When you’ve got friends like this – Part 11

I received two E-mails yesterday informing me that at the upcoming NSW State Labor Conference (this weekend) the delegates would be asked to vote for the inclusion of a Federal Job Guarantee, along the lines that I have been working on since 1978 (more or less), in Labor Party policy. For readers abroad, the Labor Party is the major federal opposition party at present having lost government in 2013. It began life as the political arm of the trade union movement. Anyway, that was a pleasing development I thought. A little later, I received an E-mail and a follow up telephone call telling me that the same conference, the delegates would be asked to vote on a motion put forward by the Australian Manufacturing Workers’ Union, which is the strongest ‘left-wing’ union in Australia, that says that the ALP “should be focused on maintaining government solvency” and maintaining “low and stable Deficit to GDP ratios” and ensure the “tax base is adequate to fund Labor’s priorities”. Then I read a news report from the UK from earlier in the year about the Labour Party’s commitment in the upcoming election to shore up its “fiscal credibility” by eliminating the fiscal deficit with the leader Ed Miliband claiming that “When we come to office … there won’t be lots of real money to spend, things will be difficult”. Bloody hell! This is progressive politics – neo-liberal Groupthink style. At least there are a few truly progressive people who see that a federal Job Guarantee is the way forward as a first step.

Previous entries under the – When you’ve got friends like this – series.

One thing that progressive thinkers know is that neo-liberals will always propose policy positions that cement the influence and improve the outcomes of the industrial and financial elites. In the recent decades even the industrial elites play second-fiddle to the investment bankers and their related hangers-on.

The bigger problem is that the political parties that purport to represent the opposition to the conservatives are so captured by the same neo-liberal Groupthink that the diversity of political choice is very limited.

In essence, they all sing off the same hymn sheet when it comes to economic policy, with nuanced differences around the edges that turn out to be inconsequential as a result of the larger picture constraints they all voluntarily impose on government.

The ‘progressive parties’ think they are putting a financially responsible position to the voters, which just reflects their ignorance and deep insecurity about their own understanding of economic matters.

Somehow, the neo-liberals have convinced everyone that they are knowledgable about these matters. The reality is that they are crackpots trading on theories that lost currency and validity in the 1930s and do not advance prosperity.

Note, the conservatives are not really conserving anything. For example, the neo-liberal banksters are content to ravage the natural environment and support climate denialists. I also do not consider the majority of ‘progressive’ parties in the advanced world to be progressive at all.

The neo-liberal Groupthink renders them all a homogenous blob arguing only about whether taxes should be higher or spending lower – as if either options are relevant when there is persistent mass unemployment, rising underemployment, participation rates well below recent peak (age-adjusted or not) and rising inequality and poverty.

Why British politics is in such a mess

Reuters reported earlier in the year (January 19, 2014) that –
Labour says it wants budget surplus if it wins next UK election.

If that wasn’t bad enough the Opposition leader Ed Miliband also claimed that Labour would also “want to get the current account into balance … and see debt falling”. Presumably he was meaning public debt.

And he also told the BBC TV interviewer that:

When we come to office, if we come to office after 2015, there won’t be lots of real money to spend, things will be difficult. The task for the next Labour government will be to earn and grow our way to that higher standard of living not being able to engage in lots more spending.

If you can make sense of that good luck! Its Groupthink talk – nonsensical statements that have no internal consistency.

I will return to this.

To finish the catalogue of nonsense, he said that Labour would make “planned spending cuts in 2015/16 in a fairer way”. Eek!

The more moderate-austerity appeal! Groupthink gibberish.

In this blog – Pre-crisis dynamics building again in Britain – I considered the state of the British economy and showed that the first-quarter 2014 Current Account deficit was 4.4 per cent of GDP. The deficit has averaged 1.5 per cent of GDP since the early 1970s and been in that state 88 per cent of the time over the last 40 years. There was a run of surpluses in the early 1980s but never since.

Earlier, during Britain’s manufacturing heyday there were a sequence of surpluses in the 1960s but these came to an end in the early 1970s.

The question then is how the hell will a new national government bring the external sector into a balance (a current account of zero)?

The following graph of the UK sectoral balances is for the period 1974/75 to 2013/14. The final quarter for the financial year 2014 is an estimate.

The traditional near-mirror image between the fiscal balance and the private domestic balance is evident over this relatively long period. When the government deficit rises, the private domestic sector is able to save overall, which means that household saving is greater than investment. The opposite happens when the public sector goes into surplus (look at what happened in the late 1990s.

At present the public deficit is being squeezed by the attempted austerity and the current account is expanding as exports fail to deliver the growth premium forecasted by the Government.

The private domestic sector is now back in deficit. So if Miliband thinks he will get British public debt down he is also clearly desiring to push private debt up to substantially. With an external deficit, it is one or the other.

But the other reality in the UK at present is that despite all the austerity talk, the fiscal deficit is still substantial and supporting growth. That is a fact that should be emphasised. The austerity cycle has not been severe enough to eliminate that on-going fiscal support.

Despite all the talk by both sides of politics in the UK about stimulating an exports boom – IMF-style – the reality has not been cooperative.

Remember when George Osborne said in the Budget 2012 Statement – that:

We want to double our nation’s exports to one trillion pounds this decade.

As I have noted previously, this is the stuff of dreams. There is no hope that British exports will go close to that target by 2020. In 2012, total exports were £495,284 million. By 2013, they were £505,634 million. Based on the first-quarter 2014, the full-year figure would be £493,488 million and heading in the wrong direction.

As UK Guardian writer Larry Elliot said when the December-quarter trade data came out in March this year (Source):

Forget Harold Wilson and the jumbo jets that allegedly cost Labour the 1970 election. Forget Nigel Lawson and the import binge of the 1980s. Britain has never seen bigger current account deficits than those it is notching up right now.

The “past 15 years have seen the UK’s share of world trade decline by 25%” and “unlike in previous cycles, a big depreciation of the currency has failed to lift the UK back into the black”.

One of the issues Britain faces goes back to the Monetarist days under Margaret Thatcher. She oversaw the export of a vast amount of productive manufacturing capital to places like Italy. Even with a cheaper currency, a nation has to have the productive capacity to exploit it.

Investment in productive capital in the UK has been poor and swamped by speculative financial capital flows. The result? How can Britain increase its industrial capital quickly enough to respond to the increased international competitiveness in an environment where most capital goods now have to be imported? All the dynamics are wrong for Miliband’s aspirations.

If you examine the current account in more detail, then it is clear that the trade component will be in deficit for many years to come – that is the normal outcome. Miliband won’t alter that.

What about the income component, which records payments received from and sent to the rest of the world for interest, dividends, profits, etc)? That has been in deficit since the crisis and doesn’t look like altering course in the foreseeable future.

Larry Elliot also suggests that:

On past form, Britain’s manufacturers would not use the 31% depreciation to expand market share, but would plump up their profit margins instead

So forget the balanced current account. Which means that if the government is driving its deficit down through austerity it will not only undermine growth but squeeze the private sector. The income shifts will drive up private debt or there will be an almighty recession (and/or both)!

A very foolish strategy.

He would be better off using the time in opposition to reeducate the public about the role of fiscal deficits and the nonsense involved in blind statements about pursuing balanced budgets. But then he would need to be educated himself before he could achieve that useful public purpose.

Moroever, statements like “The task for the next Labour government will be to earn and grow our way to that higher standard of living not being able to engage in lots more spending” demonstrate how little education he actually has on matters he claims to express opinions about.

Economic growth requires lots more spending. He might be thinking the private sector is about to unleash a major spending spree as the government takes some 4 per cent out of GDP (the current deficit). Why would they do that with the prospect of rising unemployment and lost incomes?

Why not assess what the current private spending gap is relative to the total spending that is required to drive growth sufficient to achieve full employment and then promise to maintain public spending at that level?

That would be the responsible thing to do – link fiscal policy to its function and ignore irrelevant debt to GDP ratios and deficit to GDP ratios.

Why Australian Labor is in such a mess

Which is advice the AMWU in Australia might also like to heed.

This link will take you to the – Full Policy and Agenda Report for the upcoming 2014 NSW Labor State Conference.

On Page 65, Agenda Item 13 under “Our Economic Future” we read that:

Conference recognizes that for too long the ALP has accepted the conservative orthodoxy that government debt is inherently bad, budget surpluses are inherently good and government spending should be minimized. There is no inherent economic justification for these views or the current ‘surplus fetish’ trend.

That sounded good.

Then, the horror story unfolds as you work out what they are on about. They want the Conference to reject the current Federal Labor view that it “will not increase taxation”, which in itself is okay until you know what their motivation is.

Accordingly, the largest “left” union in Australia wants the ALP policy to:

… be focused on maintaining government solvency, not a blind goal of eliminating net debt or deficits while providing the social and economic investments that underpin a fair and prosperous society. Low and stable long run debt to GDP ratios or Deficit to GDP ratios are two better measures of prudent fiscal management than surpluses or zero net debt.

What they want is for taxes to rise as a means of bringing the deficit down rather than spending to be cut. They think that is a “fair and disciplined” strategy.

Which is buying into the neo-liberal Groupthink holus bolus.

Any focus on what the deficit should be is missing the point. Taxation should only rise if the government wants the private sector to have less purchasing power. It should never be increased to ‘give the government more money to spend’.

The Australian government issues its own currency. It doesn’t need taxation revenue to spend.

Further, why should the progressive side of politics be wanting the Party to be “focused on maintaining government solvency” when, by definition, the Australian government never faces insolvency. It issues the currency, stupid!

Why even buy into the solvency-run-out-of-money hype that the neo-liberals pump out to reduce the capacity of government to maintain full employment? The reason is that they also need educating. I am told the conference is going to be being briefed on this agenda by a self-styled progressive who as far as I can tell from his public statements continuously mouths mindless neo-liberal statements about fiscal policy.

The Federal Labor Party should tell the Australian people that it stands for full employment and equity and that it will ensure its spending is sufficient to meet that lofty goal. Whatever it takes. It should never mention aspirations to have “Low and stable long run debt to GDP ratios or Deficit to GDP ratios” given that it cannot control those ratios anyway.

Which is why the Agenda Item 37 on Page 85 and Agenda Item 46 on Page 86 under the heading “Prosperity and fairness at work” are so important.

They are identical items brought to the conference by a committed group of younger party members who have taken the time to start understanding how fiat monetary systems work and the opportunities that are available to a currency-issuing government within those systems.

The Agenda Items are:

Conference supports the implementation of a Federal Job Guarantee programme that provides employment at the minimum wage to anyone who is unable to find work. NSW Labor calls on the National Labor Party Conference to adopt this policy and work towards its implementation under the next federal Labor Government.

Recommendation: Refer to National Conference.

We won’t hold our breath. The so-called ‘left’ in this now LEFT=RIGHT world will block it for sure and probably say things about not being able to afford it. Or ‘how much would it cost’? And the rest of it.

But this sort of policy development is the way forward for the progressive parties and it should be encapsulated in a mass education campaign within and outside of the Party as to why the Job Guarantee is a basic building block in a macroeconomic stabilisation policy structure.

If you want to read more about this please read the blogs listed under this category – Job Guarantee.

Conclusion

Once again a case of when you have friends like this who needs enemies.

I hope that the real progressives in Labor, who are currently in a very small minority and don’t have the resources that the big unions have, start to get traction within the Party.

It is also time that the so-called ‘left’ unions broke out of the neo-liberal macroeconomic Groupthink and started representing their workers more responsibly.

That is enough for today!

(c) Copyright 2014 Bill Mitchell. All Rights Reserved.