\t\t\t\tI was on a panel last night discussing the causes of poverty in Australia. The panel was rather diverse with housing, welfare and other representatives. There was a crowd of around 400 I believe. The format was difficult given that the panel of six was assembled in line at a table so could not see each other easily. But the real problem was that the facilitator, a national journalist, who had the role of asking questions to the panellists, chose to assert the standard neo-liberal macroeconomic myths in response to statements I made with respect to the causes and solutions to poverty. I was confronted with as-if facts such as “they have to get the money from somewhere before they can spend” in response to questions about public debt eventually becoming too large and foreigners funding our national (currency-issuing) government. I thought a facilitator was not meant to have an agenda but in this case holding out these neo-liberal myths perpetuated the standard agenda which guarantees that poverty will continue to worsen. There is a lot of work to be done before people will identify these neo-liberal myths as non-knowledge and readily understand that national, currency-issuing governments such as in Australia have no financial constraints and they spend out of ‘thin air’. Once that knowledge is accepted a whole new world opens up that allows us to see the path to reducing poverty and inequality.
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Earlier this week (October 20, 2015), the American Enterprise Institute showed how foolish they are. They published an Op Ed – Progressives like Bernie Sanders have a novel economic theory that says they can spend, spend, spend<\/a> – which attacks “something called modern monetary theory” in the context of how will Bernie Sanders “pay for his socialist utopia”.<\/p>\n First, I don’t see Bernie Sanders as being a socialist. The association that the conservative media continually makes in this regard is obviously designed to discredit Sanders without any serious appraisal of his proposed policy platform should he bcome president.<\/p>\n Second, when they do get to the policy level, the conservatives short-circuit any debate by questioning how he will “pay for his socialist utopia”.<\/p>\n The record hits the scratch – “How is he going to pay for all this?” Been there many times.<\/p>\n The AEI article uses an Economist Magazine definition of Modern Monetary Theory (MMT) to set the scene. Clearly, the journalist is too lazy to read the primary literature which is an issue. But the cited paragraph includes the bolded paragraph and a further sentence:<\/p>\n \nThe neo-chartalists believe that because paper currency is a creature of the state, governments enjoy more financial freedom than they recognise. The fiscal authorities are free to spend whatever is required to revive their economies and restore employment. They can spend without first collecting taxes; they can borrow without fear of default. Budget-makers need not cower before the bond-market vigilantes. In fact, they need not bother with bond markets at all.\n<\/p><\/blockquote>\n So not the best summary of MMT but it does establish that:<\/p>\n 1. A sovereign government is never<\/strong> revenue constrained because it is the monopoly issuer of the currency.<\/p>\n 2. Tax revenue is not used to fund government spending. Governments tax for a number of reasons, which include creating a demand for its currency buy forcing the non-government sector to offer goods and services for sale in order to get access to that currency so that it can relinquish its tax obligations.<\/p>\n 3. A sovereign government can always<\/strong> meet any of its liabilities which are denominated in its own currency.<\/p>\n 4. A sovereign government does not have to issue debt in order to spend. In fact, governments just borrow back prior deficit spending. A government can always deficit spend without matching that net spending with debt-issi<\/p>\n 5. A sovereign government is clearly able to spend freely to restore employment. It can always purchase any idle resources that are for sale in the currency that the government issues.<\/p>\n 6. The government via its central bank sets the interest rate and can control interest rates along any segment of the maturity curve should it desire to do so. Bond markets do not have power over a soverign government.<\/p>\n 7. A corollary is that foreigners can never<\/strong> fund government spending. China investors do not issue Australian dollars!<\/p>\n Okay, so how does that relate to Bernie Sanders?<\/p>\n The AEI author quotes the polling evidence in the US very selectively indeed. We read that:<\/p>\n \nA 2014 survey from GlobalStrategyGroup found voters said they prefer a presidential candidate focused on “more economic growth” versus “less income inequality” by 80% to 16%. And voters preferred by 62% to 33% a candidate focused on “economic growth to provide more opportunities for everyone to succeed” versus one focused on “economic justice to level the playing field for middle and low-income Americans.”\n<\/p><\/blockquote>\n It all depends on how the question is asked.<\/p>\n The Gallup Poll published on May 4, 2015 – Americans Continue to Say U.S. Wealth Distribution Is Unfair<\/a> – reported that:<\/p>\n \n– 63% of Americans say money and wealth distribution is unfair<\/p>\n – These attitudes are substantially unchanged over past 30 years<\/p>\n – Slight majority of 52% favor heavy taxes on rich as fix\n<\/p><\/blockquote>\n Further, over the last 75 years, the proportion in favour of “heavy taxes on the rich” as “one method of redistributing wealth” has increased from 35 per cent initially to 52 per cent now.<\/p>\n The New York Times-CBS New Poll (June 3, 2015) – Americans’ Views on Income Inequality and Workers’ Rights<\/a> – found that:<\/p>\n \nMost Americans say that it is mainly just a few people at the top who have a chance to get ahead and that the money and wealth in this country should be more evenly distributed …\n<\/p><\/blockquote>\n Further, 66 per cent think that there should be income and wealth redistribution in the US. 65 per cent thought that the “the gap between rich and poor in this country is a problem that needs to be addressed now”.<\/p>\n And, 57 per cent said the “government … [should] … do more to reduce the gap between the rich and the poor”.<\/p>\n And, 68 per cent said they wanted higher taxes for the rich.<\/p>\n On Workers’ rights, 71 per cent favoured raising the “federal minimum wage” from $US7.25 an hour to $10.10.<\/p>\n So American clearly want the Federal government to deal reduce income and wealth inequality. They also want it to “grow and expand the economy” (Gallup Poll, 2011).<\/p>\n The two concerns are not incompatible and do not represent some sort of ‘trade-off’ that the government has to choose between.<\/p>\n This is especially the case when we consider that the IMF is even producing evidence that higher income inequality is detrimental to the growth prospects of a nation.<\/p>\n The IMF paper (April 8, 2011) – Inequality and Unsustainable Growth: Two Sides of the Same Coin?<\/a> – concluded that:<\/p>\n \n… longer growth spells are robustly associated with more equality in the income distribution.\n<\/p><\/blockquote>\n A prerequisite for resolving the unsustainable imbalances that led to the financial crisis will be to dramatically redistribute income back to workers – so that real wages growth closely tracks productivity growth and workers in sectors with little union representation are able to similarly participate in national productivity gains.<\/p>\n And the IMF is also now releasing research findings that demonstrate how fiscal policy can stimulate growth and reduce income inequality.<\/p>\n