\t\t\t\tIts my Friday lay day blog. Today I have been recording interviews about Modern Monetary Theory (MMT) , which will eventually become part of our MMT Educational Resources site on the Internet that will be linked to the MMT textbook that we are finalising in the coming months. It is actuall quite hard trying to talk to a camera. But we completed the first session today and I will put up a taste of the material when it is edited and produced. We will get better at it as we gain more experience in video production techniques. It took my mind of the policy debate going on in Australia at the moment about the best way to reduce the fiscal deficit. No commentator (other than a few like myself) have the temerity to ask: Why are we actually aiming to reduce the fiscal deficit when there is more than 15 per cent of available workers underutilised in some way or another (unemployed or underemployed). That would be like sacrilege to the kool-aid drinkers within the neo-liberal policy Groupthink. Either side of politics is just locked into a debate about the ‘best’ way to accomplish the task. You expect such cant from the conservatives. But Australia is also being let down by our so-called progressive organisations. It is a world-wide disease – the ‘left’ (which is more right than the right used to be) are infested with neo-liberal macroeconomics that they cannot see how compromised their positions have become in the public debate. The filming this morning took my mind of that dilemma.
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On Wednesday (April 15, 2015), the UK Guardian published an article from the Australia Institute, another so-called progressive left think tank. It was discussing the “five most ‘profligate’ decisions’ that the past conservative Treasurer Costello made which apparently “cost the budget $56bn a year”.<\/p>\n
We read that the past Treasurer “Peter Costello has gifted Joe Hockey the budget’s current structural deficit, mainly through tax giveaways to the rich”.<\/p>\n
Distributional equity aside – and there is definitely a case to be made that fiscal policy has been used to increase income and wealth inequality during the Conservative periods of office and the Labor Party has done little to reverse these indecencies when they came into power – the article was all about how bad a fiscal deficit is at the moment.<\/p>\n
We read words and expressions like:<\/p>\n
1. “collecting the revenue needed to fix” the “budget deficits”.<\/p>\n
2. “tax cuts cost the budget bottom line”.<\/p>\n
3. “The budget conversation would have been very different if these irresponsible and inequitable changes had not been put through by Costello.”<\/p>\n
4. “The reason we have a budget deficit today is in no small part due to the efforts of Costello.”<\/p>\n
5. “The Australia Institute are making suggestions on how the government might repair the budget by making changes that would allow more revenue to be raised.”<\/p>\n
And the articles invokes the authority of the IMF, of all institutions, to push its point that the deficit can be eliminated with higher taxation.<\/p>\n
All of these expressions and metaphors (‘fix’ the sick fiscal balance – like a patient that is dying or a car with a dysfunctional motor) is totally consistent with mainstream neo-liberal thinking and therefore totally erroneous.<\/p>\n
As I have argued before, the terminology “repair” is loaded. It assumes the fiscal balance is like a car that has broken down and needs to be fixed.<\/p>\n
It further constructs a fiscal deficit as being a dysfunction and the larger the deficit the worse the repair job becomes.<\/p>\n
The construction is invalid at the most elemental level.<\/p>\n
What needs to be attended to in the Australian economy at present is the rising unemployment rate. The fiscal balance is a reflection of the extensive labour underutilisation in the sense that the flat employment growth and rising joblessness has undermined the tax base of the Federal government.<\/p>\n
It is also a cause in the sense that if there is mass unemployment (that is, unemployment beyond the small amount associated with full employment – people moving between jobs etc) then Modern Monetary Theory (MMT) tells us that the fiscal deficit is too low.<\/p>\n
The first observation (reflection) is about the behaviour of the automatic stabilisers, while the second (cause) is about the discretionary policy choices made by government. Both impact on the fiscal balance.<\/p>\n
But a rising deficit is not something that should be the target of policy. A deficit of 10 per cent of GDP might be appropriate under some conditions (relating to private spending and the external balance) just as a 2 per cent deficit might be appropriate under different conditions. At times, a fiscal surplus might be appropriate.<\/p>\n
There is nothing linear and directional about it – up is not always good nor bad just as down is not always good or bad.<\/p>\n
If the Australian government tried to balance the fiscal state over the next few years with higher taxes then total spending will fall and unemployment and underemployment will rise further than their already unacceptably elevated state.<\/p>\n
It is simply not a progressive position to buy into the nonsense that the Australian government is revenue constrained and the fiscal deficit is somehow a problem. The only problem with fiscal policy at present is the deficit is too low!<\/p>\n
The Guardian followed that story up next day with the article (April 16, 2015) – Negative gearing reforms could save taxpayers $1bn in two years, says Acoss<\/a>.<\/p>\n We read that the Australian Council of Social Services (ACOSS), the leading agency defending income support recipients, also is called for tax changes to shift the tax burden onto higher income earners and raise money for the government.<\/p>\n The substance of their proposal is sound when you consider it isolated from any discussion about the funding constraints on the Australian national government.<\/p>\n Negative gearing is a crazy subsidy to high income earners (they can “deduct the ‘losses’ on a rental property, such as the gap between the rent they receive and mortgage payments they make, from their personal income) and clearly pushes up housing prices without expanding the supply of housing.<\/p>\n It is also a major reason for rising household debt levels which are at precarious levels now.<\/p>\n I agree with the ACOSS statement that:<\/p>\n A well-functioning housing market is critical to economic growth and meeting the most basic of social needs. Housing is the largest household expense for low-income households and the main form of household wealth … Australia has among the most expensive housing in the world. A housing price boom is under way in some cities, especially Sydney. This is making the affordability problem worse. It is driven mainly by rental property investment.<\/p><\/blockquote>\n The tax rort should be scrapped immediately and current recipients of the largesse be given 3 years or so to rearrange their portfolios before losing the benefits.<\/p>\n ACOSS then went into a split up exercise of the estimated $1bn that the government would gain in tax revenue by scrapping negative gearing.<\/p>\n They suggested:<\/p>\n … using about $100m of the $1bn in savings to strengthen tax incentives for investment in new affordable housing.<\/p><\/blockquote>\n What?<\/p>\n There is currently a major shortage of public housing. Why do we need a market-driven system of tax advantages to ensure an adequate supply of such housing?<\/p>\n The Federal government, in liaison with the State and Territory Governments could simply create the funds necessary to build the housing independent of any “tax incentives”.<\/p>\n The ACOSS reasoning, once again, buys into the revenue-constraint myths that the neo-liberals perpetuate in the public domain.<\/p>\n Here we have two examples of so-called progressive institutions arguing that they can do neo-liberal economics fairer when they should be leading the way in rejecting the flawed neo-liberal approach and educating the public about the true, inherent capacities that a currency-issuing government such as Australia has.<\/p>\n Appalling!<\/p>\n Private Tolls Roads versus Public Mass Rail Transit systems<\/strong><\/p>\n The Victorian State Government this week announced the payout to the private consortium that was going to build the controversial East-West tunnel link in Melbourne. Under the previous conservative State government, the East-West link was contracted (a few weeks before the election that they knew they would lose) despite the, then opposition, now Government vowing to abandon the project upon election.<\/p>\n This bastard act by the conservatives left the new State government with compensation payments rumoured at the time to be in excess of a billion dollars.<\/p>\n The conservatives had scrapped an earlier Labor plan to revitalise the railway system in Melbourne, which the national infrastructure evaluation body had considered to be eminently superior in cost-benefit terms than the East-West road link.<\/p>\n This week, the State government told Victorians that they had negotiated a relatively small termination payment to the road builders (cost recovery for preliminary work already done) and would go ahead with the former rail upgrades.<\/p>\n This article (April 16, 2015) – Metro rail Tunnel: Melbourne needs it, so let’s build it<\/a> – provides some sober reflection on the idiocy of the previous conservative government and the poor decision making by the current conservative federal government which has attacked the plan to abandon the ridiculously inefficient and costly East-West road link project.<\/p>\n The following calculation puts it in perspective.<\/p>\n 1. “the Metro tunnel will create space for an extra 17 trains an hour in each direction, each capable of carrying 1100 passengers – 37,400 people an hour in total”.<\/p>\n 2. “The East West Link was projected to carry 80,000 vehicles a day by 2031, which equates to 96,000 people using VicRoads’ measure that shows each vehicle in Melbourne carries an average 1.2 people.”<\/p>\n The rail system will bring a lot more people into the city than the road and save all the other costs of car transport to the individual and the environment.<\/p>\n Africa from Rico Rodriguez<\/strong><\/p>\n This is what I have been listening to today while working this afternoon.<\/p>\n It is one of my favourite trombone players – Rico Rodriguez<\/a> – who is now 80 years old and originally from Cuba. He made his name in Jamaica after being taught by none other than Donald Drummond, one of the all-time best brass players from Kingston.<\/p>\n He played devotional music (rasta) with Jamaican hand drummer – Count Ossie<\/a> in the 1950s and later with Winston Rodney aka Burning Spear.<\/p>\n He then moved to the UK and started playing jazz reggae before joining The Specials and playing ska.<\/p>\n His best album was in 1976 – Man from Wareika<\/a> – from which this track – Africa – is taken. It is a really hot album.<\/p>\n