The various policies adopted by Western governments from the 1970s onwards to promote depoliticisation include:<\/p>\n
1. Reducing the power of parliaments vis-\u00e0-vis that of governments and making the former increasingly less representative (for instance, by moving from proportional parliamentary systems to majoritarian ones).<\/p>\n
2. Making central banks formally independent of governments, with the explicit aim of subjugating the latter to ‘market-based discipline’. We note that this ‘formality’ does not create independence in a functional sense. Central banks and Treasury have to work hand-in-glove on a daily basis to ensure the monetary system functions, central bank boards are appointed by governments, and central bankers regularly deliver pronouncements on fiscal policy and thus enter the politicial process.<\/p>\n
3. Adopting rules-bound policies – on public spending, debt as a proportion of GDP, competition, etc. – thereby limiting what politicians can do at the behest of their electorates; removing controls over capital flows, thus reducing the ability of governments to exercise control over economic policy.<\/p>\n
4. Signing trade and investment treaties, which severely limit the capacity of governments to regulate in the public interest. Allowing corporations the power to subjugate the decisions of parliaments if they impede private profit is the exemplar of the anti-democratic shifts under neoliberalism.<\/p>\n
5. Surrendering national prerogatives to supranational institutions and para-state and super-state bureaucracies. Allowing the IMF to impose conditions on democratically-elected governments undermines democracy.<\/p>\n
In this sense, the erosion of national sovereignty that we have witnessed in recent decades, rather than the consequence of external factors over which states allegedly have little control, should be considered, to a large degree, the result of a deliberate and voluntary reduction of sovereignty by nation-states themselves.<\/p>\n
The reason why governments chose willingly to ‘tie their hands’ is all too clear: as the European case epitomises.<\/p>\n
The creation of self-imposed ‘external constraints’ allowed national politicians to reduce the politics costs of the neoliberal transition – which clearly involved unpopular policies – by ‘scapegoating’ institutionalised rules and ‘independent’ or international institutions, which in turn were presented as an inevitable outcome of the new, harsh realities of globalisation. <\/p>\n
Thus, the hollowing out of substantive democracy and curtailment of democratic controlling rights that has accompanied the neoliberal transition in recent decades should not be viewed as a separate development, possibly resulting from the pressures of economic and political internationalisation, but as an essential element of the neoliberal project.<\/p>\n
The important point is that all these shifts have come with the participation and cooperation of the leaders of the nation states.<\/p>\n
All these shifts have come via changes to legislation and regulation at the behest of the governments involved.<\/p>\n
Short of military invasion, neoliberal interests have to work<\/strong> through the legislative processes. They have to co-opt government to advance their interests at the expense of broader public interest.<\/p>\n The nation state has been hollowed out – but that situation (status) can only be maintained while the polity is cooperative and compliant.<\/p>\n A progressive new polity could unwind those shifts any time it chose, which is why the elites work so hard to keep those political positions subdued.<\/p>\n As I often note in presentations, if the nation state was powerless, why do corporate interests spend billions every year lobbying the politicians to advance their interests?<\/p>\n Answer: obvious!<\/p>\n This brings us to the proposal to outsource fiscal policy.<\/p>\n The logic of such a proposal appears to be that:<\/p>\n First, the neoliberal period has been marked by a shift in macroeconomic policy emphasis away from fiscal policy to an almost total reliance on monetary policy to stabilise the economic cycle via so-called ‘independent’ central bans.<\/p>\n Decisions about macroeconomic policy are thus outsourced to unelected and unaccountable officials.<\/p>\n Second, this shift was part of the depoliticisation noted above.<\/p>\n Third, it was justified in various ways including statements that fiscal policy suffers from time lags that leave it open to becoming pro-cyclical.<\/p>\n For example, in a downturn in non-government spending, the correct fiscal response is to expand net public spending to support growth while the non-government sector reorganises itself.<\/p>\n However, if there are decision, design, and\/or implementation lags in that policy intervention, the net spending impulse might finally enter the economy at a time the non-government spending cycle has already turned, which means the fiscal intervention will be pro- rather than counter-cyclical.<\/p>\n One of the features of MMT, to reduce this possibility is to bolster the automatic stabilisers, which come into play immediately there are shifts in the non-government spending cycle.<\/p>\n That is one of the important roles that the Job Guarantee plays in our macro approach. It expands both public employment and public spending in a downturn in non-government economic activity and vice versa in an upturn.<\/p>\n The Job Guarantee becomes the minimum government spending that is required to sustain what we call ‘loose’ full employment.<\/p>\n Note, that the operation of the Job Guarantee doesn’t always mean that fiscal deficits will increase. One could imagine a situation where aggregate demand was lower as the Job Guarantee was introduced.<\/p>\n This is the point that Randy Wray and I made in our 2005 article – In Defense of the Employer of Last Resort: A Response to Malcolm Sawyer<\/a> – which was published in the Journal of Economic Issues<\/em> (Vol 39(1), pp.235-244).<\/p>\n The Job Guarantee provides ‘loose’ full employment in two ways:<\/p>\n 1. It buys labour, for which it there is no market bid (that is why they are unemployed) at a fixed price – that is, it buys ‘off the bottom’.<\/p>\n 2. It offers a single living wage to all workers who see a job irrespective of their skills.<\/p>\n While critics make much of the fact that labour is heterogeneous and so the Job Guarantee would just force skilled workers into jobs below their capacity, the reality is that such workers typically prefer what we call ‘wait’ unemployment which is subsidised by their redundancy payments, a luxury that most low-pay workers do not enjoy.<\/p>\n Further, mass unemployment is predominantly endured by such low-pay workers anyway.<\/p>\n As an aside, I get tired of reading that the Job Guarantee is not a core part of MMT – so the argument goes, because MMT allegedly just describes what is and the Job Guarantee is not what is so it cannot be core.<\/p>\n The twisted logic fails immediately, once one assumes that MMT is more than just descriptive.<\/p>\n When I introduced the notion of MMT being a superior lens to allow people to achieve a better understanding of the way the monetary system work, the operative word is ‘understanding’.<\/p>\n That goes beyond description. Understanding requires an appreciation of causal process, which, in turn, requires theorising.<\/p>\n For more discussion about this please see the blog post – Understanding what the T in MMT involves<\/a> (September 20, 2018).<\/p>\n The point here is that one of the novel features of our work (MMT) is to address the debate within macroeconomics concerning whether there is a trade-off between inflation and unemployment using a buffer stock of employment concept.<\/p>\n The debate has been traditionally bogged down – with New Keynesians, Monetarists, Post Keynesians etc – arguing about the concept of a trade-off within an unemployment buffer stock paradigm.<\/p>\n The Job Guarantee cuts through that debate and helps to establish MMT as a new approach by showing that if there is an employment buffer stock operating, the economy can maintain both<\/strong> full employment and price stability.<\/p>\n The government does not have to sacrifice one to get the other.<\/p>\n But in the context of today’s post, the emphasis is on the automatic stabilisation properties of the Job Guarantee.<\/p>\n I also note some characters trying to denigrate the concept of the Job Guarantee by denying that it is, in fact, a buffer stock mechanism. Their flimsy logic is that a buffer stock requires the held stock to be withheld from active use.<\/p>\n It is a ridiculous ploy.<\/p>\n The buffer stock characteristics of the Job Guarantee are clear – it is a fluctuating stock of workers that is created by a fixed price purchase and varies directly with the overall level of activity.<\/p>\n It rises, when non-government activity is low and falls when non-government activity is high.<\/p>\n That is the same cyclical mechanism as operates in a wool price stabilisation scheme, which is where I originally derived the idea of the employment buffer stock from in the late 1970s.<\/p>\n The wool stock held by the government rises when the market is weak (and endangers the agreed price) and falls when the market is strong.<\/p>\n It doesn’t matter that the wool is held back from use by the government in the wool stores and the Job Guarantee workers are deployed on socially useful production.<\/p>\n In fact, that difference is a strength of the Job Guarantee buffer stock.<\/p>\n Agricultural buffer stocks require costly maintenance (refrigeration, etc) and can deteriorate to the point of being unsalable again, whereas, workers who maintain their employment retain many of their general skills that would otherwise deteriorate if they were forced into an unemployed buffer stock (as is the practice now).<\/p>\n The fourth part of the outsourcing logic seems to argue that politicians cannot be trusted and will deliberately use their fiscal policy powers to advance their own electoral chances at the expense of long-term economic stability.<\/p>\n This is a common theme in the neoliberal literature and one of the major sources of attack on MMT which prioritises fiscal policy. <\/p>\n The argument claims that central bankers are independent of the political cycle and make decisions that reflect data realities rather than the to and fro of the electoral cycle.<\/p>\n Given that MMT prioritises fiscal policy over monetary policy, the argument goes that a similar arrangement for determining the fiscal settings (spending and taxation choices) would be optimal as it would separate these choices from the electoral cycle.<\/p>\n Politicians would not be able to choose fiscal settings that enhance their electoral prospects but undermine longer-term stability and well-being.<\/p>\n The usual examples that are provided to justify this preference are typically flimsy and often rely on flawed mainstream reasoning.<\/p>\n So we often hear that politicians facing an election will go on a spending spree to garner votes which will generate inflation or some debt crisis sometime in the future, after they have been re-elected.<\/p>\n Where are the real-world examples of this sort of behaviour?<\/p>\n And how damaging is this behaviour in the long-term if we can punish it regularly at elections?<\/p>\n When these sort of criticisms are raised they never include the lobbying behaviour of the corporations and the financial sector to distort government policy in their favour.<\/p>\n That is a much greater problem than some power hungry politician announcing a pork barrel on the eve of an election.<\/p>\n It is the on-going capture of politicians that needs to be addressed and safeguards put in place so that there is transparency in the dealings between the public and the polity.<\/p>\n So what the objections to an ‘independent’ fiscal authority making decisions that the government would have to wear?<\/p>\n First, the notion that we now have ‘independent’ monetary authorities is a ruse promoted by neoliberals to justify their attacks on fiscal policy.<\/p>\n I have covered that issue in these blog posts (among others):<\/p>\n 1. Censorship, the central bank independence ruse and Groupthink<\/a> (February 19, 2018).<\/p>\n 2. ECB continues to play a political role making a mockery of its ‘independence’<\/a> (June 12, 2018).\t<\/p>\n 3. The sham of ECB independence<\/a> (October 24, 2017).<\/p>\n 4. The sham of central bank independence<\/a> (December 23, 2014).<\/p>\n I also thought this little intervention was apposite.<\/p>\n On March 12, 2019, Peter Praet, an Executive Board member of the ECB conducted a Twitter Q&A.<\/p>\n At one stage he tweeted this statement, thereby buying into the MMT is dangerous narrative that has brought the mainstream out in droves in recent weeks.<\/p>\nThe logic advanced to justify the outsourcing of fiscal policy<\/h2>\n
The objections to an independent fiscal authority<\/h2>\n
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