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.

Wasn’t Chuck Norris the muscle-bound guy with big guns and stuff who blasted the hell out of people and causes a lot of havoc? Well, apparently, he thinks he knows something about macroeconomics. In an article in the right-wing conservative media outlet WorldNetDaily (February 22, 2015) – Ready for a new U.S. Constitutional Convention? – Norris reveals what a knucklehead he really is. The article seems like an exercise in how many scary words, phrases and metaphors about government fiscal policy a writer can get into each sentence. Once you get over that there is nothing of substance left. Mr Action Man clearly needs to do some weights and leave the economics commentary to those who know even more than the slightest thing about it. American politics is once again come around to the more or less regular Balanced Budget Amendment (BBA) cycle. This is a regular comedy event that occupies Congress and all the commentators for a while as they reveal how little they know about the consequences of their grand plans for American prosperity. If they ever took it seriously it would be a disaster for the US economy and the people that depend on it.

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.