There is regular commentary here that seeks to argue that Modern Monetary Theory (MMT) is flawed, bereft or worse because apparently it avoids any discussion of the natural environment. This apparently arises from the inherent conclusion in MMT that growth in aggregate demand (and real GDP) is required to maintain high levels of employment, which are considered both economically and socially desirable. This is the first part of a two-part blog on this topic. We will see that MMT is highly sympathetic to the challenges posed by anthropogenic global warming (a catch-all term) and central policy indications that follow from an understanding of MMT (for example, the superiority of employment buffer stocks) lead to an understanding of how MMT is a green paradigm as opposed to mainstream (neo-liberal) economics and much of Post Keynesian thinking, the latter which relies on generalised expansion as the solution to entrenched unemployment. We conclude that those who seek to dismiss MMT because it doesn’t satisfy their particular pet solution to climate change issues have probably not read some of the earlier MMT literature nor understood fully what is required to develop and disseminate a new way of thinking about the economy. Further, MMT is not a theory about everything! What we will see is that when MMT advocates economic growth it does so with a very different view of what that economic growth might be comprised of and driven.
Last year, Cyclone Yasi wiped out about 75 per cent of national banana production in Australia and drove the price of bananas up to around $A15 to $A17 per kilo depending on where you lived. They are usually less than $A3-5 per kilo. But all banana lovers complained about the imposition on their real standard of living even though Australians allocate only 10 per cent of their total expenditure to food and, obviously, much less to banana consumption. So imagine what it is like for the most disadvantaged citizens to see prices rise by 60-odd percent over 18 months on their basic food stuffs, especially when they allocate upwards of 60-70 per cent of their total expenditure to food, and they spend all their meagre income? Not a good outcome that is for sure. While the financial market excesses caused the crisis in the first place, and the policy folly of our governments is prolonging it, one of the worst features of the neo-liberal years of financial deregulation has been the speculation on food which has driven prices up dramatically, impoverished and starved millions. Food speculation is something I would ban as part of a new oversight of the financial markets aimed at restoring the real economy and ensuring economic activity worked to improve the human condition.
I haven’t much time free today to write (travelling). Over the last several months I have been asked by many readers to explain how banks and hedge funds manipulate commodity prices to their advantage. This has been a recurring theme over the last several years and these activities were a principle reason why inflation rates increased in the period leading up to the crisis. Major international organisations like World Development Movement have associated these speculative forays with rising starvation. Their The Great Hunger Lottery report shows how such speculation on food has impacted on the poor around the world. Hunger and starvation escalated between 2007 and 2008 with over 1 billion people considered chronically malnourished at the time they prepared the Report. The major players in creating this havoc are Goldman Sachs, Bank of America, Citibank, Deutsche Bank, HSBC, Morgan Stanley and JP Morgan. In my view, this speculation creates no widespread good and should be declared illegal. We should ban financial speculation on food prices.
The Australian government released the business plan for NBN Co today which outlines the “cost-benefit” case for creating a monopoly wholesaler of fibre-based broadband services in Australia and investing some $A27 billion in public funds to create the network. The business case has been the focus of much political debate over the last year or so and as usual most of the debate has been conducted on a spurious basis – that is, the assumption is that the budget outlays proposed represent a “cost” to government and that by committing funds to this project the government is less able to “afford” other projects – presumably because there is some “budget balance outcome” that it cannot deviate from. Neither proposition is valid. While this blog has an Australian flavour the general economic principles apply to all national governments contemplating large-scale public infrastructure developments. The general point is that the provision of public infrastructure does not have to earn commercial returns.
I quite liked Robin Hood on TV when I was young. After each episode, there were famous sword duals in backyards, with usually some oppressive older brother playing the role of the sheriff and the youngest least defenceless kids were “his men”. The rest of us were the outlaws and we hid in bushes and sharpened dangerous bits of wood and fired them from powerful home made bows at the oppressors. Mothers had first-aid kits constantly in use. Neighbourhood girls were usually attracted to the outlaws which was always a useful by-product that the sheriff and his “men” seemed to overlook, although most of the “men” were too young to gauge the significance of this. Yes, 1960s suburban Australia. Anyway, Robin is back in town but this time some do-gooders are invoking his name to solve the problems of the world. However, none of their “solutions” are viable and are based on faulty understandings of the way monetary systems operate.