Framing matters – the unemployed and the farmers

At present, Europe is sweltering in both relative and absolute terms as the harsh summer ensues. In Australia, we are in drought after an unseasonably warm and dry Autumn. Drought is no stranger to Australia but the frequency and circumstances of the current period coupled with what is going on around Europe (including the cold spell I was caught up in Finland in February while the North Pole struggled with heat) tells us that weather patterns are changing. There is now credible research pointing in that direction. But the drought in Australia is demonstrating another thing – the hypocrisy of the way we deal with unemployment and the unemployed vis-a-vis other groups in society that we endow with higher privilege, especially in this neoliberal era. Australia is experiencing a serious drought and Federal and State governments are tripping over each other to offer very large support packages to farmers and their communities to tide them over while their income dries up (excuse the pun). There appears to be no limit to the support these governments are announcing. The Prime Minister is wandering around rural Australia promising this and that to help farmers make ends meet. Whenever I see these special assistance packages being handed out to the rural sector, which is politically well-organised, I reflect on the plight of the unemployed. With unemployment at elevated levels in Australia, the decision to hand out economic largesse to the farmers reeks of inconsistency. The unemployed have diminishing chances of getting a job at present and the income support provided by government is well below the poverty line. That poverty gap is increasing and the Government refuses to increase the benefit claiming fiscal incapacity. The comparison of the vastly different way the government treats farmers relative to unemployed highlights, once again, that the way we construct a problem significantly affects the way we seek to solve it. The neo-liberal era has intensified these inconsistencies which have undermined the capacity of public policy to achieve its purpose – to improve the welfare of all citizens. The research question is: Why do we tolerate such inconsistent ways of thinking about policy problems and their solutions?

At present, Australia is enduring broad labour underutilisation rates (official unemployment plus underemployment) of around 13.7 per cent.

In June 2018:

1. Underemployment rose by 35.1 thousand and was estimated to be 8.6 per cent of the labour force (up from 8.3 per cent).

2. The total labour underutilisation rate (unemployment plus underemployment) was steady at 13.73 per cent (up from 13.6 per cent).

3. There were 1,137.8 thousand persons underemployed and a total of 1,826 thousand workers either unemployed or underemployed.

If we take into account that the labour force participation is also below previous peak levels, then we know that hidden unemployment is of the order of about 1 to 1.5 per cent, taking the total wastage of available idle labour in Australia to over 15 per cent.

The fact that this rate of wastage has persisted for many years now is testament to the flawed policies that successive federal governments have taken under the cover of fiscal sustainability.

But deliberately creating this amount of labour wastage via flawed policy design has not been enough for our governments. They have also wanted to deny that the unemployed are blameless in the problem.

And they have sought to punish the unemployed by ensuring that the pittance of income support that the unemployed receive stays well below the acceptable poverty line.

This is neoliberalism in action.

In part this blog post is about framing – how we construct a problem. Neoliberalism has adopted some very specific constructs that serve the interests of the top-end-of-town and undermine the rest of us.

The issue I am dealing with today is important because it frames the way the Government chooses to segment the population by political relevance or weight, rather than one’s intrinsic rights as a citizen.

Unemployed in Australia forced by government to live below the poverty line

For overseas readers here is some background. Unlike the unemployment compensation insurance schemes that operate in most countries, the Australian unemployment benefits system is paid by the federal government at set rates for an indefinite period (subject to Work Activity tests).

Employers and employees do not contribute to the scheme and everyone gets the same rate (adjusted for marital and parental status).

It was always understood that unemployment would be a relatively temporary phenomena arising as a result of short-term inadequacies in total spending, which governments could correct through fiscal policy.

Unemployment was constructed as a systemic failure to produce enough jobs to match the preferences for work held by the available labour supply.

It was also understood that systemic constraints are binding on individuals who can do very little themselves to ease the constraint.

The unemployed can offer to work at lower wages but a firm will not take that person on even though they know the person will not cost them as much as before. The reason is that the firm would know that by taking on that worker their deficient sales will not improve much at all – and certainly not enough to justify hiring the worker.

Systemic constraints have to be solved at the ‘system level’ – the macroeconomic level – through large-scale spending stimulii.

When an economy is trapped in an under-full employment equilibrium there is no non-government spending incentive forthcoming and, as such, the government must take responsibility to ensure the spending gap is closed and firms have an incentive, via rising sales demand, to take on labour.

In the neoliberal era, that construction changed.

Accordingly, people are considered to be making choices between leisure and work that maximise their satisfaction. Anything that swings that choice towards leisure will show up in the labour force data as unemployment (or not in the labour force).

For example, if the government choose to provide income support to the unemployed that is considered in the mainstream approach to be ‘subsidising’ leisure and distorting the choice in favour of leisure.

Accordingly, you will find mainstream economists arguing that cutting income support in real terms will stimulate more job search behaviour and reduce unemployment.

Make people desperate enough and they will do anything sort of reasoning.

But the important point is that in this construction, unemployment is framed as a maximising choice and therefore unproblematic.

I have previously considered the state of poverty among the unemployed in these blog posts among others:

1. Why are we so mean to the unemployed? (September 23, 2009).

2. The plight of the unemployed – under growth and decay (November 16, 2010).

3. Our pathological meanness to the unemployed is just bad economics (February 15, 2012).

4. Fat cat bankster wants to make the unemployed even more desperate (August 23, 2012).

5. The indecent inconsistency of the neo-liberals (April 30, 2013).

Things have deteriorated since my last offering on this topic.

In 2012, there were widespread calls from a diversity of interests in Australia demanding the Government increase the income support for the unemployed.

On November 29, 2012, a Committee of the Australian Senate (our upper house in Federal Parliament – the “states house”), set up to consider the issue, produced a – Full Report – but failed to deal with the problem adequately.

It was little wonder given the Australian Government’s own – Submission to the Senate Inquiry on the adequacy of the allowance payment system for job seekers and others.

This was a Labor government at the time. Firmly entrenched in neoliberal myths.

At a time when unemployment was rising sharply, the Government eschewed any direct policy intervention including raising the unemployment benefit on the grounds that it would damage the fiscal position!

The Government’s Submission stated in relation to calls to increase the unemployment benefit to bring it back closer to the poverty line that:

Any increase of this nature would have a substantial fiscal cost which would need to be balanced against other government spending priorities and fiscal objectives. In addition, an increase would not assist in maintaining the fundamental character of Newstart Allowance as a payment that predominantly supports work re-engagement …

Aside from the work disincentive effect associated with options that involve lifting base allowances by a significant amount … In a climate of fiscal constraint, it remains important to consider expenditures on income support alongside other public expenditure priorities and to note that the position of people out of work is also assisted through investment in taxation measures, employment services and broader social policy and program reforms.

Total bunk really.

The neoliberal line personified.

There was no reason for imposing fiscal austerity at the time with the broad labour underutilisation rates high, inflation low and real GDP growth subdued and insufficient to absorb the new entrants into the labour force into employment.

The only issues the Government should have been considering were:

1. The question of equity (and this group is living in poverty as a result of mean-spirited government policy) – how should we treat different groups in society – especially those in poverty which are often also enduring unemployment.

2. The risk of inflation – will expanding the unemployment benefit blow out nominal aggregate demand growth relative to the supply potential of the economy? If so, what other policies are required to maintain price stability?

If the answer to the second question is yes and the first is that more equity is required then a combination of unemployment benefit increase and rising taxes on higher income earners would be indicated, for example.

In fact, there is no inflation threat that would arise from restoring some relative equity between income support recipients.

As a technical matter, the Australian Government, as the currency-issuer, could increase the unemployment benefit with the stroke of a computer keyboard.

The fact is that the unemployment benefit was fundamentally designed to provide income support for those who fell into unemployment in an environment where long-term unemployment was rare (and defined as 12 weeks or more rather than 52 weeks or more as it is now) and the nation enjoyed true full employment.

At that time, spells of unemployment were short and most people could quickly find a new job if they were unlucky enough to become unemployed. Unfilled vacancies were usually above the level of unemployment which meant that firms were always looking for workers and provided training slots with job offers to ensure they could fill vacancies.

Unemployment benefits were designed to be short-term income support in an economy where the national government took responsibility for ensuring there were always enough jobs available to match the preferences of the available labour force.

The incentivise narrative entered much later as the neo-liberals were looking for victims to blame for the mess that their austerity policies were creating – that is, the high unemployment that they created by abandoning active fiscal policy and relying monetary policy to use unemployment as a policy tool to keep inflation low.

It was introduced when unemployment to vacancy ratios rose – sometimes to around 10 to 1 – currently around 3.4 and that is not counting the mass underemployment that is a more recent manifestation of the failure of the economy to produce enough jobs.

It was obvious the economy was not producing enough jobs, yet to disguise that policy failure, a full-blown attack began on the unemployed and the narrative shifted to claims their allowances were too high and were undermining incentives to work.

Quite simply, it was argued that our disadvantaged citizens preferred the pittance that the government provided them by way of unemployment benefits to working despite the fact that the former life opened the person to public humiliation, vilification from the media and civic leaders, and poverty.

Somehow, successive governments were able to convince us that these characters were lazy and living high on the hog and should be working like us. The argument relied on a sort of collective denial or ignorance of the reality – the data – the UV ratio, the lack of jobs – whatever you want to call it.

When those arguments were raised, relevant Government Ministers would perjure themselves with creative stories such as “there are plenty of jobs it is just that the firms have stopped advertising them because they know the dole bludgers won’t take them anyway”.

When it was pointed out that such a scenario would imply the firms all had long order books and the evidence didn’t support that – the relevant person would resort to vilification and suggest university academic were socialists or worse.

All the calculations that follow are taken from the following data sources:

• Historical data for benefits.
• RBA data for – Consumer Price Index – Table G2.
• RBA data for – Labour Costs – Table G6 – to compute Average Weekly Earnings.
• Poverty line data is available on a quarterly basis from the – Melbourne Institute of Applied Economic and Social Research

The Newstart Allowance (unemployment benefit) is adjusted every March and September.

The following graph shows the evolution of the Single Unemployment Benefit and the Single Unemployed Poverty Line since 1973 until March-quarter 2018.

The single unemployment benefit stands at $38.99 a day which is well below any reasonable estimate of the poverty line in Australia (for singles at $A60.08 per day).

For married couples the unemployment benefit is currently at $70.40 per day, while the corresponding poverty line is set at $85.10 per day.

Whether one is single or in a couple, once accommodation is paid for, there is not very much left of the unemployment benefit income.

You can date the widening gap between the unemployment benefit and the poverty line to the early 1980s, when the neoliberal mantra about fiscal surpluses really took hold in Australia.

As that narrative gained dominance the gap has widened – both sides of politics have embraced it. The Left sold out in other words.

The next graph shows the weekly unemployment benefit for married couples and the corresponding poverty line.

The interesting feature is that the deterioration in the situation for married couples came when the conservatives were elected in 1996. The current Labor government (elected in 2007) accelerated that deterioration.

The next graph shows real average weekly earnings and the real single and married unemployment benefit indexed to 100 in the December-quarter 2007. This quarter was the peak of the last cycle. The real single and married index have moved together since that time.

I should note that productivity has been rising well above the rate of real average weekly earnings since the early 1980s so there has been a massive redistribution of national income away from workers generally over the last 30 years to profits.

See yesterday’s blog post – CEO pay binge in Australia continues while workers’ wages growth remains flat (August 6, 2018) – for more discussion on this point.

But even with that dynamic unfolding, real average weekly earnings have grown modestly since the early 1980s whereas the real standard of living for the unemployed has barely changed.

Since the December-quarter 2007, real average weekly earnings have grown by 8.2 per cent, which is pitiful. And to put a fine point on that performance, all that growth came between December-quarter 2007 and the December-quarter 2012.

Since then real average earnings for workers have not changed.

Real unemployment benefits have not improved at all. So the Government has deprived the unemployed of enjoying some of the benefits of national productivity gains.

Clearly, these trends suggest that:

1. In this neoliberal era, successive governments have framed unemployment as being a choice made by individuals who are too lazy to work or are otherwise incentivised to remain jobless.

2. Society in general has accepted that view which shows no respect for the unemployed who are in that state because circumstances beyond their control changed and they became the victims of those changes.

Enter the latest drought in Australia.

Then we see how framing really matters.

Government support gushing for drought-stricken farmers

Construction matters!

Here is the problem. The graph shows monthly rainfall (mm) for the Eastern Australia from January 2010 to July 2018 (data available from the Bureau of Meteorology).

The downward sloping dotted line is just an Ordinary Least Squares trend.

The recent period has seen very little rain. If I drilled down to some of the Eastern rural growing areas the situation would be even more stark.

The Bureau reports that the Autumn rainfall in 2018 was the lowest since 1902. But other data shows that while the current drought is serious it is not the longest dry period in history or the driest.

But quibbling over facts is not the point of the blog post.

The Australian government and NSW State government (where the drought appears to be worst) have acted quickly to provide massive support for the farmers.

Cash payments of around $A28,000 a year are available via the Farm Household Allowance (FHA) scheme. This is higher than what a person would get on unemployment benefits.

In addition, free medical support (mental health) is being given and the Rural Financial Counsellors scheme has been expanded significantly.

Further, low cost loans are being provided to farmers.

The NSW State government announced that it would reintroduce freight subsidies for animal feed and water in addition to extra cash payments to farmers.

It is waiving “Local Land Services rates, fixed water charges and class-one agricultural vehicle registration costs” (Source).

The Federal government is to announce further monetary support for farmers soon.

All sorts of additional help is being given – the Agriculture Minister has hassled the banks to provide stays on loan payments; hay deliveries are being subsidised, etc.

In addition, the Federal government runs a – Farm Management Deposits Scheme (FMD), which
“allows eligible primary producers to set aside pre-tax income from their primary production activities during years of high income. The income can then be drawn in future years as needed.”

In other words, a very generous tax minimising scheme in good times.

As far as I can tell, all the new aid being given in this current period does not require farmers to draw down on that fund even though as at June 2018 there were 54,569 accounts being held and $A6,618,609 thousand deposited (Source).

For a full range of support to the farming community from the Federal government see the – Drought and rural assistance portal.

For example, the Federal government claims it is “providing funds for concessional loans” because

Significant debt pressure can restrict growth and hinder farmers from improving their business practices. Concessional loans can not only offer much-needed assistance to farm businesses in the short-term, but can also improve their financial capabilities into the future.

Concessional loans give farmers the breathing space to focus on growing and improving their farm business, including risk management practices and preparedness measures, as well as looking at opportunities to improve their business structures.

Concessional loans will only be made available to viable farm businesses. Loan recipients will need to demonstrate financial need, participate in a farm business planning exercise, and demonstrate their capacity to meet a debt repayment schedule.

The Department of Human Services, which oversees Federal income support notes that “There are occasions when you may experience exceptional circumstances that are beyond your control, such as a severe drought” which means you can receive special extra assistance and are exempt from any activity tests, which are imposed on unemployment benefit recipients.

So the farmers who are unable to earn an income get income support but not reciprocal obligation (to use the neo-liberal terminology) that is forced onto an unemployed person via the activity tests.

All the assistance is aiding farmers who are unviable at present. But there is no alignment with that situation and the situation of an unemployed person.

Construction matters!

Think about these questions:

1. What is the difference between an urban/rural worker (say) who loses his/her income because their job (productive activity) vanishes and a farmer who loses his/her income because their job (productive activity) vanishes as a result of changing global or national economic circumstances?

2. Why is one job loser able to access crisis relief (which is generous) and the other job loser is only able to access unemployment benefits which now provide below-poverty line income support in Australia?

3. Why is an unemployed worker not able to access concessional loans on their property to help them through the crisis, when clearly their plight is beyond their control?

Now take this thinking a step further.

It was obvious that both climate change and the changing external environment (exchange rates and the mining sector) were going to undermine the viability of current farming practices.

Why have we ignored all the developments in alternative farming (permaculture, natural sequence farming, organic and bio-farming) up unto now?

Construction matters!

We have a long history of seeing the farmer as the entity to be protected and the unemployed person as the entity to be vilified.

For example, regularly, through a variety of media, distressing stories of the drought’s impact are retold in different ways. We are very much aware of the stress the drought imposes on farming families and their regional and rural communities. We are aware of the damage to export income and of the fragile, fractured nature of rural life.

We respond by instinctively looking to the heavens, realising that the drought is caused by a lack of rain.

In constructing the problem as a system failure we engender public sympathy for those at the mercy of the weather and demand that the Government provide financial support to the farmers. The amount of aid that we allow to be given to farmers (via our continued voting for governments that give it) is huge and largely unconditional.

However, we could have constructed the problem in a different way.

There is evidence that sustainable agricultural practices can cultivate drought-resistant farms, even in areas where conventional farms have suffered badly.

Even in the current environment, some farmers are expressing concern over the very generous handouts being given to farmers by the Federal government.

In this ABC News Report (August 7, 2018) – Challenging the public perception of drought: not all farmers are ‘busted cockies with starving animals’ – notes that:

Farmers are concerned the media is focusing too heavily on drought disaster stories that are damaging the reputation of Australia’s livestock industry.

They also say the majority of farmers are not shooting their animals or letting them starve in paddocks.

Further, other farmers interviewed talked about how farmers needed to better prepare for the inevitability of drought and look after their environments better.

They indicated that “those who have been hard-headed and planned for this” are able to get through the drought without emergency assistance.

So when constructing (framing) this problem, should we therefore focus on the ‘deficiencies’ of individual farmers and ignore the systemic crisis that drought brings.

Should we highlight their lack of skill or poor motivation or reluctance to plan for bad seasons?

While poor farming practices will deepen the impact of the drought, the root cause of the problem – given current practices – is clear – not enough rain is not enough rain!

Improving farming practices must be part of any long-term strategy to promote ecological sustainability. There is ample evidence from the the permaculture, natural farming, organic agriculture literatures that drought avoidance is possible if new techniques are learned.

But our immediate reaction is to construct the lost farm income problem as one right of the (climatic) system failing our rural communities and thus engendering our support.

How else might we think about drought and the powerlessness of individuals when systems fail? What about a drought of jobs?

My own work shows that Australia loses millions of dollars in lost national income per day through our willingness to tolerate persistently high rates of unemployment and underemployment.

The scale of loss in income arising from unemployment (and underemployment) dwarfs the losses arising from drought or problems caused by exchange rate movements.

That is not an opinion – it is a fact – easily documented.

But when was the last time you read about the costs of unemployment or the plight of the unemployed? Even in the current crisis, there is more emphasis on the financial market than there is on the labour market.

There have been more feature stories about failed entrepreneurs having to bear hardship than stories about the unemployed worker who loses everything.

How many times do you hear our parliamentarians or the central bank officials or treasury heads expressing an urgent concern about the ‘unemployment problem’ and advancing direct policies to generate jobs for all who are willing and able to work?

The costly acceptance of the status quo raises the following question for all of us.

Why do we always have such an urgent concern about farm problems – which are smaller in income lost and affect significantly less families and children – yet adopt such indifference to the unemployed?

The answer lies in how we construct the problem.

We have been repeatedly told that unemployment is the fault of the unemployed.

The solution then focuses on making the unemployed ’employable’ rather than on ensuring there are sufficient jobs.

We arraign our most disadvantaged citizens with accusations that they are lazy and unskilled claiming that they could get work if they tried harder or changed their attitude.

Meanwhile, we blithely ignore the failure of macroeconomic policy to ensure there are enough jobs available despite the evidence for unemployment as a ‘systemic failure’ being as compelling as meteorological data, for example, showing a lack of rain.

However, when it comes to the problems that farmers face over the cycle – we always start with the proposition that they need more government handouts.

The long-term solution to that farming problem requires more fundamental shifts in land and water use and will require extensive retraining of farmers, many of whom will resist this and bring political force to bear to maintain their privilege access to government assistance.

Conclusion

Whenever we think about a policy problem there are many constructions that are possible.

The way we construct the problem is often driven by the dominant ideology which probably caused the problem in the first place and has no real stake in actually solving the problem at its elemental level.

So we get a version of the problem – the unemployed are lazy – and attack the individual with an elaborate labyrinth of policies that do nothing at all to get the workers into jobs.

The same goes for how we understand Modern Monetary Theory (MMT) and so we get sidetracked into a number of dead-ends because the debate is falsely constructed.

On Thursday, I will address the latest comments from British Labour Party advisors about how an application of MMT principles to British fiscal policy would destroy the currency.

That is a perfect example of a false construction.

That is enough for today!

(c) Copyright 2018 Bill Mitchell. All Rights Reserved.