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Australia – communists driving prosperity, while the neo-liberals squander it

The morning news headlines today (April 1, 2011) were all touting our Prime Minister’s tough talk last night while giving the Inaugural Gough Whitlam Oration. She outlined a plan to introduce harsh spending cuts in the upcoming May Federal Budget to preserve the strength of the economy. This is an economy that is barely growing and has 12.2 per cent of its available labour (at least) idle! Her speech was a frightening display of how far the public debate on macroeconomics has moved away from being based on an understanding of how things work to being driven by conservative fears about budget deficits based on a series of lies. Depressingly, which ever way one turns over here you have to conclude that the neo-liberals rule in Australia and seek to undermine our prosperity. At the same time, ironically, our prosperity is being saved by some communists .

The national broadcaster ABC this morning carried this segment in the AM program – PM foreshadows pain in this year’s budget.

I wondered whether it was an April Fool’s Joke.

The program presenter introduced the segment with this:

The Prime Minister has begun preparing the public for what she says will be a tough and painful budget.

In delivering the inaugural Gough Whitlam Oration in Sydney last night Julia Gillard cast her Government as one focused on creating opportunity. But she says some short-term pain in this year’s budget is needed.

For overseas readers, this week is rather special in Labor history. The NSW State Labor government which had ruled for 16 years was slaughtered in the State election last Saturday. They suffered the largest election loss in the history of the state and were nearly wiped off the map.

This is a party that in the 2003 election received 59.9 per cent of the two-party preferred vote (after preferences are distributed) in Sydney (48.5 per cent in Non-Sydney electorates) which fell to 55.3 per cent in 2007 for Sydney (46.1 per cent Non-Sydney) and in the 2011 election managed 37.9 per cent (Sydney) and 34.2 per cent (Non-Sydney). A dramatic collapse by any order.

They managed only 25 odd per cent of the primary vote down 13 per cent (a record swing). They previously ruled with 50 seats – now they have 20 seats. The electorate categorically rejected the party. There is of-course a lot of blood-letting going on with most people who might be implicated diving for cover to avoid scrutiny while deflecting blame onto others, who are also diving for cover. I guess we should feel good that these characters are all lying low at present.

The popular press version is that government was usurped by the party machine which maintained a system of patronage and corruption – forcing candidates into electorates that had served the machine in some way and this system of rewards only delivered mediocre candidates. We have seen a government minister sent to jail for having sex and issuing drugs to minors, and other ministers being photographed in situations that they probably should not have been, and an array of other demonstrations of incompetence and self-serving behaviour.

The popular claim is that the party machine made the government look stupid by rejecting the repeated attempts by the latter to privatise the publicly-owned electricity generation assets which then, according to the myth, caused the government to cut back on other services because they didn’t get the revenue from the privatisation. It is a nonsensical argument.

The reality is that while the party machine have not served anybody but themselves it has been the incompetence in delivering services and sustainable development that has been the primary cause of the voter backlash.

The State Labor Party – just like the federal Labor party is now infested with neo-liberals who think running budget surpluses is the epitomy of sound government. This has become a blind mantra and the pursuit of surpluses has led to a massive deterioration in the capacity of our governments to deliver even essential public services.

You might be surprised why the right-wing machine would oppose privatisation. Well it was a case of ideology giving way to self-interest – under the guise of the dominant electrical trades union considering their members’ jobs. The privatisation was not supportable anyway – it was another handover of state assets to a greedy private sector with brokers and lawyers also creaming off massive bonuses to faciliate a quick discounted sale (to avoid any embarrassment to the government of floating an asset and not being able to sell it).

In June 2004, I wrote a newspaper Op-Ed commenting on the State Budget that had just been delivered. Part of the text of that article said:

While I always applaud increased public infrastructure spending, especially on education and health, this Budget is more about ‘chickens coming home to roost’.

For several years the State Government has been drowning in property tax revenue but has failed to maintain and develop essential public infrastructure. The Treasurer has defended the Government’s reluctance to use their burgeoning coffers to fund infrastructure growth noting that debt retirement has saved around a billion dollars in interest payments. But he neglects to mention that debt retirement and interest savings destroy the wealth holdings and incomes of private savers.

The rundown of existing infrastructure is now revealing itself to be a myopic strategy – one that will cost more in the long-run than if there had been steady capital spending growth over the life of the Government.

The Government has now realised that its past penury is catching up with them and that another ‘train disaster’ will see them turfed out of Macquarie Street. The signs were there in the April mini-Budget, which attempted to address the unexpected shortfall in Federal tax redistribution and growing public unease about road and rail safety and the viability of our public education and health systems.

At last the government is realising that debt can be good a good thing – spreading the burden of public investment over the generations that will benefit from it. Education is a good example. Investment in public education underpins child and community development but as the government built their surpluses in recent years it allowed teachers’ pay and conditions to lag behind other occupations. In the recent teachers’ pay case the Government cried poor, claiming that it could only afford a pay rise if it raided other areas of the education budget. The hollow nature of these claims was revealed yesterday. The Budget readily met the teachers’ pay claim and then some.

….

There is good news in this Budget but it remains hard to feel good about a government that has ripped us off for years, run down essential public services to the point of collapse, until finally, as the political costs hit home, they are compelled to start doing what they should have been doing all along.

Two years later I wrote that the State government remained “driven by neo-liberal dogma” and “vehemently claimed that state borrowing was evil”. I documented (in another Op-Ed) that the State government’s obsession with budget surpluses had meant:

They wasted money on public private partnerships like the disastrous Cross City Tunnel, despite UK evidence showing that such partnerships are not cost-effective

The point is that while the party machine has not done the elected government any favours with all its self-serving machinations, the policies of the government have been disastrous – they thought that if they just kept saying they represented the workers and social justice then no-one would notice that they were adopting extreme neo-liberal policies which manifested as a sequence of budget surpluses.

But the early surpluses disguised what was going on – it was easy to reduce spending early by cutting capital expenditure. But eventually trains stop running on time, buses don’t turn up, hospital queues become intolerable, schools fall behind the technology edge, roads become rough and urban environments become unworkable. Traffic in Sydney now is appalling and people are leaving the city in search of better living conditions.

The same thing happened to Thatcher’s budget cuts in Britain. I was studying in the UK during this period (PhD) and after some years of cutting things started to go wrong. The waterways became infested with rats because they had cut the maintenance budget, and the inner city sewerage system in Manchester collapsed (again due to maintenance cuts).

What these idiot neo-liberals do not tell us is that in the long-run it actually “costs” more in public outlays to repair a degraded public infrastructure than it does to regularly maintain it. There are countless examples of this myopia in many countries.

The reality is that the NSW government “lost touch” with the electorate in such a major way because they stopped provided the services that we elected them take responsibility for. They embraced neo-liberalism which is an anti-public service paradigm. The scandals didn’t help. But the major factor was the deplorable decaying of public service delivery and the constant and mindless repetitition that budget surpluses were reinforcing our future prosperity.

The trouble was that when the future came – and railway bridges became unusable because they had cracks etc – the neo-liberal mantra sounded as hollow as it is. The problem is of-course that the popular debate – driven by a media that perpetuates the neo-liberal mantra – is not tying the ideological rhetoric in with the poor service delivery.

The popular conception is that the poor service delivery is a reflection of the personal incompetence of the government members rather than the prevailing ideology. That means that there will be little pressure brought to bear to alter the mindless pursuit of neo-liberalism.

Yesterday, the NSW State government members – now in Opposition – all 20 of them – elected a new leader. He was formerly Secretary of Unions NSW (the peak body) which allowed workers’ superannuation funds to be invested in public private partnerships, which not only ripped the state government off (overcharging etc) but undermined the jobs of union members. An exemplary practictioner of neo-liberalism.

So nothing much has been learned.

The situation is similar at the federal level with the Labor party hanging on … tenuously to office.

Reflecting, I recall some years ago I received a telephone call one Sunday from a senior member of the Federal Labor Party (who were then in Opposition) who was the shadow minister for one of the economic portfolios. He asked whether he could come to Newcastle that evening to consult with me about economic policy. He was apparently going to Brisbane and decided to drop in for the evening. I agreed to meet him. He had previously been a Minister in the Hawke and Keating governments.

It just turned out that my mate Warren Mosler was visiting me in Newcastle and so I invited him along to the meeting too. It was a surreal evening. The politician and his advisor praised the virtues of surpluses and said their polling was telling them that the public judged surpluses to be an index of good economic management.

I pointed out that the party had become captive of the polls and had lost the capacity to lead. I indicated that leadership was about opposing the neo-liberal steamtrain not going along with it. It was about educating the public. Blind stares were received.

They tried to argue that deficits caused higher interest rates (crowding out); higher inflation (quantity theory of money) and all the rest of it. They were hopelessly out of their depth in understanding macroeconomics.

I still recall him saying that while the government austerity platform was inflaming the “left” (of the party and more generally) the reality was (virtually verbatum) “that the left had no-where to go – that their votes would always come back to Labor via preferences even if they went initially to The Greens.” I said that eventually the left will learn to punish Labor for abandoning their core values.

The evidence is mounting that the progressives are no longer voting in a way that benefits Labor. In the State election last weekend, it appears that there was a willingness to vote conservative rather than Labor from people who had previously always voted Labor. The Greens did not gain much traction in the vote at all. Further, The Greens (another neo-liberal party if you consider their macroeconomic policy platform) are no longer necessarily exchanging preferences with Labor.

I suspect the same thing is happening at the federal level. The federal Labor Party was in a dominant position as government after the electorate had categorically rejected the conservative neo-liberal government in the 2007 election. The conservatives had run budget surpluses for 10 of their 11 years in office courtesy of the private sector consumption binge financed by the now record levels of household debt in Australia.

In the process they ran down public services and undermined the working conditions of the workers. Labor had such a strong mandate to really change things – which would have required using budget deficits to restore the damage to public health, education, infrastructure etc.

Instead, they fumbled this chance by taking a conservative line – notwithstanding their stimulus packages which helped stave of the recession. But before the economy even started to grow again they were touting their determination to get back into surplus by next year.

In the August 2010 federal election – they lost their majority and are governing only on the say-so of some conservative independents. On their current performance they are doomed to lose government in 2013. They simply cannot deliver the increase in quality of services that is required by running surpluses (or trying to).

Anyway, then we come to the Gough Whitlam address yesterday and the Prime Minister was “talking tough”.

By way of background, while the Labor Party considers Whitlam to be almost god-like these days the reality is contestable.

For overseas readers, the Australian Labor Party (ALP) began life as the political arm of the trade union movement during the 1891 strikes and was committed to democratic socialism. The Party supported an extensive welfare state and worker protections. It was committed to the nationalisation of the banks and major income redistribution. It was not a free-market party in any way.

Gough Whitlam came to power with this same social democratic ideal after the conservatives had previously been in power for 17 years. So he was a progressive Labor Prime Minister.

Whitlam’s team was inexperienced and they made some serious errors in policy implementation. He was also caught out by the OPEC oil shocks which combined with his expansionary fiscal policy led to an unprecedented inflation spike.

His government also ran afoul of the interests of capital and with the help of the CIA (Source) was toppled by the conservatives – his government lasting from December 1972 to November 1975. There is a reference to the CIA involvement in the conservative side of politics in Australia in the film – The Falcon and the Snowman

It should never be forgotten though that in his government’s last Budget speech (1975), the then Treasurer extolled the evils of budget deficits – claiming they were, in part, the cause of the high inflation of the day. The neo-liberal period in Australia really began with that budget speech.

Prior to that the Australian government clearly understood the need to run continuous budget deficits to ensure that there was full employment. Since 1975, the Australian economy has laboured under the fiscal drag of a sequence of governments intent on delivering surpluses.

Also since 1975, and not unrelated, the Australian economy has not returned to full employment – a state which prevailed from the end of WW2 to around 1974. Unemployment rose as the Labor government … then the conservatives (after 1975) started to hack into net public spending because they thought this would be an appropriate way of dealing with a supply-side inflation shock (from the oil price hikes).

It was never an appropriate response but morphed into serving the neo-liberals very well.

Interestingly, the Labor governments since that time (Hawke-Keating then Rudd and now Gillard) became increaseing to the right of the conservatives that ruled for so long in the post-WWII period – which is a statement in itself.

Whitlam, by the way abandoned the commitment to nationalisation even though in several countries now the capitalist system has demonstrated that socialist ownership is the only way to ensure financial stability – for example, the increasing proportion of state owned banks (viz the news about Ireland overnight).

His was a government that became increasingly full of university educated Labor careerists rather than politicians who had worked their way up through the trade union movement. That changing demographic is highly significant in the way the Labor party has deteriorated and embraced anti-worker, neo-liberal policies.

It is in no small way accountable for the demolition of the NSW State Labor government last Saturday. There has been a dramatic disconnect between what they talk about – the “grand labour values of equality, inclusion, opportunity etc” – and what they do – deregulate, entrench unemployment and oversee increasing inequality.

From the transcript of the Prime Minister’s speech last night you will read some extraordinary statements.

After extolling the virtues of Gough Whitlam as some sort of hero, she cast her mind over the demolition at the NSW state election last weekend and claimed that Labor had to know what it stood for.

Someone does anyway!

She attempted to define the mission of the Labor Party:

The historic mission of our political party is to ensure the fair distribution of opportunity. From the moment of our inception our mission has been to enable the son of the labourer, the daughter of the cleaner, to have access to same the opportunities in life as the son of the millionaire, the daughter of the lawyer.

Creating opportunity and enabling social mobility has required different policies in every age. We have moved beyond the days of big government and big welfare, to opportunity through education and inclusion through participation.

Well if you assess their performance in government in the last 25 years – first Hawke-Keating (1983–1996) then Rudd (2007-2010) and now Gillard (2010-) you would not conclude that the Labor Party had delivered anything like a “fair distribution of opportunity”. During the 1980s and 1990s they maintained high levels of unemployment and adopted the OECD labour market mentality of “activism”.

They introduced an incomes policy that began the process of (mass) redistribution of income away from wages to profits, claiming that this would increase employment. Implicit, was the view that the unemployment was a wages problem rather than being a deficiency of demand.

By the 1990s they had embraced the activism agenda which suggests that unemployment arises as a result of deficiencies in the supply – poor attitudes by workers to work; poor skill development; excessively generous welfare payments etc.

This neo-liberal denial that mass unemployment can only be a systemic failure to produce enough jobs as a result of deficiencies in overall spending was refined in Australia by none other than the Labor Party.

Please read my blog – What causes mass unemployment? – for more discussion on this point.

So if you are disadvantaged in Australia, don’t expect the policy regime implemented by the current Labor government to help much.

She also took aim at The Greens saying they were:

… a party of protest with no tradition of striking the balance required to deliver major reform … [and that] … The Greens wrongly reject the moral imperative to a strong economy … And the Greens will never embrace Labor’s delight at sharing the values of every day Australians, in our cities, suburbs, towns and bush, who day after day do the right thing, leading purposeful and dignified lives, driven by love of family and nation.

While this political distancing from The Greens is understandable – given the left is migrating their primary votes to The Greens in droves (at the federal level) – I found the comment curious.

The reference to “the moral imperative to a strong economy” is particularly telling. I will come back to that.

But it is clear that the PM hasn’t understood the macroeconomic policy platform of The Greens? You will find that it encompasses all of the neo-liberal nonsense that has also captured the Labor Party. Both want budget surpluses!

Please read my blog – Neo-liberals invade The Greens! – for more discussion on this point.

The Prime Minister then raised the mining boom narrative that is now dominating public policy debates. She said:

After difficult years for the economy, we are facing a huge boom – the biggest mining boom in 150 years.

Since 2004, mining investment has increased five fold … Or to take a more domestic analogy, five years ago the money earned from exporting 10,000 tonnes of iron ore would buy about 280 dishwashers. Today it would buy you around 1400 dishwashers.

On any measure, we are living through a boom and that boom is a good thing.

The untrained will just think “a good thing”. But the facts are different.

First, the Australian economy is not growing strongly enough to quickly absorb the pools of idle labour (currently conservatively measured to be around 12.2 per cent). We are not “living through a boom” in the broader sense.

Only a few regions are booming while the majority of the nation is just keeping its growth above the zero line.

Second, despite record commodity prices and this “five fold” mining investment, the contribution of net exports to real GDP growth unambiguously
(as measured by the National Accounts) remains negative. Why try to say otherwise? We are not getting a huge growth dividend from the “mining boom”.

Relatedly, the “mining boom” did not save us from recession in the recent crisis despite the lies the mining lobby pushes out. The government fiscal stimulus was the only thing that saved us. The Mining industry contracted!

Third, it is true that our terms of trade (export prices compared to import prices) are at very favourable levels courtesy of Communist China, which is an irony in itself.

That does mean we can now buy more real goods and services for a given export load. But if we are buying the extra dishwashers from abroad that is a negative for growth although a benefit for consumers.

Yes, it is clear the mining sector is in a strong position but to say it is leading growth and leaving no room for public deficits is an outright lie.

Finally, China, which has been driving the commodity price rises that are in our favour, is now slowing as a deliberate strategy to reduce inflationary pressures. We will feel the negative effects of that strategy if it is successful.

But the “mining boom” narrative is just the entree into establishing the Government’s neo-liberal aspirations – which they think is the way of proving that they are responsible.

She said that the “challenge for the country and for the economy is to manage that boom well … preventing inflationary pressures from running out of control”.

Bear in mind that core inflation has been declining in Australia!

But undaunted by facts, the PM said:

We all know that strong economies risk inflationary pressures and that’s why we have to make the right decisions and not take risks with people’s cost of living.

In other words, good economic management isn’t just good for the economy – it’s good for the family budget as well.

We will keep a tight rein on spending to return the Budget to surplus and keep our economy strong.

That’s responsible economic management.

Yes, a fully employed economy runs up against the inflation barrier. You can get price pressures from the supply-side (for example, energy price hikes via cartels) but you do not use aggregate demand management to deal with those.

But the Australian economy is no where near being a strong economy on the precipice of an demand-pull inflationary outbreak. We have nearly 2 million workers without enough work!

I agree that “good economic management” is essential for a good economy but keeping “a tight rein on spending to return the Budget to surplus” to keep “our economy strong” is only sensible if the external sector is adding enough to growth to ensure that the private domestic sector’s saving desires are being realised and aggregate demand is not compromised and the economy is at full capacity.

None of those conditions are remotely being met at present or in the foreseeable future. So attempting to drain demand now by cutting net public spending is the hallmark of poor economic management.

The PM claimed that the upcoming May budget “will be about making the right decisions for the country; the right decisions for families and the right decisions for jobs” and that she would “never risk the economy and people’s jobs for the soft political option of putting off hard decisions to next time” but fails to realise that the budget deficit has been driving real GDP growth and protecting jobs.

The hard decision – the hard political option – would actually be arguing against the neo-liberal obsession with surpluses and explaining to the Australian people that budget deficits at this time in history are essential for the well-being of families and the creation of jobs.

She should take the leadership position and explain that surpluses undermine growth and take purchasing power out of the hands of families and destroy it forever. She should say that if private spending is weak and the external sector is making a negative contribution to growth (as is the case now), then deficits are necessary.

Instead, the Labor Government continues to wallow in neo-liberalism and will steadily destroy its voter support. The August 2010 federal election saw that support diminish significantly, last Saturday’s NSW election disaster saw it collapse. This follows losses in Western Australia and Victoria.

We are facing wall to wall conservative governments as each electoral cycle is completed and the Labor Party can only blame themselves for trying to ape the conservative line. People want services not surpluses.

The PM, however, is so infused with the neo-liberal mantra, that I do not predict much will change. She is overseeing the destruction of the glorious Labor political tradition.

You read this (from her speech):

I believe a Budget surplus is a key sign of a strong economy.

It means we are prepared when the country’s luck turns, and we are hit with a crisis like the GFC.

And it means we are prepared when individuals’ luck turns as well – because we have a strong social safety net.

So we face a choice.

We can take these tough decisions now to bring the budget back to surplus – or we can put them off to the nevernever, which will just make these decisions harder and these cuts more severe when the time comes.

It’s like looking after your health – you can see a GP today – or you can put it off, and be forced into emergency surgery down the track.

A fiscal blowout 10 years down the track would mean radical cuts to key social services – like public education, universal health care, and pensions.

Around the world, we see Governments facing huge structural deficits which are forced to slash education funding, public services and entitlements.

Together, we can take the tough decisions to deliver a Budget surplus in 2012-13 and keep the economy strong.

And you realise how far the Party has moved from its origins and how it will be virtually impossible for them to recover and reflect the values that made them a viable political force.

The analogy she uses is mind-blowing. Apparently, budget deficits represent a “sickness” that if not treated will require “emergency surgery down the track”. Who is writing this rubbish for her?

Which ignorant person is advising her to say this? (I know by the way!).

Further, she appears to be accepting that the “huge structural deficits” abroad have “forced” governments “to slash education funding, public services and entitlements”.

There is a debate we could have about the composition of the deficits in many countries – structural versus cyclical. The structural measures put out by the OECD and the IMF etc are always biased upwards. Please read my blog – Structural deficits and automatic stabilisers – for more discussion on this point.

But it is beside the point. The structural deficits in most nations are way to small given the persistently high labour underutilisation and stagnant growth rates that these nations are enduring.

Nothing other than politics has “forced” these nations to savage public funding. Nothing other than mis-guided and dangerous neo-liberal austerity merchants who lie to get their way.

Please read my article in The Nation – Beyond Austerity – for more discussion on this point.

I might also have discussed the current furore about labour market policy – where the conservative Opposition are claiming they will get tough on “dole bludgers” and the Labor Government is really saying they will be tougher.

But the point is made!

Conclusion

While the Prime Minister claims that savaging public expenditure to pursue surpluses has:

… a strong progressive logic to this approach.

… anyone who understands the way the monetary system operates will know what a lie that statement is.

It is tragic that the grand traditions of the political arm of the trade union movement is being squandered by these careerists who are so uneducated about the monetary system and think that being neo-liberal is somehow chic.

Tell that to the millions of people they are deliberately rendering jobless!

Saturday Quiz

Yes, the Saturday Quiz will be back tomorrow sometime.

That is enough for today!

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    This Post Has 46 Comments
    1. I’ve always wondered whether the combination of the end of the Bretton Woods (1971) and the OPEC crisis contributed significantly to the downfall of the Whitlam government. As those two things basically make the economics of the day defunct.

    2. For the vast majority of people (including professional economists) who don’t understand monetary systems, the troubles of the Euro zone peripheral countries are a compelling proof that government debt is dangerous. That is presumably what the “Around the world, we see Governments…forced to slash…” remark is alluding to.

    3. What amazes me is the endurance of the idea that always pursuing surpluses is a good idea. 36 years and it seems to have never occurred to the ALP to check that bulb on the Christmas tree lights

    4. The vast majority of the population believes the Government is being irresponsible running a deficit. It’s politically easier to let them believe that and go along with them.

      Any MMTer who has been at the frontline slugging it out in the forums knows how difficult it is to overcome this entrenched view. Now I know the truth, my conscience tells me to keep going. God knows, I’m fed up of cracking my head against a wall. The people for whom I wish to improve the quality life, do not generally appreciate my efforts.

      How the political elites and the party think tanks must laugh at our naivety. Fresh from their Political Sciences Degrees, they sip sauv’ blanc and scoff.

    5. Anyway, I’ve been needing a way to explain to ordinary people the difference between Keynesianism and MMT, because the prevailing thought (Krugman obviously included) is that Monetarism and Keynesianism are night and day, black and white. This of course doesn’t leave much of any room for anything else. I realized to make my distinction, I had first to correct this misconception regarding the Monetarists and the Keynesians in a way that left room for MMT. So here goes.

      The Monetarists believe that sex is dirty, and so they don’t do it. The Keynesians also believe that sex is dirty, but they do it anyways. … I’ll let you fill in the blanks on how MMT fits in from there, but I’m thinking people just may get it if I phrase it like that. No?

    6. The Greens, if given free rein, will probably be able to generate a surplus entirely from Pigovian taxes, and therefore gain the macroeconomic benefits of a deficit even while running a “surplus” in accounting terms.

      Which is in some ways unfortunate as it will probably reinforce the “surpluses are good” nonsense. But on the other hand, it will cause a massive improvement in Australian quality of life and the economy as a side effect.

    7. You know what? I’m going to make the radical suggestion that it’s possible to temporarily run a government surplus while having full employment *provided you take the money from the right people*. Suppose you seize (tax) the money from those with no propensity to spend it on anything useful — the superrich — and transfer 90% of it to the poor. You just created a government “surplus”, but you also substantially boosted the economy.

      Yes, you reduced “private savings”. But you reduced it by reducing the savings of the richest. This can be done repeatedly; the poor will pay off debts (enriching the richest again), so you can proceed to tax that away again. Only once you have reached a situation much nearer to wealth equality than the US has does it become necessary to run deficits in order to keep employment and the economy up. Until then, reducing private savings is *fine* as long as you’re reducing the savings of the *right people*.

      Of course, none of the “budget cut” nutters are thinking THIS, because this would call for no budget cuts, and instead for confiscatory taxes on the very rich. Which have proven historically to have nothing but good economic effects. I hope MMTers incorporate this in their analysis, because it’s very important, not least because the wealth held by the very rich allows them to campaign against good government policy, right up to and including paying to corrupt economics departments (a particular practice of the Olin Foundation).

    8. in several countries now the capitalist system has demonstrated that socialist ownership is the only way to ensure financial stability

      there is nothing more stable than a socialist country.
      look at cuba. same governemt and same standard of living as 50 years ago.

    9. Nathanael,

      You are on the right track. After WW2 taxes on the rich were much higher than today, the halcyon days of the 50’s and 60’s were predicated on a solid platform of progressive taxation. That was in the Gold Standard era too.

      Progressive do need a dual pronged attack. Higher tax on the wealthy and Government spending to improve social outcomes at the low end. Mustn’t say so out loud. It’s a little thing called socialism which attracts a lot of angry press these days.

    10. Mammoth,

      Don’t trivialize the thread with comments on Cuba. Why don’t throw in Zimbabwe and Weimar Germany while you are about it.

      We might suspect another straw man attack ;)

    11. Saul Eslake, another Australian economist wrote this week that the Australian tax system punishes work and saving and rewards borrowing.
      So Australia has moved along way from the ideal of a workers paradise [under southern skies – or was that Peron’s Argentina]

      Saul’s article is at “http://www.smh.com.au/business/imagine-a-tax-system-that-penalised-work-20110329-1ceqb.html”

    12. MamMoth,

      The life expectancy of Cubans is very similar to that of North Americans. (Some studies even put the Cubans on top).

      However, Cubans only spend 4% per capita of what United States citizens do on healthcare.

      Hence, with low health costs and life expectance amounfg the top 30 countries in the world I’d be less worried about Cuba and more worried about the USA.

    13. Andrew, I was just giving an example of how stable a socialist country can be.

      Chavez is a very good friend both of Castro and Mugabe.
      (Don’t know how to bring Weimar Germany into the conversation though…)

      Alan, you are right. And they have prostitutes with college degrees too, wonderful!
      I do wonder why would anyone want to live longer in a country with no freedom,
      not even the freedom to leave such paradise…

    14. No Mammoth you are trying to discredit all tenets of Socialism by citing an example of an embargoed, non-democratic, authoritarian state with an extreme version of a centrally planned economy.

      We can equally discredit capitalism by citing wonderful shining examples such as Myanmar, Mexico and Panama. Pointless exercise.

    15. Whilst on this topic the capitalist model deployed by authoritarian regime in Egypt is collapsing because it is corrupt and fails to provide equitable economic outcomes for the members of it’s society.

      There are a few archaic wooly brained creatures that need their thick skulls cracked against a rock.

    16. Myanmar capitalist? Egypt capitalist? You must be kidding…

      There are a few archaic wooly brained creatures that need their thick skulls cracked against a rock.

      Agreed.

    17. From my personal interactions with Labor party members I’ve noticed that even self-described leftists and members of the left faction claim that budget surpluses always good and that workers need to be ‘reeducated’ and the labour market needs more supply-side measures. Most of the ideas about the macroeconomics stem from some type of IS/LM model. The ironic thing is when I have mentioned the MMT job guarantee proposal I have been labeled and dismissed as a “right winger” who wants to control workers.

    18. Ok…. so Myanmar was a poor choice, but Egypts problem stem from the transition from Socialism to free market economy.

      From Wikipedia “Since the turn of the new millennium, The pace of structural reforms, including fiscal, monetary policies, privatization and new business legislations, helped Egypt to move towards a more market-oriented economy and prompted increased foreign investment. The reforms and policies have strengthened macroeconomic annual growth results which averaged 5% annually but the government largely failed to equitably share the wealth and the benefits of growth have failed to trickle down to improve economic conditions for the broader population, especially with the growing problem of unemployment and underemployment among youth under the age of 30 years.”

      The point is an ordered society needs a good balance between the private and public sectors. It is vacuous in the extreme to point at the extremes to discredit a shift in balance.

    19. There is a huge difference between a public sector and socialist ownership. I know no society without a public sector. But who can tell what a good balance between the private and public sector is?

      Egypt’s problem seems to be that they didn’t realize how poor they were under socialism. Transition from socialism to a free market economy will always be painful especially given the amount of corruption created by socialist bureaucracies.

    20. Socialism is such a broad school of thought and there are so many variants you really can’t make general statements.

      Generally Socialism advocates public ownership of economic production. Historically, full public ownership has not worked well. However there are some aspects of production that are better served by public ownership. Especially where private ownership has degenerated into monopolies, oligopolies or organized crime. The choice of public or private ownership should be measured on case by case basis. The deciding factor is the utility to society.

    21. @MamMoTh:

      “Look at Cuba. Same government and same standard of living as 50 years ago.”

      I will not defend the political regime of Cuba but if you want to argue against the economic performance of that country, you’re doing it, in my opinion, the wrong way. The right way would be to question whether and to what extent the sacrifice of political liberties, as enjoyed in western democracies, has been worth the advances in the standard of living of its people. Was dictatorship the only way forward?

      Because, forward is how the Cuban people have moved, in general, without a doubt. The standard of living of the Cuban people has jumped forward, in comparison to the Batista regime, in the first two decades of the “revolutionary” regime. It has remained stable or declined, afterwards, very roughly speaking.

      “…Egypt…socialism…”

      Not even science fiction writers would dare denote Egypt as “socialist”. It’s been typically kleptocratic – and kleptocrats don’t have much time for genuine democracy. Look at Mexico & PRI: a century of democratic “stability”.

    22. It’s really amazing how homogeneous the budget debate is across all the Anglo-American countries. In the UK, the US, and even Canada the Right has argued for austerity (after an inital round of stimulus, the Conservatives are planning some pretty deep cuts – a few cuts to inner-city programs targeted at the poor have been experienced in my city of Winnipeg) and the left aping the right. I really don’t get how all these corporate propogandists can blame “excessive spending” for budget deficits that first appeared or expanded in 2008 without people realizing “WAIT A MINUTE, aren’t all countries experiencing those”.

    23. Mammoth,

      MTT is obviously not for you so if you haven’t already read them might I suggest:

      Murray Rothbard – “Man, Economy, and State”.

      F.A Hayek – “The Road to Serfdom”

      L, Von Mises – “Theory and History” (An Interpretation of Social and Economic Evolution)

      Cheers, Alan

    24. Andrew, Vassilis: agreed

      Alan:
      It’s not up to you to decide whether MMT is for me or not.
      Let me remind you that MMT is compatible with a big or a small governement.
      Great books by the way.

    25. not even the freedom to leave such paradise The Cuban government is not presently the bottleneck for emigration to the US- the US refusal to grant visas to Cubans is. The US has the “wet foot, dry foot” policy whereby uniquely Cubans who cross on backyard built boats get automatic citizenship and benefits if they make it to the beach. It’s all for theatrical purposes.

      Alan puts the finger on one important point, the higher life expectancy of Cubans compared to Americans and the lower cost of care. That is why the embargo/blockade will remain. If it were lifted, the Cuban economy would immediately grow explosively. There would be dozens of jumbo jets weekly, maybe daily, of medical tourists arriving from the US.

    26. That is why the embargo/blockade will remain. If it were lifted, the Cuban economy would immediately grow explosively. There would be dozens of jumbo jets weekly, maybe daily, of medical tourists arriving from the US.

      You really think so? If people were allowed to leave, on their way to Cuba medical tourists will cross planes full of cuban doctors looking for a better life, probably in the US. Health costs are kept low in Cuba because doctors are paid peanuts, although more peanuts than the rest of the population, enough to keep them quiet.

      You should always remember in which direction people ran when the Berlin Wall fell.

    27. Why would they leave home if their & everyone else’s life suddenly started getting better because of a huge inflow of new customers with dollars? Cuba is next to Florida, filled with sick old people. Cuba is poor, so it works hard to have an efficient health care system, keeping costs low. The US is rich, so it works hard to have the world’s worst, most inefficient health care system, keeping costs high. Efficient, effective nationalized medicine would have long-term political & macroeconomic effects that the plutocracy does not want.

    28. In my view, as a comparative constitutional lawyer, you cannot trust representative democracy to ensure the efficient provision of public utilities and infrastructure. Only direct democracy – through citizen initiated referenda (CIR) and decentralised government – can provide the necessary mechanisms to ensure state-of-the-art transport, roads, and a high quality of life. All parts of Switzerland have CIR, Germany (all the German states have it), and the more well-developed US states and cities (like Boston) use CIR. The cities of Bern, Zurich, Geneva, Hamburg, Dusseldorf, Munich are the most liveable cities in the world because people ensure roads remain up to high standards, as do trams, rail through direct-democracy (although in German cities spending toooo much on infrastructure). Nearly two-third of initiatives are on road, rail, or transport. Austria and Finland, to various degrees, have other mechanisms of direct-democracy.

      Recently, Uruguay – without doubt the most progressive and advance country in Latin America (e.g. it has legalised gay adoption, every child has FREE internet access etc) adopted CIR. They have increased pensions (the government went all neoliberal and started cutting spending on welfare, but the people overruled them), they overruled the privisation of the oil companies there (the people reserved it, adopting the Norwegian approach) and common water rights in the Constitution. http://www.dd-la.ch/download/Case04_Uruguay.pdf

      The fact such a system can be exported to third world countries with such success speaks highly of the system in my opinion.

    29. NB: “although in German cities spending toooo much on infrastructure” (note that is not my view, but critics claim so)

    30. In Cuba there are substantially less persons per doctor than there are in the USA.

      As a result Cubans have far better access to General Practioners than their USA counterparts.

      Skipping all the detail the result suggests that beyond basic antibiotics most of the so called wonder drugs benefit the people selling them more than they do society.

      Therefore if Americans were given better access to General Practitioners rather than access to pharmaceuticals – they would be a lot better off.

      The pursuit of all these wonder drugs by Pharmaceutical companies is, in a lot of cases, if not the majority – a complete misallocation of resources.

      Cheers.

    31. Mammoth,

      I agree with you.

      There is no doubt that if the doctors in Cuba were allowwed to leave that they would probably head to the USA or anywhere in fact that paid them a better wage.

      However, in Cuba if you want to be a doctor and have the capacity to do so then you can become a doctor.

      In most so called developed countries that is not the case because medical associations lobby governments to limit the number of positions available, and the costs of attending medical school are often out of many peoples reach.

      If these Cuban doctors were actually living in the USA then the majority of them would never have been given the opportunity to become doctors in the first place.

      Therefore, Castro is protecting his investment in a manner which is really no different than the patents and so on used by pharmaceutical companies to protect their investment.

      I’d like to think that oneday we all get to a place somewhere between the two examples.

    32. Nathanial “t’s possible to temporarily run a government surplus while having full employment *provided you take the money from the right people*. Suppose you seize (tax) the money from those with no propensity to spend it on anything useful — the superrich — and transfer 90% of it to the poor. You just created a government “surplus”, but you also substantially boosted the economy.”

      I’ve been wittering on about this too saying that if tax was in the form of a tax on asset values and spending as a citizens’ dividend, then that would be the case. MMTers seem very uncomfortable with that notion but I have yet to hear a refutation that I’ve understood. To my mind the major shift such a set up would cause to the global economy would be increasing prosperity in developing countries. A set up such as you propose would halt asset price inflation in the developed world. That would lead to the wealthy elite of developing countries no longer investing in assets in the developed world (eg Mubarak’s billions in London etc) and so developed world currencies would be much weaker than they currently are. So manufacturing would return to UK and USA and people picking tea in Kenya would be just as able to aford petrol or health care as people advertising tea, working in London.

    33. Before the civil war in Sri Lanka, Sri Lanka also had an excelent health care system at a cost similar to that in Cuba but without emigration controls. The Sri Lankan child mortality rate was better than that in some districts in the USA. I asked a Sri Lankan doctor about it and he said the system was based on the pride and self respect people gained from working in that system.

      Also I don’t know whether the Cuban system is a match of that of Americans with full health insurance. Some of the good health of the Cubans is down to a lack of “western lifestyle disease” eg obesity, lack of exersize etc etc. That means that a functional but primitive system can compete with a state of the art (for those who can aford it) US system. The USA for instance has an extremely high incidence of cancer. Even world class cancer survival rates are undermined by the increased incidence that comes from lifestyle issues.

    34. Spadj, in Uruguay, under the new adoption law gay couples can adopt, but there are now less adoptions than before. Children attending public schools get one of Negroponte’s toys, but don’t have internet access at home everywhere. At the same time, people still don’t have access to cable internet because of to the monopoly of the national telecommunications company, and have the most expensive gasoline and electricity of the continent. National companies have 2 to 4 more employees per client than their private counterpart according to the World Bank (another neoliberal lie?). The current president, a former guerrilla leader who was very active in the opposition to the partial privatization of public companies in the early 90’s (people still believe it was total privatization) is now urging his government to approve a Public Private Partnership law. I could go on but I guess that’s enough…

      Progressiveness is in the eye of the beholder.

    35. stone, Nathaniel, please read Michael Hudson on taxing away economic rent and leaving productive investment alone.

    36. stone, you haven’t just been wittering on about how, if only you were able pass massively progressive taxes like land tax, a budget surplus could be both progressive and consistent with economic growth. If you had stuck to this hypothetical point, then I doubt any MMTer would have been at all “uncomfortable”. What you have in fact been saying is that budget deficits _necessarily_ perpetuate income inequality, and that MMT is therefore inherently flawed.

      Most MMTers would prefer to strive to live in the real world. There are progressive programmes being cut by the Coalition in the UK, and they are getting inadequate pushback from Labour and the media – even amongst those who favour the programmes – because everyone thinks govt = household. This sort of thing is the immediate issue to address.

      Good luck to you as you continue to campaign for more asset-based taxation (I will always vote in favour of such measures) but it’s clear elites will never allow such ideas to catch on. MMT is actually making some (admittedly very slow) progress in getting its ideas out – in spite of the efforts of misguided progressives like you who try and discredit it.

    37. Tom – I think Michael Hudson’s ideas are strictly Georgist, ie taxing economic rent associated with land (in the broadest sense of natural resources).

      I don’t believe Hudson or Henry George would have favoured a special tax on the economic rent associated with sports stars, for example.

    38. Anders, Michael Hudson distinguishes himself from George and the Geogists in the strongest terms. He recommends taxing away all economic rent — land rent, monopoly rent and financial rent — while not taxing economic contribution. He does agree that land rent is the biggie in that historically land rent has accounted for most of the wealth transfer to the top.

    39. @ MamMoTh

      On the gay adoption matter Uruguay is still better than Australia or most other European countries where the right simply does NOT exist at all (so “lower” amounts is better than “NO” amount – even though I’d like to see the adoption figures). In any event, the fact “there are now less adoptions than before” could be due to a raft of respectable reasons (adoptions elsewhere, review of the quality of the people adopting etc), but the key point stands: something is better than nothing. It is more progressive than countries in the region, or indeed elsewhere in the world.

      “people still don’t have access to cable internet because of to the monopoly of the national telecommunications company, and have the most expensive gasoline and electricity of the continent”

      Comparatively speaking, that is, compared to other countries in the region it has done well. You note “people still don’t have access to cable internet because of to the monopoly of the national telecommunications company” but even compared to other countries in the region they are doing reasonably are Western countries – even Switzerland – where only 80% of the population use internet – and the “access” as I said depends on other variables (location, just like there is issues in the bush here in Australia), but I observe: cyber cafes are very common throughout the whole country, and very inexpensive (from about U$S 0.4 an hour) and the country has about 1 million internet users in households with a population of 3 million – slightly less than two thirds of which are adults. So well over half of the population use the internet privately, most use it publically, while there are over 3 004 323 mobile cellulars phones. True, a few years ago ADSL was not available to everyone, but as of November 2007, wireless is available in *every* neighborhood in Montevideo, and in most other cities (where most of the population live). So I don’t see the horror story of state-ownership you are painting(even though some competition does exist with ISP providers).

      “have the most expensive gasoline and electricity of the continent”

      Well, yes because it is IMPORTED as well as a dramatic shift to a policy of renewables (hydro, solar, biomass), and wide-spread drilling really began in 2009 as it provides state “revenue” (ANCAP launched the Uruguay’s first offshore licensing round, due for completion June 2009. It offered 11 blocks for oil and gas exploration covering areas ranging from 4,000 to 8,000 square kilometres (1,500 to 3,100 sq mi) each, with water depths ranging from 50 to 1,450 metres (160 to 4,760)). Reader’s Digest ranked Uruguay as ninth “Most livable and greenest” country in the world, and first in all the Americas and good old Somalia (ha).

      Access to electricity in Uruguay is very high, around 99%. This number is above average coverage for countries with public electricity service. Anyways, these are government decisions, and goes to my case that more direct democracy is necessary to prompt the government to look at all alternatives, and possibilities. I’m sure you can go there and convince the voters of the horrors of state ownership, given most of the population seems happy with their democracy and living conditions. http://www.economist.com/node/17627929

      “National companies have 2 to 4 more employees per client than their private counterpart ”

      I haven’t got a problem with that. Uruguay’s progress seems respectable, although I need to see whether its large public sector buffered it from the GFC: after all, it was one of the countries, along with Australia, that avoided a “technical recession”. Uruguay’s GDP expanded by 10.4% for the first half of 2010. According to IMF estimates, Uruguay is likely to achieve growth in real GDP of between 8% and 8.5% in 2011, followed by 5% growth in 2011-2 and 4% in subsequent years. It’s also the highest rated country in Latin America on Legatum’s 2010 Prosperity Index.

    40. Spadj,

      On the gay adoption rights that’s fine. I just said that there are less adoptions now, and that less is worse than more. So it must be good to give gay people that right, but it’s pretty useless in terms of kids being adopted which is what really matters.

      Internet access has recently improved in the past few years. However it is still more expensive than in developed countries, which to me is unacceptable being basically a public monopoly. I do believe had the unions not opposed the competition of cable internet, internet access would be even better now, which is what really matters.

      What’s the point of having a refinery if you don’t produce oil (and Uruguay probably never will despite their prospective dreams – that’s another of my infamous forecasts)? Why not just import gasoline since imports are a benefit?

      You haven’t got a problem with national companies having 2 to 4 more employees per client than their private counterpart. Fine, I do, especially when I see their paychecks. A member of the board of ANCAP in the 90s noted that there were about 300 salaries above him, including the salary of a diver who couldn’t dive anymore.

      I’m sure you can go there and convince the voters of the horrors of state ownership, given most of the population seems happy with their democracy and living conditions.

      Been there, tried that. South americans are quite peculiar, they believe they own state companies, when they are owned by the unions. They complain about high prices and bad services but when given the chance to change something they prefer the status quo.

      South american countries have done very well in the last 7-8 years, thanks to the commodities boom, and Uruguay has done above average (someone has to be above average). It’s party time now. If the commodities bubble bursts soon, they will crumble again.

    41. “I just said that there are less adoptions now, and that less is worse than more”. I just got this impression you were blaming the government, but again we need more information to make an informed assessment why figures are less :P

      “What’s the point of having a refinery if you don’t produce oil (and Uruguay probably never will despite their prospective dreams – that’s another of my infamous forecasts)? Why not just import gasoline since imports are a benefit?” Maybe they want to save the resource over the long run rather than use it NOW, who knows. I need more information to make a judgement, so once we need more information to make an informed assessment and not simply blame the government.

      “Fine, I do, especially when I see their paychecks. A member of the board of ANCAP in the 90s noted that there were about 300 salaries above him, including the salary of a diver who couldn’t dive anymore”. Haha, good. I like my commoners and peasants to have funds and a good pay check – rather than paper-schuffling board members. They might be able to get their teeth fixed.

      “They complain about high prices and bad services but when given the chance to change something they prefer the status quo.” Reminds me of Brave New World – if people believe they are happy, they may as well be happy. Nothing morally wrong with that in my view – although in Uruguay they are MORE happy than countries with representative democracy, a politicans’ Republic.

      “Uruguay has done above average (someone has to be above average). It’s party time now. If the commodities bubble bursts soon, they will crumble again”. Yes, but their government is shifting attention toward manufacturing and services a little bit more (like Switzerland). So heading in the right direction…and of course no disagreement their economies are sensitive to commodity prices.

    42. I just got this impression you were blaming the government

      I was! First blame the government, then look for the facts. Most likely you will be right.
      In this case I believe it has to do with the government having the monopoly of the adoption decisions with the new law, whilst before some religious organizations were involved as well.

      Uruguay they are MORE happy than countries with representative democracy

      Which leaves me wondering which is more overrated, if democracy or happiness.

    43. “First blame the government, then look for the facts. Most likely you will be right…religions”

      Well, yeah, that’s my point – you presuppose too much. I like to look at the facts first.

      “Which leaves me wondering which is more overrated, if democracy or happiness”

      Happiness. Switzerland is doing better than Somalia.

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