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.
Australia is suffering the conjunction of a number of events in recent weeks which demonstrate the poverty of the neo-liberal approach that governments on both sides of the political fence have followed over the last three decades. Electricity prices are rising and the governments have bowed to pressure from the power companies to end the favourable feed-in tariffs that promoted the widespread adoption of solar power by households. Further, our climate change denying federal government has seized on recent power outages in South Australia to attack that state’s accelerated move to renewable energy. The federal government claims it validates its decision to back coal (and they are planning to provide $A1 billion to the Adani group to build transport infrastructure for a new coal development that will never be economic. The problem with the federal narrative is that in the extreme weather Australia is now enduring (very prolonged hot spells with major bush fires) the state with about the lowest renewable mix in its electricity also had to cut power late last week. Further investigation shows that the privatised electricity generating sector has been deliberately manipulating the supply of power (maintaining spare capacity) to exploit price spikes while the captive regulator turns off power to thousands of homes and businesses. Profits before public service – that is what privatisation has delivered. And then, we have to put up with a rising ‘star’ treasurer who thinks government infrastructure spending is unfair to future generations and more privatisation is required. It is best not to put all this together – it is not good for one’s equanimity.
Milton Friedman and his gang at Chicago, including the ‘boys’ that went back and put their ‘free market’ wrecking ball through Chile under the butcher Pinochet, have really left a mess of confusion and lies behind in the hallowed halls of the academy, which in the 1970s seeped out, like slime, into the central banks and the treasury departments of the world. The overall intent of the literature they developed was to force governments to abandon so-called fiscal activism (the discretionary use of government spending and taxation policy to fine-tune total spending so as to achieve full employment), and, instead, empower central banks to disregard mass unemployment and fight inflation first. Several strands of their work – the Monetarist claim that aggregate policy should be reduced to a focus on the central bank controlling the money supply to control inflation (the market would deliver the rest (high employment and economic growth, etc); the promotion of a ‘natural rate of unemployment’ such that governments who tried to reduce the unemployment rate would only accelerate inflation; and the so-called Permanent Income Hypothesis (households ignored short-term movements in income when determining consumption spending), and others – were woven together to form a anti-government phalanx. Later, absurd notions such as rational expectations and real business cycles were added to the litany of Monetarist myths, which indoctrinated graduate students (who became policy makers) even further in the cause. Over time, his damaging legacy has been eroded by researchers and empirical facts but like all tight Groupthink communities the inner sanctum remain faithful and so the research findings haven’t permeated into major shifts in the academy. It will come – but these paradigm shifts take time.
I guess the venality of the new US Presidency isn’t creating enough news for the Australian press. On January 29, 2017, the Fairfax press wheeled out the veritable debt scaremongering in this article – Scott Morrison to lift credit limit as Australia’s debt hurtles towards $500 billion – reporting that the Australian government “will be forced to lift its own self-imposed credit limit in the coming months as debt hurtles towards half-a-trillion dollars”. Instead of writing about how stupid and unnecessary this ‘self-imposed limit’ is, the journalist wanted to talk about the disaster that awaits us as the debt of the currency issuing government “hurtles” like some asteroid to its death towards half-a-trillion dollars. As I said, must have been a day that imagination in the journalistic world was lacking. The worst part of the story is not the idiocy of its logic or the fact that it links to an inane Australian Debt Clock homepage, but, rather, the reported response from the Labor Party Shadow Treasurer. The Labor party is meant to represent the workers and claims to be the progressive force in Australian politics. That ladies and gentlemen is the sick joke of all time. This is a party that has abandoned its traditional remit (to defend the well-being of workers) and instead spouts neo-liberal gibberish without knowing it.
Readers who have now seen the latest Ken Loach movie – I, Daniel Blake – will know the frustration that it depicts when a disadvantaged citizen is confronted with the reality of having to deal with a national welfare agency. Many readers, presumably, have first hand experience of the labyrinthic procedures, rude staff, endless waiting on telephone lines, threatening letters and the rest of the wall that neo-liberal governments have erected to discourage access and/or push people of welfare benefits. While this access and receipt became a right of citizenship in the social democracies that emerged after the Second World War, the neo-liberal era has degraded those rights in favour of a bean-counter interpretation of the world – welfare payments are dollars that can always be saved to balance fiscal accounts and every opportunity should be taken to do so. Australia is way ahead of the game in terms of using government policies and processes to punish and isolate our most disadvantaged citizens so the Government can reduce its welfare spending a few million. We now allow our Government to implement the work of sociopaths and threaten poor citizens with imprisonment on the basis of half-cocked ‘automatic computer-matching’ algorithms that are allegedly tracking welfare fraud. The evidence suggests these processes are massively buggy and deliver wrong outcomes in almost all the cases of fraud they claim to detect. However, that hasn’t stopped the government from sending out tens of thousands of letters to the most disadvantaged among us accusing these people of receiving thousands of dollars in illegitimate welfare payments and threatening criminal prosecution if these alleged overpayments (now debts) are not paid back. Mostly, it seems, the debts are illusory – mistakes by the ingenious (not!) algorithm that was introduced to replace people sacked by the austerity push – sorry, by the Government’s “efficiency dividend” policy. Some people should be prosecuted for breaching human rights in this latest scandal!
It is highly surreal listening to radio/TV commentators talking about government financial affairs (fiscal balance etc). These so-called experts are paraded before the nation and the script is generally the same. The interviewer who knows virtually nothing but has the key triggers on hand (‘budget repair’, ‘ratings downgrade’, etc ad nauseum) asks the ‘well respected expert’ about the state of affairs and the answers are always the same – fictional. This charade plays out almost daily but reaches a hysterical fever pitch at the time the Government releases its annual fiscal statement (May) or its Mid-Year Economic and Fiscal Outlook (December). The Government plays along with the charade releasing what it deems to be cleverly crafted documents, shifting revenue and spending across year lines to give one impression or another of the state of affairs. None of the charade is based on any fundamental economic understanding. None of it means anything other than a demonstration of a national scam to hide the truth from the ordinary citizen who for one reason or another relies on experts to summarise technical detail into meaningful sound bites. The nation then goes about its business in this cloud of ignorance, while the elites continue to suppress wages and living standards and march of with increasing shares of national income. They know what is going on and it is in their interests to keep the rest of us from having the same information. It is the same the world over. Well, here is what is going on with a framework that allows the reader to cut through the lies …