This year marks the 50th anniversary of the US legislation – Economic Opportunity Act – introduced by Democrat president Lyndon B. Johnson. The law created the so-called local Community Action Agencies, which were directly regulated by the US Federal government. The aims of that legislation were relatively straightforward – “eliminate poverty, expand educational opportunities, increase the safety net for the poor and unemployed, and tend to health and financial needs of the elderly”. The legislation came out of the President’s – State of the Union Address – delivered on January 1964, where he made the famous statement “This administration today, here and now, declares unconditional war on poverty in America. I urge this Congress and all Americans to join with me in that effort”. The Economic Opportunity Act became known as the – War on Poverty. Times have changed. 50 years later, federal administrations around the World have declared a new type of War! The War on Poverty has become the War on the Poor. In Australia, this has manifested in recent weeks as an outright attack on the victims of mass unemployment – the unemployed. The Australian government has introduced what I have described in a number of press interviews with the national media as advanced psychological torture.
The new European Commission president Jean-Claude Juncker is a federalist. He claims in his new role that his first priority is “to put policies that create growth and jobs at the centre of the policy agenda of the next Commission”. Juncker was also the Prime Minister of Luxembourg and the head of the so-called Eurogroup (2005-2013) which comprised of the Eurozone Finance Ministers, the European Commission’s Vice-President for Economic and Monetary Affairs and the President of the ECB. Juncker and the Eurogroup were vehemently pro-austerity. He also reaffirmed last week at a – Meeting in Brussels of the Alliance of Liberals and Democrats for Europe, that “we need to keep austerity going”. Remember he was Angela Merkel’s choice for the EC Presidency! But there is new talk of federalist type fiscal innovations in Europe under the new Commission. The problem is that they are just neo-liberal smokescreens and will do very little to change the underlying problems that have prolonged the crisis and will ensure there is a repeat down the track.
The new conservative Australian government is scaling new heights in their attack on the most disadvantaged. The May Fiscal Statement was littered with nasty cuts, which reduce spending by trivial amounts at the macroeconomic level but which will have devastating effects to the recipients of the income support. Today I briefly look at the changes in the unemployment benefit regime that have been foreshadowed. Let us hope the Senate blocks them for good.
Tonight is the Federal Budget night. Tomorrow’s blog analysis could be as long as “its appalling”. We already know that. So I might take a day off and leave it at that. Some of the policy changes announced already are certainly appalling. Regular readers will know I have been keeping tabs on the way the Federal unemployment benefit in Australia has failed to keep pace with the poverty line and the Government has refused to do anything about it. At present, the single unemployment benefit stands at $35.50 a day which is well the single unemployed poverty line of $A64.10 per day. For married couples the unemployment benefit is currently at $56.47 per day, while the corresponding poverty line is set at $79.99 per day. While the Government has been under intense pressure from a number of different sources (including the typical welfare lobby groups, the OECD (not typical) and even right-wing columnists (definitely not typical) to address this disgrace. It has resisted any rise in the benefit and continually claims it is about jobs not welfare and is in the process of creating work. Not much action seems to happen on that front. Tonight’s budget will announce their latest offering in this regard. They are going to allow the unemployed to earn an extra $A19 per week before their benefits is cut. It claims it cannot afford any more because it has run out of money and needs to get back to surplus as soon as possible. The reality is that it can never run out of money, it needs to triple the current budget deficit to address the growing output gap, and is once again failing the most disadvantaged Australians that it professes it care about. The Government is also comprised of serial liars who will be decimated in the upcoming Federal election because their political support base has shrunk so much because they stand for nothing that is worth supporting.
Last weekend, the Australian government announced a major new funding initiative for farmers. The so-called – Farm Finance Program – will handout millions to farmers who are struggling to make ends meet. Whenever I see these special assistance packages being handed out to the rural sector, which is politically well-organised, I reflect on the plight of the unemployed. With unemployment rising in Australia as the economy goes into reverse on the back of failing private demand and deliberately imposed fiscal cutbacks, the decision to hand out economic largesse to the farmers wreaks of inconsistency. The unemployed have diminishing chances of getting a job at present and the income support provided by government is well below the poverty line. That poverty gap is increasing and the Government refuses to increase the benefit claiming fiscal incapacity. They also say they are jobs focused, despite employment growth being flat. The comparison of the vastly different way the government treats farmers relative to unemployed highlights, once again, that the way we construct a problem significantly affects the way we seek to solve it. The neo-liberal era has intensified these inconsistencies which have undermined the capacity of public policy to achieve its purpose – to improve the welfare of the citizens. The research question is: Why do we tolerate such inconsistent ways of thinking about policy problems and their solutions?
A lot of attention is being focused on the Eurozone at the moment given the scale of the economic and social crisis that is unfolding there. It is clear that the unemployed and other pension recipients are being made to pay very significant costs for the policy folly imposed upon them by the Euro political leadership. However, the mean-spirited treatment of the disadvantaged is not confined to Europe. In the US, for example, the Congress is soon to debate and vote on a serious reduction in income support for the already beleaguered unemployed. There is a tendency to think about this from the perspective of a commitment to social democracy as being immoral, iniquitous, and a violation of the human rights of the disadvantaged. While I have great sympathy with all of those emphases, there is an easier attack that can be mounted on cutting unemployment benefits in the US or elsewhere. Such a strategy only serves to further undermine the spending capacity of the private sector at a time when the principal problem is a deficiency of aggregate spending. A simple understanding of macroeconomics leads to the conclusion that our pathological meanness to the unemployed is just bad economics.
The Australian economy is growing and adding jobs and the unemployment rate is 5.4 per cent (having risen 0.3 points in the last month). But we avoided the recession courtesy of a timely and sizeable fiscal intervention followed up by strong growth in China (also courtesy of their significantly larger fiscal intervention (as a % of GDP)). But the treatment of the unemployed by our government is appalling. Across the Pacific, the US economy is starting to grow but only just adding jobs and not in sufficient quantities to reduce the unemployment rate and it is persisting at around 9.6 per cent. They didn’t avoid the recession and have laboured for nearly 3 years with the devastating consequences of it. The treatment of the unemployed by the US government is more than appalling. So it doesn’t matter if things are brighter or not, we still vilify the victims of the macroeconomic policy failure. That is what this blog is about. It is a depressing message!
With unemployment rising in Australia as the downturn continues and no sign that strong employment growth is about to absorb the new entrants plus those currently without jobs, I was reflecting today on just how mean we are to those who are bearing the brunt of the downturn. In part, this thinking was also conditioned by my field trip out to North-West NSW on Monday and Tuesday (I will report separately). Unemployment out there is rife and the jobless have little hope. So I started to look into our unemployment benefit regime today. In the May 2009 Federal budget, while other pensioners enjoyed a generous increase in payments, the unemployed missed out on any increase. So why does so-called Labor Government have neither the creativity to generate jobs nor the generosity to help those that suffer the consequences of their failed macroeconomic policies?