I often make the point in talks that the fictional world that mainstream economists promote…
The public debate is conditioned by who gets a platform in the mainstream media. Even those publications that purport to be informed and appeal to a more reasoned type of reader are highly selective in who they give a voice to. I see this as a huge constraint in advancing alternative ideas that challenge the mainstream narrative and the vested interests that support it. The problem is that on economic matters these vested interests have not only captured what we might call the conservative voice. They also dominate and craft the so-called progressive agenda such that Green groups and movements, for example, are indistinguishable on macroeconomic matters, which makes it hard to contest ideas that are abroad. The UK Guardian, for example, thinks it presents a progressive angle on issues and is ‘above’ the crudity of the tabloids. But it regularly gives voice to writers who promote macroeconomic fictions and refuse to give space to those who challenge these fictions. Today (September 26, 2022) for example, it published am article – Without radical tax reform, Australia faces an insoluble public finance problem – by one Satyajit Das, who gets regular Op Ed columns in the Guardian and appears regularly on Australian public radio. His analysis distorts the public debate. Selective platforming is a blight in our media.
I have written about these fictions before (for example):
2. Friday lay day – more Intergenerational Report nonsense (March 6, 2015).
3. Australia – the Fourth Intergenerational Myth Report (March 5, 2015).
4. Intergenerational fairness improved by fiscal deficits (August 6, 2014).
5. Another intergenerational report – another waste of time (February 2, 2010).
6. Democracy, accountability and more intergenerational nonsense (May 22, 2009).
The fictional fiscal crisis in Australia
The theme of the UK Guardian article is that with an ageing population, Australia can no longer ‘afford’ the “significant government services and financial support for citizens” that our post Second World War “social contract” promised and delivered, at least, up until the neoliberal assault began to chip away at these things in the 1980s.
The problem, according to the author is that:
… an ageing population means fewer taxpayers and greater demands on the public purse … Lower tax receipts and higher spending on pensions, health and aged care may cost around $40bn every year (about 8% of the budget).
So Das is just rehearsing the standard intergenerational claims that governments will run out of money providing for the ageing citizens unless they both increase the tax take, cut spending elsewhere and build up a pile of ‘savings’ to ‘pay for’ these increasing future demands.
And like all articles like this, we are induced into believing things and having ‘concerns’ when there is scant evidence that only vested interests are pushing:
Given concerns about debt levels and budget repair, government revenues must better align with outlays if Australians want continuation of expected benefits, cost-of-living relief and expenditure on ameliorating the rising costs of more frequent climate change induced weather events.
I haven’t the slightest concern about the public debt level other than the federal government should just stop issuing debt altogether and cease the ‘corporate welfare’ machine that the public debt markets create.
On the use of terminology like ‘budget repair’, this is one of those loaded terms that the commentariat and politicians bandy around to give the impression that something is not working.
But, a ‘budget’ is not like a car that needs repairs when it wears out.
The fiscal position just reflects the state of the real economy and can only be understood in that context.
If there is a fiscal deficit, for example, the relevant question is whether employment is maximised and the quality and scope of government services and infrastructure is first class.
If the answer is yes – then the deficit is appropriate relative to the spending and saving decisions and actions of the non-government sector.
If the answer is no – then the next questions are, for example, is employment over maximum or is there too much public infrastructure investment, which is pushing nominal spending ahead of the productive capacity to absorb it.
If yes, then the fiscal deficit is to large relative to the spending and saving decisions and actions of the non-government sector and the government has to either reduce its own command on real resources (cut spending) or make more space for its own spending by reducing the non-government sector’s command on real resources (by increasing taxation).
If no, then the fiscal deficit is to small relative to the spending and saving decisions and actions of the non-government sector and the government has to either increase its own command on real resources (increase spending) and/or make increase the non-government sector’s command on real resources (by reducing taxation).
The actual fiscal outcome in dollars is meaningless on its own and notions that a deficit needs ‘repair’ are nonsensical.
The discussion in the article on where increased tax revenue will come from is predictable.
Modern Monetary Theory (MMT) economists note that:
1. Taxation serves several purposes including discouraging certain activities (tobacco, alcohol etc) but most importantly, from a macroeconomic perspective, it serves to create the real resource space for government spending so that such spending is not inflationary.
So if the government sector wants to increase in size (command over real resources) and maintain full employment and price stability, then the overall tax take has to be larger.
The rise in taxes is not, as the article suggests, to fund the extra government spending.
It is not increase the real resource space.
2. Different taxes have consequences for equity and administrative simplicity – so a government can insure that it deprives more purchasing power from those who have more income – a progressive tax structure.
In part, this would reduce the disposable income of the higher income groups and reduce their ‘power’ to influence political outcomes through lobby funding etc.
This is not a ‘tax the rich’ argument that progressives get lulled into promoting because they think the rich should pay for public services when the government cannot ‘afford’ to provide them.
That narrative shows how captured the progressive side of politics has become.
We want to tax the rich to reduce their power not to give the government any more of its own currency.
3. Some taxes increase inequality among citizens.
In Australia, for example, higher income citizens can buy multiple real estate properties and then arrange affairs to write of ‘losses’ (difference between rents received and mortgage interest payments) against other incomes. They then pocket capital gains as the real estate increases in value.
That tax structure bias should be reformed immediately.
But the reform is not to make government spending ‘affordable’.
Rather it is to move towards greater wealth equality across the population.
4. So I agree with the author, that significant reforms to the tax code and structure are needed.
But none of these reforms would be to provide the government with more of its own currency.
How can it be sensible for a government that spends its currency into existence and provide the non-government sector with that currency to then think it relies on taxing that currency back to allow it to spend it.
That is the sort of ridiculous reasoning that Das and the rest of the mainstream media pumps out daily.
Because they get the platform!
So when the commentariat is spinning such yarns, the politicians then have cover to say stupid things.
Today, the Melbourne Age published an article (September 26, 2022) – Skyrocketing interest rates carve new $120 billion hole in budget – and all the fictional framing and language is prominent.
1. “punching a substantial hole in the structural integrity of the federal budget” – what could that possibly mean?.
2. “the national interest bill is likely to be more than $33 billion – a $7 billion jump on what was forecast in the March budget. The increase alone is more than what is spent on the nation’s air force in a single year” – so what?
The fact is that it is only new debt issued that attracts higher yields if they are rising.
What happens in the secondary bond market is irrelevant to the government – they pay the face value of the bond and the coupon rate (yield) on the debt that is defined at the time of issue not the rates that apply once the bond starts being traded among the gamblers.
Further, as yields rise on new debt as a result of central bank interest rate rises, fiscal policy expands – which is stimulatory.
This puts the whole ‘fight inflation with interest rate rises’ mantra into question – if the inflation is being driven by demand (which it mostly isn’t at present).
3. Quoting the Treasurer – “The October budget is the first step, not the last step, in our work on long-term budget repair.”
See above about the loaded term ‘budget repair’ and why it is meaningless.
4. Then the ‘if this, then not that’ argument, quoting one of the worst economists in Australia – “This is why the level of government debt is important – this is a lot of money that can’t be spent on services or infrastructure”.
Refer back to point 3 – there is no an either/or situation in most cases – that trade-off only becomes relevant when a nation is at maximum capacity.
If there is free productive capacity then the government can facilitate increasing spending across the board.
5. The same economist was quoted – “The budget will need to look at ways of improving the bottom line to get back into surplus. If they can do that then the RBA may not have to lift interest rates as high.”
Whether a surplus or deficit is appropriate depends on the state of the external economy and the spending and saving decisions of the private domestic sector (households and firms).
Usually a continuous fiscal deficit will be appropriate for most nations.
For nations running an external deficit, a fiscal deficit will always ensure the private domestic sector can net save and not be continually increasing its debt levels, which would be unsustainable.
The mantra that a fiscal surplus is normal and superior to a fiscal deficit is nonsensical and reflects a lack of understanding of the interplay between the three sectors.
But the point is that the mainstream media chose not to give a platform for any alternative views.
That journalist in question knows the claims made by those he quotes are highly contestable.
But he chose not to balance the analysis.
And so, he chose to be part of the indocrination machine rather than provide information to allow the public to appreciate the debate.
Who gets a platform is important.
The media bias towards the fictions and propaganda that mainstream economists and the related commentariat push make it very difficult for the public to make reasoned assessments of matters that intrinsically influence their own prosperity.
So ‘democracy’ fails.
The real problem of the ageing society is productivity – and I spell that narrative out in the blog posts cited as background reading above.
That is enough for today!
(c) Copyright 2022 William Mitchell. All Rights Reserved.