British House of Lords inquiry into the Bank of England’s performance is a confusing array of contrary notions
On November 27, 2023, the Economic Affairs Committee of the British House of Lords completed…
I wrote about what I am terming a ‘poly crisis’ in this recent blog post – The global poly crisis is the culmination of the absurdity of neoliberalism (July 18, 2022). I am working on material for my next book to follow up – Reclaiming the State: A Progressive Vision of Sovereignty for a Post-Neoliberal World (Pluto Books, September 2017). The German word ‘Zeitenwende’ means turning point. A fork in the road. It carries with it, from one interpretation, a recognition that the path that has been traversed to date is not the path that should be followed in the future. Something has to give. Whether Albert Einstein actually said “Insanity is doing the same thing over and over and expecting different results” is an interesting literary issue but the essence of the quote (correctly attributed to him or not) is sound. The idea of a ‘poly crisis’ is that big shifts in thinking and behaviour are required. We simply cannot continue to act in the same way as before whether it be on an individual level (us making our own choices) or at a societal level. The organisation of economic activity, our patterns of consumption and conduct of economic policy must all change – radically – for the planet to survive. Tinkering around the edges will be insufficient. Identifying a ‘poly crisis’ is tantamount to declaring the neoliberal experiment has failed dramatically and taken us all to the brink. It cannot form a basis for the future. But there is massive resistance to change and in Australia in the last week we have seen that in spades.
The newly elected (May 21, 2022) federal Labor government in Australia has announced a – Jobs and Skills Summit – to be held in the national capital over September 1-2, 2022.
The aim is to bring “unions, employers, civil society and governments” to produce a White Paper to “address our shared economic challenges.”
It will probably not come to much given the vested interests and the views of the main players to date.
But the Australian Council of Trade Unions released a discussion paper yesterday as input into the Summit which is at least attempting to push the debate towards the ‘radical’, which I applaud (in part).
Their media release (August 10, 2022) – Full and secure employment must be top economic goal – announced the paper – An Economy that Works for People.
The Discussion Paper announces:
… business as usual won’t work … We now face conservative economic voices that would rather crash the economy and put people out of work to lower inflation, than put people first. That’s a cure worse than the disease …
The Paper lists the dimensions of what they consider to be the failure of the current paradigm:
1. Stagnant economic growth – more later on this – given we have to reduce the growth obsession and quickly.
2. “badly underutilised” labour – “high levels of underemployment (driven mostly by the expansion of insecure part-time, casual, contracted-out, and ‘gig’ work) became endemic during the years preceding the pandemic.”
3. “Apprenticeships and other vocational training fell to postwar lows relative to the labour force, held back by funding cuts to TAFE, failed private training schemes, and underinvestment by employers.”
4. “Business investment in innovation” falling.
5. “a dramatic decline in business capital investment”.
6. “the growing climate emergency, and the need to transition quickly to renewable energy and production.”
7. “growing income inequality”.
8. “many business-friendly fiscal, regulatory, and labour policies implemented by the Coalition had nothing to do with ‘growing the pie'”.
9. “the weakest growth in their wages in postwar history” driven, in part, by “deliberate attacks” on unions etc by government.
10. “ongoing redistribution of income from workers to businesses … The deliberate redistribution of income from labour to capital is not just unfair: it also creates major economic problems and risks.”
It goes on to document that “profits have grown three times faster than wages since 2016” and that workers are not sharing in the productivity growth.
These are all things I have written about extensively over the course of my academic life and summarised since 2004 with this blog.
The solutions proposed by the ACTU Discussion Paper are:
1. “Establish full employment in decent jobs as the top national macroeconomic priority” – obviously as Director of an academic research centre named the ‘Centre of Full Employment and Equity’ (CofFEE) I support this priority.
Work is intrinsic to human society.
Those without work are dislocated and alienated, in addition to facing poverty and other pathologies.
Those with oppressive and insecure work are not much better off.
Solutions that do not include providing sufficient jobs for all – like Basic Income – fail to recognise the centrality of work in our lives.
A society that provides sufficient work provides hope and discretion for its people.
When I was a teenager (right at the end of the full employment era) we never really thought about ‘getting a job’. We thought about learning opportunities and taking time to think about our emerging adult lives.
It was a time of creativity, mistakes, lessons, and personal development.
When jobs are scarce and the education and training session starts to emphasise ‘getting a job’ over the pure joy of learning, then desperation sets in and poor choices are made, and life experiences diminished.
2. “The Reserve Bank, with a reformed mandate and operational strategy, to work with other government agencies to achieved balanced objectives of full employment and moderate inflation using a wider range of policy levers.”
The – Reserve Bank Act 1959 – already requires the Bank to pursue full employment.
It is the duty of the Reserve Bank Board, within the limits of its powers, to ensure that the monetary and banking policy of the Bank is directed to the greatest advantage of the people of Australia and that the powers of the Bank under this Act … will best contribute to:
(a) the stability of the currency of Australia;
(b) the maintenance of full employment in Australia; and
(c) the economic prosperity and welfare of the people of Australia.
Obviously, the RBA has failed in its charter, given the list of problems identified above.
Their trick was to redefine ‘full employment’ in unemployment terms and rely on the horrendous ‘NAIRU’ literature to save them from litigation that they were in breach of their charter.
I once tried to organise a class action from the unemployed workers union in Australia to test the RBA’s commitment to full employment in the courts but they would not agree to pursue the claim.
I saw some smart mainstream economist yesterday tweet that requiring the RBA to prioritise full employment is impossible because we cannot measure full employment accurately enough.
He is a former board member of the RBA.
Well, here’s a plan – announce that the federal government is scrapping the unemployment benefit and providing a job for anyone who wants to work at a socially inclusive minimum wage – as an unconditional pledge.
What do you think would happen?
Many underemployed would quit their gig jobs and take up the government offer.
The current unemployed would take the government offer.
Some people who are currently outside the labour force would re-enter given the pledge of a guaranteed job at a liveable wage and other conditions (sick leave, holiday leave, superannuation entitlements etc).
Sure enough that would only be a ‘loose’ fully employed state – but it would provide the minimum employment necessary.
Anyway, the ACTU’s point is valid that we need a policy reset and “fiscal policy, public investment, industry policy, regulation, and labour market policy” must all play a role in controlling inflation while ensuring full employment is achieved and maintained.
3. “Implement a fairer inflation-reducing policy that protects workers’ incomes, prevents price gouging, and tackles the underlying sources
of inflation, especially in energy and housing, and reduces the cost of key public services such as early childhood education and care.”
This part of their proposal requires wages to keep up with inflation as well as price controls:
Some key prices (such as prices for energy) should be directly regulated to prevent price- gouging and limit inflationary pressures.
Making public services more accessible and affordable
I don’t think the ACTU is being very radical at all here.
The future requires that we take back control of the essential services and eliminate the profit motive in their provision.
We should nationalise all utilities (electricity, water, transport, communications) and supply them as a public service. That doesn’t mean ‘inefficient’ bureaucracies.
It means we make the goal – public service and sustainability rather than providing massive profits to a small class of mostly foreign shareholders.
We should also make child care free and public transport free for all, rather than just making them, “more affordable”.
4. “Use active fiscal policy to help achieve and maintain full employment, decent jobs, and stable prices.”
The New Keynesian approach is to leave “most macroeconomic management to the central bank” and discredit the use of discretionary fiscal policy.
That ‘policy assignment’ bias has to change.
Modern Monetary Theory (MMT) recommends a permanent zero rate interest rate and all adjustments in spending to be regulated via fiscal shifts.
At least the ACTU is now arguing in favour of some of that shift.
But I know they are still operating within the mainstream fiscal paradigm where they worry about public debt etc. That has to change.
5. “Regulate labour markets so that real wages rise in tandem with labour productivity and support the maintenance of full employment”
The ACTU want to reinvigorate “collective bargaining” but seem to forget that the union coverage is only around 15 per cent or less.
Australia used to have a national productivity case within our wage setting tribunals, which ensured that all workers enjoyed a share of the annual productivity growth.
The problem with relying on collective bargaining is that the workers in vulnerable service sectors cannot achieve wages growth through industrial action – the unions are weak in these sectors.
6. “Use targeted tax measures to cool off aggregate demand pressures in fairer ways.”
The ACTU are critical, as I am, of relying on the RBA interest rate hikes to deal with inflation, when excessive spending is not the cause of the price pressures.
They rightly conclude that:
Lower income and indebted families will bear the brunt of that contractionary strategy – whereas high-income households, which do not need to borrow to finance their luxury spending, will hardly notice.
Which will worsen the inequality crisis.
(a) taxing the rich – Yes, but only if we want them to spend less and have less power.
(b) taking excess profits of energy companies – I would just nationalise energy resources.
(c) require companies to invest in sustainable capital rather than distribute profits to shareholders.
(d) cancel upcoming tax cuts that favour the higher-income households.
The problem here is that the ACTU Paper is inconsistent – on the one hand they argue that the “Domestic purchasing power is clearly not the main cause of current inflation” but then want to a “fairer strategy for reducing spending pressure”.
This sends out the wrong message.
We definitely want to use fiscal policy as the main lever for regulating aggregate spending.
And the fairness (progressivity) of the fiscal system can only be evaluated in total, which means that some components (such as a goods and services tax) can be regressive as long as other components on the spending side, for example, are progressive and offsetting.
But at present we don’t need to cut spending per se.
A windfall tax on energy companies (while the lawyers work on the full nationalisation) should not be to cut spending but force the companies currently gouging profits in that sector to reduce prices and divert supply into our domestic market at lower prices.
Further, the ACTU is relatively silent on the climate and health challenges that have to be integrated into the full employment narrative and solution.
The ACTU plan is being characterised as ‘radical’.
I don’t think it is ‘radical’ enough.
A day after its release – the mainstream press has given a platform to a New Keynesian economist to reiterate how we cannot change very much.
The Op Ed (August 13, 2022) – Unions in time warp with a jobs plan that ignores hard economic lessons – is dismissive in the usual way mainstream economists, stifled in their Groupthink, try to suppress ideas they don’t like.
Apparently, the Australian unions are “like a cornered dog … in a desperate frenzy” because their representation of workers has fallen to around 14 or so per cent.
This is the sort of language the mainstream economists use – put-down, insult, etc.
I have experienced this for decades.
The thoughtful ACTU Discussion Paper is dismissed as a worse than a “screed” (Oxford dictionary: a long speech or piece of writing, typically one regarded as tedious).
According to this economist, the Paper doesn’t even attain ‘screed’ status because it is “so perfunctory.”
Which in put-down language means flimsy, lacking in authority.
Which is reality means threatening to the absurd mainstream theoretical framework that has failed to predict anything meaningful in decades.
And then if that hasn’t convinced the readers of how unworthy the ACTU Paper is, the economist invokes the dinosaur defence, you know, the voodoo economics-type claims – out of touch, from another planet, etc:
According to this character the ACTU paper represents:
… a time warp to the pre-accord 1970s, completely oblivious to the hard economic lessons of the past half-century.
You see the strategy – the ‘hard economic lessons’ have established verities.
They represent what we must retain.
Mainstream economics maintains its hegemony.
More of the same with tinkering around the edges.
The ‘hard economic lessons’ of the last 50 years have demonstrated how little economists know about the dynamics of monetary capitalism and how poor the outcomes have been as a consequence of governments following their advice.
1. The “decline in real wages has been caused entirely by rising prices” – not to mention the fact that nominal wages have not growth much at all for some years and capital has increasingly taken the productivity growth in the form of profits rather than the nation sharing those gains across all income claimants.
2. “The fastest way to grow real wages is to bring down inflation” – reducing inflation will help. But redistributing national income will also help and in the long-term it is unsustainable to have a wage share fall from around 60 per cent to below 50 per cent (as it is now) while capital takes the real income produced and lost to workers as profits
That cannot be a recipe for the long-term.
And attacking inflation now by creating unemployment and keeping wages growth flat will only worsen that situation.
3. “The report claims an easy solution to that, too. Prices too high? Simply legislate lower prices. Among the first things you learn in ECON101 is just how damaging price controls can be for the very people they’re intended to protect. ”
You learn very little that is useful in ECON101.
The context of the ACTU proposal to regulate prices in the energy sector is the current gas situation. Australia has abundant gas resources yet our domestic market is now in massive short supply with huge price increases because the mostly foreign owned companies are diverting gas production to foreign markets where the Russian invasion of the Ukraine has created a short supply.
They are making massive ‘rents’ (excess profits) at the expense of Australian households.
One thing ECON101 teaches students is that when there are economic rents (excess profits) taxing them away (via price controls in this case) will not divert resources away from that use.
The professor seems to misunderstand that.
The energy companies will still make what he would call ‘normal profits’ which are a reflection of the opportunity cost of using their capital in that use rather than a competing alternative.
But further, the gas resources are not owned by these capitalists – they are part of our national wealth and if the government fixes the price the gas is not going anywhere even if the companies were to decamp.
That is why I support nationalisation rather than regulation.
4. “This inflation is caused by too much money chasing too few goods and services” – in part it is.
But that is because there are temporary and extraordinary disruptions to supply which will dissipate soon enough.
Creating unemployment to reduce demand will only exacerbate the misery and the ‘hard economic lessons of the past half-century’ tell us that once unemployment rises, it falls very slowly over an extended period, which imposes massive costs on society, in excess of the massive daily national income losses that it creates.
When inflation is being driven by these transitory and extraordinary events and there is evidence that inflationary expectations are not rising much (see yesterday’s blog post) then the best option is to see it out and help the most disadvantaged get through the cost of living crisis with fiscal transfers.
Rendering those households unemployed is not a solution although it is the only solution mainstream economists think about.
5. “perhaps the rich are hoarding the lettuces? And if we give everyone some more money to buy lettuces, there’ll suddenly be enough lettuces to go around. These claims are so facile it’s hard to know whether stupidity or disingenuousness is to blame.”
Making fun of people. The mainstream way when they haven’t an argument.
Everyone knows that there is a food supply shortage in Australia at present as a result of bushfires and more recently major flooding.
Everytime these natural disasters strike (and they are more frequent now – part of the ‘poly crisis’) food prices rise sharply.
And then they fall once the market gardens resume production.
To dismiss the ACTU’s position as being one of giving people more money to buy lettuce is just insulting – the typical mainstream tactic.
The economist then goes through the usual arguments:
(a) We need more immigration because they spend more and keep downward pressure on wages and working conditions.
(b) We need to make it easier for foreign capital to take over our resources – and gouge profits.
(c) Free movement of capital, goods and people – to ensure the living standards of workers here are suppressed.
The mainstream voice reflects the past which has now after 4-5 decades of prominence delivered us a ‘poly crisis’.
The solutions are not to keep doing what we have but heeding the ‘hard economic lessons of the past half-century’.
Only through a return to collective goals of full employment and more equitable national income distribution, buttressed with first-class public services will we start to envision a future.
The one thing the economist got right was that thinking that “there are no trade-offs” will not cut it.
All of us have to radically change our consumption patterns, our material expectations, our housing designs and fitouts, our transports, etc
That alone will be painful for most.
At least reduce the pain by ensuring we can all work in sustainable ways and enjoy the dignity that that status brings.
That is enough for today!
(c) Copyright 2022 William Mitchell. All Rights Reserved.