"How to Pay for Full Employment"

Stephanie Bell

The New School for Social Research

A number of economists in the United States, the United Kingdom, and Australia have recently put forward a full-employment program in which the government would act as an "Employer of Last Resort", guaranteeing available jobs for all who are ready, willing and able to work but who cannot find private sector employment. Such a proposal is based on Abba Lerner's notion of 'functional finance' and can only be implemented in what might be considered an 'unconstrained' monetary system. My paper investigates the manner in which such a program would be financed in the United States.

Although it is commonly believed that government spending is normally financed through a combination of taxes and bond sales, this can be shown to be untrue. The argument is a technical one and is based on an institutional analysis of reserve accounting at the central bank. After carefully considering the complexities of reserve accounting, it can be shown than the proceeds from taxation and bond sales are incapable of

'financing' government spending and that the US government actually finances all of its spending through the direct creation of high-powered money. The analysis provides strong support for the implementation of a federally-funded job-assurance program, such as "Employer of Last Resort".