Fiscal rules going mad …

Several readers have asked me about fiscal rules and I have been promising to write about them for some time now. I was finally goaded into action by the current German rush to madness which will see them constitutionally outlaw deficits. When I saw the news that the German government was pushing constitutional change along these lines I thought good – the Eurozone will be dead soon enough and perhaps a better aligned fiscal and monetary system will emerge. Fiscal rules can take lots of different shapes all of which entrench chronic unemployment and poverty. The only fiscal approach that is applicable to a sovereign government operating within a fiat monetary system is one that ensures full employment is achieved and sustained. Anyway, here is an introduction to the mean-spirited and wrong-headed world of fiscal rules.

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Boondoggling and leaf-raking …

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 …

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