Neo-liberals invade The Greens!

Some readers have asked me to comment on the economic policy of The Australian Greens and how it sits with the other major political parties. I base this assessment on what appears to be the policy statement which was current as at November 2008. There is not a single reference to employment, unemployment or full employment as key economic goals. Moreover, there is as much neo-liberal macroeconomics in the document as you would find in the papers espousing the approach of the main parties. And worse still … if The Greens actually tried to implement some of their macroeconomics principles then they would undermine most of their other major policy goals. So there is no joy to be found in this place for a progressive who understands how the modern monetary system operates.

To clarify the absence of employment, unemployment or full employment as key economic goals. The Greens obviously think that employment and industrial relations policy does not form part of their economic policy stance. I don’t understand that at all. Full employment should be the key and central economic goal of any government.

Anyway, you have to read the separate document – Policy G2: Employment and Industrial Relations – to find out what they think about labour market policy. That document makes a lot of reasonable statements about fairness in the industrial relations system. There is a reasonable Principle (10 that “the objectives of profitability and efficiency should not override social and ecological objectives.”

We have to wait until Principle 17 to read that The Greens stand for “full employment, and job security for all who seek employment.” and Principle 18 “protection against the forced casualisation of work and greater protection for existing casual workers.”

But then by Principle 21 their aim to eliminate underemployment is blurred by wanting “a fairer sharing of paid work through mandated shorter standard working hours and a reversal of current trends towards increased unpaid overtime.” So are we to assume that The Greens accept that paid work is in finite supply and needs to be rationed so that everyone can get access to it?

I don’t hold that view. Ultimately, in a modern monetary economy, the national government chooses the national unemployment rate and can always generate enough employment (with associated hours of work) to satisfy the preferences of the labour force. There is never a “shortage” of work just a shortage of “funded work”. The two constructs are quite different.

Anyway, to accomplish these principles the Australian Greens want large scale retrenchment of the existing IR laws (which I agree with) and propose only two measures that relate to the goal of full employment.

First, under Policy Measure 51 they would “require the ABS to publish more meaningful monthly measures of underemployment and unemployment, with broader definitions of unemployment.” So this does not actually address the imperative of full employment. Rather, it would measure the policy-induced departure from full employment more accurately. With a dedicated full employment strategy, the imperative to generate more accurate statistics is reduced. But clearly it is sensible to create data gathering and information disseminating frameworks that fully inform the population of the state of the economy. Notwithstanding, the issues relating to how to accurately measure these constructs anyway.

Second, under Policy Measure 53, the Greens will “use a combination of government job creation and industry policy to achieve full employment and job security for all who seek employment.”

What are we talking about here in terms of industry policy? I guess they means protection and subsidy. How many jobs that strategy would create is questionable. In the days of large scale protection of manufacturing by the 1970s, these industries were shedding jobs as effective protection levels rose. As to public subsidies of private enterprise – that is the topic of another blog. In short, I don’t favour them. Capitalist enterprise is about risk. That should not be publicly-underwritten when there are many public good investments that go wanting. Further, if there is something that is worth doing – for example, a new green industry strategy, then I would favour public investment and public management. I reject outright the ideological view that the public sector should not be in competition with the private sector.

And so full employment presumably comes down to government job creation. Do they support a Job Guarantee then? I know they don’t publicly support it because they are scared of the fiscal consequences.

But if you are going to generate full employment via public sector job creation where the Government buys the labour at market prices in competition with the private sector then you risk inflation occuring well before you reach full employment. Clearly there is a strong need for more career-level public employment.

But in the true full employment era (1945-1975) the slack was taken up by “buffer jobs” in the public sector which were accessible to the most disadvantaged workers out there. These were not career public service jobs and the Government hiring was not competing with the private sector at market prices for the labour. That is the essence of a Job Guarantee. Any modern monetary economy requires this buffer stock employment capacity if it is to have full employment and price stability.

So my first recommendation to The Australian Greens is that they endorse as national policy the Job Guarantee.

But back to their macroeconomic understanding. In their Policy G1: Economics you soon realise that The Greens are as ignorant about macroeconomics as they are enlightened on cultural and environmental matters. Moreover, if they were more advanced in their macroeconomics understanding the rest of the policy positioning would resonate more strongly and have greater credibility.

Their statement of economics principles begins well by acknowledging the symbiosis that human economies have with the natural world. They also emphasise equity principles which I support and eschew a fundamental reliance on the “free market economy” which “by externalising the environmental and social costs of greenhouse gas emissions is creating the greatest market failure of all time, namely climate change.”

While I agree that climate change is a fundamental problem that will be exacerbated by maintaining a reliance on the private market to allocate economic resources I think the greatest market failure of all time is the failure of the economy to generate enough sustainable jobs to match the preferences of the available workforce.

After agreeing with their Principles covering the urgency of policies to address climate change; the renewal of collective will or solidaristic sentiment; and the need to ensure natural monopolies (for example Telstra – my example not the Greens) stay in public ownership and management, I got to Principles 8 and 9 which relate to budgets and debt.

The Greens say (quote):

8. government finances must be sustainable over the long run; budget deficits and surpluses must balance each other over the business cycle.

9. long term government borrowing is the preferred mechanism for funding long term infrastructure investments.

So where do you start with these fundamental principles? Are these political statements or a reflection of how The Greens (whoever wrote and endorsed and stood for office under this document) understand the system to work? It doesn’t really matter what the statements represent (politics or comprehension) when you consider they are totally inapplicable depictions of the way a modern monetary economy such as Australia works.

They are also dangerously naive statements because they erode the capacity of the Government to achieve much of what The Greens aspire to.

First, what does government finances must be sustainable in the long run mean? What is the long run and what is the definition of sustainable. Well I guess you infer meaning from the next phrase – the old neo-liberal con job – budget deficits and surpluses must balance each other over the business cycle.

So the business cycle – peak to trough and back to peak – defines the temporal perspective that will define the sustainability span – this presumably is the “long run”, which is a different conception of the long run than economists might consider.

So on average The Greens believe that the federal budget balance must be zero over the business cycle. What they mean is the structural balance (or full employment balance) should be zero on average over the cycle.

Hmm. What are their aspirations for non-government saving? They clearly want to reduce our reliance on coal exports and other mining products that may boost our net exports. So they are not hoping for a Norway-type situation where the net exports are so strong that the government sector has to run surpluses to avoid having too much nominal demand in the economy. Even for Norway, this is a temporary situation while their oil reserves last.

The Greens clearly do not understand that the government balance is a mirror image of the non-government balance – $-for-$. The only way you can run a budget on balance equal to zero over the cycle is if you do not want the non-government sector to net save in the currency of issue on average over the cycle.

This would be an atypical situation. The more normal circumstance would be for the private sector to desire to net save in the currency of issue. Given that current account deficits are also typical then this requires the government sector to be in deficit on average over the cycle.

Trying to run surpluses to balance on average over the cycle under these circumstances will damage the economy and deliver deficits anyway as output and income levels contract and the automatic stabilisers kick in. It is just economic vandalism to advocate policies that will be self-defeating but cause damage (rising unemployment and lost income) along the way.

Why would The Greens want to lock into this neo-liberal orthodoxy? Do they think it sounds responsible? The reality is that we need to re-condition the public debate about these concepts and options and educate all of us to realise that these flaky statements about plotting a path back into surplus is in some way sustainable but also responsible.

It is neither sustainable nor responsible.

Further, it will never sustain a fully employed economy. So this economic principle undermines its economic goals of full employment. It also undermines a lot of other initiatives that The Greens claim they would implement.

It gets worse though when we consider Principle 9. The Greens think that debt-issuance by the Federal Government is required to fund government spending. It is not because the federal government is not revenue-constrained. The federal government issues the currency – it is a monopolist in this regard. It never needs to finance its spending unlike a household which uses the currency of issue.

Why hang onto these neo-liberal myths which are designed to put the Government into a straitjacket and impose “fiscal discipline” on it? The straitjacket is what prevents the Government from achieving high levels of employment and maintaining high standards in public goods and infrastructure.

Reading on The Greens also want “a national carbon trading scheme” – which is odd given they do not like free markets! But my approach to carbon reduction will have to wait for another blog. I don’t support market-based schemes though and I am surprised The Greens do. The natural environment cannot be the subject to “trade-offs” which is at the heart of market-based allocations.

My conclusion is that The Greens are in need of some solid economics education. As it stands, their macroeconomics statements are neo-liberal gobblygook. In accepting the mainstream view on debt and deficits they reduce the room they have to credibly say anything about the other elements of their political agenda.

I also heard the other day that one Green State level MP is on the public record as saying that “no other economist thinks like Bill Mitchell so he must be wrong” (or words to that effect). When I was told this it reminded me of those advertisements that appeared daily in Melbourne newspapers in times gone by that said “X million Christians cannot be wrong” – you know appealing to numbers to evince credibility. My response: Lemmings all run over the cliff together!

But I also would remind everyone that we are currently in a serious global economic crisis that has been driven by the policy positions that are mainstream in my own profession. So X million economists can be wrong!

Tomorrow I will publish a FAQ about Modern Monetary Theory blog following a series of questions sent in by readers. At least that is what I plan to do right now. But some data might get in the way which wouldn’t be so bad.

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    20 Responses to Neo-liberals invade The Greens!

    1. stuart says:

      Good post, I find that the greens economic policy’s stop me from supporting them and its about time they develop a coherent policy alternative to the neoliberal cr*p that other parties put out. Not only are there policies misguided but they’re internally inconsistent (eg. advocating ‘fair trade’ but keeping industry policy).
      Also Lemmings dont actually run off cliffs. Its a myth, as it says in the wikipedia article you linked to…

    2. bill says:

      Thanks Stuart

      I agree that they need to form a consistent mapping between their belief system and their understandings of how the system operates.

      Lemmings! That is why I linked to the Wikipedia article – some light relief!

      But the financial market lemmings definitely took us over the cliff!

      best wishes
      bill

    3. Alan Dunn says:

      Dear Bill,

      One word: Copernicus.

      Cheers, Alan

    4. Green Man says:

      I fundamentally disagree with many parts of your post Bill.

      Firstly your title is a cheap shot, but perhaps one necessary to get noticed in the increasingly crowded blogosphere.

      The facts are that the Australian Greens have a large membership with a broad range of thinking from across the old political spectrum, a small minority probably would even have some neo-liberal leanings especially those that have come from a small to medium size business background. But by far the majority would reject the common neo-liberal approach to economics as being an ideology that is pro business at the expense of the public good. However the thing that unites this broad group of Greens is a fresh approach to politics beyond the old left and right and indeed a corresponding fresh approach to economics, one based primarily on environmental sustainability and social justice.

      It is obvious from your post that you have never attempted to create a coherent policy document across all state and national portfolios and beyond. One can choose to follow the line of existing government portfolios and respond, or do as the greens have done and create their own taxonomy which is based on the divisions of Environment, Agriculture & Natural Resources, Climate Change and Energy, Care for People, Human Rights & Democracy, Media, Arts & Science, and a Sustainable Economy. Hence it is unfair and inaccurate to just pull one policy sub-stream “economics” and imply this is the whole of the argument. The full Greens economic policy is called “Sustainable Econmy” and is available here http://greens.org.au/policies/categories/sustainable_economy
      and encompasses the 5 sub – policies of Economics, Employment and Industrial Relations, Corporate Governance, Global Economics and Sustainable Planning and Transport. But I would argue that the Party goes even further than this and encompasses Economics across the broad policy spectrum, viewing the economic framework as entrenched rather than separate to the political and social systems.

      I find your focus on full employment typical of many academics – that is your lens for viewing the world, your speciality so if organisations choose not to follow your emphasis you consider their entire agenda weakened. I believe some in the Greens may well agree with your approach, but many like me would simply not see this issue as a core priority.

      i also think your summary of points 8 and 9 from the Greens Economics sub-policy about budget deficits quite extraordinary. The only person that is dangerously naive is you if you honestly think these concepts are neo-liberal. These principles read to me as a deliberately Keynesian backlash against the neo-liberal friedmaneque policies of State and Federal governments especially during the Howard era.

      I am led to believe that there are nearly a dozen economics professors and similarly high level econ professionals around the country who have contributed to these polices, so I guess we can pit accusations of your naivety against theirs, and I know who I would turn to further my economics ‘education’ that you believe we greens supporters require.

      As a final note you argue that greens support for a national carbon trading scheme is further proof of a neo-lib approach. The Greens have always said such a scheme could never be a panacea, and many would reject the approach outright. But the Climate Change policy clearly shows that the Party is pushing for a fundamentally greater national and global commitment than than the baby steps kicked off by kyoto. The Recent stance taken on the pathetic Rudd CPRS schceme highlights this approach.

      The Greens neo-liberal, or even economically naive? I don’t think so.

      Green Man

    5. bill says:

      Dear Green Man

      >>Firstly your title is a cheap shot, but perhaps one necessary to get noticed in the increasingly crowded blogosphere.

      The policy aim to balance the budget over the cycle is the foremost macroeconomic expression of neo-liberalism. That is not my interpretation – it is a commonly accepted depiction of what we call neo-liberalism. The title is thus accurate.

      >>However the thing that unites this broad group of Greens is a fresh approach to politics beyond the old left and right and indeed a corresponding fresh approach to economics, one based primarily on environmental sustainability and social justice.

      The statements made in the economic policy are largely neo-liberal in flavour. Statements that impose voluntary restrictions of fiscal policy that would deny that the private sector desires to save on average over the business cycle. Capitulation to the myth that the Federal Government is revenue constrained and has to issue to debt to “finance” its net spending. Neither is true. This is not a fresh approach to economics.

      >>The full Greens economic policy is called “Sustainable Econmy” and … encompasses the 5 sub – policies of Economics, Employment and Industrial Relations, Corporate Governance, Global Economics and Sustainable Planning and Transport.

      I studied all documents and could have been more critical than I was had I the time. The major economic statements were covered however by my blog without misrepresenting anything that was in the documents. I chose not to comment on the “micro” based policies because unless you get the macro correct then the system is constrained and the rest is compromised. However, you cut it Green Man, the macroeconomic statements in the official policy of The Australian Greens reflect the orthodox (neo-liberal) budget myths. I see no saving graces in those statements at all. Of-course, individual members may not agree with them. I made no insinuation that they did. I was commenting on the official policy.

      >>I find your focus on full employment typical of many academics – that is your lens for viewing the world, your speciality so if organisations choose not to follow your emphasis you consider their entire agenda weakened. I believe some in the Greens may well agree with your approach, but many like me would simply not see this issue as a core priority.

      I am sorry – Full employment is part of the official policy of The Australian Greens – Principle 17. Nothing at all to do with my narrow perceptions of anything. Your party’s official policy! The point I was making is that if you don’t run deficits on average over the cycle and the private sector desire to net save (which they typically do) then how are you going to share out the unemployment you create! In other words, you cannot achieve full employment with budget management aspirations articulated in The Australian Greens official economic policy. Simple matter of accounting I am afraid.

      >>I also think your summary of points 8 and 9 from the Greens Economics sub-policy about budget deficits quite extraordinary. The only person that is dangerously naive is you if you honestly think these concepts are neo-liberal. These principles read to me as a deliberately Keynesian backlash against the neo-liberal friedmaneque policies of State and Federal governments especially during the Howard era.

      Points 8 and 9 are about running balanced budgets and “financing” net spending with debt. What you call Keynesian is no longer applicable because we do not have fixed exchange rates and we use non-convertible currencies. The points 8 and 9 restrict fiscal policy, deny the use of on-going deficits to finance private saving and continue the myth that a sovereign government issuing a non-convertible currency in a flexible exchange rate world is revenue-constrained. None of these propositions are true and they form the basis of the neo-liberal attack on fiscal activism. You should be better informed of the technical side of the monetary economy before you make these sorts of statements. You should also understand that history has moved on and economic systems are fundamentally different now given the collapse of gold standards and the movement to flexible exchange rates. The debate between Keynesian orthodoxy and Friedman-ite monetarists is now moribund (irrelevant).

      >>I am led to believe that there are nearly a dozen economics professors and similarly high level econ professionals around the country who have contributed to these polices, so I guess we can pit accusations of your naivety against theirs, and I know who I would turn to further my economics ‘education’ that you believe we greens supporters require.

      Yes the X million Christians cannot be wrong argument. I hear this always. There are not a dozen macroeconomics professors in Australia who adopt a truly progressive stance and who understand the way the modern monetary economy works. My criticisms focus on the macroeconomics for which I am qualified to speak. If you want to constrain your party to neo-liberal budget conduct then it is fine to ignore what I say. But why don’t you ask your mentors these questions:

      (a) Is the Australian national government revenue-constrained?

      (b) How does the central bank manage reserves to defend its monetary policy target?

      (c) How does the private sector pay taxes if the government hasn’t spent?

      (d) What gives value to the fiat currency which is non-convertible?

      (e) Do they think an economy can achieve sustainable growth if the national government on average is running a balanced budget and the private sector desires to net save over the cycle?

      That should be a good start.

      >>As a final note you argue that greens support for a national carbon trading scheme is further proof of a neo-lib approach.

      It is a matter of fact that The Australian Greens have as part of their official policy – support for a market-based trading scheme as part of a solution to emissions control. That is the basic neo-liberal position too. Use the private market to change resource allocation. So if it is a core neo-liberal policy approach and The Greens support the same approach officially then logic dictates! I don’t care that individuals do not take this approach within the party. My comments were about the current official policy. That is not my invention or interpretation. It is written there in black and white.

      >>The Greens neo-liberal, or even economically naive? I don’t think so.

      The core macroeconomic statements in the economic policy relating to the conduct of the national budget are neo-liberal. Sorry.

      Denial will probably work for you though.

      best wishes
      bill

    6. Lefty says:

      “the myth that a sovereign government issuing a non-convertable currency in a flexible exchange rate world”

      I read a copy of The Australian Financial Reveiw for the first time yesterday. It contained, among many other things, a jounalist supposedly quoting Obama saying “the US has now run out of money to spend” and a short opinion piece calling for a 100% return to the gold standard. Wouldn’t fixing our currency to anything else at a set rate give us the same hassles we had when our dollar was tied to the US dollar, in that we were constantly trying to defend the parity? And wouldn’t we become further constrained by the fact that while US dollars are technically unlimited, gold is a physical commodity, the supply of which is limited?

    7. graham says:

      Dear Green’s Man,
      As I understand it, Bill Mitchell is saying that the Greens suffer from the myths and misunderstandings about modern monetary system macroeconomics just like the Federal Government and the Coalition do.

      If modern monetary macroeconomics functions the way that Bill (and others) say then the last part of the following statement of Bob Brown’s as reported on the ABC, 8.2.09

      http://www.abc.net.au/news/stories/2009/02/08/2485585.htm

      “We are not taking a sledge-hammer to this package, we want to see a better outcome from the expending of a huge amount of taxpayers’ money, which ultimately is going to have to be paid back.”

      is incorrect, and in my opinion plays right into the hands of the neoliberals. And in this case by perpetuating these myths the Greens make it very difficult if not impossible for themselves to be able to achieve so many of the good real goals which they aim for. So often we hear that the federal government cannot carry out some desired plan or policy because of lack of funding, or that they will have to borrow money to fund it. And once again in this case it would be a lot of nonsense.

      If on the other hand modern monetary macroeconomics does not function this way then it would be necessary to understand exactly how it functions and see what the consequences would be for Greens goals.

      As a member of the Greens I get the impression that almost all the Greens I talk with do not understand these matters and, like most people, avoid the topic because they find “money matters” dry and anyway a “book with seven seals”. In my opinion Greens must fully understand the basics of modern monetary macroeconomics. I have studied the work of Bill Mitchell and those in that school of thought and I must say that I cannot so far find anything wrong with it – it is a coherent theory underpinned by much empirical evidence. I would love to have someone point out to me where it has a flaw. This brings me to another point.

      Maybe the “nearly a dozen or so economics professors and similarly high level econ professionals” can demonstrate to me where the flaw is. It would be very interesting to study it too.

      And another point, and this is really something I do not understand. Are you saying that you would accept the economics views of these professors and econ professionals simply because they are a majority over the one (Bill Mitchell)? If so then this is just like the case of the State MP that Bill refers to in his original post. Throughout history there have been many cases of the majority being wrong and the minority being right. So that is no line of argument. In some ways it really surprises and disappoints me – I thought there would be more enlightenment around.

      I understand that a review of the Australian Greens policies is coming up very soon. This should be the major policy for review after the Greens have educated themselves on understanding modern monetary macroeconomics and not just accept what a line of professors say.

      If the Greens do arm ourselves with this knowledge and insights then politically they can really have a great advantage over the other parties, especially in this recession time and when we come out of it.

      In essence what Bill and his international colleagues is saying makes a lot of sense to me. I feel that by the Greens taking a defensive position on this they will not go away and properly learn about these issues.

    8. sistaGrrrl says:

      The Greens have not consulted long term unemployed when they publicly support the interests of the paternalistic job service sector over the human rights of the jobless. At this rate we’ll have one half of Australia paid to watch the other half as some kind of employment strategy. Read my article:
      http://www.redbubble.com/people/sistagrrrl/journal/2802175-the-australian-greens-may-have-betrayed-their-social-justice-principles

    9. Tad says:

      I am a Greens member and I am just finishing a submission to our policy review. While I don’t agree with every point that Bill makes, I think he is generally right about the implicit and explicit neoliberalism in Greens economic policy. This has certainly come out in party debates over the CPRS, where opposition to an emissions trading model has been greeted by some as if talk of government intervention in the economy was an idea from outer space… and this in an era where we are seeing some of the biggest nationalisations in the history of capitalism!

      I think Greens Man accidentally hits on why this is a problem for the party when he talks of us going “beyond Left and Right”. The argument that the Left-Right dichotomy is a thing of the past has actually been a key tenet of neoliberalism, which argues that economic questions are now merely technical, not ideological or political. The fact that progressives have accepted this notion is a sign of the political confusion on our side, not any “freshness”. We shouldn’t let ourselves be bullied into this view.

      I’m for the Greens continuing to be an active part of building a fresh, innovative New Left in Australia. But without clearer ideas on economic policy, our party may find itself marginalised in the great struggles over the economy in coming years. The Crisis is an acid test, and there is no guarantee we can pass it simply by imagining ourselves as having new ideas that go beyond the failures of the past. Vision is not just abstract, it requires concrete policies (e.g. Bill’s ideas low-skilled employment plans), but that means knowing who your allies and who your opponents are in the debates.

      The biggest political challenge in the coming period will be whether an alternative can be posed to the ALP among its working class support base, and whether the Greens can pose that alternative. But that is what we need to do if we are to create a New Left that reaches beyond the margins. I am hoping that in the process of our NSW Senate campaign we can start to connect with that vital demographic and build that New Left.

      Keep up the good work, Bill.

    10. Mike Beggs says:

      I fully agree with Tad here, but I have a problem with Bill’s views on money and government financing: http://scandalum.wordpress.com/2009/05/30/mitchellnomics/

    11. graham says:

      Dear Tad,
      You say
      “The argument that the Left-Right dichotomy is a thing of the past has actually been a key tenet of neoliberalism, which argues that economic questions are now merely technical, not ideological or political.”

      Firstly, I don’t know whether this is a key tenet of neoliberalism but I do think that getting the right understanding of economics is a technical question and not an ideological or political one. Understand the system first then decide how to cut up the cake.

      As I understand it Bill is claiming that the modern monetary macroeconomic system functions in a certain way and that once we understand the basics of this system then it is political issue, not an economic one, of how it is applied, such as who gets what amount of the product of the nation – how the cake is divided up.

      If the Greens understand the basic system then they can build their policies on that foundation. At the present I can’t see any explicit account of an economic theory or foundation which underpins the Greens policies. It just seems like some sort of wishlist and muddle-through approach. If the Greens think Bill’s approach is flawed then in my opinion they need to come up with some other coherent and empirically evidenced theory. Otherwise they are just as confused, if not irresponsible to say the least, as their opponents.

    12. graham says:

      Dear Mike,
      As you “have a problem with Bill’s views on money and government financing” can you tell me whether you think Bob Brown’s statement “…. which ultimately is going to have to be paid back.” http://www.abc.net.au/news/stories/2009/02/08/2485585.htm
      is correct and could you then explain your answer?

      As I understand Bill’s approach it is correct. But then I might be wrong.

      Perhaps you might also be able to help me by responding to the questions which Bill mentioned above, namely

      (a) Is the Australian national government revenue-constrained?
      (b) How does the central bank manage reserves to defend its monetary policy target?
      (c) How does the private sector pay taxes if the government hasn’t spent?
      (d) What gives value to the fiat currency which is non-convertible?
      (e) Do they think an economy can achieve sustainable growth if the national government on average is running a balanced budget and the private sector desires to net save over the cycle?

      BTW, I am not an economist by training but rather a mathematician/computer scientist – who wants to get a better understanding of these matters.

    13. Alan Dunn says:

      Dear Graham,

      Don’t sell yourself short. You know a lot more about economics than 95% of the population.

      excellent post.

      Cheers, Alan

    14. graham says:

      Dear Alan,
      so far i can’t see any flaw in Bill’s (and others) understanding of modern monetary macroeconomics that’s why i want to hear what Mike has to respond to my questions. I would also like to hear what the supposedly twelve or so professors and other economics professionals have to say – but so far I don’t even know who they are, much less what they say.

      It is a great opportunity squandered by the Greens. If the Green senators in parliament had been reasonably informed of this approach they could have torn the Government and the coalition asunder in the whole debate about the economic stimulus packages and the deficit. Bob Brown could have been standing up in the senate with his pictures, diagrams and graphs illustrating what a load of irresponsible rubbish is being thrashed about. But because the Greens haven’t done their homework they can really only fall in line with the rest of them. I find it all the sadder because I like so many other things which Bob has to say and does.

    15. Alan Dunn says:

      Dear Graham,

      I know a little bit about economics so I will answer your questions:

      a. No
      b. The RBA increases liquidity by buying securities and decreses it by selling securities to banks to maintain its target rate.
      c. It can’t. Credit cards are not an acceptable means for paying taxes.
      d. Money is tax driven. We need the government / RBA’s money to meet tax obligations
      e. No.

      I will now anser for the Neo-Liberals
      a. Yes.
      b. The money supply is exogenous and interest rates are determined endogenously.
      c. They use their savings or profits.
      d. Neo-Libs argue that money exists for sake of conveniences not available to a barter economy (it’s part of what is called the Regression Theory of Money) …. They do not believe in the notion of tax driven money.
      e. Yes. Neo-liberals regard the non-government being forced to spend via credit card to be the best means for creating sustainable economic growth.

      With respect to Senator Brown.

      Senator Brown was well aware of Bills work and that a solution to the macroeconomic problems of unemployment existed through the Jobs Guarentee.

      Cheers, Alan

    16. bill says:

      Dear Mike

      Thanks for the comment.

      I decided to respond in full and my response appears in this blog.

      best wishes
      bill

    17. graham says:

      Dear Allan,
      there appears to have been a slight misunderstanding: I really wanted Mike to answer the questions in case he would have different responses to Bill. It would be interesting to see what he says.

    18. Mike Beggs says:

      Hi Graham,

      Sorry I didn’t see this earlier… When the government issues a bond, it takes on a commitment to pay the holder back plus interest. In that sense, every bit of government deficit financing is paid back with interest except to the extent that it is financed by issuing actual currency. I doubt anyone disagrees there. The real question is whether or not the government can keep on indefinitely rolling over debt, i.e. paying back old bonds while issuing new ones so that total debt does not diminish, or even keeps growing.

      In fact, I don’t disagree with Bill that there are no accounting problems with doing this indefinitely, and that if the government cannot sell bonds at the rate it wants, it can always issue new currency. The limits to the process are as I see it set by the need to protect the value of the currency, which the government does not control by fiat, and which is highly likely to decline if the quantity of the currency flowing around continues to grow while demand for currency does not. This limit could be reached fairly abruptly, especially if demand for the currency suddenly falls because speculators expect it to lose its value in the near future.

      I don’t think this point is necessarily at the point of a balanced budget with no outstanding government debt, of course, because non-government sectors will always demand some quantity of currency and various types of government debt.

      To go quickly through your other questions:

      (a) Not in the sense that it needs to get money before it spends.

      (b) In recent years, usually by entering into repurchase agreements with private banks, buying short-term instruments on
      the promise that it will sell them back at a fixed rate on a later date. Other techniques have included open market buying and selling, use of a discount window, use of a ‘Special Account’ to quarantine parts of private bank reserves, and others.

      (c) With currency still hanging around from past government spending or central bank operations, or borrowing from the central bank via repos or otherwise.

      (d) Only the prices set by sellers of goods, services and financial assets, which are set with regard to levels of nominal demand and competitive circumstances.

      (e) Yes, it is definitely possible, either because the private sector desires are thwarted or because it is accumulating foreign assets. But as I outline in both my posts, I don’t find this kind of sectoral aggregation that helpful.

    19. sistaGrrrl says:

      What system of government would be able to integrate the Job Gurantee and is there a country that is working for everyone?

    20. Andreas Bimba says:

      This May 25, 2009 article needs to be updated but I accept most of his criticisms except that Bill appears to be against trade protection for private sector industries which quite frankly is very naive in the current ‘play to win’ era of world trade? We are competing against nations like China that have low wages and conditions, low environmental protection standards and are just as capable of applying manufacturing technology and product design effectively. A 15% tariff for example is sufficient to retain our automotive industry. The equivalent in regular grants is political poison as we are now witnessing with so many ‘slagging off’ against the industry based on a concerted neoliberal attack campaign over many years.

      I fully agree the Greens must adopt MMT principles as it is in their own and the nation’s best interests but at least now they support ongoing Keynesian stimulus.

      “As a guiding principle, as we grow the new economy any deficits should be kept to around 3% GDP.”

      From p.2 of this:

      http://greens.org.au/sites/greens.org.au/files/20160429_Greens%27%20Budget%20Principles%202016.pdf

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