last resort” proposal.

Philip Pilkington has a very nice post up at the Guardian:

Philip rightly connects Minsky’s better-known concerns about instability to his jobs program. Reaching full employment through the employer of last resort program would also enhance financial and economic stability. Here’s Philip:

Minsky’s theories of financial instability suggested that capitalist economies were prone to serious downturns in which huge amounts of the labour force would find themselves unemployed. What’s more, this would lead to large shortfalls in demand for goods and services which would further exacerbate such downturns. The result was a vicious circle that would become worse and worse as the financial system evolved into an increasingly fragile entity and households and businesses became increasingly mired in debt.

The only way out of this was to build robust institutions that insulated working people from the excesses of the system. While progressive taxation and unemployment benefits went some way toward both protecting workers and propping up demand during downturns, it did not, according to Minsky and his followers, go nearly far enough. They believed that governments should offer a job to anyone willing and able to work and then pay for these jobs by engaging in increased deficit spending – as they currently do with unemployment benefits during downturns.

Nicely put, Philip. Get your copy of Minsky’s book here:

A great buy for only about thirteen bucks in paper or eight bucks via Kindle!

5 Responses to “Minsky and the Job Guarantee”

olly100June 12th, 2013 at 12:17 am


I was hoping you might be able to clarify something for me. In your 'MMT Primer' you say:

"Budget deficits initially increase bank reserves by the same amount… Deficit spending that creates bank reserves will (eventually) lead to excess reserves"

Then in the 'responses to readers questions' section you say:

"The flow of reserves that result from typical budget deficits will ALWAYS create excess reserves because required reserves grow much more slowly"

olly100June 12th, 2013 at 12:18 am

The problem is you don't explain in detail exactly HOW budget deficits create excess reserves, so this leads to some confusion (lots of people are apparently confused by this).

You say that deficits create excess reserves – but seemingly nowhere in the MMT literature is it CLEARLY explained how or why this happens.

Critics of MMT claim that budget deficits don't create excess reserves, as deficit spending is offset by Treasury bond sales… so therefore 'MMT is wrong'.

Could you possibly point me to a clear, technical and detailed description of exactly how budget deficits create excess reserves?

Many thanks.

L. Randall Wray L. Randall WrayJune 12th, 2013 at 6:12 pm

Simple accounting, and used to be shown in ALL orthodox money and banking books. Critics do not know how to do T-accounts. see pp. 98-104 of the Modern Money Theory Primer (book) and then read section 3.7 for the real world details.

PZJune 13th, 2013 at 9:02 pm

Surprisingly even Milton Friedman was all for employment programs, at least in the times of depression. Paul Krugman on the other hand refuses even to mention direct job creation as a possibility. How times have changed.

About great depression:
"I have never criticized the remedial actions that were taken immediately thereafter to help the people who were so badly hurt. That was a desirable thing. And it was the reaction to it. The bad things about the New Deal were not those. The bad things about the New Deal was not the Works Progress Administration which offered temporary jobs, the Civilian Conservation Corps. That was not the bad things. Those were the good. The bad things about the New Deal were the more permanent changes introduced in the institutions of the country. "


olly100June 18th, 2013 at 7:00 pm


Is this a correct way to simplify the 'real world' description of deficit spending presented in your book:

1. Treasury sells bonds. This drains reserves from the banking system, putting upward pressure on the fed funds rate.

2. Fed enters into repos, buying bonds to add reserves to maintain the fed funds rate at its target level.

3. Treasury deficit spends. This adds excess reserves to the banking system, putting downward pressure on the fed funds rate.

4. Fed concludes repos by selling bonds to drain the excess reserves.