Yesterday, regular commentator JKH wrote a very long comment where he/she challenged some of the statements and logic that modern monetary theorists including myself have been making. While I don’t want to elevate one comment to any special status – all comments are good and add to the debate in some way – this particular comment does make statements that many readers will find themselves asking. In that sense it is illustrative of more general principles, points etc and so today’s blog provides a detailed answer to JKH and tries to make it clear where the differences lie. Some of these differences are at the level of nuance but others are more fundamental.
I read the headline in the UK press this morning – UK can’t afford another fiscal rescue – as a sure sign that all current and future keyboard operators within the UK Government had resolutely decided to refuse to enter a number in any government spending account from now on. This clearly would make it hard for the Government to continue spending given that a sovereign government like in the UK just spends by crediting private bank accounts and only a typist or two is needed to make that happen any time the government desires. I wondered what the Government had done to their operational staff that they would take such drastic action. So I started out to investigate what seemed to be a major yet fascinating industrial relations dispute between a government and its typists.
Greetings from College Park, Maryland (pronounced Marrilynd! in Australian). It is near Washington (DC) and I have work here (at the UMD) and in the capital for the next 2 days. Weather is hot but we are 189 kms or 2.8 hours from the nearest surf according to Google maps, which is equivalent to being landlocked to me! So no quick surf before work! Losers! I came down here late yesterday (5 hour drive) after a workshop at the Levy Institute jointly hosted with the United Nations Development Program, which was held in upstate New York. No summer up there at the moment but the Catskills Mountains are very beautiful – it is near to Woodstock. Anyway, I left the workshop thinking – bad luck if you are poor!
Several readers have asked me about fiscal rules and I have been promising to write about them for some time now. I was finally goaded into action by the current German rush to madness which will see them constitutionally outlaw deficits. When I saw the news that the German government was pushing constitutional change along these lines I thought good – the Eurozone will be dead soon enough and perhaps a better aligned fiscal and monetary system will emerge. Fiscal rules can take lots of different shapes all of which entrench chronic unemployment and poverty. The only fiscal approach that is applicable to a sovereign government operating within a fiat monetary system is one that ensures full employment is achieved and sustained. Anyway, here is an introduction to the mean-spirited and wrong-headed world of fiscal rules.
I am now in New York on business for the next few days then off south to the capital Washington. In this blog I want to outline the horrible scenario that everyone has been predicting would happen – the increasing fiscal deficits will increase taxation. I know that has been on our minds. I have reached the ineluctable conclusion that future taxation will increase as a direct consequence of the current deficits. The tax revenue gained by the government will also reduce future deficits. Wouldn’t it be preferable that we didn’t push future taxation up and instead controlled net government spending? If you believed that you would have rocks in your head. In this blog I will be also be discussing debt, inflation, and other nasties.
I am now in the US with a hectic week ahead. At present I am in Florida and for those who haven’t been here just imagine taking a landscape and pouring as much concrete as you can mix over as much of that landscape that you can access. Then once that sets, you build massive high-rise buildings and suburbs that span hundreds of kilometres and you have it. Oh, and plant a few palm trees as you concrete. But then there is surf nearby and before work this morning I am off to check it out. Anyway, in between other things I have been reading the so-called public debt exposition that appears in the latest issue of the The Economist Magazine. It will take a few blogs to work through it but here is Part 1. It might happen that there will be no Part 2 if I get so sick of reading this nonsense.
I wrote this for the Fairfax press early this morning before a 10km run around the Vondelpark in the heart of Amsterdam – in cold pouring rain. They call it high summer. Anyway, the opinion piece was confined to 500 words. I could have said a lot more but you can extrapolate each line accordingly. I also did an ABC radio interview hiding under a tree in the park – the juxtaposition of talking to Sydney about the NSW Government’s failure to deliver adequate services and being among the wonderful urban amenities (for example, public transport and bike paths) and public spaces provided by the Dutch was not lost on me. Pity public spending can’t fix the lousy weather over here. Anyway, now I am off to work for the day over here. Part 3 of the fiscal sustainability series coming next – for Wednesday.
As the Federal budget week approaches the various commentators and interest groups are whipping themselves into a lather about what choices the Government might have or not have. A recurring theme is whether the Government should honour its election commitment in 2007 to cut income taxes from July 2009. The debate is being constructed along the lines of whether the nation can now “afford these cuts” given the “rising debt” and the “shocking state” of the budget deficit. This debate demonstrates perfectly how bad policy can be made when the Government fails to understand its options as a monopoly issuer of a non-convertible currency.
Put People First group are running a grass roots campaign for all of us to send a message to the G20 about their priorities. The campaign symbol is the megaphone logo appearing below. Their campaign will culminate in a march in central London on March 28, 2009 to push a case for jobs, justice and climate. I am not associated with this group but I share their priorities, even if I might see them in different terms. Anyway, this is the first of my messages to the G20. In summary: they need to learn how the economy actually operates and then they would use their fiscal policy capacity to ensure everyone has a job in a sustainable economy.