So I finally found an hour to listen to that, a lot of words were spoken but there was very little in the way of detail to explain how it would work but let’s just pick at this “government buying of labour concept”
Firstly we can estimate that, based on an average salary of £25,000 per year we can broadly say per 1m people employed would cost us £25bn per year or £2.08bn a month. Let’s assume in a recession our unemployment would stand at somewhere between 2 and 5million depending on severity. So anywhere between £4.16bn and £10.4bn a month (the later is more than we spend on the NHS).
To fund this the government would sell debt (gilts) to the central bank who will have printed the money and this would give the government the money to pay the available labour force. This additional money will have some short term benefits as all debt fuelled economic policies do. I’ve ignored the effect of the tax paid by this additional job and that would probably reduce the cost by around 10% overall based on our current tax.
However inflation is your elephant in the room wether you like it or not. These workers will want pay rises (because they’ll want that new car which is good for the economy as a whole) so the government would need to print ever increasing amounts of money. This will be reflected by other workers in the private sector also wanting more pay (why should they get one and not us right?) so companies will need to put their prices up or go bust. This inflationary cycle can very quickly overheat with ever increase frequency of pay rises and price rises. The only way to prevent this is to only have 1 type of car available and 1 type of house (you’d need to demolish all our great buildings and start again, would give this new found labour force something to do)
Interestingly the policy you are advocating is really what is happening with the furlough scheme so I’m sure you’re a big advocate of what the government are doing here. The BOE is buying the debt to pay for it and printing money like never before. Because this is a global crisis and everyone is broadly doing the same you won’t see currencies getting slammed for it like you would if it was done for ideological reasons. They’ve parked the risk of inflation as being a problem for another day but it’s still there.
