When the idea of a fiscal surplus becomes a talisman

It is Wednesday and I am travelling a lot today with limited opportunity to write. I am reading a lot though. Highly significant political debates with far reaching effects on the well-being of citizens once policies are implemented are conducted on a daily basis in our national Parliaments and in the media with little correspondence to reality. This is the norm for debates on macroeconomics, which dominate political news every day. There is this fictional world that has been created to keep citizens in check. When the painful policies the neoliberals haul out inflict pain, the solution is to blame something erroneous, attack it, which then just causes more pain. This is the norm these days when it comes to macroeconomic policy. And for the rest of us we suffer in the real world but reason in this fictional world, which is why it persists.

The fiscal surplus – god-like

The Fairfax press carried this story (October 20, 2019) – Treasurer rejects stimulus push, defends reform plan – which bears on the discussion as to why the Federal government is not relenting on fiscal policy when the economy is slowing dramatically, household debt is at record highs and household consumption spending growth is declining, business investment is languishing and Australia typically runs an external deficit.

Drain, drain, drain.

The Government has decided in this context that the best way forward is to concentrate on “industrial relations as a key target” and the Treasurer has said now is “‘not the time to panic’ over the tumbling growth”.

The so-called “three-phase reform plan” which includes industrial relations is fancy code for making it hard for workers to gain wage rises, making it hard for them to keep their jobs in the face of employer caprice, making it harder for trade unions to do their legitimate job of protecting workers’ interests, and making it easier for employers to be capricious.

The Treasurer told the media that:

We’re talking about competition, infrastructure, deregulation, industrial relations, tax

All par for the course for the conservatives.

All more of the same.

All certain to make matters worse for the things that the citizens actually care about.

The Treasurer has just come back from Washington with his “structural reform” zeal. Obviously, infested with IMF logic – the sort of logic that has delivered such shockingly bad outcomes to date, since they adopted this tack.

This is in the context of central bank governors and even mainstream economists now admitting that the period of monetary policy dominance is over and that the way forward to arrest the stagnation that is choking material well-being is to engage with fiscal stimulus.

As I have said repeatedly, pushing monetary policy to its current rather gymnastic limits – with massive build up of central bank balance sheets, negative interest rates as far as the eye can see, and excess bank reserves as high as the sky – has not delivered on the promises made.

The New Keynesian macroeconomists might think that the ‘policy assignment’ in favour of monetary policy is preferred. But it has failed and the consequences have been elevated levels of unemployment and underemployment, rising inequality, real estate booms that crash and all the rest of it.

It was never a good plan to rely on monetary policy.

But now, for Australia, fiscal policy has to return to the front line and we need stimulus badly if we value material well-being.

The current Australian government has elevated the concept of a fiscal surplus to that of a talisman – an object thought to have magical powers.

It has convinced the Australian population that this is the only object worth pursuing irrespective of how damaging it is to material well-being (as GDP growth slows and labour underutilisation hovers around 14 per cent at least).

Then to explain the material pain the population is enduring, the Government then wheels out arguments that what is holding us back are rigid industrial relations practices which need further deregulation.

More pain.

Whip our backs, and when that hurts, whip some more.

This is the fictional world we live in now when it comes to macroeconomic debates.

It is obvious that total spending growth is inadequate relative to the productive capacity of the economy.

It is obvious there are 1.8 million people who are available and willing to work who are either unemployed or underemployed.

It is obvious that wages growth is flat to the point that real wages growth is negative.

It is obvious that inflation is low and consistently below the lower bound of the RBA’s target range.

It is obvious that households, burdened with record levels of debt and flat wages growth cannot keep their spending growth going using their credit cards.

It is thus obvious that we need a fiscal intervention to stabilise growth and provide income earning opportunities for households to reduce their debt levels.

But we are so indoctrinated to believe in the god-like features of the fiscal surplus, that the Government thinks is just about within its grasp this fiscal year, that as a voting population, we elect governments and support political parties who openly mismanage their fiscal capacity to inflict pain on us.

As for the Opposition – bereft.

The Shadow Treasurer tells the press that the Government should be “more proactive in kickstarting growth ‘without jeopardising the surplus’.


This is the same sort of weasel talk that the IMF use when they talk about “growth friendly fiscal consolidation” – which is just a plain denial of the causal processes that generate income growth and material prosperity.

Jazz to work with …

I had previously indicated that in the 1970s I lived in a big house in Melbourne – the ‘Pink House’ – which was full of musicians and other left-wing types.

Mixed in with all the classical piano playing, put together funk bands, classical guitar studies, were regular sessions of Jack Teagarden style jazz.

Jack Teagarden was the earliest and best innovator in jazz trombone who also sang and fronted a fantastic New Orleans jazz band.

He died at the age of 58 in 1964 in very lonely circumstances.

I was watching a movie the other day (TV series) and Jack was playing in the background. So I dug out an album from my collection and took a trip back in time. I hadn’t heard it for some years in fact.

This track was put out on a massive collected works (released by Avid in 2004) – Jack Teagarden – Father Of Jazz Trombone – a 3-CD 72 track compilation, which is well worth getting if you want the definitive works.


This is why I love the pre-Bebop swing era of Jazz.

The original of this track was recorded on Decca in 1939.

That is enough for today!

(c) Copyright 2019 William Mitchell. All Rights Reserved.

This Post Has 14 Comments

  1. I saw an interview conducted by ABC journalist Elysse Morgan interviewing the NSW Treasurer.

    “NSW Treasurer slams fed counterparts for ruling any GST changes off the table – they’re “more focused on the media cycle and running for political cover” than improving the tax system. Only on #TheBusiness tonight @abcnews” Elysse tweeted.

    The interview was within the context of an aging population and needing to find ‘revenue’ to provide for an ageing population. It was painful to watch.

    No discussion of the youth unemployment and underemployed. How they are our future prosperity and we need to invest in them if we want rising productivity and material well-being.

    No discussion of how States use a currency and the Federal Government issues a currency and what institutionalized arrangements should be in place to ensure we can provide public services without needing the states to rely on inefficient and taxes that place a burden on those worse off.

    The state of macroeconomic discourse in the media is pathetic.

  2. And Yet Donald Trump has broken all US spending records. Over $5 trillion last fiscal year and cut taxes.

    Do as I say via the IMF and world bank not do as I do. The US will do the spending and the rest can do the exporting to the centre like all empires.

    That is the other danger. The danger that when the paradigm shift happens what kind of fiscal policy will it be ?

    You can bet your last $ because of geopolitics they will follow the US down the military Keynsian route.They will spend like crazy in sectors that are already partly privatised. Suckling pigs at the teat of the monopolist.

  3. I’m convinced more than ever geopolitics is behind most if not all of this madness. The starting gun for this macroeconomics of empire was the fall of the Berlin wall.

    The undercurrent of the remain parliament in the UK and the impeachment in the US.

  4. Another of Bill’s offhand gems: “And for the rest of us we suffer in the real world but reason in this fictional world, which is why it persists.” One could spend a lot of profitable time mulling over this single observation. How might we who embrace MMT learn to reason in its real world terms and not in the fictional world terms of neoliberal economics? Should we refuse, at the outset, to even talk about federal spending and budgets (invoking, however inadvertently, the household paradigm) and instead speak only of federal investment and balances? Etc.

  5. Can’t believe how much suffering stupidity can cause. Its appalling actually. Economics profession really is a disgrace. Capital is even more disgraceful.

    The thing is, I have been living in this neoliberal reality for so long that I don’t even have expectation for anything to get better sometimes.

    That is certainly no way to think, and now and then when i zoom out and examine my own expectation, it’s so screwed up that I don’t have expectations other than “hey i’m not starving at least.”

  6. the reason the un/under employment crisis persists is that we’ve lived with it for so long that we’ve normalized it and that stagnant real wages and a declining wages share of GDP serves the interests of some very rich and powerful vested interests groups.

    It’s not like the inflationary crisis of the 70s when things changed quickly because those who were hit hardest (the creditor class) had the political clout to demand swift action.

    I often wonder if it’s going to take a genuine global depression to provoke a paradigm shift.

    Anyway, back to the surplus. ScoMo needs to wake up and smell the coffee. Across the world conservatives are abandoning fiscal rectitude. Trump and Boris haven’t discovered the magic money tree. They’ve taken a walk in a faraway fiscal forrest.

  7. Derek writes:
    “I’m convinced more than ever geopolitics is behind most if not all of this madness. The starting gun for this macroeconomics of empire was the fall of the Berlin wall”.

    I’m sure you are correct; and as long as the “the human condition’ – which requires we compete rather than co-operate – remains the driving force, there is a danger of self-induced extinction

    But the recent world-wide climate protests may offer the solution, and avoid the (fiscal) danger to which you alluded.

    If (public sector) fiscal policy is directed – ‘by public demand’ (see the recent world-wide climate protests) – to building the required pumped hydro schemes (the largest engineering projects in the world’s history), funded by CB’s overseen by a modified IMF (the funding model as described by MMT), we can achieve an economy driven by the sun and wind.

    Not military Keynesianism, but Keynesianism based on international co-operation…..which would be a fitting memorial for Keynes’ far-sighted “clearing union” concept.

  8. Indeed — the beatings shall continue until morale improves.

    There was an atrocious column in the Globe and Mail by one of the usual suspects and the vast majority of the comments it inspired were equally awful. Macroeconomic ignorance is a widespread disease in Canada, I’m afraid — even when the deficit/debt was clearly not a central issue to our recent election, I have to endure the complaining that it wasn’t.

    Much work still to be done …

  9. Thanks for the Teagarden track, Bill. Beautiful. Love the song; love T’s version of it.

  10. I also like the version by Hugh Laurie — playing it in New Orleans for his jazz doc. Then there is Louis Armstrong’s version – expect you are familiar with that one.

  11. St James Infirmary hypothesis: the singer of the song killed his baby.
    Evidence, such as it is:
    “She may search this whole wide world over
    Never find a sweeter man as me.”

    He killed her because she had the gall to think that she could do better. He went to the infirmary to, in a sense, pay his respects.

  12. Thanks for the Jack Teagarden heads up. My FIL is a fan. Arch McKirdy regularly played his stuff, too, as I recall.
    The ‘narrative’, if anything is sliding even further into dystopian weirdness. the Guardian is reporting that (gleaned from Senate Estimates, I think), that more than a million RoboDebts are projected to be launched by the LNP Govt over the next 3 years. If this doesn’t constitute war on the poor, I’m not sure what would.

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