Tonight is the Federal Budget night. Tomorrow’s blog analysis could be as long as “its appalling”. We already know that. So I might take a day off and leave it at that. Some of the policy changes announced already are certainly appalling. Regular readers will know I have been keeping tabs on the way the Federal unemployment benefit in Australia has failed to keep pace with the poverty line and the Government has refused to do anything about it. At present, the single unemployment benefit stands at $35.50 a day which is well the single unemployed poverty line of $A64.10 per day. For married couples the unemployment benefit is currently at $56.47 per day, while the corresponding poverty line is set at $79.99 per day. While the Government has been under intense pressure from a number of different sources (including the typical welfare lobby groups, the OECD (not typical) and even right-wing columnists (definitely not typical) to address this disgrace. It has resisted any rise in the benefit and continually claims it is about jobs not welfare and is in the process of creating work. Not much action seems to happen on that front. Tonight’s budget will announce their latest offering in this regard. They are going to allow the unemployed to earn an extra $A19 per week before their benefits is cut. It claims it cannot afford any more because it has run out of money and needs to get back to surplus as soon as possible. The reality is that it can never run out of money, it needs to triple the current budget deficit to address the growing output gap, and is once again failing the most disadvantaged Australians that it professes it care about. The Government is also comprised of serial liars who will be decimated in the upcoming Federal election because their political support base has shrunk so much because they stand for nothing that is worth supporting.
For background information on the plight of those living on unemployment benefit please read the most recent analysis – The indecent inconsistency of the neo-liberals.
As a prelude to tonight’s Budget release, the ABC news article (May 13, 2013) – Business confidence at four-year low: survey – reports that:
The latest business survey … indicates unemployment is set to rise, as business conditions and confidence remain at multi-year lows.
This is a monthly survey conducted by one of the big-four banks and the latest results confirm that the “labour market is quite weak at the present time”, which is a message I have consistently been making to the national media.
It is a message that most bank economists and the government are consistently denying. For example, in the same ABC report, one of the other bank economists claimed that the “economy is tracking along just fine”.
The so-called “currency strategist” was quoted as saying:
All we have to do is look at the unemployment rate – it’s still only about 5.5 per cent. So, these business surveys can give a somewhat distorted picture at times … The unemployment rate is still very, very low, and both the Reserve Bank and ourselves don’t expect it to go up very much higher from those current very low rates.
Which is an assessment that beggars belief. Even the accented “very, very” tells you that this type of commentator lives in a fantasy world. I guess if he loses his job he might have a different view. His view is wrong and should be disregarded.
The labour underutilisation rate is 5.5 per cent (official unemployment) – plus – 7.1 per cent (underemployment) – plus – at least 1.5 per cent (hidden unemployed).
The current participation rate is 0.8 percentage points below its recent peak in November 2010, which means that some 155,000 workers have left the workforce because of the lack of employment opportunities. These workers would quickly take jobs if they were offered.
Overall, that equals around 14 per cent wastage.
During our full employment period we had 2 per cent or less official unemployment, zero underemployment and zero hidden unemployment (fluctuating around a low number). That is what we can justifiably terms the historical very, very low waste.
This bank commentator is either too young and/or too stupid to understand the data he professes to be an expert commentator about. The ABC should never interview people so unqualified to speak on these matters.
The “All we have to do” quip shows how shallow the commentary provided by that bank economist is. In labour market analysis, the informed commentariat know that the official unemployment is a narrow and quite unreliable indicator of the extent of labour underutilisation.
The ABC news story (May 13, 2013) – Changes to welfare payments criticised as piecemeal – reported that the Government’s decision to allow unemployment benefit recipients to earn $A18 more per week before their benefit is cut is:
… designed to appease community concern and anger on the ALP backbench, following a cut last year that switched those on single parent payments to the Newstart allowance when their youngest child turns eight.
The Australian Council of Social Services called the changes piecemeal. I would add that ACOSS has not been entirely consistent themselves over the years and has been co-opted often by neo-liberal policies. They have consistently resisted a call for direct public sector job creation and in meetings I have had with key representatives in the past they have indicated they agree with the balanced budget over the cycle nonsense that constrains government spending.
However, in this particular case, they have been a strong advocate for higher unemployment benefits. My position is that if the government jettisons its legal responsibilities to ensure full employment then the least they can do (while acting in breach of their international obligations under several UN treaties) is to ensure the unemployed can live in a dignified way.
The fact is that the Federal government creates the unemployment by refusing to spend enough relative to non-government spending and the taxation burden that the government imposes. There is no magic about unemployment.
The Government produces it and chooses it. That is one of the capacities that a fiat currency-issuing government possesses. In the case of Australia (and most nearly everywhere else), the Government has chosen to maintain broad rates of labour underutilisation at obscenely high and very inefficient levels.
ACOSS responded to the policy announcement by saying:
We had been saying the top priority was to address the very low base rate of the unemployment payment … It’s the major cause of poverty in Australia and it’s also the major barrier to people getting into paid work … The idea that all we need is a few better incentives to help people to get into jobs is simply inaccurate … We’ve got almost a million people now who are struggling to survive on this payment which hasn’t been increased in over two decades … You cannot survive on just $35 a day and the situation is tragic for those individuals who are now bunking up, struggling to make ends meet, can’t afford food.
There was supplementary evidence published by Anglicare (May 12, 2013) – Households go hungry – that showed the children living in poverty in Australia are going without food to spread their income over the week.
The Anglicare Sydney report – 2012 State of the Family – Not Enough to Eat – is an indictment of the Government policy failure.
We learn that:
… 76% of households requesting Emergency Relief from … [Anglicare] … are severely food insecure. Adults in one third of these households went without food for a day, most weeks, over a three month period … parents try to protect their children by deliberately missing meals themselves and sometimes going without food for a whole day … one in 10 reported that children did not eat for a whole day on a regular basis.
The food crisis for the poor is just one of the dimensions of disadvantage. Housing is another. I will deal with that crisis another day.
But we are talking about one of the top three richest nations in the world here – but one that is infested with neo-liberalism, dominated by a greedy elite who want ever more real income for themselves, and ruled by a cowed and cowardly government that wines and dines with the top-end-of-town in order to get their approval for almost everything they do.
The Government’s justification for its latest budget decision with respect to the unemployment benefit was captured by the Employment Minister, who is being touted as the next leader of the Party when the current PM is humiliated at the September election.
He said that the changes were about:
… encouraging people who aren’t working to work … This is a sensible step because what it’s saying to people is we get that the Newstart allowance is not high but what we’re saying is that if you can find some more work we’ve got your back …
He also said that they could not increase the base rate of the unemployment payment because that “could cost the budget up to $13 billion over four years”.
The Treasurer also has been spouting the “jobs and growth” line.
In the 2012-13 Federal Budget they introduced a contractionary bias to fiscal policy claiming it would deliver a surplus this year. They failed badly. But what they did get right was the forecasted rise in unemployment.
Claiming that the policy strategy is about “jobs and growth” but knowing that the fiscal shift will drive up the unemployment rate us the same as David Cameron in the UK saying that by cutting spending there will be more spending – the fiscal contraction expansion lie.
It is all part of the same lie that the neo-liberals use to redistribute real income to the top-end-of-town.
That is why I accuse the Federal Government of being a serial liar. They know that:
1. Cuts foreshadowed in the Budget will reduce growth and drive up unemployment and the broader measures of underutilisation.
2. They know that vacancy rates are falling and the number of job openings per unemployed person is rising.
3. They know that the “unemployed cannot search for jobs that are not there” – please read my blog – The unemployed cannot find jobs that are not there! – for more discussion on this point.
4. They know the changes to the unemployment benefit structure will do nothing to improve the lot of those in poverty.
Just to remind them, the following graph following graph shows the unemployment to unfilled vacancies (UV) ratio for Australia for the period from August 2007 to February 2013. The current Government was elected in September 2007.
The rise during the crisis in 2009 peaked at 4.33 unemployed persons per unfilled job vacancy. The fiscal stimulus quickly brought the ratio back down to 3.15 in February 2011 before the obsession with budget surpluses (kowtowing to the neo-liberals) undermined the recovery.
The ratio is now at 4.39 and rising sharply (by April it will be even higher – vacancy data is published quarterly – next edition is May). So the situation is worse than at the peak of the downturn in 2009.
The latter rise is all due to the failure of the government fiscal policy settings.
The logical conclusion is that the extra paid work concessions for those receiving unemployment benefits will have very little positive impact on the hundreds of thousands in receipt of income support. There simply isn’t enough work available.
The Government’s position is standard supply-side, which has been exposed over several decades to be a false depiction of how unemployment occurs.
It is difficult to mount a search-based explanation for mass unemployment when there are not enough jobs being generated relative to labour supply.
In the following graph, we show the unemployment rate is plotted on the right-hand scale against the sum of employment and vacancies (as a percentage of the labour force) as a measure of labour demand on the left-hand scale (inverted). The correspondence between the two series is striking and the variation in the unemployment rate is closely associated with the evolution of demand.
If unemployment rates were the result of supply-changes (such as preferences for work, or welfare benefits etc) then this close correspondence would not occur. The fact is that unemployment is the driven by insufficient demand for labour, which, in turn, is driven by aggregate demand deficiencies.
The late Franco Modigliani (2000) presented similar graphs for France, Germany, and the United Kingdom, which show that as job availability declines the unemployment rate rises, with the concomitant outcomes that the search process lengthens and average duration of unemployment rises. Modigliani (2000: 5) concluded, “Everywhere unemployment has risen because of a large shrinkage in the number of positions needed to satisfy existing demand.”
[Reference: Modigliani, F. (2000) ‘Europe's Economic Problems’, Carpe Oeconomiam Papers in Economics, 3rd Monetary and Finance Lecture, Freiberg, April 6]
Over the last 25 years, as unemployment has risen and persisted at high levels, orthodox economists have concentrated on the supply side of the labour market, hypothesising that full employment now occurs at much higher unemployment rates than in the past.
Michael Piore (1979: 10) reminds us, however, that:
Presumably, there is an irreducible residual level of unemployment composed of people who don’t want to work, who are moving between jobs, or who are unqualified. If there is in fact some such residual level of unemployment, it is not one we have encountered in the United States. Never in the post war period has the government been unsuccessful when it has made a sustained effort to reduce unemployment.
[Reference: Piore, M.J. (ed.) (1979) Unemployment and Inflation, Institutionalist and Structuralist Views, M.E. Sharpe, White Plains]
The Government is failing the most disadvantaged members of our society with false talk about running out of money.
It cannot run out of money. It can choose not to spend sufficiently relative to non-government spending. But then it has to wear the consequences. It hasn’t the courage to do that so resorts to serial lying about the positive impacts of its austerity when it knows full well that the impacts are all negative and without any underlying financial or economic justification.
That is my introduction to tonight’s Budget and maybe the last thing I will say about it …
That is enough for today!
(c) Copyright 2013 Bill Mitchell. All Rights Reserved.