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The complete billy blog on one page!

To help readers keep an overall perspective on this blog and make searching for previous blogs easier I have added a new page - see right hand menu under Other Information It shows all posts arranged by Category and in…

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How large should the deficit be?

Today I am in Melbourne (my home town) presenting a workshop on skills development for the new green jobs economy which is a joint Victorian Government/Brotherhood of St Laurence show. But that is not what I am writing about here. Regular readers of billy blog will know that when I talk about budget deficits I typically stress two points: (a) that the Government is not financially constrained and therefore all the hoopla about debt and future tax burdens are just a waste of time. But just because the Government can buy whatever is for sale by crediting relevant bank accounts doesn’t mean they should not place limits on the size of the deficit; and so (b) given the federal deficit “finances” private saving, it should therefore be aim to “fill” the spending gap left by the private desire to save. If the Government does that then it can maintain full employment and price stability and move towards a more equitable society. So it is of importance that we have some idea of the size of this spending (or output) gap.

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    What if the IMF are right?

    Yesterday, after sort of saying it the day before and getting close to saying it late last week, and having to wait for the central bank governor to say it first, our Prime Minister, then in quick lock-step, our Treasurer both said the R-word. What gives with this political posturing. The Opposition is largely irrelevant at the moment anyway. The reluctance of the Government to admit the obvious is repugnant. It has been very obvious that the economy is in very bad shape and had been heading that way for some years despite the chimera of prosperity – as the snowball of future recession was growing in size with the private sector debt and the fiscal surplus. Right now, the Government needs to introduce policies that really arrest what we have known for months – that employment is going south and unemployment heading in the opposite direction. Perhaps today’s terrible projections from the International Monetary Fund will sharpen their focus on large-scale public sector job creation initiatives.

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      Boondoggling and leaf-raking …

      There was a story in The Australian newspaper today entitled RED schemes are good written by a former minister in the Whitlam government in the early 1970s. He was extolling the virtues of the old Regional Employment Development scheme, which was a public works direct job creation scheme. He was suggesting such schemes may again find favour as the recession deepens. The RED scheme was a less generous version of the Job Guarantee and suffered as a result of its modesty. It was never based on any fundamental understanding of a modern monetary economy as as such was always a “defensive” program. Defending itself continually from the conservative, soon-to-be, neo-liberal critics. That made me recall my favourite conservative “put down” term – boondoggling and raking – which is used whenever direct public job creation is mentioned as a possibility. Then I recalled a letter that was written by the previous Federal Employment Minister explaining in 2004 why my Job Guarantee proposal was a crock. One thing followed another …

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        Money multiplier and other myths

        Policies such as Quantitative Easing which has been in the news lately are predicated on a mistaken belief about the way the banking system operates and how the non-government and government sectors interact. One of the hard-core parts of mainstream macroeconomic theory that gets rammed into students early on in their studies, often to their eternal disadvantage, is the concept of the money multiplier. It is a highly damaging concept because it lingers on in the students’ memories forever, or so it seems. It is also not even a slightly accurate depiction of the way banks operate in a modern monetary economy characterised by a fiat currency and a flexible exchange rate. So lets see why!

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          Free public broadband is required

          I have resisted writing about the so-called National Broadband Plan (NBP) up until now because the level of debate is quite frustrating. Once again, on a crucial issue that goes to the heart of national development, we are all being hoodwinked by spurious neo-liberal logic. Like all these debates, once it is constructed along an inapplicable macroeconomics, then all sorts of nonsensical points are raised that sound reasonable but are not. For example, the current debate appears centred on how the Government will ever be able to pay back the debt that will be incurred to build the network if consumers find it too expensive to use? On the face of it, the question is seductively sensible. But if you understand the choices open to the Australian government as the sovereign issuer of the currency then you will immediately recognise that the question and related concerns are fundamentally flawed.

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            The Future Fund scandal

            Today I was looking through annual reports of the Australian Future Fund, which is an example of what is known the world over as a sovereign fund. I have been keeping an eye on the performance of the Future Fund not the least because it is so exposed by its stake in Telstra, which has gone downhill ever since the previous regime persuaded Australians to buy a stake in something they already owned!. Anyway, most people have been conned by the Future Fund concept – it is shrouded in lies and deceit. In general, the idea of a sovereign fund is based on a misunderstanding (deliberate or otherwise) of the way the modern monetary economy operates. So its time to debrief and make it clear that these policy choices by governments generally undermine public goods and full employment.

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              Saturday Quiz – April 18, 2009

              Welcome to the billy blog Saturday quiz. The quiz tests whether you have been paying attention over the last seven days.

              See how you go with the following five questions. Your results are only known to you and no records are retained.

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                When is a job guarantee a Job Guarantee?

                In the current edition of the German weekly Magazine Der Spiegel (“The Mirror”) there is an article about a “new idea to keep unemployment down” entitled Germany Mulls ‘Parking’ Unwanted Labor in New State-Funded Firms. The thrust of the proposal is that Germany is now examining a proposal to set up government-funded “transfer companies” for workers who lose their jobs as a means of keeping unemployment in check. A reader wrote to me saying that it sounds a bit like the Job Guarantee that I have been advocating for years! Closer examination suggests that while the Germans are starting to come to terms with how bad their economic situation is, they are still a long way off understanding how to get out of it. In that respect, they share the ignorance with most governments. However, being a Euro zone member, the German government has voluntarily lumbered itself with even more constraints that will make it harder to insulate its people from the ravages of the recession.

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                  The dreaded NAIRU is still about!

                  The dreaded NAIRU is still about! I was thinking – rather optimistically – that it would just disappear from whence it came! But sorry to disappoint. Some economists just won’t learn. Yesterday the ABS released the latest data from the Australia Treasury Model (TRYM) database. You can get it here. Among other things of great interest that you can find in that database, is the Treasury TRYM model’s estimates of the so-called NAIRU. Sounds scary. Well, it stands for the the Non-Accelerating Inflation Rate of Unemployment and has a central place in neo-liberal mythology. The NAIRU is an important component of the TRYM model and influences the way it produces economic outcomes and policy simulations. So how much reliance should we place on this important component of the policy making process. Answer: not much!. My conclusion: any model that relies on a NAIRU is a crock!

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