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Friday lay day – progressives who are neo-liberal

Its my Friday lay day blog. Today I have been recording interviews about Modern Monetary Theory (MMT) , which will eventually become part of our MMT Educational Resources site on the Internet that will be linked to the MMT textbook that we are finalising in the coming months. It is actuall quite hard trying to talk to a camera. But we completed the first session today and I will put up a taste of the material when it is edited and produced. We will get better at it as we gain more experience in video production techniques. It took my mind of the policy debate going on in Australia at the moment about the best way to reduce the fiscal deficit. No commentator (other than a few like myself) have the temerity to ask: Why are we actually aiming to reduce the fiscal deficit when there is more than 15 per cent of available workers underutilised in some way or another (unemployed or underemployed). That would be like sacrilege to the kool-aid drinkers within the neo-liberal policy Groupthink. Either side of politics is just locked into a debate about the ‘best’ way to accomplish the task. You expect such cant from the conservatives. But Australia is also being let down by our so-called progressive organisations. It is a world-wide disease – the ‘left’ (which is more right than the right used to be) are infested with neo-liberal macroeconomics that they cannot see how compromised their positions have become in the public debate. The filming this morning took my mind of that dilemma.

On Wednesday (April 15, 2015), the UK Guardian published an article from the Australia Institute, another so-called progressive left think tank. It was discussing the “five most ‘profligate’ decisions’ that the past conservative Treasurer Costello made which apparently “cost the budget $56bn a year”.

We read that the past Treasurer “Peter Costello has gifted Joe Hockey the budget’s current structural deficit, mainly through tax giveaways to the rich”.

Distributional equity aside – and there is definitely a case to be made that fiscal policy has been used to increase income and wealth inequality during the Conservative periods of office and the Labor Party has done little to reverse these indecencies when they came into power – the article was all about how bad a fiscal deficit is at the moment.

We read words and expressions like:

1. “collecting the revenue needed to fix” the “budget deficits”.

2. “tax cuts cost the budget bottom line”.

3. “The budget conversation would have been very different if these irresponsible and inequitable changes had not been put through by Costello.”

4. “The reason we have a budget deficit today is in no small part due to the efforts of Costello.”

5. “The Australia Institute are making suggestions on how the government might repair the budget by making changes that would allow more revenue to be raised.”

And the articles invokes the authority of the IMF, of all institutions, to push its point that the deficit can be eliminated with higher taxation.

All of these expressions and metaphors (‘fix’ the sick fiscal balance – like a patient that is dying or a car with a dysfunctional motor) is totally consistent with mainstream neo-liberal thinking and therefore totally erroneous.

As I have argued before, the terminology “repair” is loaded. It assumes the fiscal balance is like a car that has broken down and needs to be fixed.

It further constructs a fiscal deficit as being a dysfunction and the larger the deficit the worse the repair job becomes.

The construction is invalid at the most elemental level.

What needs to be attended to in the Australian economy at present is the rising unemployment rate. The fiscal balance is a reflection of the extensive labour underutilisation in the sense that the flat employment growth and rising joblessness has undermined the tax base of the Federal government.

It is also a cause in the sense that if there is mass unemployment (that is, unemployment beyond the small amount associated with full employment – people moving between jobs etc) then Modern Monetary Theory (MMT) tells us that the fiscal deficit is too low.

The first observation (reflection) is about the behaviour of the automatic stabilisers, while the second (cause) is about the discretionary policy choices made by government. Both impact on the fiscal balance.

But a rising deficit is not something that should be the target of policy. A deficit of 10 per cent of GDP might be appropriate under some conditions (relating to private spending and the external balance) just as a 2 per cent deficit might be appropriate under different conditions. At times, a fiscal surplus might be appropriate.

There is nothing linear and directional about it – up is not always good nor bad just as down is not always good or bad.

If the Australian government tried to balance the fiscal state over the next few years with higher taxes then total spending will fall and unemployment and underemployment will rise further than their already unacceptably elevated state.

It is simply not a progressive position to buy into the nonsense that the Australian government is revenue constrained and the fiscal deficit is somehow a problem. The only problem with fiscal policy at present is the deficit is too low!

The Guardian followed that story up next day with the article (April 16, 2015) – Negative gearing reforms could save taxpayers $1bn in two years, says Acoss.

We read that the Australian Council of Social Services (ACOSS), the leading agency defending income support recipients, also is called for tax changes to shift the tax burden onto higher income earners and raise money for the government.

The substance of their proposal is sound when you consider it isolated from any discussion about the funding constraints on the Australian national government.

Negative gearing is a crazy subsidy to high income earners (they can “deduct the ‘losses’ on a rental property, such as the gap between the rent they receive and mortgage payments they make, from their personal income) and clearly pushes up housing prices without expanding the supply of housing.

It is also a major reason for rising household debt levels which are at precarious levels now.

I agree with the ACOSS statement that:

A well-functioning housing market is critical to economic growth and meeting the most basic of social needs. Housing is the largest household expense for low-income households and the main form of household wealth … Australia has among the most expensive housing in the world. A housing price boom is under way in some cities, especially Sydney. This is making the affordability problem worse. It is driven mainly by rental property investment.

The tax rort should be scrapped immediately and current recipients of the largesse be given 3 years or so to rearrange their portfolios before losing the benefits.

ACOSS then went into a split up exercise of the estimated $1bn that the government would gain in tax revenue by scrapping negative gearing.

They suggested:

… using about $100m of the $1bn in savings to strengthen tax incentives for investment in new affordable housing.

What?

There is currently a major shortage of public housing. Why do we need a market-driven system of tax advantages to ensure an adequate supply of such housing?

The Federal government, in liaison with the State and Territory Governments could simply create the funds necessary to build the housing independent of any “tax incentives”.

The ACOSS reasoning, once again, buys into the revenue-constraint myths that the neo-liberals perpetuate in the public domain.

Here we have two examples of so-called progressive institutions arguing that they can do neo-liberal economics fairer when they should be leading the way in rejecting the flawed neo-liberal approach and educating the public about the true, inherent capacities that a currency-issuing government such as Australia has.

Appalling!

Private Tolls Roads versus Public Mass Rail Transit systems

The Victorian State Government this week announced the payout to the private consortium that was going to build the controversial East-West tunnel link in Melbourne. Under the previous conservative State government, the East-West link was contracted (a few weeks before the election that they knew they would lose) despite the, then opposition, now Government vowing to abandon the project upon election.

This bastard act by the conservatives left the new State government with compensation payments rumoured at the time to be in excess of a billion dollars.

The conservatives had scrapped an earlier Labor plan to revitalise the railway system in Melbourne, which the national infrastructure evaluation body had considered to be eminently superior in cost-benefit terms than the East-West road link.

This week, the State government told Victorians that they had negotiated a relatively small termination payment to the road builders (cost recovery for preliminary work already done) and would go ahead with the former rail upgrades.

This article (April 16, 2015) – Metro rail Tunnel: Melbourne needs it, so let’s build it – provides some sober reflection on the idiocy of the previous conservative government and the poor decision making by the current conservative federal government which has attacked the plan to abandon the ridiculously inefficient and costly East-West road link project.

The following calculation puts it in perspective.

1. “the Metro tunnel will create space for an extra 17 trains an hour in each direction, each capable of carrying 1100 passengers – 37,400 people an hour in total”.

2. “The East West Link was projected to carry 80,000 vehicles a day by 2031, which equates to 96,000 people using VicRoads’ measure that shows each vehicle in Melbourne carries an average 1.2 people.”

The rail system will bring a lot more people into the city than the road and save all the other costs of car transport to the individual and the environment.

Africa from Rico Rodriguez

This is what I have been listening to today while working this afternoon.

It is one of my favourite trombone players – Rico Rodriguez – who is now 80 years old and originally from Cuba. He made his name in Jamaica after being taught by none other than Donald Drummond, one of the all-time best brass players from Kingston.

He played devotional music (rasta) with Jamaican hand drummer – Count Ossie in the 1950s and later with Winston Rodney aka Burning Spear.

He then moved to the UK and started playing jazz reggae before joining The Specials and playing ska.

His best album was in 1976 – Man from Wareika – from which this track – Africa – is taken. It is a really hot album.

One other track – Lumumba – is his tribute to – Patrice Lumumba – who was executed in a coup in February 1961 at the age of 35, while he was president of the Democratic Republic of the Congo. He was a major driver of the independence move and the break from the oppressive colonialism of Belgium.

His death was shocking in that he called on the UN to intervene against political instability promoted by the Belgians and the foreign mining companies, aided and abetted by the UK and the US.

The UN Security Council was petitioned by the Soviet Union to demand that Lumumba be released from prison after the military take over and to call on the Belgians to exit the Congo and to cease supporting the insurgency against the elected President.

The vote went 8-2 against the petition. That was on December 14, 1960. A month or so later he was executed and the announcement was withheld for a further three weeks.

Lumumba was a supporter of Pan Africanism and was thus despised by the Belgians and the US. The CIA had already tried to kill him but failed. It was a very sordid affair.

Anyway, Africa … I hope you enjoy it as much as I have for the last 35 years or so. I still keep putting the record on my turntable.

On the reggae and African theme, if you are in Melbourne Sunday and want to come down to the @Bar of Bengal Room, Kindred Studios in Yarraville (212A Whitehall St, Yarraville) then there will be an afternoon of Afro and reggae-rock steady music to enjoy.

My band Pressure Drop is in a joint venture with the Afro band Blak Roots to promote Sunday afternoon reggae during the winter months at this venue in Melbourne.

This week, Pressure Drop will begin the show at 15:00 and play until about 17:00. Then Blak Roots will play until 19:00.

On May 10, 2015, the second show will reverse the order of the bands.

More details are available at http://www.pressuredropband.org/?p=797

If you like Afro music and reggae-rock steady music then it would be great to see you down at the gig this Sunday from 15:00.

Saturday Quiz

The Saturday Quiz will be back again tomorrow. It will be of an appropriate order of difficulty (-:

That is enough for today!

(c) Copyright 2015 William Mitchell. All Rights Reserved.

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    This Post Has 12 Comments
    1. ACOSS: I went to a save Medicare rally in Sydney last year and ACOSS insisted on speaking, then the spokesperson started blathering about how they love medicare but wanted to work with the govt on equitable savings (read cuts)

      The Australia Institute director gave a great speech (the Manning Clark Memorial lecture) earlier this year when he talked about the expanders versus the straighteners(or something like that as a Clark used to frame things. It was a great speech because he did set out why we have been frightened into thinking we need to cut and be nasty to the “other”. So when I read the article you are referring to in The Guardian was just as disappointed as you.
      We accept their premise then argue about the crumbs which they claim are all that is left. Meanwhile they (you know who I mean) grow very fat on the cream cake that expands forever it seems).

      The same sort of self proclaimed leftists endorse means testing pensions etc etc etc too, and raising retirement age blah blah blah, but never talk about actually meaningful job creation. Training and education sure (arguments again about dividing the pie rather than expanding it) but jobs oh no.

    2. A rule of thumb. When any organisation calls itself a ‘think-tank’ you can be certain there’s precious little thinking taking place.

    3. On the TV debates,the first question was by a young Charlotte concerned that borrowing would lead to higher taxes as a result of interest payments on issued debts(Gilts)

      People will obviously be against deficit spending if they feel it will cost them more later.

      Before explaining the importance of deficit spending.It must be explained that Deficit spending doesn’t have to be “financed” by issuing debt.Or if debt is issued it can be bought by the BoE.The debt can be rolled over and no demand for interest payments on tax revenue has too be made.Or if it is it will go straight back to the treasury.

      Secondly it has to explained that this is not in anyway Inflationary.

      Once we get over these intellectual hurdles people will be much more open to dismissing funding concerns about the deficit and balancing the budget (which all “leftist” say is important)

      Then people will be open to do using govt spending to protect public services,invest in infrastructure and Promote full employment and generally create the well functioning,fair,sustainable and equitable society we all want to live in.

      And we can also look forward to election debates where leaders don’t have to nod to deficit reduction and balancing the budget.

    4. The Australia Institute should hang its head in shame; its economic illiteracy is on display for all to see and it’s not a pretty sight. People who do not understand how the financial and monetary systems actually operate (which the AI author clearly does not) should not venture into the minefield of macroeconomics. In terms of their understanding they are little more than babes in wonderland, and are way out of their depth. They should leave all such commentary to the professionals.

    5. I empathize with your frustration. To me the dilemma is “who the heck should I vote for? Even those who claim to be leftist are mentally confused and are constantly falling into neoliberal traps.

    6. Jake,
      A big part of the problem educating people on the simple realities is that we have people sitting in public office who repeat the neo-liberal mantra on a regular basis as they aggresively push neo-liberal fiscal policy.
      For whatever reason, authority figures gain support when they use that language. Many people feel that government must somehow be constarined by the same forces households experience and that thinking in those terms reflects a type of discipline that is essential to future prosperity.

      In my country all of the major parties have gone down this path and fear political defeat if they change position. On some issues such as public private partnerships for which neo-liberal economics” thinkers” have imagined a need for, all of the major parties have become signatory to agreements on the principle. This type of comittment makes it very difficult to admit you were wrong.

      As a starting point, people need first to understand their own significance in the modern democratic version of national sovereignty, and the connection between that sovereignty and the validity of their currency within the domain. Once people understand the responsibilities government has to them, and the true nature of government “debt” they begin to expect far more of fiscal policy.

      Money is a useful construct but it is not the “economy”; that label belongs to the actions of people producing or providing goods and services to trade with one another so as to maximize the benefits to each other (public good?) obtainable from individual specialization. Money eliminates specific problems that arise in the economy if the correct amount of it is in circulation and that amount is distributed in a way that everyone gets the use of it.

    7. One of the basic themes of this blog is that policy makers have, for one reason or another, fallen under the sway of an economic philosophy commonly called “neoliberalism”, and further, that the public have become hoodwinked into accepting this philosophy. A sub-theme of this is that the entire mindset is enabled by a rampant capitalism, whose star players are an increasingly globalised network of corporations, on the boards of which sit the arch predators, Mr Murdoch etc, pulling via their captive banks, media and lobby groups the strings to manipulate their political puppets.

      Despite the whiff of paranoia here, there is, of course, much truth to this.

      However, a question remains. At the governmental, or central bank level, where the actual monetary and fiscal levers are being pulled, why are not the lever-pullers aware of the intrinsic flaws in this prevailing economic paradigm?

      Thinking about this question leads me to question Bill’s overall thesis. The answer to the question can only be that either the lever-pullers actually believe in the “kool aid of neoliberalism”, or they are acting in collusion with the puppet string-pullers. Now, while admitting that there are certainly corrupt and incompetent policy makers, it seems to me that that second possibility is far too much of a conspiracy theory to be accepted as a universal reality.

      Therefore, one must ask the question: if the world’s treasurers and central-bankers support the tenets of neoliberalism, such as balanced budgets being good, and government debt being bad, why is this so?

      For, according to the lines of argument on this blog (which I hasten to add I fundamentally see as very plausible), the neoliberal policies of almost all the developed world’s treaurers and central bankers and media commentators are wrong. And worse, it is so very blindingly obvious that they are wrong.

      Here then is a strange case of a majority being unable to come to the same conclusions as a minority. It very much smacks of that other strange paradox, where the majority of the world’s climate scientists just cannot see what is blindingly obvious to the world’s minority of climate skeptics.

    8. Not all Treasury officials and central bankers are oblivious to the functioning of a non-convertible fiat currency on a floating exchange rate. Not all of these people unwittingly base their understanding of monetary transactions on the assumptions of a gold standard system. Frank Newman, a prominent proponent of MMT, was Deputy Secretary of the United States Treasury in the 1990s. He wrote an MMT book called Freedom from National Debt.

    9. There is a third possibility that dedalus does not seem to have considered – that there is both a conspiracy and a fundamental blindness to the reality, each of them feeding off the other. In every matrix of illusion and deception, those who imagine they are pulling the operational strings eventually come to believe their own spin and propaganda. Consider also that there is no necessary reason why a conspiracy should be carried out by those who have a good grip on reality. Moreover, the statement “it seems to me that that second possibility is far too much of a conspiracy theory to be accepted as a universal reality” is not really any sort of valid argument, but an expression of how the author would like the world to be. Conspiracies do exist in the world, and not all of them are little conspiracies.

    10. Ruling elites have always propagated hegemonic myths that persuade the lower echelons to accept the status quo. It should not be surprising that they do not perceive features of the system as flaws.

      Progressives who hope for change from some kind of an intellectual Damascene conversion of the elites will be waiting a long time indeed. As to the charge that neoliberal policies are wrong, the obvious question is “wrong for whom?”.

    11. I hope this does not turn into a debate on the virtues of postmodern philosophy, but ParadigmShift’s “obvious” question “wrong for whom?”, bothers me.

      It is not subjectively wrong at all, it is objectively wrong. It is not merely a misguided opinion, it is logically wrong and empircally wrong. It is a demonstrably false description of reality. It is wrong for all of humanity and the entire planet we live on. It is wrong for the fools who think it is right because it accords with their ideology of victim blaming. And it is wrong even for the cynical manipulators who think that propogating neo-liberal memes will enhance their wealth and power. It cannot even serve the interests of the cynical manipulators for long, because it is a misconception. It prescribes actions which have consequences opposite to what is advertised and hoped for by its adherrents. It is fatally wrong. It is an ex parrot!

      In the name of “reducing the burden for future generations” our children must sacrifice their education and training. They must perpetually face poverty, unemployment and exploitation. They must be burdened with individual debt in order to free themselves from a promised future tax burden which, it is claimed, must inevitably be imposed by the nation’s only source of legal tender. Don’t ever let the public see the historical evidence because that suggests the consequences of reaching a level of accululated fiscal deficits beyond 140% of GDP was an economic boom lasting 30 years.

      I don’t believe such a boom can be repeated because we no longer have the abundant natural resources, however I do believe that we must maintain full employment in spite of the private sector’s reduced borrowing. The private sector’s credit card is pretty much maxed out already, but there is also evidence of a loss of confidence about future profitability in a world of depleting resources. As private sector borrowing fails to provide an adequate circulation to support full employment, then the public sector has a duty to make up the shortfall in the community’s money supply.

      Government spending is the reverse of borrowing existing money from the economy – it creates new money into circulation which facilitates greater economic activity. During the approach to full employment, there ought to be minimal wage inflation, however “cost push” inflation due to the rising scarcity value of depleting resources will become an increasing problem. Throwing more and more people into poverty might reduce demand for resources sufficiently to keep prices stable, but it is ultimately a recipe for economic collapse.

      The neo-liberal economic theory that governments should leave governing and the issuing of currency to the corporate sector, is very similar to the thinking behind the Great Depression. I don’t really know for whom the Great Depression was “right”. I suppose it did result in the ownership of natural assets becoming concentrated into fewer hands – but generally, the rich took a big hit too. I cannot swallow the idea that engineering an economic collapse is “right” for anyone.

      By WW2 there had been a reluctant Road to Damascus Conversion of the economic mainstream which lasted until the fallout over the “oil shocks” or the 1970s. Apparently, the Keynesians had neglected to predict that a scarcity of natural resources could generate inflation and inflation was not exclusively the result of wage demands. There was a moment of doubt while the leaderless Keynesians rifled through their sacred texts, but the hesitators lost out to the new adherrents of the old economic religion who stormed the hegemonic castle. The ideological descendants of “fight inflation first” have dominated the economic priesthood every since.

      Austerity is king, so whenever “the nation has much work to do”, we have to reduce the amount of work we are allowed to do and the number of people working. That, we are assured, is perfectly logical. In order to pay back our debts, we have to cut back on productive activity. The road to wealth is to force people to sit on their arses or else engage in meaningless unproductive activity. Would it be more accurate to say, being rich is much more fun when there are more poor people to punish?

      Far from creating a burden, the historical evidence suggests that when the public sector reached a level of accululated fiscal deficits exceeding 140% of GDP there was an economic boom lasting 30 years! But let’s not let evidence get in the way of endlessly repeating THE BIG LIE.

      Returning to the main topic. I forwarded Steven Hail’s presentation on the Myth of the Budget Emergency to TAI on 20th Jan 2015 and I begged them to watch it. I have received no acknowledgement and confess to a growing feeling of dissapointment. I had paid close attention to the Manning Clark Memorial lecture and felt that Richard Denniss may well have been aware of MMT but feared “loosing relevance” if he departed from the assumptions of his audience. That was OK at the time, but TAI has subsequently talked about hitting the big end of town, not merely for the sake of equity, but specifically in order to “balance the budget”. I do hope TAI shifts its position soon or despair will overcome many of us.

      Is anyone here in a position to seek a clarification of TAI’s intentions in this matter?

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