Last month the Australian labour market went backwards. That trend is now consolidating and the…
Supply-side employment services models fail and promote sociopaths
One of the ways in which neoliberal dogma altered the relationship between government and the citizens in Australia was in the way employment services were delivered. Before this dogma gained traction, the Australian government operated the – Commonwealth Employment Service (CES) – which was created in 1946 as part of the grand plan to sustain full employment and improve the material standards of living after the travails of the Great Depression and then World War 2. It was created by the – Re-establishment and Employment Act 1945 – which was “designed to help members of the forces transition back to civilian life by providing for their re-establishment in employment and civil life”. The CES was an integral aspect of this process and provided job matching services, occupational planning, vocational training and support, income support payments, and career guidance. It was a very effective service that operated over many decades after its introduction. There were spin-off services to help those with disabilities (particularly chronically injured service men and women). As neoliberalism took hold in Australia, the narrative shifted towards blaming the unemployed for their plight rather than understanding that the unemployment was due to a systemic lack of jobs being created because aggregate spending was insufficient. Parts of its operation were hived off to (grasping) private operators and eventually the whole operation was privatised in 1998. It has been downhill ever since and the problems arising from this decision by government continue to serve as a blight on the civility and decency of Australian society. The latest news, which I canvas in today’s post is just more of the same.
Some background reading:
1. Job Services Australia – ineffective and rife with corruption – scrap it! (February 23, 2015).
2. Oh for a decent public employment service! (January 28, 2011).
Background
As noted in the Introduction, the CES was a government-run employment agency that had a solid record of performance.
It helped millions of Australians find work and gain career advice.
But as the neoliberal mantra – that unemployment was a sign of individual deficiency – like laziness – gathered traction, the mood shifted towards punishing the jobless for what had previously been considered a systemic failure to create enough jobs as a result of total spending being less than necessary to fully employ everyone.
It was also a time that the obsession with fiscal surpluses became the vogue which constrained the federal government’s ambitions towards its earlier commitment to full employment.
The narrative shifted from full employment (providing enough jobs – a demand-side focus) to full employability (getting people ready for work – a supply-side focus).
It was claimed the unemployment was not due to a lack of jobs but, instead, reflected the fact that people didn’t want to work.
The astonishing claim throughout this period was that employers would quickly offer jobs if the unemployed would signal they were prepared to take them.
However, the surveys done at the time showed unambiguously that those without work would take a job offer if one was made.
The CES was seen as a service that could be privatised and after a steady outsourcing of many of its functions it was finally decided to privatise it and create a so-called competitive market for the provision of employment services.
At that point (1998), the Australian government created a new ‘industry’ – the ‘unemployment’ industry, when it privatised the CES and handed over labour market program delivery to profit-seeking private providers.
Our 17 traditional industries are productively engaged in producing manufacturing goods, agricultural produce, public services, education, recreational services, and the like which provide employment and incomes and enhance our material standard of living.
The ‘unemployment’ industry produced nothing but heartache, wasted billions of public money, and the private service providers regularly were found to be defrauding the system – through overstating their performance etc.
This parasitic private sector fringe – then called the Job Network – was, in effect, a new industry, whose product was unemployment.
In 1998, the focus on outcomes and the use of competition to allegedly drive greater efficiency and choice underlay the dismantling of the CES and its replacement by Centrelink (the government overseer of the privatised provider contracts) and the Job Network.
The privatisation of the CES and the shambolic and corrupt system that emerged (the Job Network) was part of the trend towards mean-spirited government that led to the abandonment of a commitment to full employment and the retrenchment of a comprehensive welfare state.
The Job Network was epitomised by the government’s pursuit of the diminished goal of full employability, which constructed mass unemployment as a supply-side problem rather than a system-level failure of the economy to provide enough jobs for those who desired to work at the current wage rates on offer.
Under full employability, the government no longer ensured that employment growth matched labour force growth but focused, instead, on getting individuals ‘work ready’, should there be jobs available.
It was the exemplar of the OECD’s Jobs Study approach which focused on supply-side activation – a fancy word for blaming the victims of a demand failure and threatening them with starvation should they not agree to submit to the pernicious management regime (relentless dole diaries, meetings with case managers etc) which included working for free.
It failed almost immediately as the corruption set in.
A 2002 report by the federal Productivity Commission – Independent Review of the Job Network – described the Job Network as a ‘managed’ or ‘quasi’ market for the provision of subsidised employment services, which aims to mimic the activities of competitive markets by allowing scope for competition, flexibility in service delivery, rewards based on outcomes and some degree of choice for the unemployed.
However, this perverse “quasi market” soon revealed it was not immune from market failure.
There was policy schizophrenia in expecting an outcome-based funding model for employment services to deliver ‘better and more sustainable employment outcomes’ in the absence of concomitant policies to alleviate the macroeconomic constraint and create real employment opportunities.
In a highly demand-constrained labour market, characterised by persistent unemployment and marked regional disparities, it was always unclear how the supply-side focus of the Job Network could be effective.
The Productivity Commission’s Independent Review of the Job Network in 2002 found that the payments structure to Job Network providers has led to a substantial proportion of Intensive Assistance recipients being ‘parked’ – that is, taken onto the private agency books to get the first incentive payment but then ignored because the prospects of getting any further payments (for successful job placement) were bleak.
Job seekers with the greater chance of achieving a payable outcome were targeted while those in greatest need of assistance (with low employment probabilities) were left unsupported.
Subsequent evaluations of the effectiveness of the Job Network showed it failed to provide sustained employment prospects for the vast majority of the case load.
By 2005, employers were complaining of massive skill shortages despite the Job Network providers receiving billions of dollars in public money to develop such skills among the hundreds of thousands of unemployed persons under their ‘management’.
Prior to this, in 2002, with the model in shambles, the Government took a further step, reinforcing what it called its ‘Active Participation Model’ – aimed at reducing the outlays that were rising as unemployment continued to increase in the face of the on-going failure to stimulate aggregate demand.
In other words, it had to reduce the size of the unemployment ‘industry’ and the way to do that was to place its concept of ‘mutual obligation’ at the centre of the system.
Any reasonable person would say ‘mutual’ should imply a two-way interchange.
But the neoliberals in power were anything but reasonable.
Variations in the payments structures emerged – claimed to be enhancing the effectiveness of the system – but in reality they were designed to get people off the payments register.
As a result, the Government introduced penalties that would be imposed on the long-term unemployed people found to be – in the Government’s assessment – not genuinely seeking work.
This was called ‘breaching’ and the Government gave the Job Network providers the power to identify and punish unemployed people that the Government believes are deliberately avoiding work.
The data that emerged was shocking. There was an escalation in the number of people subjected to the loss of benefits.
The evidence was that Job Network providers acted capriciously and had no specific procedural guidelines for making decisions about breach recommendations leading to inconsistent treatment of the unemployed within a single organisation.
We learned that unemployed workers who failed to attend a first interview were more consistently and readily breached than others.
Rules of natural justice were not being correctly applied in all instances (some unemployed were subjected to unjust decision-making processes).
Moreover, those that were being breached include schizophrenics who were prone to episodic illness and unable to attend interviews on days when they were suffering the most; homeless people who were unable to access mail at old addresses informing them of an activity test interview and other disadvantaged citizens.
The upshot was the system had become a cruel, punishment structure rather than one that assisted unemployed people to find work.
In 2016, the Australian government went one step further and introduced the so-called – Robodebt scheme – which was an “automated debt assessment and recovery” scheme designed to recoup payments to welfare recipients, which the government deemed to be in breach of eligibility.
It proved to be an unmitigated disaster – it resulted in tens of thousands “false or incorrectly calculated debt notices being issued” and people being hounded for money by debt collectors who lacked empathy to say the least.
Many disadvantaged Australians were driven into mental illness and suicide as a result of the way the government agency in charge of the scheme behaved.
Eventually, in 2019 the courts found that the scheme was illegal and subsequently a judge “approved a A$1.8 billion settlement, including repayments of debts paid, wiping of outstanding debts, and legal costs.”
The – Royal Commission into the Robodebt Scheme – was established in 2022, after the conservative government was thrown out and its – Final Report (over a 1000 pages and 20.24 Mbs) – revealed a litany of errors and malevolence by Australian government officials who were running the scheme.
We learned that:
– Welfare recipients’ suicide after receiving automated debt recovery notices for significant sums.[40][41]
– Debt notices were issued to deceased people …
– Issuing debt notices to disability pensioners …
… Revelations that debt notices were issued to 663 vulnerable people (people with complex needs like mental illness and abuse victims) who died soon after.
And more atrocities.
While some bureaucrats were sacked none have gone to prison for knowingly running an illegal scheme that created massive damage to the most vulnerable citizens in our country – and having been found guilty of “public service misconduct”.
While the government scrapped the scheme, the fallout continues and the lessons do not seem to have been learned.
Fast track to 2025.
Latest scandal
The – Antipoverty Centre – in Australia is “an unfunded organisation run by people who rely on social security payments to live, working to put the voices and rights of people living in poverty at the centre of social policy development and discourse.”
It recently published research that showed that the practice of breaching continues and the damage for disadvantaged Australians is cumulative.
The UK Guardian article (November 2, 2025) – Centrelink threatening payment suspensions at rate of five a minute, new analysis suggests = summarised the report.
Centrelink is the government agency that oversees the privatised job services system.
It takes advice from the private providers about individuals and then breaches them if the recipients are deemed to not be ‘looking’ hard enough for work.
The Guardian reports that the massive number of breaches:
… have taken place under Centrelink’s mutual obligations regime, which is meant to ensure recipients are actively looking and preparing for work. If they do not fulfil activities – such as completing job applications or attending meetings with job providers – their payments can be suspended.
The evidence is that the suspended payments are then reversed once the reality is disclosed but not before the individual has been tormented by these privatised providers and forced to endure the stress of not having any income support.
The Robodebt scandal is also overhanging:
In the past, such suspensions could lead to cancellations. But since March, all cancellations have been paused because the government cannot say if they were happening legally.
The evidence is that the suspensions are biased against “People with a disability and Indigenous Australians” and that:
…jobseekers are having their payments suspended while in hospital for psychosis or after having a brain tumour removed, despite sending paperwork to Centrelink saying they were receiving medical treatment.
In my view, the Australian government regularly violates human rights in this regard.
A better system?
All of this mess is directly related to the belief that people do not want to work and thus evade the system designed to support them while they are meant to be looking for work.
The so-called ‘work test’ is at the centre of all of it – not doing enough to find work – irrespective of whether there are enough jobs available.
That last point is ignored by the neoliberals because they think the problem is a supply-side one – lazy individuals who just want to skive off the government support.
Unfortunately, the mutual obligation system that drives this punishment regime is one way.
The Government thinks it is upholding its side of the bargain by providing income support, despite it being increasingly below the poverty line and the individual has to jump through dehumanising hoops to get it, and then risk being suspended by some sociopath in Centrelink.
But the only sensible way the government can really uphold its side of the bargain is to offer jobs to those who are unemployed and struggling to find work.
Then mutual obligation starts to make better sense.
I consider society works best if all its members contribute the best they can recognising that that capacity varies greatly across the population and across time for any one individual.
Some people clearly are unable to work because of physical or mental characteristics and should be supported by the government to ensure they can live a decent, socially-inclusive life.
But most of us are capable of making some contribution and my ethical position is that we should be given the opportunity to do that.
The government should abandon the privatised unemployment industry and instead introduce a – Job Guarantee – which involves the unconditional offer of a socially-inclusive minimum wage job to anyone who cannot find work and desires to work.
Then the work test becomes very straightforward.
There could be a grace period for an individual who loses their job elsewhere – that is, they could immediately receive the Job Guarantee wage but be given a short period to organise themselves before having to start work in the Job Guarantee program.
And if an individual who is capable of working refuses then that becomes clear cut and no breaching or punishment system is required.
That choice means the individual will take care of themselves.
Research shows that most people who become unemployed would take the public job offer even as a temporary measure while they searched elsewhere.
Some would stay permanently in the Job Guarantee job.
Whatever works.
But the whole punishment regime would become unnecessary.
Here’s a job – congratulations on avoiding unemployment.
When economic activity is strong, very few people would be working in the Job Guarantee program.
Other times, more people.
But unless the government is prepared to ensure there are enough jobs, any supply-side system will fail and that failure leads errant minds to introduce all these hideous breaching and monitoring behaviours.
Sure, under a Job Guarantee, oversight would be necessary – one would be required to actually turn up for work or face the sack.
Just like any job.
And I don’t hear people complaining that sort of system is ‘unfair’.
Conclusion
The lessons of the last few decades about the folly of privatised employment services are still being ignored.
The system has been a disaster both in fiscal terms (wasting billions) and in individual terms (harming the disadvantaged).
It can never work.
That is enough for today!
(c) Copyright 2025 William Mitchell. All Rights Reserved.
The current system works exactly as intended. I just don’t think the people running it are being honest about their objectives.
Bill like how you met John McDonnell can you meet Zack Polanski. Empathise private sector only has to offer slightly better pay than living/JG wage to hire workers off JG. And replace interest rate changes. The Job Guarantee – a buffer stock of employed workers instead of unemployed that expands during recessions and decreases during booms. Easier to hire off JG than unemployed more private sector employment for the same level of inflation. Obviously you would have to restrict open borders to other countries with a Job Guarantee and equivalent social infrastructure otherwise they have to apply for a visa. The Job Guarantee is clearly superior to manual stimulus (Central Bank Independence advocates don’t like politicians – I don’t either) and interest rate changes that have long and variable lags while JG increases and decrease spending automatically and is ‘spatially targeted’ (at areas with high unemployment.) Keep rates at zero permanently. JG is an ‘automatic stabilizer.’ The Job Guarantee is fit to the person. This (USA-based but still mostly applicable) paper –
https://www.levyinstitute.org/pubs/wp_902.pdf
explains the Job Guarantee in detail as well as types of Job Guarantee jobs.
Care for the Environment:
“The jobs will tackle: soil erosion, flood control, environmental surveys, species monitoring, park maintenance and renewal, removal of invasive species, sustainable agriculture practices to address the “food desert”2 problems in the United States, support for local fisheries, community supported agriculture (CSA) farms, community and rooftop gardens, tree planting, fire and other disaster prevention measures, weatherization of homes, and composting.”
Care for the Community:
“Jobs can include: cleanup of vacant properties, reclamation of materials, restoration of public spaces, and other small infrastructure investments; establishment of school gardens, urban farms, co-working spaces, solar arrays, tool lending libraries, classes and programs, and community theaters; construction of playgrounds; restoration of historical sites; organization of carpooling programs, as well as recycling, reuse, and water-collection initiatives, food waste programs, and oral histories projects.”
Care for the People:
“The JG aims to support individuals and families, filling the particular need gaps they may be facing. Projects would include: elderly care; afterschool programs; and special programs for children, new mothers, at-risk youth, veterans, former inmates, and people with disabilities. One advantage of the JG is that it also provides job opportunities to the very people benefiting from these programs. In other words, the program gives them agency. For example, the at-risk youth themselves participate in the execution of the afterschool activities that aim to benefit them. The veterans themselves can work for and benefit from different veterans’ outreach programs. Jobs in these projects can include: organizing afterschool activities or adult skill classes in schools or local libraries; facilitating extended-day programs for school children; shadowing teachers, coaches, hospice workers and librarians to learn new skills and assist them in their duties; organizing nutrition surveys in schools; and coordinating health awareness programs for young mothers. Other examples include organizing urban campuses, co-ops, classes and training, and apprenticeships in sustainable agriculture, and all of the above-mentioned community care jobs, which could produce a new generation of urban teachers, artists and artisans, makers, and inventors.”
I think you are Only person who can convince him since Europhile empathise Renton EU only when Europe wide JG implemented. Convince raise child benefit and state pension to living wage.
zack.polanski@london.gov.uk
Or
leader@greenparty.org.uk
I was part of the Management Committee of an Adelaide CES. I was amazed at how it functioned. Apart from listing ALL employment across Australia, it was how they dealt with the chronic unemployed that impressed me.
They would run free workshops, art music drama gardening etc designed to entice people from their houses, people who had not been employed for years to join in. The aim was to get them together to talk and the workshop leader was usually someone who had come through the same system. This resulted in people increasing their self-esteem – and were mostly then choosing to do a Guarantee job in something that interested them, or that they were skilled at. Usually commencing part time – most would work up their hours doing this – and then graduate to Public employment.
The brick paving of King William Rd in Goodwood SA was one such project funded by the Federal Govt working with the local Council with training and funding by the feds.
Many of the people who worked on this project went on to open their own successful brick paving businesses. A BIG win win for everyone.
The parallels in quality of care falling off a cliff as between privatised childcare and privatised employment services couldn’t be more obvious. Then there’s such as the ongoing problems with the NDIS (read Rick Morton’s work) and why not look to the establishment of a flawed NACC, too. Let’s throw in the banks for good measure. Welcome to capitalism and, in particular, financialised rentier capitalism as the end-stage(?) worst manifestation so far.
The Australian Public Service was once a service delivery organisation and then along came trickle down economics and neoliberalism combined with looser banking regulations and the rentier asset price inflation games began in earnest. Sadly, the APS is a mere shell of its former self with overpaid bureaucrats overseeing rapidly degraded service delivery contract management as its brief so easily captured by the private operators they are meant to police. And boy, do they excell at it. A few short listens to various Senate Estimates hearings and there is no doubt left. Does anyone in politics or the bureaucracy actually give straightforward answers to questions posed to them today?
All is cruel and mean spirited as if by design and dressed up in doublethink pumping out the propaganda of efficiency and savings that, of course, never occur. The top support basis, as propagandised, being that the government must cut the deficit to save the grandchildren from an awful future debt. That being the biggest lie of all that has perpetuated this egregious system.
Introduction of a JG would also provide an opportunity for the public to decide what is a job worth paying for and take that decision out of the hands of the non-government. An opportunity to open up activities that are worthy but unsupportable in a for profit business, within the present capitalist system, could arise. A significant change to the idea of what falls within the ambit of paid work in order to provide a cohesive and cooperative society becomes possible.
The means of achieving full employment (which used to mean 98% when I was younger) are many and various but the case still needs to be made, and repeated endlessly, as to why this goal must supersede some NAIRU magic number with the bog standard 2% inflation driving monetary policy.
If political economy as a discipline can have an
ethos that transcends the growth model, then the arguments regarding employment and human welfare made by such as Keynes, Marx, and Sen, amongst many others must replace inflation with full employment as the key driver.
We all know that the interest rate one club approach trades off jobs against inflation, and that needs to be shouted from the rooftops so people understand government deliberately puts them out of work, to try to reach a magic number.
People are very much of secondary importance. And need to know that is how the political class regard them.
Just today I was listening to a 12 years old presentation by Scott Fullwiler which included a presentation on the Job Guarantee and will quote him:
“Should we spend on unemployment benefits and why can’t all these people get jobs when at the same time there is a distinct policy goal of keeping 10 to 15 to 20 million people unemployed at all times. And the Fed actually said that.
So, we don’t generally think of labor as a buffer stock, but if we did, we might recognise that we have two choices. We have the choice of an unemployed buffer stock, which is what we generally do, or an employed buffer stock. Since there’s only two choices you have to be in favour of one or the other. And pretending you just don’t like the employed buffer stock means that you are in favour of the unemployed buffer stock and all the social and economic costs that come with it.”
There we are Employed or Unemployed. Such a difficult choice.
TiPi: The problem is believing that the trade-off between unemployment and inflation cannot be ameliorated. I believe the NAIRU does exist – indeed, must exist – no matter how difficult it is to measure. But, then, most things are difficult to measure with precision. That’s no reason to ignore their importance.
To believe a NAIRU doesn’t exist is to believe there can never be mismatches between the type of labour demanded and the type of labour supplied, which is ludicrous. A lot of JG advocates believe that the JG should exist to soak up anyone who loses a job in the private sector. I disagree. If the unemployment rate is 8% (200,000 people), the NAIRU is 4% (100,000 people), and the frictional unemployment rate is 2% (50,000 people finishing a job on Friday and starting a new job on the Monday), why should 150,000 people (200,000 minus 50,000) be employed on the JG at a minimum wage? The unemployment rate could be reduced from 8% to 4% (100,000 people) by absorbing them in the conventional public sector – i.e., paying them award wages – without any threat of inflation. The only people who should be absorbed by the JG are those between the NAIRU and the frictional unemployment rate. In this situation, only 50,000 people would have a JG job.
The Phillips curve, which supposedly depicts the trade-off between unemployment and inflation, is horizontal until the NAIRU is reached. High rates of inflation sometimes occur along with high unemployment rates because the PC shifts up when there is a supply-side shock that increases costs, as it did in the 1970s (oil price spikes) and again during the COVID pandemic. Nothing to do with excessive demand, and therefore nothing that interest rate hikes can overcome (if you believe higher interest rates reduce spending, which I don’t – they simply have distributional consequences).
The beauty of the JG is that it would flatten out the PC so that it would be completely horizontal down to the frictional unemployment rate (effectively the full employment rate). That is, the JG would eliminate a trade-off between unemployment and inflation at all unemployment rates. No more sacrificial pool of unemployed labour, but full employment and no threat of a demand-pull inflation breakout. The NAIRU will continue to be used to justify (needless) unemployment until this is understood.
Better education and training policies could reduce labour demand and supply mismatches and thus reduce the NAIRU as close to the frictional unemployment rate as possible. The fewer people on the JG, the better.
How do we know where the NAIRU is? That is, when do we stop directing unemployed people arriving at central government funded ‘Full Employment’ offices from the conventional public sector job queue to the JG queue? When some inflationary pressure begins to mount. No need to know exactly where the NAIRU is. Just a need to keep a careful eye on the inflation rate. And how do we know whether reformed education and training systems are better matching labour supply with labour demand (i.e., lowering the NAIRU)? When we can direct a greater share of unemployed people walking into Full Employment offices to the conventional public sector queue without it generating inflationary pressure.
Kes: I have to disagree with the Levy Institute. The JG should not be used to provide the services identified. I don’t know what other people think, but I believe that services that ‘Care for the Environment’, ‘Care for the Community’, and ‘Care for People’ are essential and not discretionary. If some of these services cannot be provided in sufficient quantities and at an adequate standard by the private sector (because they have public goods characteristics), they should be provided at all times by the conventional public sector employing qualified people at award wages. They should not be provided if and when there is a sufficient decline in private sector spending to make people available (unemployed).
Just what services would be deemed ‘essential’ and therefore permanent as opposed to ‘discretionary’ and therefore varied is not up to me to decide. It’s up to society to decide through the ballot box.
Of course, the JG needs to have people doing useful and beneficial things. But they should be something like minor maintenance, beautification works, etc. – things that would be nice to have more of (desirable), but not essential, and things that can be turned on and off as the JG pool varies.
If a lot of essential services are not being provided at present (and they are not!), it is just a matter of acquiring the real resources to provide them. There are plenty of idle labour resources available in most countries to perform them. Perhaps there aren’t sufficient qualified people to perform them, but that’s another matter, and a matter that should be dealt with separately. If there are insufficient real resources, the government could reduce its spending on trivial things (there are plenty of these!) or increase the tax impost to reduce private sector spending to free up the required resources (not to finance the spending). A political party desiring to form the government would have to explain this. That would be the difficult part – not convincing people that the services are essential – because then people would have to recognise that real resources are absolutely scarce and that we are forced, as a society, to forego some things to have others (i.e., accept that there is an opportunity cost associated with everything involving the use of real resources). That is something that most people today won’t accept, especially if it is imposed upon them. But it’s either inflation they must bear or ecological damage (which ought to be having inflationary consequences right now but isn’t because most ecological damages are not reflected in the cost of providing things, and therefore not reflected in market prices). One day, the ecological damage (collapse) will be of such a magnitude as to be hyperinflationary regardless of how we account for things. That day may not be far away.
Hi Phil Lawn,
On the JG jobs I wouldn’t fault much people in these jurisdictions or as you phrase it “it’s a political/ballot box decision”.
For most they’ve never had public services and/or have forgotten how they worked(~60 yrs from being broken down by neo-liberalism). Most of the countries were companies run by the British crown. Further along(self rule or independence) majority of these countries had or continued segregation or segmentation of the populace. The “lesser” tiers obviously didn’t have access to the same resources as the top.
My view of countries having JG jobs that govt/public sector must do is gradual progress. But progress non-theless. I see some are fed-up with paying rents for every road one uses that they’ve torn up the so called “PPP” projects. Though waning, some are seriously considering taking back/over water & sewer services.
Regards,
Adrian Teri
Philip Lawn writes:
” I believe the NAIRU does exist – indeed, must exist – no matter how difficult it is to measure.”.
As do economists at the ‘independent’ central bank who use interest rate settings to manage inflatiion.
Recently Stephanie Kelton (at a MML neeting in the UK) recommended abolishing ‘central bank independence’, in a mandated ZIRP and full employment scenario.
And as you know, I would mandate the public sector’s share of the economy’s resources, via choices of a fully informed electorate, in order to ensure the essentials for all, instead of imposing taxes to ‘provide space for public sector spending’.
Neil Halliday: You clearly don’t understand MMT. Besides creating a demand for the currency-issuer’s currency, taxation from a macroeconomic perspective exists for no purpose other than to destroy some of the spending power of currency users to free up sufficient real resources so that the currency issuer can purchase them without it causing inflation.
Also, if a currency-issuing central govt does what is necessary to achieve and maintain full employment, the public sector’s share of available real resources will vary every time the currency users’ net-savings desires change, which is constantly (i.e., the share would increase/decrease if currency users’ net-savings desires increased/decreased).
From Warren Mosler:
” Taxes … help regulate total spending, so that we don’t have more total spending than we have goods available at current prices—something that would force up prices and cause inflation”
So we are back to ‘austerity’, with governments restricting purchasing power by imposing taxes to control inflation.
I attended a ‘Publc Money: Public Good’ conference last weekend; some attendees are not averse to public sector allocaton of resources by decree , rather than by the ‘invisisble hand’ market.
Not averse to price controls and rationing where necessary.
Others noted the Torrens Uni online MML course (of which they are students) doesn’t consider (other than cursorily) political considerations such as abolishing the ‘independent’ reserve bank, in a government-mandated ZIRP, JG scenario.
Nor are they examining the insanity of an economy in which one individual “earns” $1 trillion, during a global cost of living crisis and 1 billion are in absolute poverty – which the Pope himself decried recently….
I know MMT describes how the money system works; my interest is in using this knowledge to eradicate poverty and secure safe housing for all.
‘Public Money: Public Good”.
Neil Halliday: Don’t think I’m picking on you. Your heart is in the right place. However, you don’t quite see the MMT picture clearly. Hence, you confuse the MMT basics – the starting point – with policy. You need to see the starting point first and then consider where we can go policy-wise from there.
While taxes can be used (in a very imprecise way) to control inflation, MMT and the JG are not about using taxes for this purpose. Taxation can and should be used to disincentivise people from doing undesirable things, but at the most basic level, taxation is a foundational tool that a currency-issuing central government (CICG) uses to muscle its way into the economy without it causing inflation. To muscle its way in (so it can provide desired public goods and services), it must acquire/purchase real resources – ideally real resources for sale in the currency it issues. That presents a problem if the level of its spending (demand for resources) plus the spending of the non-government sector (demand for resources) exceeds the maximum quantity of real resources that the nation can make available for sale in its own currency (its productive capacity), since this would be inflationary the very moment total demand exceeds productive capacity.
If a CICG is determined to spend to the level required to provide the public goods and services we desire – including public housing if enough people think the same way as you and accordingly elect a political party into government that promises to provide adequate public housing – it could find itself in a position where it must use taxes to reduce non-government sector spending so that total spending doesn’t exceed productive capacity. But this is unlikely. Examples of demand-pull inflation – i.e., where total demand rises above productive capacity – are almost non-existent. In my opinion, inflation spikes always have a supply-side origin. The two best examples are the oil price shocks in the 1970s and the more recent COVID pandemic.
People like to cite the hyperinflation in the Weimar Republic (1920s) and Zimbabwe (2008) as examples of demand-pull inflation, but they are wrong. These were examples of a collapse in productive capacity where maximum supply fell below an unchanged, not rising, demand. ‘Money printing’ then took off, but not before a massive supply-side shock.
Almost constantly since the abandonment of a full-employment policy, demand fails to match maximum productive capacity (i.e., there has been unemployment above the frictional unemployment rate for fifty years), which is further evidence that all inflationary episodes over the past fifty years have supply-side not demand-side origins. Demand-pull inflation can only occur simultaneously with full employment. Unemployment would likely follow as people disagreeably react to the high inflation rate, but that would be an ‘after the event’ episode.
Clearly, to achieve and maintain full employment without demand-pull inflation, demand must always equal maximum productive capacity. Nothing more and nothing less. Again, taxes could be used as a fine-tuning tool to achieve this, but it is very imprecise. A CICG could also increase/decrease its own conventional forms of spending to do it, and in the 1950s and 1960s it pretty much did this in most countries.
The idea of a JG, besides maintaining f/e, is that it is the ideal fine-tuning mechanism to keep total spending at the f/e level. On top of non-government spending, CICG taxation and conventional government spending do most of the work towards achieving f/e without causing inflation. The JG does the rest of the work – the fine-tuning mechanism. How? JG spending goes up/down according to how many people walk into a JG office looking for paid work. No need for the CICG to work out the required level of spending to maintain f/e without it causing inflation. If an unemployed person walks into a JG office, JG spending goes up. If someone quits their JG job to take up a private sector job offer, JG spending falls. And, being a monetary sovereign, a CICG doesn’t have to worry about budget bottom-line considerations. No austerity in sight.
What could be simpler than that. And to think there is nothing preventing a CICG from doing it. Once you are aware of it, it makes you sick to think that so many people are unnecessarily unemployed. We pay a price for it in terms of crime and the real resources we allocate to help the unemployed deal with their psychological and other health issues. Throw in a housing affordability crisis and other social and ecological problems and it’s no wonder so many people are angry, feeling betrayed by governments, searching for scapegoats, and often being radicalised in the wrong way. As I’ve said a number of times, the policy failure of the political Left, as they pat each other on the back and massage each other’s egos, has played a big part in the rise of the extreme Right. If Australia keeps going in the current direction, an extreme Trump-like political party will end up in government.