The Committee for Economic Development in Australia (CEDA), which is usually a pro-business, neo-liberal leaning organisation, released a major report on April 21, 2015 – Addressing entrenched disadvantage in Australia. It was accompanied by a Press Release- CEDA Report: More than a million Aussies living in poverty a disgrace – and an Op Ed article – Australia must do more to address entrenched disadvantage and a – Blog post. They clearly wanted the message to get out! Australians like to think we live in a fair society. The CEDA Report should shake us out of our ‘egalitarian’ dreamland. It is a shocking indictment of an income and wealth rich society that such a high percentage of our population have no hope of prosperity or even a modicum of security. It is an indictment of a policy regime that deliberately undermines the chances that many young Australians have of a decent material life while it shamelessly transfers public resources to the children of the rich to purchase even better schooling facilities. As the Report states – it is a disgrace that so many people in such a wealthy nation can be so poor.

On the eve of the Annual Spring Meetings of the IMF and the World Bank in Washington last week, German Finance Minister Wolfgang Schäuble wrote an article in the New York Times (April 15, 2015) – Wolfgang Schäuble on German Priorities and Eurozone Myths – justifying the German stance with respect to the Eurozone crisis. He argued that the Eurozone was pursuing the correct response by placing a focus on “structural reforms”. He said that the IMF boss was in accord with this assessment and further structural reforms were necessary, including “more flexible labor markets”. He included labour market reform as part of a push for “modernization and regulatory improvements”. In denial of the basic rule of macroeconomics that ‘spending equals income’, Schäuble said that fiscal stimulus “is not part of the plan”. He might have read the complete text of the latest IMF World Economic Outlook (April 2015) – Uneven Growth: Short- and Long-Term Factors – before he sought comfort in the imprimatur of the IMF. That organisation seems to say one thing here and another there! It has become schizoid as it confronts the fact that its Groupthink sees itself as a major part of the neo-liberal free market (help the rich) putsch whereas its research economists find out that the facts don’t match the political (ideological) stance. The IMF should be defunded and recreated to serve positive purposes.

The Australian government will release the Fourth Intergenerational Report today with much fanfare, scaremongering and lies. Our boofhead Treasurer has been doing the rounds of the media outlets giving his evangelical sales pitch on how scary the future is unless we cut the fiscal deficit now and get the balance back in surplus as soon as possible. These intergenerational reports are really a confection of lies, half-truths interspersed with irrelevancies and sometimes some interesting facts. There is very little economics in these reports. What parades as economic analysis is just the usual neo-liberal mainstream nonsense that currency-issuing governments have run out of money and fiscal deficits are dangerous. The Treasurer is selling the Report on the grounds of “intergenerational theft” (the classic anti-fiscal deficit argument about mortgaging our future grand children’s future). Apparently, this justifies large cuts to the fiscal deficit now in order to turn it into a surplus so that our future generations are left with no debt. The real intergenerational theft though is embodied in a current fiscal strategy that leaves around 45 per cent of our teenagers unemployed, underemployed or NEET (Not in Education, Employment or Training) and hacks into public infrastructure provision as a strategy to create fiscal surpluses now. With private spending subdued at present and the external sector also draining expenditure from the economy relative to its income, trying to impose fiscal austerity now in the name of defending future prosperity is a grand lie and will ensure that the future prosperity is undermined.

Last week, the peak body representing small business in Australia, the Australian Chamber of Commerce and Industry (ACCI) called on the Federal Government to hand over free labour under the guise that “making coffee” will enhance the skills of the workers. The free labour they want to get their hands on are the unemployed on income support. They want the Government to continue to pay the below-poverty income support but force the recipients to work in small and medium-size businesses “making coffee or serving customers” as a solution to youth unemployment. This is the same group that thinks the pay of the lowest-paid workers (like kitchen hands, cleaners etc) should be cut. They also claim that rising unemployment in Australia is being caused by structural rigidities in the workplace (job protection, occupational health requirements etc). There is a wide-ranging attack on workers going on at the moment. This is just one aspect of this attack. Austerity is forcing more onto the unemployment pile. Once there they are being increasingly subjected to pernicious policy requirements (see yesterday’s blog – Job Services Australia – ineffective and rife with corruption – scrap it!). Then employer groups lobby government to cut wages and conditions and scrap regulative environments that protect workers. It is an important era for social democrats. Either we regain some political equanimity and coherence or we continue to call parties Socialist that impose austerity and talk about being ‘pro-business’, while attacking pensions, wages, and employment.

Recessions are very costly events. The income losses come quickly and sustain for several periods after the worst has occurred. Unemployment rises sharply and if government doesn’t take appropriate action (job creation), it takes a very long time to return to previous levels. The losses of income are huge and are lost forever. The related pathologies such as increased rates of family breakdown, increased crime rates, increased alcohol and substance abuse, increased suicide rates, increased incidence of mental and physical problems, the lost opportunities for skill development and work experience among the young, make the costs of enduring recession very high. These costs dwarf any of the estimated costs of so-called structural rigidities (micro imbalances) that have been produced by researchers over the years. Mass unemployment is the single greatest source of income loss. It is amazing therefore that policy makers do not prioritise the avoidance of recession yet expend vast energy talking about structural reforms etc. The fact is that recessions can always be avoided and should be. Governments can always adjust fiscal policy settings to ensure there is sufficient total spending in the economy to avoid recession, irrespective of what the private sector spending patterns are.

This is the second part in my discussion about Henry George and Modern Monetary Theory (MMT). In general, there is nothing particularly incompatible between the introduction of a broader LVT at the Federal level to replace or reduce other taxes currently levied and the insights provided by MMT. However, once you understand MMT, you realise that the discussion of the design of the tax system is quite different than just raising income from the most ‘efficient’ means. The Georgists would do well to come to terms with that and demonstrate how a land value tax (LVT) would work to free up real resources to give the real space for governments to spend. There doesn’t appear to be any analysis provided by Georgists to calibrate the impacts on non-government spending of such a tax and how this would alter the tax mix required to maintain full employment spending levels and satisfy the socio-economic spending goals of government. There are other things that might be done as well (if not prior to imposing a LVT) which would reduce the likelihood of property price bubbles. Finally, the obsession with the single LVT as a saviour is in denial of the causes of recessions and the the role that financial capital plays in destabilising economic systems. A LVT alone will do little to resolve those problems.

I get several E-mails (regularly) from so-called Georgists who want to know how the Single Tax proposal of Henry George, outlined in his 1879 book Progress and Poverty, fits in with Modern Monetary Theory (MMT). I have resisted writing about this topic, in part, because the adherents of this view are vehement, like the gold bugs, and by not considering their proposals in any detail, I can avoid receiving a raft of insulting E-mails. But, more seriously, I see limited application. In general, the Georgists I have come across and the literature produced by those sympathetic to the Single Tax idea, is problematic because there is a presumption that national governments need tax revenue to fund their spending. Clearly, this is an assertion that MMT rejects at the most elemental level. But there is some scope for considering their proposal once one abandons the link between the tax revenue (which they call rent) and government spending capacity. The question that arises, once we free ourselves from that neo-liberal link, is whether a land tax has a place in a government policy portfolio with seeks to advance full employment, price stability and equity. The answer to that question is perhaps. I am writing about this today and tomorrow (with an earlier related post – Tracing the origins of the fetish against deficits in Australia) as part of my research into the life of Clyde Cameron, given I am presenting the fourth Clyde Cameron Memorial lecture tomorrow night in Newcastle. I hope this three-part blog suite is of interest. In some parts, the text is incomplete.