There is now a procession of wannabee Modern Monetary Theory (MMT) critiques coming out of the woodwork all around the place seeking cover from the criticisms coming from the likes of Larry Summers, Paul Krugman, and Kenneth Rogoff, who are regularly referred to as “the world’s leading economic thinkers” or “Nobel Prize-winning economists” as if any of that established authority. These ‘Nobel Prize’ winners are not Nobel Prize winners at all – the economics prize is not part of the original Nobel gift and was instead invented by a bank because economists were feeling left out (inferior). But in recent days, across two jurisdictions, where the so-called party of the workers – the Labour Party in the UK and the Labor Party in Australia – are struggling to gain electoral traction, and in the Australian case, just lost an election against one of the worst governments we have ever had, we have seen two erroneous attacks on MMT that really sums up the existential crisis facing social democratic parties – the loss of identity and revolutionary zeal. This is Part 1 of a two-part series examining how ‘walk the plank that you erect yourself’ strategies play out within our so-called progressive social democratic parties and deliver abysmal results.
The Australian Bureau of Statistics released the latest March-quarter 2019 National Accounts data today (June 5, 2019) and the data shows that annual GDP growth of 1.8 per cent is around half the historical trend rate. This is a very poor on-going result. The weaker performance started in the last 6 months of 2018 and has continued into the first three months of 2019. However, due to a fairly strong terms of trade, Real net national disposable income rose, which signifies rising material living standards. Overall, the quarterly growth rate was just 0.4 per cent. The weakness is exemplified by slackness in private domestic demand – weakening household consumption growth and poor business investment growth. The rise in the saving ratio recorded in the December-quarter may signal that households are finally just accepting that their consumption growth will have to be more subdued as they struggle with poor income growth and record levels of debt. The large government infrastructure projects (State-level) and public consumption expenditure are driving growth. Net exports also contributed to growth on the back of the rising terms of trade. The overall picture is not good and the future is looking rather dim at present.
Some years ago, I was a panel speaker at an event in Sydney covering the topic of wage developments. I shared the podium with a young woman who was something like NSW Youth of the Year. It was at a time that employer groups were lobbying the conservative government to abandon penalty rates for workers in low-wage industries (hospitality, tourism, etc) and strip powers from trade unions. I spoke about how that agenda was designed to advance their class interests and fitted squarely with the neoliberal intent to redistribute real income away from workers towards profits. The young woman followed and announced that class was dead and that there was no such thing as a worker anymore – she said “we are all entrepreneurs now!”. Prior to that, as our national government was privatising our public companies such as Qantas and Telstra, our prime minister announced “we are all capitalists now” referring to the idiocy of people buying shares in the companies that we collectively ‘owned’ anyway while they were in public hands. The more recent manifestation of this delusion that class is dead and we are all entrepreneurs is the so-called ‘gig economy’. It seems that we now have millions of people (first young but increasingly older) who think that entrepreneurship is about buying a cheap scooter and tearing around streets delivering pizzas in all weather to earn a few dollars while the companies that ’employ’ them (or rather contract them) walk away with millions. These workers, sorry, entrepreneurs, face a bleak future. When there are no pizzas being ordered they have no shifts. When they are sick they have no pay. When they go on holidays they have no pay. And when they get old they will have no superannuation. Sounds like a plan to make someone rich.
On Thursday (May 30, 2019), Australia’s wage setting tribunal, the Fair Work Commission handed down its – Decision: Annual wage review – which saw the minimum wage rise by 3 per cent from July 1, 2019. The new minimum wage will be $740.80 per week or $19.49 per hour. Given that the annual inflation rate is running around 1.3 per cent (or thereabouts), the decision means that the real minimum wage is now higher than it was a year ago, which is a good sign. But over the last year, low-paid workers have had to endure cuts in pay rates for work during non-standard hours (so-called penalty rates), which Fair Work Australia made operational on July 1, 2017 and being phased in over a few years, with more pain to come. Given the conservatives won the federal election a few weeks ago, those penalty rate losses will not be restored. So the 3 per cent increase should be seen in that light. Our wage setting tribunal is giving with one hand and taking it back (and then some) with the other. The most sordid aspect of all this is that many employers demanded Fair Work Commission deliver real wage cuts in the annual review.
Here are the answers with discussion for this Weekend’s Quiz. The information provided should help you work out why you missed a question or three! If you haven’t already done the Quiz from yesterday then have a go at it before you read the answers. I hope this helps you develop an understanding of Modern Monetary Theory (MMT) and its application to macroeconomic thinking. Comments as usual welcome, especially if I have made an error.