Today is Wednesday and I have been tied up a lot with various meetings – all on-line these days. I don’t enjoy them as much as face-to-face, given that I spent a considerable part of each day in front of my computer or with my head in books and so the human contact is a welcome variation. But needs must, as they say. Anyway, just a few snippets today, being Wednesday. I can say that in between all this Zooming and writing, I have now nearly put together a complete on-line learning system which I am now trialling. This will be the support platform for – MMTed – which I hope to make operational sometime in the coming months. One of the issues that I touched on yesterday, which is now starting to crawl out of the slime, is the “what will happen to all the debt when the crisis is over” story. And, it is not just a narrative being promoted by the Right or the conservatives. The Federal Labour Party spokespersons and those hanging around the edges have started to push the narrative. As the Prime Minister told us the other day in relation to the people who are panic buying “Stop it! It’s Ridiculous!” I think he was actually talking about those (morons) who are starting the deficit hysteria before the deficits have even actually risen much. For their own health, I urge them to “stop it”. Imagine how apoplectic they are all going to be once the deficit goes to 10 per cent or more and the RBA is buying up all the debt. My god.
The buzz-word at the moment in Australian government and policy circles is ‘hibernation’ – the government is hoping, that the economy can behave like a crocodile and find some ‘river bank’ and have a ‘good sleep’ until the pandemic is over, at which time, it will burst forth into a new growth phase and unless the virus mutates into something worse in the meantime then all will be well. Their policy interventions to date – while they have been like dragging a chain as their conservative instincts are being dragged very quickly into the demands and realities of real world macroeconomics, which is different to the nonsense that is taught by mainstream economists in our now depleted universities – have been crafted to ensure nothing important changes in a structural sense in our socio-economic lives. The problem is that the existing system, which they are hoping to put into hibernation for a while, is putrid to the core and needs major changes if we are to achieve a socio-ecological transformation. Remember the failings of neoliberalism? Remember climate change? Remember the poles melting? Remember the engineered cuts to workers who rely on penalty rates at weekends to maintain a sense of material prosperity? Remember the 13.7 per cent labour underutilisation rate? Remember the failed public transport and energy sectors, privatised and lacking in investment? Remember the financial markets that were exposed by the recent Royal Commission as corrupt, inefficient and downright dangerous to the our material and psychological prosperity? We don’t need a hibernation. We need the Government to take advantage of the dislocation that is currently occurring to make some basic changes. Like wiping out the gig economy. Like … read on. At present, the stimulus interventions, which are mostly about saving capitalism from itself. We should be demanding much more.
Modern Monetary Theory (MMT) has been gaining more attention in Australia in recent weeks. I have been shifting my face-to-face speaking commitments slowly to on-line presentations. I will be announcing more systematic MMTed classes beginning via the Internet soon. And I will do some Live Youtube presentations as well. Last week, the well-known financial market journalist Alan Kohler used his weekly column in The Australian newspaper to discuss MMT – It’s Modern Monetary Theory time as the state steps in (March 23, 2020 – subscription required). Apart from his private corporate work in the financial markets (he writes a regular briefing and does an inflight business report for Qantas), Alan presents the finance report on the national broadcaster ABC nightly news program. He is also a regular columnist in the business pages. So he has high profile. I discussed my concerns with Alan’s representation of MMT in this blog post – It’s Modern Monetary Theory time! No, it always has been! (March 23, 2020). We made contact soon after that – I E-mailed him to tell him I had written a response to his column and he rang me and we arranged to talk further. On Wednesday last week (March 25, 2020), we spoke as part of Alan’s regular podcast – published at Eureka Report (which is a subscription business service). The 48-odd minute is also published here with some additional commentary.
Major developments across the globe in monetary and fiscal policy keep happening on a daily basis at present. We are now hearing conservatives, who previously made careers out of claims that government deficits would send nations broke and more, appearing in the media now claiming “We need the state to bail out the entire nation”. Not too many economists are pushing the line that the market will deal with this crisis. They all the want the state to be front and centre as their own personal empires (income etc) becomes vulnerable. In a normal downturn there is not much sympathy for the most disadvantaged workers who bear the brunt of the unemployment. Now it is different. This crisis has the potential to wipe out the middle classes and the professional classes. And suddenly, who would have thought – the nation state is apparently back, all powerful and being begged to intervene. It is wake up time. Now no-one can be unclear about the fiscal capacity of the state. They now know that politicians who claim they don’t have enough money to do things were lying all along. They just didn’t want to do them. And when this health crisis was over we have to demand that the governments continue to lead the way financially and work out solutions to the socio-ecological climate crisis. No-one can say there is not enough funds to do whatever it takes. We all know now there are unlimited funds. The question must turn to the best way to use them. I also provide in this post some further estimates of the labour market disaster that Australia is facing as part of the development of my 10-point or something plan. It is all pretty confronting.
This post continues my thinking and analysis of the issues relating to the design of a fiscal intervention by the Australian government to ameliorate the damaging consequences of the coronavirus dislocation. Today, I delve a little bit back in history to provide some perspective on the current fiscal considerations. Further, I consider some of the problems already emerging in the policy response. And finally, I consider the lessons of history provide an important guide to the sort of interventions that the Australian government might usefully deploy. While the analysis is focused on Australia at present, the principles developed are portable across national boundaries. And the underlying Modern Monetary Theory (MMT) understanding is applicable everywhere there is a monetary system. This series of blog posts are building up to the production of my 10-point or something plan to address the crisis.
The world is changing that is for sure. Governments around the world are promising to spend billions to address the coronavirus crisis and no-one (other than a few so-called progressives – see below) are talking about how governments will pay for the interventions. Everybody knows how. They have always known. The shams about governments not having enough money to provide adequate housing, schooling, health care, employment, other services, and a sustainable response to climate change are now exposed for all to see. The game is well and truly up. Everybody can now see that governments just have to announce billions of intervention and it will happen. Forget all the ‘complexity’ about accounting arrangements. Forget all the stuff that we will also drown under massive tax burdens if the government dares to help some disadvantaged person get a leg up in life. Forget all the stuff about bond markets punishing profligate governments with insolvency. Everybody can now see that the bond markets are the beggars and the government rules. Even in the Eurozone, it is obvious that the ECB is able to fund fiscal deficits of any size – ‘there is no limit’. Only the Modern Monetary Theory (MMT) economists have consistently outlined the rationale for what is going on at present. And that point is increasingly being recognised although not always in ways I think does our work justice.
A fairly short post today (Wednesday oblige!). So just some snippets. Today, the Australian Bureau of Statistics published the latest – Retail Trade, Australia, Preliminary, February 2020 – which was the first release of a “suite of new products for Australian retail turnover”. The new offering is designed to more accurately and immediately pick up the “economic impact of coronavirus”. This release is preliminary and gives us more current data to that which is published in the upcoming April Retail Trade, Australia. The news is not good, as you might expect. Retail trade rose by 0.4 per cent in February 2020, as food purchases rose but all other spending categories fell. So the result is driven by the ridiculous panic hoarding behaviour that is now common. I went to a supermarket last night on the way home to get a few items (like some oats for muesli) and the shelves were nearly empty across a wide range of products. It makes no sense. Even if we are to be locked down, the Government has said shopping will be allowed. But in other sectors of the economy major impacts are being felt. All by band’s gigs in Melbourne have been cancelled and Virgin (who I fly with mostly) have cancelled all international flights until at least the end of June and many domestic flights. Life is changing dramatically. And this would be a great time to introduce a Job Guarantee for artists and musicians. Further, I report on some statistical events in West Africa that have far-reaching implications for how nations interact with multilateral agencies such as the IMF or the World Bank.
When the Remain vote lost the June 2016 Referendum there was a sense of denial. They had lost but only because of the ingrates that voted the Leave. And sooner, rather than later, those dolts would soon have the so-called Bregrets and another vote would be held and the Remainers would win. That sense of denial persisted past the 2017 General Election, which should have consolidated Jeremy Corbyn’s leadership, but didn’t. The biting sense of privilege that the Remain camp seemed to construct for itself slowly but surely ate into the Labour Party leadership, regularly feeding news stories to the press and social media about the impending doom facing the British economy (Project Fear), and pushing the myth (supported by all sorts of interpretable public polls) that a ‘peoples’ vote’ (I am not sure what they thought the Referendum was) was inevitable and would reverse the 2016 choice and restore equanimity. And the Labour leadership crumbled in the face of this onslaught from within and abandoned their previous commitments to their constituencies, which the majority of their elected MPs represented, and went along with this ‘peoples’ vote’ nonsense. The Tories, meanwhile, realised that the underlying sentiment that drove the Brexit choice was consolidating and pushed through a General Election which categorically demonstrated that the Labour Party were nowhere near the mark. That was a disastrous loss in any one’s estimation for Labour. But, still in denial, the apparatchiks in the Party, the hangers on, the wannabees, whatever you choose to call them are out there on social media now claiming that, in fact, despite the humiliating devastation at the December 15 polls, that the Labour Party’s agenda has been accepted as the norm – ‘we won the argument’ – and that they as good as won the election. And meanwhile, the leading contender for the leadership is suggesting they will campaign to be readmitted to the European Union. It is hard to make this sort of stuff up. A lost generation for Labour coming up unless it gets real.
Life as we knew it is changing fast, almost by the hour. Most of my speaking engagements, which were heavily booked for the foreseeable future, have been cancelled or deferred. All the gigs that my band was booked for have been cancelled until people start returning to the now, empty venues. And, more significantly, the ideologues are giving way to the pragmatists in the policy space. Almost (see below). The sudden realisation that even Germany will now spend large amounts to protect their economy exposes all the lies that have been used in the past (up until about yesterday) to stop governments doing what they should always do – maintain spending levels in the economy to sustain full employment and ensure no-one falls through the cracks and misses out on the material benefits of growth. In the early days of the GFC, I thought that the neoliberal era, supported by the mainstream macroeconomists, might be coming to an end. Maybe I was a decade out in my prediction. Perhaps this crisis, induced by a human sickness, will end the madness that has redistributed massive volumes of income to the top-end-of-town, sustained elevated levels of labour underutilisation and seen the traditional progressive political voices become mouthpieces and even agents for the neoliberal economic lies. I was wrong in 2008 on this score. I hope something good like this comes out of the current disaster. The coronavirus comes on top of already growing dissent over the failure of mainstream economic policy. It will redefine what governments can do with their obvious fiscal capacity and will demonstrate once-and-for-all the lies that the mainstream economists tell about deficits, inflation, interest rates, etc. It will categorically demonstrate the capacity of the currency-issuer. All that will lay the foundation for a better future, if we get beyond this current malaise.
Yesterday in my blog post – The coronavirus crisis – a particular type of shock – Part 1 (March 10, 2020) – I discussed some of the considerations that governments need to take into account when dealing with the economic damage that will result from the coronavirus crisis. I did not consider the health issues because I am unqualified to assess those other than to take into consideration what the health professionals are now saying as they gain more knowledge of the particular disease. In Part 2 today, I extend that discussion and outline some specific issues that bear on the size and design of any fiscal intervention.