Australia’s broadband disaster has lessons for a Green New Deal strategy

I am working on a manifesto (‘White Paper’) linking Modern Monetary Theory (MMT) with a Green New Deal (GND) concept. I will announce an important strategic coalition I am forming to advance this agenda in the coming period and some great events to present the framework. As part of that process, I have been sketching some of the important guiding principles that I consider to be essential if a massive socio-economic transformation like the Green New Deal (or whatever we want to call the strategy) is to be successful. Lessons from history are a good starting point to understand why things go awry. In that respect, the largest national infrastructure project that Australia has embarked on for decades – the National Broadband Network (NBN) – is a object lesson in how not to conduct government policy when nation building. The Green New Deal is about nation building – creating a framework of infrastructure, education, skills development, employment, distributive mechanisms and more to take nations into the next century while reversing the environmental degradation that industrialisation and mass consumerism has wrought. The central role of the government as the currency issuer will be paramount. The whole transformation will not be successful while policy makers hang onto mainstream macroeconomic views about government financial capacities, which manifests into obsessions about achieving fiscal surpluses. This is why an understanding of MMT is central to any proposal to advance a GND. Without that understanding, we will always encounter the nonsensical issues that have plagued the NBN development and left it in a state of chaos and near-redundancy, when it should have underpinned our technological network for decades to come.

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The adult unemployment benefit in Australia should be immediately increased by $A200 per week

At present, the Australian Parliament is debating whether the unemployment benefit (called Newstart) should be increased. The conservative government is refusing to budge claiming it prefers to create jobs and get people of benefits – arguing that it will generate 1.25 million jobs over the next 5 years. The Opposition Labor Party are attacking them for being mean but are just rehearsing the massive hypocrisy that has defined that party since it became a voice for the ‘neoliberal lite’ path. Every time the Labor Party spokespersons criticise the Government for not bringing unemployment benefits above the poverty line, Australians should remember that when they were in office the Labor Ministers ran the same line – they wanted to move people into jobs and would not compromise their obsessive pursuit of a fiscal surplus. Same logic. Disgusting and dishonest then. As it is now. The fact is that the successive governments have forced the unemployed to remain jobless (through austerity policies) and then increasingly plunge into deeper poverty (by refusing to increase the income support level in line with movements in poverty lines). In this blog post, I show that even if the 1.25 million pledge is achieved (and there are reasons why they might struggle to achieve it), there would be thousands of workers remaining in a jobless state by June 2024. This denies the Government’s claim that the pledge will eliminate the need to increase the unemployment benefit. Given that the current policy mix is likely to force thousands to remain in elevated levels of unemployment, the unemployment benefit should be increased, immediately, by more than $A200 per week, in the first instance, for a single adult. And then the government should introduce a Job Guarantee to allow workers to transit from joblessness to work at a decent, socially inclusive minimum wage (well above the revised unemployment benefit level). That would be the responsible thing for government to do in this regard. I am not holding my breath.

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The British government can avoid a recession from a No-Deal Brexit

A shorter blog post today (Wednesday). On Monday (July 29, 2019), the British Social Metrics Commission published their – 2019 Report – which reveals (staggeringly) “that 4.5 million people are more than 50% below the poverty line, and 7 million people are living in persistent poverty” in Britain. So around 22 per cent of people in the UK are living in poverty. In this day and age, poverty is like polio – it is completely avoidable if governments adopt the right policy mix. Persistent poverty means that a people “are in poverty now and have also been in poverty for at least two of the previous three years.” In other words, the policy failure is persistent. As Britain approaches the October 31, 2019 deadline and, hopefully, finds itself free of the neoliberal, corporatist nightmare that is membership of the EU, it certainly needs to take action to insulate the economy from a possible downturn. The forecasts coming out of the Office of Budget Responsibility (OBR) are clearly negative but hardly catastrophic. They certainly do not match the hysteria that you read in the Guardian on a daily basis about the end of life as we know it in Britain. But the Government has the capacity to circumvent any downturn. The OBR assumes that facing a recession that the Government does nothing of a discretionary nature (stimulate via fiscal policy) to attenuate that event. What responsible government would not act? And why did the OBR not model some fiscal stimulus scenarios in the wake of the decline in non-government spending they estimate will follow a No-Deal? The reason, is, of course, that that would give the game away. They know that the Government can offset their predicted (though modest) downturn if it chooses. The Government could also go a long way to avoiding such a downturn, and, bring this horrendous (austerity-driven) poverty rate down rather quickly if it takes positive action. That is Boris Johnson’s challenge. And if he takes it up and succeeds then it is ‘goodnight’ Labour.

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Voodoo economic revisionism abounds – and it is not MMT doing the voodoo

The epithets being used as put-downs for Modern Monetary Theory (MMT) are growing. But some of the good old terms – that one might actually apply to mainstream macroeconomics – are also in currency. An article in Project Syndicate (May 27, 2019) – Japan Then, China Now – declared MMT to be “the latest strain of voodoo economics” that is “alluring for the Trump administration”. The article by a Yale University lecturing staff member (and former investment banker) really just reminds us why students should avoid studying economics at that university. The voodoo, I am afraid is actually on the other foot! There are some fundamental errors in the logic in the article that highlight why MMT is a superior paradigm for understanding how the monetary system actually operates in comparison to the mainstream logic that the author uses against it.

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There are no financial risks involved in increased British government spending

On July 26, 2018, UK Guardian columnist Phillip Inman published an article – Household debt in UK ‘worse than at any time on record’ – which reported on the latest figures at the time from the Office of National Statistics (ONS). He noted that the data showed that “British households spent around £900 more on average than they received in income during 2017, pushing their finances into deficit for the first time since the credit boom of the 1980s … The figures pose a challenge to the government … Britain’s consumer credit bubble of more than £200bn was unsustainable. A dramatic rise in debt-fuelled spending since 2016” and more. While keen to tell the readers that British households were “living beyond their means”, there was not a single mention of the fiscal austerity drive being pursued by the British government over the same period. Nor was there mention of the fact that the entire British fiscal strategy since the Tories took office was predicated, as I pointed out years ago in this blog post – I don’t wanna know one thing about evil (April 29, 2011), on this debt binge continuing. A year later (July 20, 2019), the same columnist published this article – Labour and Tories both plan to borrow and spend. Is that wise? – which like its predecessor fails to present a comprehensive, linked-up, analysis for his readers and makes basis macroeconomic errors along the way.

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Trade unions have a blueprint from Treasury to increase their industrial disputation

It is Wednesday and I have only a short blog post today as I have had a lot of commitments that stop me from writing. But I did read a recent Australian Treasury paper – Wage Growth in Australia: Lessons from Longitudinal Microdata (July 2019) – which purports to model the reasons why there is wage stagnation in Australia. The results were presented at the Australian Economists Conference earlier this week and set off a storm because it appeared, at first blush, to blame workers lassitude and excessive risk averse attitudes for the lack of wages growth. I read it slightly differently. It tells me that, first, the Treasury is reluctant to acknowledge the legislative attacks on unions’ capacities to gain wage increases that have been characteristic of the neoliberal era; and, second, that the unions might take the message as a call to arms – take the employers on more often through costly industrial action within the tight legal environment that is left to them.

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Paying interest on excess reserves is not constrained by scarcity

This morning, a former deputy governor of Australia’s central bank (RBA) published a short Op Ed in the Australian Financial Review (July 16, 2019) – Why there are no free lunches from the RBA – which served as a veiled critique of Modern Monetary Theory (MMT). The problem is that the substantive analysis supported the core of the MMT literature that we have developed over 25 years, refuted the standard macroeconomics textbook treatment of the link between the government and non-government sectors, and, incorrectly depicted what MMT is about – all in one short article. Not a bad effort I thought. But disappointing that a person with such experience and knowledge resorts to perpetuating such crude representations of ‘cost’ and myths about government finances.

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Central bank research refutes core mainstream macroeconomic propositions

Australia’s economic performance is not exactly flash at present. GDP growth has slumped and is well below (less than half) the longer-term trend rate. Unemployment and underemployment remain at elevated levels. The federal government has been pursuing an austerity phase in the mistaken belief that achieving a fiscal surplus, no matter, what is a sound and responsible strategy. While the household sector maintained consumption expenditure growth the government’s folly did not manifest. However, that strategy was built on a plunge in the household saving ratio and an ever increasing household debt to income ratio. For years, the central bank (RBA) and the Treasury denied there was a problem – claiming that the rising debt levels were covered by rising wealth. There was never any recognition that the trends in household debt were intrinsically related to the fiscal position of the government. With the external deficit fairly stable at around 3.5 per cent of GDP, the fiscal drag imposed by the government surpluses was only possible because the household sector accumulated debt. Under current institutional arrangements (federal government unnecessarily matching its deficits with debt issuance) the declining public debt ratio was really just an approximate mirror of the rising private debt ratio. But times are changing. The RBA has now released research that refutes core aspects of mainstream macroeconomic theory and finally acknowledges what Modern Monetary Theory (MMT) economists have been pointing out for more than two decades – that the accumulation of household debt ultimately becomes a brake on spending growth.

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‘Sound finance’ prevents available climate solution with massive jobs potential

When the governments in the advanced nations abandoned full employment as an overarching macroeconomic objective, and instead, starting pursuing what I have called full employability, they stopped seeing unemployment as a policy target (to be minimised) and began using it as a policy tool to suppress inflation. As mass unemployment rose, the politics were massaged by the mainstream of my profession who claimed that the level of unemployment that constituted full employment had risen (this was the NAIRU era) and so there was really no problem. Governments adopted the neoliberal line that they ‘didn’t create jobs’ and had to target fiscal surpluses to ensure their position was ‘sustainable’. The costs in lost income and human suffering have been enormous – most people would not have any idea of the massive scale of these losses that accumulate day after day. Now, it seems, the ‘sound finance’ school is going a step further. We are probably facing an environmental emergency in the coming period (years, decades) but the question commentators keep asking is not what we can do about it but ‘how can we pay for it’? So ‘sound finance’ has already destroyed the lives of millions of people around the world as a result of mass unemployment and poverty, now it is turning its focus on the rest of us. Madness. Paradigm change has to come sooner rather than later.

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Reliance on monetary policy is mindless, ideological nonsense

It is Wednesday and so a less intensive blog post. Note how I no longer claim it will be shorter. The less intensive claim refers to how much research I have to put in to write the post. Apart from some beautiful music, the topic for today is yesterday’s RBA decision to cut interest rates to record low levels. The decision won’t save the economy from recession and highlights the sort of desperation that central bankers now face as governments shunt the responsibility of counterstabilisation onto them while claiming that achieving fiscal surpluses is the brief of the treasuries. This self-defeating strategy – failing to use the most effective policy tool in favour of an ineffective tool is the neoliberal way. It is the recipe that New Keynesian macroeconomics offers. It is mindless, ideological nonsense and the problem is that it is not the top-end-of-town that suffers from the negative outcomes that follow. Quite the opposite in fact.

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