I have written about Australia’s fraught venture into establishing a national broadband network (the so-called NBN) to apparently take us into the next era of communications, although it seems the lifespan of what they eventually will build will be short, in the sense, that it will need massive new investment almost immediately to make it workable. The current conservative (neo-liberal) government came into office not long after the NBN, which was commissioned by the outgoing Labor government, was in its development phase. It immediately altered the design to fibre-to-node (so optic fibre goes to boxes in suburbs and the final route relies on the dysfunctional copper wire), from fibre-to-home to apparently make it quicker to implement and require less government outlay. The changes and the ‘business model’ the government has forced on the NBN Company (the public monopoly constructor and wholesaler) have created such a mess with respect to our network availability and speed that it really serves as an ideal case study for students seeking to understand how the neo-liberal ideology stifles national interest and innovation. The latest dynamics being revealed about this disaster are simply staggering. We have moved so far away from an understanding of public infrastructure as the Government engages in its ideological crusade against innovation and government spending. Amazing really how all of us can be so stupid to tolerate it.
The Commonwealth Fund, a New York-based research foundation that analyses health care systems, recently released an interested international comparison of the performance of such systems across a number of criteria (July 2017) – Mirror, Mirror 2017: International Comparison Reflects Flaws and Opportunities for Better U.S. Health Care. Health care is one of several policy areas where the debate descends into fiasco because the typical application of mainstream economics obscures a widespread understanding of how the monetary system operates and the opportunities that system provides a currency-issuing government. Once an understanding of Modern Monetary Theory (MMT) is achieved the choices available in health care policy become more obvious and better decision-making is likely. The Commonwealth Fund report provides useful information in this regard, although the MMT understanding has to come separately.
The 19 Member States of the Eurozone cover some 4,422,773 km2 of territory, much of that is densely populated. The geographic area of Australia covers 7,682,300 km2 and is mostly sparsely populated. The reason density matters is because it impacts on the resources that need to be expended to provide infrastructure across the geographic space. In the past month, the French people have elected a new President and a dramatically different National Assembly. In his election campaign, Emmanuel Macron spoke of being part of a major reform process for the dysfunctional Eurozone. To create some federal fiscal capacity including the idea of debt-mutualisation (issuing Euro-level debt) to match spending on public infrastructure etc, which could help to revitalise the stagnation that besets many regions across the currency union. In 2012, François Hollande was also elected on a reform ticket. The same day he was elected he visited Angela Merkel in Germany. The reform process ended before it started. He went away with no uncertainty about what the Germans would tolerate as masters of the union. Well within a short-time of being elected, Emmanuel Macron has also received his instructions from the Germans, this time in the guise of remarks made by Bundesbank boss Jens Weidmann. The orders are clear. Germany will never tolerate the creation of anything like a functioning federal fiscal capacity. End of story. Macron now knows the limits of his volition. What are the limits of being confined to a straitjacket?
There are many examples of high profile players in the political arena trying to revise history and reinvent themselves to suit the new climate they are operating in. Tony Blair is a notable example in recent months where he sought to influence the upcoming British election by casting aspersions on the current Labour Party leadership. His past record is so abysmal that anyone in their right mind would just go away and stay silent. But this sort of person – the revisionist reinventers – have a thick hide and a sense of entitlement that most of us couldn’t imagine. I read an article in the American Prospect Magazine last week (June 1, 2017) – The Democrats’ ‘Working-Class Problem’ – written by Stanley B. Greenberg, an American pollster who “works with center-left political parties in the United States and abroad” and so claims to have insights into why people vote the way they do. This was a classic example of being lectured about a problem when the lecturer is himself part of the problem but, seemingly, fails to see that.
There is a lot of talk among the economics journalists about the impending collapse of China, apparently drowning in mountains of unsustainable debt. Don’t hold your breath. The Chinese government fully understands its capacity as the monopoly issuer of its currency and demonstrated during the GFC how to effectively deploy that capacity. That doesn’t mean that the Chinese economy might record slower growth in the period ahead – but as Japan demonstrated in the 1990s after it experienced a massive property bubble burst – slower growth is not collapse. Appropriate use of fiscal policy can always prevent collapse if there is a will to do so. Further, Australia’s net foreign debt has risen significantly over the last few decades and now exceeds $A1 trillion. Most of it is non-government and the private banks have been at the forefront of the increase as they have been racking up loans from foreign wholesale funding markets. With China slowing, there is a possibility that the conditions for servicing these private loans may deteriorate. A chief of a credit rating agency (S&P) has been getting airplay in Australia the last few days claiming that this increased vulnerability arising from the foreign debt exposure requires the federal government to get into surplus as quickly as possible to provide it with the capacity to “absorb shocks” arising from a correction in the banking sector. His insights are nonsensical. Exactly the opposite is the case.
This will be my only commentary on last night’s fiscal statement (aka ‘the budget’) from the Australian Treasurer unless I make another one. There were few surprises and lots of tricks all aimed at presenting a government that has abandoned its extreme right-wing ‘hit the poor the most’ past (as in 2014 and 2015) and decided to quell the deficit and debt hysteria that the right-wing of its party had determined was the best way to win votes. The conservatives are still in office but now they just claim that “the government has to live within its means” and spreads the adjustment profile by which it claims it will force the government to do that over a longer time period (2020-21 the first fiscal surplus is projected). It is big on claims about infrastructure development but, in fact, it tricks the population into believing that cuts are increases. It talks about fairness but introduces compulsory drug and alcohol testing for income support recipients because apparently you “can’t go to work if you are smashed”. It also includes projections that are required to get the surplus projection which are simply unbelievable, which means the 2020-21 surplus is just a token. Even the Treasurer has stopped short of promising its realisation saying the figure is just a “projection”. The government is cutting spending on universities despite saying it wants Australia to be a clever country. And in making changes to secondary education funding in general it is squeezing into the natural territory of whining Labor Party opposition and giving them nowhere to go. That Party has become trapped by its own adherence to neo-liberalism and now just looks stupid. In summary, it still delivers contraction in the year ahead at a time when Australia is growing well below trend and domestic spending growth flat. In other words, to be a fair and responsible policy document it should have increased the deficit over the next few years to stimulate employment growth and bring down unemployment and underemployment.
Maybe the Australian Government should examine all its contracts with the biggest 121 companies in Australia and cancel them. Perhaps it should, where these companies provide public infrastructure consider setting up not-for-profit public companies to compete against the private 121 (thus lowering prices) and direct all public procurement to these new public institutions. The reason I suggest that is because the Business Council of Australia, which represents the largest companies in Australia (membership equals 121) is demanding the Australian government introduce rather sharp spending cuts or “suffer the consequences”. Okay, a good place to start, might therefore be to cut all public assistance to the companies that are members of the BCA, which would generate huge reductions in government spending. Do you think they would be so aggressive if that was on the table? Not a chance. This is a tawdry lot of corporatists who have had a long history of whingeing about government intervention unless, of course, it is helping grease the profits of their membership. Why the media has given their latest calls for fiscal rectitude the coverage it has reflects on the quality of our media these days.
In 2012, while unemployment and underemployment was still at elevated levels after rising in the early days of the GFC, non-government spending was weak, the external deficit was around 4 per cent of GDP, real GDP growth remained well below its trend in the 5 years before the GFC, and the economy was no-where near full employment, the then Treasurer, Wayne Swan launched into the largest fiscal shift away from deficit in recent history (in the modern era since 1970). He was obsessed with ‘getting the budget back into surplus’ in the following year because somehow he had gleaned from the work of John Maynard Keynes that a responsible government has to pay back deficits with surpluses. The Australian government’s deficit had risen because tax revenue had fallen as a result of the slowdown in activity and because the Government introduced a rather large fiscal stimulus, which saved Australia from going down the recession route that other nations were mired in. Maintaining that deficit or enlarging it with further stimulus is what a responsible government should have done. But Swan, apparently thought that with Europe heading further into the morass (as a result of mindless austerity) that he had to show the world what a good government does – run surpluses. Apparently, he thought the credit rating agencies would close the government down. Apparently, he thought inflation would runaway from its low levels. Apparently, he believed the lie that fiscal deficits pushed up interest rates. Apparently, he didn’t know that introducing fiscal contraction when non-government spending was weak would further slow the economy and damage confidence. All of which happened. Quite obviously he didn’t know a thing. Swan, ever the politician (but in opposition now) is apparently thinking differently – now he is claiming fiscal deficits have to rise to push the economy towards full employment. This chameleon-like performance is rather sickening given the damage he caused when he was actually the Treasurer in charge of fiscal policy and full of neo-liberal lies and confusion.
One of the defining features of the neo-liberal era has been the buildup of private debt, particularly household debt. The banks and policy makers all assured us that this was fine because wealth was being built with the debt until, of course, it came tumbling down for many as a result of the GFC. Recent commentary on Australia’s record household debt problem and the increasing number of Australian households that are now on the brink of insolvency and cannot pay their bills seems to think this is a new outcome – the result of record low interest rates as thew central bank (RBA) tries to curb the descent into recession. The fact is that the problem emerged in the 1980s as neo-liberalism took hold of the policy process. We have to understand that period to fully appreciate the household debt problem now.
On November 29, 2016, Mario Draghi, the President of the ECB wrote to Mr Jonás Fernández, a Spanish European Parliament member in reply to a request for clarification from the Chairman of the EP’s Committee on Economic and Monetary Affairs (ECON). The Letter discussed whether it would be legal under the Lisbon Treaty for the ECB to engage in direct monetary transfers to citizens bypassing the Member States and whether such a policy would be beneficial for economic growth. Several commentators have seized on the response from the ECB as saying that such a policy innovation would be both legal and beneficial. My view is that, in forming this conclusion, they have not fully understood the difference between a monetary and a fiscal operation. While I think the policy would produce positive results, in the sense that it would stimulate growth and employment and reduce unemployment, I also believe it would be illegal under the Treaty. Further, I don’t think it is a progressive position to argue that a group of unelected and unaccountable technocrats in the central bank should be in charge of economic policy. That should be the responsibility of the democratically-elected members of the government who are fully accountable every electoral cycle. The ECB should not become a fiscal agent. Rather, if the Eurozone elites cannot implement (which they cannot) a full federal treasury function then it should disband the monetary union in an orderly way.