\t\t\t\tI received a call from a journalist at the Financial Review today asking how the Federal government could afford to run labour market programs given that it might suffer a substantial revenue loss if it cuts back net migration. I told him that irrespective of what happens to net migration and any losses to tax revenue that that might bring (should they cut it back), the Government will always be able to fund any labour market program if it thought that was the best use of its funds. It brings to mind a new theme in this period of turmoil – how can the government keep its programs going while at the same time bailing out all and sundry? Answer: easy, just keep funding them. The national government is not financially constrained and the size of its budget is nothing that can be determined independent of the shortfall of aggregate demand.
\n
\nThe issue was also raised in an extraordinary statement by the Deputy Prime Minister in relation to fulfilling their education promises. Speaking on Sydney radio 2GB last week she said that the budget was being “pounded” and that the Government has to take responsible decisions about their spending priorities as a consequence. The funds at stake are the $7 billion that the Bradley Higher Education review proposed be spent. She told the interviewer that the global financial crisis had limited the capacity of the Government to spend. Sorry, it hasn’t.<\/p>\n
It is clearly correct to make responsible decisions about their spending priorities in relation to the state of the economy. But it is clearly incorrect to imply that because the global downturn is demanding increased government spending that somehow this is coming from a given pool of funding potential. It is not – plain and simple. There is no financial constraint on the Federal government other than that which they voluntarily impose on itself.<\/p>\n
Let us not forget that the real problem facing the World economy is a lack of aggregate demand. We know this is the case because employment and output growth have fallen. So if it is a problem of aggregate demand, then governments around the World have the capacity to address this shortfall. In this context, direct job creation is an excellent place to start. It is a great opportunity for creating new public spaces again. If the private sector doesn’t want to use the idle labour resources then the public sector can turn this to our advantage with large-scale public infrastructure and community development employment schemes. If already had a Job Guarantee in place (a minimum wage public sector job to anyone willing and able to work) then the real aspects of the crisis would have been attenuated. But it is not too late to do this. A major announcement should be forthcoming!<\/p>\n
This is especially so when you read that the OECD is forecasting that unemployment will hit an average of 10 per cent across all OECD countries by the end of next year, up from an average of 6.9 per cent at the start of 2009. The situation in some countries will be much worse than this.<\/p>\n
There are many reasons why aggregate demand has fallen and you might be interested in this short talk (video) from former World Bank Chairman Joseph Stiglitz<\/a>. While I don’t think he really captures the major problems that the pursuit of budget surpluses generated, he clearly emphasises the insufficiency of global aggregate demand which he traces to rising inequality and previous IMF actions. He says more people are poorer now as a result of neo-liberalism yet government policy has set in place conditions that have transferred purchasing power from those who spend to those who don’t. Then despite real incomes falling, the financial engineers have cajoled the bottom income groups into building up unsustainable levels of debt. He is also highly critical of the IMF especially during the 1980s debt crisis where IMF structural adjustment programs ravaged the standards of living of many less developed countries.<\/p>\n Then we come to the talk-fest that is the G-20 Summit in London. You have to shake your head in despair when we read that the G-20 Summit will probably not recommend any co-ordinated fiscal stimulus largely because the European leaders have given up leading. Even our Prime Minister has made statements along the lines that no real detail about stimulus solutions will emerge. Rather, he claims this is for the IMF to decide. But the IMF is not the organisation that should be deciding these things. It is undemocratic and therefore unaccountable. No IMF official has been imprisoned in the past for the damage they have wreaked on unsuspecting civilians right around the globe.<\/p>\n In an ABC On-line opinion<\/a> piece today, Stephen Grenville argued for serious IMF governence reform:<\/p>\n \n… The London meeting could agree to very substantially increase the funds available to the IMF … however … If the fund is to gather the very substantial sums of money needed from the full range of countries that can supply it, it will need radical alteration of its governance, and this can only be achieved by similarly radical intervention by the G20 … The fund has demonstrated its inability to reform through internal processes. The task should now be taken up by the G20 leaders – to impose a governance structure which reflects the political realities of today’s world …<\/p>\n At the moment, memories of the fund’s heavy-handed performance during the 1997-98 Asian Crisis seriously inhibit use … [of its facilities] …\n<\/p><\/blockquote>\n But this all begs the question. Most of the countries are sovereign in their own currencies and it is only the stigma that the neo-liberals have placed on running budget deficits in their own currencies that is preventing them expanding employment growth on their own. While a coordinated fiscal response would be useful, it still remains that a sovereign country can buy all the labour that is idle by paying them a minimum wage.<\/p>\n