Australia hosted the recent G20 Meeting in Brisbane and showcased our embarrassing political leadership. Leading into the summit, our Prime Minister had said he would “shirt front” Russian leader Vladimir Putin. Instead he met with the Russian and together they cuddled a native animal (Koala). Then at the opening address, our Prime Minister was humiliating when he told the other 19 world leaders how bad Australians were for rejecting his $7 a visit private contribution to doctor consultations as part of his plan to get the fiscal balance back into surplus. A few days after the US-China signed a major carbon reduction pledge and the rest of G20 nations were working to ensure the final statement of the meetings re-affirmed the World’s desire to address climate change, our Prime Minister was telling the World leaders how tough his government was in getting rid of the Carbon Tax and repeating his mantra that Coal was our future. At least, the Australian government’s insistence that climate change not be on the G20 meeting agenda was ignored by the other nations much to the embarrassment of our leaders. These dorks think they are big time. All the proved was how unsophisticated the political leadership in this country is. The Tea Party Republicans in the US make our lot look like fools! The assessment is that our self-trumpetted ‘macho man’ PM came out with sand kicked in his face looked liked “a coward and a weakling” (Source). And if that wasn’t enough we had the ordeal of watching our Treasurer strutting the world stage with the ‘Finance Ministers’ demonstrating how unqualified he is for that important national job.
This assessment of our Prime Minister’s performance is fairly representative – Abbott’s tough talking comes undone at the G20.
But one of the worst interviews ever appeared on the ABC TV program – Insiders yesterday (November 16, 2014) when the Australian Treasurer demonstrated categorically how he is not qualified to perform that job.
The interview – Joe Hockey joins Insiders – will make you squirm.
He often looks like a rabbit caught in the headlights and his pitiful delayed “No!” in response to the the question about Nicholas Stern is stunning, given this man is our Treasurer and responsible for fiscal policy settings. You can see the video at the Insiders’ page linked above.
From the Transcript, we learn that the G20 has put the IMF and the World Bank in charge of monitoring the growth policies of the individual nations. Big talker Christine Lagarde was on the radio today boasting how the IMF will hold the nations to account.
This is the case of neo-liberal Groupthink central monitoring their fellow club members. Given the record of the IMF is espousing policies that create decent jobs the plan is hysterical, but tragic.
Then the Australian Treasurer was asked whether Australia could deliver a jobs growth dividend given that it was obsessed (my word) with cutting its fiscal deficit (the words used by the interviewer were “getting the budget implemented”).
… There’s always going to be a question about it, but ultimately governments and countries need to be laying down plans to deliver jobs and prosperity and you have to earn it. You have to earn it. What we’ve got to do is work a way to convince the community, but also to convince our own Parliaments, that what we are doing is actually going to generate prosperity. Because the days of loose monetary policy, the days of big spending governments, they’re over, Barrie. They’re over in Australia, they’re over everywhere. The only way we are going to get growth going right across the world and in Australia is if we have the sort of structural changes which in Australia means reform of higher education, it means actually fixing the welfare system. Those sort of things make a big difference …
He will never convince people who think for a second that cutting into public sector expenditure at a time that private spending is weak and growth and unemployment is rising is going to “generate prosperity”.
The days of “loose monetary policy” by which we might mean close to zero interest rates appear to be very much the norm these days.
Japan has been following very accommodative monetary policy for 2 decades now with no end in sight, especially when you learn that once again the economy is back in recession – why? Because the government tried to do what our Treasurer also wants to do and that is cut net government spending.
The sales tax hike has killed consumption growth and Japan is once again below the zero growth line (for the last 6 months).
The rest of the structural reform jive is just that mindless jive straight out of the IMF/OECD songbook. A child could see through it.
After admitting that he did not see or hear the US President’s speech about climate change, it was proposed that the Australian government appears alone in generating “a perception of resistance on his part to make this a central issue”, he gave the following extraordinary (as in bad) response:
… There is nothing particularly new about the discussion. It is an important issue but ultimately the only way anyone can pay for all the initiatives you need to deal with climate change is to have money in the bank and governments can only have money if they’ve got prosperous economies. It comes back to the focus on growth and jobs.
So at the most basic level, the Treasurer of this nation has no understanding (or chooses not to portray an honest understanding to the public) of the capacities of his government.
The two constraints on dealing with climate change are: (a) the behaviour of all polluters; and (b) the availability of real resources that can be brought to bear to change that behaviour – including renewable energy options.
If the real resources are available and for sale in Australian dollars, then the Australian government has all the financial resources it needs to buy them. It has no constraints in that regard.
The government doesn’t need money in the bank except in the literal accounting sense that it issues credits that the central bank will never bounce.
There is never a question of the Australian government running out of money.
Non-government sector entities like households and firms are financially constrained and have to have a source of funding before they can spend.
The government spends before it can collect taxes, which means the latter logically cannot cause the former. Logic 101 (Platonic Philosophy).
It is true that non-government sector growth delivers more tax revenue than a weak economy, which is why running an austerity campaign is stupid if you really want to reduce the fiscal deficit. Why? Because the fiscal balance is dependent on the spending decisions of the non-government sector.
Deliberately pushing up unemployment and undermining sales in the private economy leads as surely as the day follows nights to lower private spending overall and lower tax revenue, and typically, higher fiscal deficits.
The interview went downhill from there.
The interviewer brought up the article in the Australian Financial Review last week where Nicholas Stern commented on the decision by the Australian government to suppress climate change as an issue at the G20 summit. Stern said:
… the relegation of climate change to the margins of G20 is an outrageous example of one government placing political dogma ahead of the best interests of the world
The Treasurer stared blankly into the camera and seemed to misunderstand the gravity of the question.
The interviewer repeated:
No, I’m asking whether you read it and what you say to that accusation that …
Treasurer (blinded like a rabbit in headlights):
It was pathetic.
The interviewer tried again to complete the question:
… your Government placed political dogma ahead of the best interests of the world.
That’s not right.
Then realising that he was looking very poorly in front of national TV he attacked:
… let me tell you, this is an economic forum. This is about millions and millions of jobs. This is about getting people out of poverty. This is about how we are going to ensure that our children have jobs in the future and, of course, having clean environment, having better quality environment is part of it, but we cannot afford to deal with climate change if governments are in recession or if countries are facing huge structural challenges.
At which point any person with any understanding will ask ‘what state defines a government in recession?
Economies can be in recession but there is no meaning to the concept that a government is in recession. Governments can create recessions just as they can stimulate economies out of recessions but a government cannot be in a recession.
It is totally meaningless.
The rest of the nonsense about being able to afford climate change abatement initiatives are as above.
He then denied that “climate change potentially is one of the biggest impediments to growth”. I guess it all depends on what we mean by growth.
It is clear that an economy could ‘grow’ in the sense that total spending grows and be massive polluters etc. But growth is a multi-dimensioned concept these days and has to include ideas of sustainability – being able to replicate the state of affairs. In that sense, the natural environment can certainly stop growth.
To finish, the interviewer turned to fiscal matters more directly. The following exchange followed:
Interviewer: … In the first three months of this year, this financial year, net debt increased from around $202 billion to $221 billion. As recently as April the Prime Minister said Australia is dealing with a debt and deficit disaster. If it was a debt and deficit disaster in April, what is it now?
Treasurer: I’ll tell you what, it is exactly that. The problem we have is the trajectory is still rising. Labor is standing in the way of $28 billion of savings. And our revenue is falling as a government because iron ore prices are coming off, so if you’ve got falling revenue, you have to reduce your expenditure … We are doing our best, Barrie, and the only way we can start to get the budget back to surplus is to reduce expenditure, particularly that we’ve got falling revenue.
And then the interview, painful as it was, closed.
A government facing a slowing economy because private sector incomes are falling (terms of trade declining in this case being the cause) certainly loses tax revenue.
But the correct fiscal response as unemployment begins to rise is to increase total spending and push the fiscal deficit up.
Why? Because the aim of government fiscal policy should be to target high employment levels and strong productivity growth.
The aim shouldn’t be to move the fiscal balance to surplus or away from surplus. The actual balance on any particular day is irrelevant.
The measuring stick of fiscal policy is the real economy – jobs and real incomes. The only reason a government would cut spending as its revenue fell (with a collapsing economy) is if it was pursuing aims that were consistent with undermining welfare and prosperity.
Most sensible governments would not aspire to those goals. But then there are not many sensible governments around at this point in time.
Our Treasurer is part of a very poor government which lacks basic economic knowledge. Hundreds of thousands of Australians are without work because of their incompetence. Millions elsewhere because of the collective incompetence of governments obsessed with meaningless financial ratios.
But don’t think that the conservative side of politics is alone in its stunning disregard for knowledge.
The Opposition Labour Party leader in Victoria, who looks like becoming the State Premier after the November 29 election claimed at the weekend that
He was campaigning in regional Victoria on the theme of regional unemployment, which has worsened in recent months as a result of the slowdown in economic growth.
The Melbourne Age article (November 17, 2014) – Rising regional unemployment ’emergency’ election issue – quoted him as saying that “Victoria was facing an employment emergency” and that:
Jobs start with skills and that’s why it is so unforgivable that in the midst of a youth unemployment crisis the Liberals have gutted TAFE.
TAFE = Technical and Further Education and provides the major vocational training in Australia – developing skills.
It is quite true that the conservative fiscal austerity mania has been cutting funds from the TAFE system, nationwide and forcing the organisation to compete with private sector training companies.
The latter might just be a fly-by-night operation that rents a shopfront, sticks a few old computers inside and gets government training contracts to develop IT skills. I recall visiting one such training firm not all that long ago and they had Microsoft Windows 98 on their training PCs.
These cuts are all in the name of trying to run fiscal surpluses when, in fact, the economy needs larger deficits.
But that point aside, the Opposition leader was rehearsing what I call the Say’s Law of employment. Say’s Law was a vital component of Classical economics and said more or less that supply creates its own demand. The only thing stopping that from happening is if the Government introduces things like minimum wages which stop the market from working.
It essentially amounts to a denial that spending can fall short of total income. Marx knew otherwise. Keynes also – in his General Theory (1936) he noted that the non-government sector might save a portion of their incomes, which meant that the income would not automatically be recycled back into spending. In that sense, unless government fills the gap the economy goes into recession.
Neo-liberalism still pumps the primacy of the supply side. So if workers get training suddenly firms will offer jobs. Pity about that little thing called spending. Firms only employ if there are sales. They will not employ workers, no matter how skilled they are, if there is nothing for them to do.
Pity the Opposition leader doesn’t realise that. Jobs are generated by demand (spending) not supply. Supply responds to demand.
And now the announcement that Japan is back in recession – all down to mindless neo-liberal policies.
Humans are slow to learn essential lessons.
Unemployment Union of Australia
A new group has formed in Australia to support the unemployed. It deserves the support of all of us.
Please see their – homePage – and learn how you can support them.
That is enough for today!
(c) Copyright 2014 Bill Mitchell. All Rights Reserved.