In today’s Melbourne Age we learn very clearly that the previous Federal Treasurer didn’t have much idea at all about how the economy actually works. While he continues to promote his years in office as the great period of fiscal rectitude, the reality is that after 11 years at the wheel he still failed to create full employment. His Treasury years, in fact, will be remembered for his Government’s wilful neglect of the disadvantaged and the on-going and incredible waste of human potential that this disregard created. Now, as he sits at the back of our Parliament smouldering about his lost chance to rule, he thinks he has something to say about the monetary systems. Its a shame he isn’t clever enough to know how little he knows.
Today, the right-wing media that we are blessed with have wheeled out another one of their favourite little hobby-horses which they repeatedly use to promote the deregulation of the wages system. They are attacking the Government’s roll-back of Work Choices, which is aimed at restoring appropriate wages and conditions for non-standard work. In this specific case, two opinion columnists from the two major publishing houses are claiming that the Government is undermining the future employment prospects of our youth. Well if they had anything new to add by way of evidence it would be good for debate. As it is they both merely recite the dogma from the latest OECD report Jobs for Youth: Australia – and I don’t need to remind readers that that organisation has form. Its reputation in the area of labour market research is somewhat dubious after a series of recants over the last few years when confronted with solid evidence to the contrary. Anyway, here we go again.
Today, I was investigating pay structures and then became interested in the emerging public debate about Members of Parliament pay, after the Remuneration Tribunal has recommended that Electoral allowances go up 17 per cent per year to $32,000. Every time the pay of parliamentarians is increased there is a hue and cry from the media. In this case, even the Green’s Leader and an independent MP have also rejected their “own self interest” to oppose the pay rises. However, the Government will not stop the rises going through even though last year the PM froze the base rate pay to lead the wage restraint path in these difficult economic times. This raises two questions: (a) Are our pollies just lining their own nest? and (b) Should wages growth be restrained in times of recession? My spare moments today were filled with those issues.
On Friday, April 24, 2009 there was a story in the Australian entitled Deficit spike may lift rates as Government considers $300bn debt blowout which introduced the next step in the neo-liberal fight to retain control of the policy debate – the dreaded ratings agencies. Accordingly, the Government spending (wait for it) … “blows out the deficit” and this will “jeopardise Australia’s triple-A credit rating, leading to higher interest rates.” So if you cannot win the “crowding out” battle to justify an attack on deficit spending its time to wheel out those credit rating agencies to scare the children of our land. As you will read this sort of reasoning is nonsensical in the extreme.
Welcome to the billy blog Saturday quiz. The quiz tests whether you have been paying attention over the last seven days.
Given this is April 25 – I pause to recognise the commitment and personal sacrifices made by our past (brave) generations in various wars however misplaced their logic was under the colonial smokescreen.
Back to the quiz! See how you go with the following five questions. Your results are only known to you and no records are retained.
Today I am in Melbourne (my home town) presenting a workshop on skills development for the new green jobs economy which is a joint Victorian Government/Brotherhood of St Laurence show. But that is not what I am writing about here. Regular readers of billy blog will know that when I talk about budget deficits I typically stress two points: (a) that the Government is not financially constrained and therefore all the hoopla about debt and future tax burdens are just a waste of time. But just because the Government can buy whatever is for sale by crediting relevant bank accounts doesn’t mean they should not place limits on the size of the deficit; and so (b) given the federal deficit “finances” private saving, it should therefore be aim to “fill” the spending gap left by the private desire to save. If the Government does that then it can maintain full employment and price stability and move towards a more equitable society. So it is of importance that we have some idea of the size of this spending (or output) gap.
Yesterday, after sort of saying it the day before and getting close to saying it late last week, and having to wait for the central bank governor to say it first, our Prime Minister, then in quick lock-step, our Treasurer both said the R-word. What gives with this political posturing. The Opposition is largely irrelevant at the moment anyway. The reluctance of the Government to admit the obvious is repugnant. It has been very obvious that the economy is in very bad shape and had been heading that way for some years despite the chimera of prosperity – as the snowball of future recession was growing in size with the private sector debt and the fiscal surplus. Right now, the Government needs to introduce policies that really arrest what we have known for months – that employment is going south and unemployment heading in the opposite direction. Perhaps today’s terrible projections from the International Monetary Fund will sharpen their focus on large-scale public sector job creation initiatives.
There was a story in The Australian newspaper today entitled RED schemes are good written by a former minister in the Whitlam government in the early 1970s. He was extolling the virtues of the old Regional Employment Development scheme, which was a public works direct job creation scheme. He was suggesting such schemes may again find favour as the recession deepens. The RED scheme was a less generous version of the Job Guarantee and suffered as a result of its modesty. It was never based on any fundamental understanding of a modern monetary economy as as such was always a “defensive” program. Defending itself continually from the conservative, soon-to-be, neo-liberal critics. That made me recall my favourite conservative “put down” term – boondoggling and raking – which is used whenever direct public job creation is mentioned as a possibility. Then I recalled a letter that was written by the previous Federal Employment Minister explaining in 2004 why my Job Guarantee proposal was a crock. One thing followed another …
Policies such as Quantitative Easing which has been in the news lately are predicated on a mistaken belief about the way the banking system operates and how the non-government and government sectors interact. One of the hard-core parts of mainstream macroeconomic theory that gets rammed into students early on in their studies, often to their eternal disadvantage, is the concept of the money multiplier. It is a highly damaging concept because it lingers on in the students’ memories forever, or so it seems. It is also not even a slightly accurate depiction of the way banks operate in a modern monetary economy characterised by a fiat currency and a flexible exchange rate. So lets see why!