Australia – inflation still falling while the RBA governor keeps inventing ruses to keep hiking rates
It's Wednesday and there is a lot going on in the data release sense -…
Today, on my blog-light day, I have a video of a recent event where I spoke (with other speakers being John Quiggin and Noel Pearson). The event was in conjunction with the Public Health Association of Australia’s annual conference and we are discussing the interface between health and the economy and the right to work and income security. It was an interesting and very civilised discussion. And when you are through watching that, we also have a ‘provocation’ to consider and then some jazz. All the interests of advancing humanity!
Here is the full video of an event I spoke at last Wednesday. The topic was ‘An economy that guarantees health and wellbeing for all: the right to work and income security’.
The speakers were John Quiggin, Noel Pearson and myself. The hosts were Jayne Flanagan and Tim Woodruff.
The event went for nearly 2 hours and was a moderated Q&A style format – that is, no formal presentations.
Each of us had to make an opening statement and then the discussion followed.
Thanks to Jayne and Tim for their efforts in putting this session together.
The London-based – Royal Society of the Arts – recently asked me to contribute to their next quarterly journal, which is widely circulated and aims to disseminate new ideas to foster a more equitable future for all of us. It was founded in 1753.
The RSA Journal has been pushing innovation for 150 years.
Given the state of the world and particularly in the arts sector, their next edition will have the focus of economic security and resilience.
Each edition has a one-page ‘provocation’ where the author is required to … well, be provocative and issue a challenge to the reader.
They asked me to write about Modern Monetary Theory (MMT) and I had 520 words to do so.
Thanks to CEO Matthew Taylor for the invitation and Milena Bellow for editorial assistance.
Here is what I wrote:
In 2013, philosopher Daniel Dennett said in reference to religion: “There’s simply no polite way to tell people they’ve dedicated their lives to an illusion.” The same applies to our embrace of mainstream macroeconomics, which, given its appalling predictive performance over many years, falls into the category of religion. For example, since the 1990s, Japan has run large public deficits and accumulated the highest level of public debt in the world (and its central bank has been buying most of this debt). Mainstream economists predicted rising interest rates and bond yields, accelerating inflation and, inevitably, government insolvency. All predictions failed dramatically. Japan has low interest rates, low and negative bond yields, and faces no inflation problem. It enjoys very low unemployment rates, putting most nations to shame.
Similar predictions of disaster were made during the global financial crisis, when many governments followed the Japanese example. But the predictions were grossly inaccurate – because the underlying economic theory is wrong. Austerity-obsessed governments, applying that flawed theory, have forced their nations to endure slower output and productivity growth, degraded public services and infrastructure, elevated and persistent unemployment and underemployment, flat wage growth, and rising poverty rates and inequality. Neoliberalism fails to deliver, and the theories used to justify it are wrong.
An alternative, emerging macroeconomics paradigm – Modern Monetary Theory (MMT) – is attracting attention because it provides for an accurate understanding of real world monetary systems that allows for better policy formulation to meet the social, health and climate challenges before us. A mainstream economics graduate can say nothing sensible about public policy.
MMT teaches us that a household uses its country’s currency and its spending is financially constrained. The government that issues this currency is not so constrained. It can never run out of its own currency and can purchase anything for sale in that currency, including all idle labour. Mass unemployment is always a political choice.
Government spending is only limited by the availability of goods and services. If productive resources are idle, government spending can always bring them back into use, without generating inflation. The role of fiscal policy is to ensure all productive resources are fully employed; to maximise material prosperity within ecological constraints. It is not to achieve some financial outcome (surplus or otherwise). At full employment, any further public spending growth will cause inflation. At that point, a government wishing to increase its resource use has to reduce non-government usage. Taxation achieves this purpose by curtailing private purchasing power. But it is not required to fund public spending.
Why have Japan’s huge deficits, largely funded by central bank money, not been inflationary? Because the government maintains total spending in proportion to available goods and services and the non-government sector chooses to save. Why are bond yields low in the face of large public debt? Because central banks can always control yields through bond purchases. Private markets can never push yields up if the government does not allow them to. MMT is often dismissed as flawed and unrealistic. But mainstream economic theory has shown time and again that it cannot effectively tackle the challenges facing the world today. It is time for a change.
This is what I have been listening to while working this morning.
It is from – Lou Donaldson – who plays the alto sax and was very important in defining the hard bop and BeBop era, which means Charlie Parker is in his music.
He is thought of as the ‘father of funk’ given his albums of the late 1960s, which are among my favourites and on my often play list.
But this album – Blues Walk – one of my favourites – meaning it never leaves my iPhone collection – was released by Blue Note Records in 1958.
This album features some of the best jazz players:
Only Lou Donaldson and Dave Bailey are still alive. Lou Donaldson stopped playing live in 2016 when he was 90 years of age.
Here is a nice bio from via the National Endowment for the Arts – Lou Donaldson – Saxophonist.
I prefer tenor or baritone sax, but I always loved listening to Lou Donaldson play.
That is enough for today!
(c) Copyright 2020 William Mitchell. All Rights Reserved.
This Post Has 5 Comments
Wow, Noel, great stuff.
Recently I was exposed to Scott Ferguson et al’s brilliant UNI concept, that seeks to leverage the massive substantive wealth base of American universities in order to issue their own currency and impose their own credit-taxation cycle in their interactions with their student base and surrounding economic communities.
Obviously this would also be useful in the Australian context, given the ongoing and escalating assault on our academy.
However, it immediately made me think of Australia’s indigenous peoples and the vast substantive wealth base they still retain by virtue of their native title rights and how they have been prevented from enjoying the fruits of that base by their participation in the Australian Dollar credit-taxation cycle. For example, leveraging mining companies to make AUS$ payments for mining access could not compare to imposing Koori$ denominated taxes and royalties and obliging them to provide services on terms set by Aboriginal native title holders to obtain the required currency.
I would love to see Noel and Scott getting together on this.
An article describing the UNI concept can be found at https://www.boundary2.org/2020/07/scott-ferguson-benjamin-wilson-william-saas-maxximilian-seijo-overcoming-covid-19-requires-rethinking-university-finance/.
Thanks for posting your conference video. I thought it was a good discussion. You and Noel both made strong cases for the Job Guarantee. Of course, I am already biased towards that idea though.
“A mainstream economics graduate can say nothing sensible about public policy.” Yes, that is a bit of a provocative statement. And it is not all that true. I remember supporting most of the same public policy that I do now even before learning about MMT. And sometimes for the same reasons. Automatic stabilizers and counter-cyclical policy have been sensible for a long time.
You need to change “nothing sensible” to ‘much less often sensible things’ to be completely fair in my opinion. Although that would push up your word count by three.
“Here is what I wrote:”…..
Superb thought provocation by Bill on a page! It has summed up the essential thoughts (and discussions in comments section) we have been reading on Bill’s Blog in the past few years.
During last week, I was discussing with a group of post graduate students on the state of our economy, and came to a conclusion that, the problem is not with the resources, nor with the people’s will themselves, but really with a particular ‘mindset’ they hold.
The mindset of people in Thailand and in our government have been formed 30 years ago, or longer through education from the West. It is not going to change tomorrow even though what they are purporting is not applicable today in terms of the macroeconomic theory (knowing or unknowingly).
Another issue is that the ‘more logically aware’ are in just a handful like Bill used to observed 20 years ago.
So, changing that predominantly large mind-set is a big challenge. Or, maybe it is not a suitable way of ‘framing’ the problem.
Maybe, that is not possible, not to mention it will take a long time.
On a side note, (talking about mindset), this is why I believe Donald Trump will win again because he has captured that ‘shared meanings’ among the people right on the spot, while acknowledging multiple realties and knows which one to hold on to. Not only has he captured that well but acts on it every day and consistently too.
Anyway, I too, have been trying to change that neoliberal mind-set. But as we can inductively conclude, it is not easy even if the protesters here manage to topple the government tomorrow. The neoliberal mindset will still be here, not only that they will be put in charge again tomorrow no doubt.
In the overall, maybe, what Bill and people that follow him have been doing – using the multi prong strategies like campaigning for – better education, offering better policies choices like JG among others, and more research and publication are the best way to go.
Now, I see it is no easy task…
IMHO, if we don’t change their mindset, then we are doomed by the effects of ACC aka AGW.
If we can’t change them then the world *will* reach 4 deg. C above where it is now before it levels off at about that temp. If this happens humans can’t survive with no tech anywhere on earth. The tech *will* fail in the 1st decades of the 10,000 years of the too hot climate. [The far north and far south are too cold in the winter and anywhere else will be too hot for some days for our big brains to be cooled & maybe no food either. ]