This is Part 2 of the series I started earlier this week in – An MMT-Green New Deal and the financial markets – Part 1 (September 2, 2019). In the first part, I discussed Chapter 12 in John Maynard Keynes’ General Theory, published in 1936, where he outlined how the growth of financial markets was distorting investment choices and biasing them towards speculative wealth-shuffling exercises, which had the potential to destabilise prosperity generated by the real economy (production, employment, etc). His insights were very prescient given what has transpired since he wrote. He was dealing with what we would now consider to be a tiny problem given the expansion of the financial markets over the last three decades. In this part, I am briefly outlining what I think an MMT-Green New Deal agenda would encompass in the field of financial market changes. The MMT association is that such an understanding opens us up to appreciate a plethora of policy options that a strict sound finance regime rejects or neglects to mention. That policy proposals and reform agenda I outline here reflects my MMT understanding but also, importantly, my value set – what I think are important parameters for a futuristic progressive society. So we always have to separate the understanding part from the values part (although that is sometimes difficult to do). The point is that a person with a different value set who shared the MMT understanding could come up with a totally different agenda to deal with climate issues and the need for societal restructuring. You can see all the elements of my thinking on this topic under the category – Green New Deal – which also contains a long history (now) of relevant commentary. Most of my writing on the topic are about the societal aspects of the GND transformation rather than the specific climate issues. That is obviously because I am not a climate scientist. But as I signalled in Part 1, I am about to announce a coalition (in the coming week I hope) which does include climate science expertise to broaden the capacity of the MMT-GND agenda.
Next week, I am attending a meeting which I hope will finalise discussions I have been having with some key prospective partners in putting together a major MMT-Green New Deal initiative in Australia which will have global ramifications. It will bring together MMT with climate action and indigenous rights interests. We propose to begin a ‘roadshow’ in November to start our campaign. Our discussions to date have been very productive and we will issue a ‘White Paper’ in the coming months to articulate what we conceive as a jobs-first, equity-first MMT-Green New Deal might look like. This work will also form the basis of talks I am giving in the coming month throughout Europe and the UK. I have already started sketching elements of my thinking on this topic under the category – Green New Deal – which also contains a long history (now) of relevant commentary. Today, I am focusing on another element that I consider to be a core part of a progressive MMT-Green New Deal campaign – dealing with unproductive financial markets. I am not for one minute thinking any of the analysis today (or any of the GND stuff) is likely to be implemented without a massive and lengthy struggle. I think I understand vested interests. So a valid retort to the ideas is not to accuse me of being politically naive. My role, as an academic, is to work through things and lay out blueprints to guide directions of activity based on that thinking. It is not to assess the likelihood of success of the blueprints being implemented. I sort of see these blueprints as being benchmarks – to assess where we are at and how far it is to go. And as debating vehicles which define what opponents have to address. But, moreover, I do see them as being guides for campaigning strategies, which can then be implemented by those who know more about those things than I ever will. This is a two-part series.
I was coming through the streets of inner Melbourne the other night after playing in my band. I couldn’t believe how many little scooters with those big boxes on the back were buzzing around, in and out of traffic, turning here and there, presumably, delivering food to people who preferred to stay in from the cold weather. I had sort of noticed these ad hoc cavalcades of cheap scooters before but never really assessed the extent of the proliferation. It represents an amazing and highly disturbing trend in our labour market. Okay, that sounds like something someone from another (older) generation might say. He who grew up when there was secure employment and wages and conditions were more tightly regulated. And I have seen Tweets from young people telling us ‘oldies’ to step aside. But what the scooter riders don’t realise is that they will get old themselves one day. And secure, well-paid work coupled with a broad spectrum of high quality public services is what makes that transformation liveable. In mapping out what I think are the essential aspects of a social transformation that we might call a Green New Deal, eliminating precarious work is one of the priorities – it is intrinsic to creating a more equitable society in harmony with nature. This aspect also calls in question the role of a Job Guarantee. Note the capitals – there is only one Job Guarantee but many jobs guarantees. I will explain today why the Job Guarantee will be an intrinsic part of the Green New Deal but by far a minor player in terms of the job opportunities that will be created by the socio-economic shift. Many commentators seem to think the Job Guarantee is sufficient for a Green New Deal. It is not and we need to understand its role in a monetary system to understand why.
I am working on a manifesto (‘White Paper’) linking Modern Monetary Theory (MMT) with a Green New Deal (GND) concept. I will announce an important strategic coalition I am forming to advance this agenda in the coming period and some great events to present the framework. As part of that process, I have been sketching some of the important guiding principles that I consider to be essential if a massive socio-economic transformation like the Green New Deal (or whatever we want to call the strategy) is to be successful. Lessons from history are a good starting point to understand why things go awry. In that respect, the largest national infrastructure project that Australia has embarked on for decades – the National Broadband Network (NBN) – is a object lesson in how not to conduct government policy when nation building. The Green New Deal is about nation building – creating a framework of infrastructure, education, skills development, employment, distributive mechanisms and more to take nations into the next century while reversing the environmental degradation that industrialisation and mass consumerism has wrought. The central role of the government as the currency issuer will be paramount. The whole transformation will not be successful while policy makers hang onto mainstream macroeconomic views about government financial capacities, which manifests into obsessions about achieving fiscal surpluses. This is why an understanding of MMT is central to any proposal to advance a GND. Without that understanding, we will always encounter the nonsensical issues that have plagued the NBN development and left it in a state of chaos and near-redundancy, when it should have underpinned our technological network for decades to come.
This is the second and final part of my recent discussion on the what a Green New Deal requires. All manner of proposals seem to have become part of the GND. The problem is that many of these proposals sell the idea short and will fail to achieve what is really required – a massive transformation of society and the role the government plays within it. The imprecision is exacerbated by progressives who are afraid to go too far outside the neoliberal mould for fear of being shut out of the debate. So we get ‘modest’ proposals, hunkered down in neoliberal framing as if to step up to the plate confidently is a step too far. In Part 1, I argued that the progressive side of the climate debate became entrapped, early on, by ‘free market’ framing, in the sense that the political response to climate action has typically emphasised using the ‘price system’ to create disincentives for polluting activities. In Part 2, I argue that we have to abandon our notion that the role of government in meeting the climate challenge is to make capitalism work better via price incentives. Rather, we have to accept and promote the imperative that governments take a central role in infrastructure provision, rules-based regulation (telling carbon producers to cease operation) and introducing new technologies.
All over the globe now there are cries for a Green New Deal. What constitutes the GND is another matter. Like the concept of the Job Guarantee, there are now countless versions springing out of various groups, some that only seem to offer a short-term, short-week job or other arrangements that fall short of the way Modern Monetary Theory (MMT) constructs the concept. There is only one Job Guarantee in the modern parlance and that is the MMT concept. Other job creation programs are fine but they should stop using the term Job Guarantee, which is a comprehensive macroeconomic stability framework rather than a job creation program per se. In the same vein, all manner of proposals seem to have become part of the GND. The problem is that many of these proposals sell the idea short and will fail to achieve what is really required – a massive transformation of society and the role the government plays within it. The imprecision is exacerbated by progressives who are afraid to go too far outside the neoliberal mould for fear of being shut out of the debate. So we get ‘modest’ proposals, hunkered down in neoliberal framing as if to step up to the plate confidently is a step too far. This is Part 1 of a two-part blog post series on my thoughts on the failure of the environmental Left and climate action activists to frame their ambitions adequately.
Everywhere I read it seems, the ‘Green New Deal’ appears. I wrote a bit about it last week in my evaluation of the latest US job numbers – US labour market moderated in November and considerable slack remains (December 11, 2018). The point I made there was that a shift to a green economy would possibly generate around 21 million jobs (14 per cent of total US employment), which given reasonable estimates of excess capacity would require a huge shift in the employment structure and multiples of the available idle labour supply. Of course, that is the objective – to shift workers from fossil fuel, carbon intensive industries into sustainable activities. That is no easy task and would require a fundamental shift in the government-market balance in terms of resource allocation. The market alone will not accomplish that shift in a desirable manner. Cue – more regional and occupation planning. I have also been seeing an increasing number of Tweets talking about a ‘Just Transition’ framework, something I have written about in the past. And there are now Tweets out there equating that with a Job Guarantee. At that point, we get ahead of ourselves. We must see the Job Guarantee in perspective and not ask it to do too much. That is what this blog post is about.
Last Saturday, the Weekend Australian, Rupert Murdoch’s daily national newspaper, had a relative Modern Monetary Theory (MMT) avalanche, with two core MMT-style articles published and two that were supportive rather than hostile. That tells you something about the way the world is shifting. I have received a bit of flack for publishing an Op-Ed piece in that newspaper from those who style themselves as Leftists. It is the same old argument – dealing with the devil. And the same old reply – if you want to influence policy then you have to talk to those who make policy. It is easy plotting revolutions over lunch. There has been a lot of groundwork laid over the last several months to bring people into the conversation. It is quiet stuff. Discreet. And as things unfold I will make some of the developments public. At present, all I can say is that I have a document before the Prime Minister today and there is a lot of behind-the-scenes workshops/briefings going on at state-level. And, while activists spend a lot of time ‘pressuring’ this person and that person on social media, the big shifts that are going on at present, including the publication of Noel Pearson’s piece and my article, are not being helped by aggressive social media confrontations. Sometimes it is better to work in a subtle way and exploit networks where they are available. That is not to say that activism to promote MMT is not appreciated and helpful. But we do need to pick our path. Anyway, a number of people asked me to publish my article here because they cannot get behind The Australian’s paywall. So here is the penultimate version which is a few hundred words longer than the actual article, which I cannot provide due to copyright restrictions. I also cannot provide Noel Pearson’s accompanying and complementary article but it was magnificent.
For various reasons, I am often in Melbourne and over the last few trips I have avoided public transport (trams) for obvious reasons. In my wanderings to various destinations in the inner city I have noticed that many shops that have been trading since I grew up in that city have now disappeared as a result of the coronavirus lockdowns and the shift away from store-based retail. They were struggling before the virus hit and have now gone. Whole retail shopping strips are in trouble (the famed Chapel Street, Bridge Road, and now Victoria Street, to name just a few retail areas in serious decline). When I arrive at the airport and move into the city I get this overwhelming feeling that all this infrastructure we have built is becoming redundant in a post-Corona world. It also reinforces my view that governments are going to have a major role in transforming these urban spaces to be better suited for the needs of whatever future there is to be. This view was strengthened when I read a recent report from a research group at Cambridge University in the UK – Townscapes: England’s health inequalities (released May 2020) – which found that health inequalities in England are rising as a result of the pattern of urban development over the period of austerity. In some of the “most deprived set of towns” residents are “much worse off than the least deprived on a number of key measures”. I suspect, similar outcomes would be found in Australia and elsewhere, should the research be done. With the virus fast-tracking major shifts in the way we relate to retailing and service delivery, now is the time to implement a new urban plan to green up our urban spaces, ensure there is viable employment bases in all cities, and maintain a close link between the social and economic settlements, a link that has been increasingly broken under neoliberalism.
Things are a little odd when a Minister for Finance & Public Expenditure and Reform of a nation (Ireland) informs the press that if his government isn’t cautious in its fiscal response to the largest medical and economic crisis in a century then the “bond vigilantes” will turn on them. And this is in the context of governments around the world issuing long-term debt at negative interest rates and the relevant central bank is buying billions of government bonds with its currency-issuing capacity. But that is what the Irish Finance Minister did last week ((Source). Fear of God strategy Number 1. That still works in god-fearing places. He referred to the “the fiscal architecture we are anchored in within the euro area” which will ultimately impose Excessive Deficit Procedures as the medical crisis eases (see his April 23, 2020, Speech on Stability Programme Update). Code for a renewed bout of austerity once people have stopped dying. A wonderful prospect. And while currency-issuing governments around the world are introducing variously large direct fiscal stimulus packages (that is, spending going into the economy immediately), the European Union is once again demonstrating their inability to respond to crisis. Nothing has been learned from the GFC.
A shorter blog post today (Wednesday). On Monday (July 29, 2019), the British Social Metrics Commission published their – 2019 Report – which reveals (staggeringly) “that 4.5 million people are more than 50% below the poverty line, and 7 million people are living in persistent poverty” in Britain. So around 22 per cent of people in the UK are living in poverty. In this day and age, poverty is like polio – it is completely avoidable if governments adopt the right policy mix. Persistent poverty means that a people “are in poverty now and have also been in poverty for at least two of the previous three years.” In other words, the policy failure is persistent. As Britain approaches the October 31, 2019 deadline and, hopefully, finds itself free of the neoliberal, corporatist nightmare that is membership of the EU, it certainly needs to take action to insulate the economy from a possible downturn. The forecasts coming out of the Office of Budget Responsibility (OBR) are clearly negative but hardly catastrophic. They certainly do not match the hysteria that you read in the Guardian on a daily basis about the end of life as we know it in Britain. But the Government has the capacity to circumvent any downturn. The OBR assumes that facing a recession that the Government does nothing of a discretionary nature (stimulate via fiscal policy) to attenuate that event. What responsible government would not act? And why did the OBR not model some fiscal stimulus scenarios in the wake of the decline in non-government spending they estimate will follow a No-Deal? The reason, is, of course, that that would give the game away. They know that the Government can offset their predicted (though modest) downturn if it chooses. The Government could also go a long way to avoiding such a downturn, and, bring this horrendous (austerity-driven) poverty rate down rather quickly if it takes positive action. That is Boris Johnson’s challenge. And if he takes it up and succeeds then it is ‘goodnight’ Labour.
In advanced nations, poverty used to be a thing of old age, once income had stopped due to retirement and savings depleted. Old-aged pension systems were intended as Welfare States emerged to prevent that fall into poverty. The pension systems reduced the incidence of extreme poverty and the full employment era that followed the Second World War, where governments committed to using their fiscal capacities (spending and taxation) to ensure there were sufficient jobs for all, allowed workers to improve incomes and saving. Research in the early 1970s (particularly from the US, where the pension systems were less generous and working conditions less regulated) started to disclose the incidence of the ‘working poor’. In more recent times, the concept of the working poor has spread from the US to most advanced nations. In this modern era of renewed real wage repression, rising energy costs and housing costs, workers are not only facing increased risk of poverty but also of homelessness. Welcome to Australia – the nation with the second highest median wealth per adult in the world. Yesterday (February 21, 2018), the Australian Bureau of Statistics (ABS) released the – Wage Price Index, Australia – for the December-quarter 2017. Private sector wages growth was 1.9 per cent in the December-quarter continuing the seven consecutive quarters of record low growth. However, with the annual inflation rate running at 1.9 per cent, real wages growth was static. And with real wages growth lagging badly behind productivity growth, the wage share in national income is now around record low levels. This represents a major rip-off for workers. The flat wages trend is also intensifying the pre-crisis dynamics, which saw private sector credit rather than real wages drive growth in consumption spending. And now, the latest data shows that workers are experiencing increased homeless. It is not just a problem of the ‘working poor’ now. Welcome to the ‘homeless’ working poor – a new neoliberal KPI.
In this blog – The fiscal role of the KfW – Part 1 – I recounted how the government-owned German development bank, KfW (Kreditanstalt für Wiederaufbau) – interacts with the German Finance Ministry to allow its fiscal balance to move into surplus without the commensurate level of fiscal drag that would normally be associated with that degree of fiscal withdrawal. The intent of the blog was to show how the Germans cleverly use their state-owned development bank to advance ideological positions not available to other states that have either privatised these type of institutions or never created them in the first place. It is ironic given the Germans insistence that countries like Greece privatise everything in sight. Today’s blog returns to the KfW, in part, because new information has emerged where we learn that the Greek crisis has allowed the German Ministry of Finance to run surpluses without melting their economy down. The KfW’s role in that regard is undoubted. It has been a source of bailout funds for Greece, on behalf of the German government, and has been pocketing handy profits ever since. This information shows that the popular claims that German taxpayers are bailing out Greece are clearly false and just political verbiage. Further, despite the understanding that the Member States (bailout partners) would remit any profits made on asset holdings associated with the Greek bailout, the Germans have reneged on that deal, in part, because it has channeled those profits through the KfW, which it claims is at hands length to the government, despite being 100 per cent government-owned.
With the new British Prime Minister now indicating that she will push ahead with Brexit and free the nation from the undemocratic imposts of the increasingly dysfunctional European Union, a view that is apparently ‘poisonous’ to some so-called progressive writers, several pro-Remain economists or economic commentators have realised that the game is up for neo-liberalism in Britain. There have been several articles recently arguing (after bitching about the loss of the Remain vote and repeating the catastrophe mantra) that a new economic paradigm is now called for in Britain, based on its new found sovereignty (after it finally exits). It could, by the way, exit through an Act of Parliament without all the Article 50 palaver if it wanted to. That is just a smokescreen. This idea of a new paradigm being required is exactly what Thomas Fazi and I are working on as part of our current book project which is nearing completion. Today, I consider briefly our view that nationalisation has to return as a key industry policy plank for any aspiring progressive political party.
The headline this morning in the Fairfax press yesterday (June 1, 2016) – Sacked for having a cup of coffee on the job – was about a low-wage cleaner in Australia won a case in the Fair Work Commission (a judicial body that sets wages and conditions) for unfair dismissal because she had a cup of coffee just before her shift began in the kitchen of the offices she was cleaning. The boss called it theft despite a convention allowing the workers to use the kitchen. Then there was the single worker who won a landmark case on Tuesday (May 31, 2015) against Coles (supermarket monolith) and his union who had conspired to finalise an enterprise bargaining agreement that violated our industrial laws and made the workers (not the union bosses) worse off. Then there was the minimum wage case decision handed down Tuesday (May 31, 2015) by the Fair Work Commission which provides a little real wage growth for the lowest paid workers but only a little! Life for low-wage workers in Australia is tough and would be much tougher if there were not enforced regulations to stop the capitalists from taking more and dishing out capricious treatment to the workers.
Obviously the big deal today is the US election result. My distant (being in Australia) and relatively disinterested (a pox on all of them) view is that the conservatives (GOP) should continue to foster links with the Tea Party and particularly senators and would-be senators who think women have a choice in rape so that the party continues to lose traction with the changing demography in the US and march off into oblivion. The other conservatives (the donkeys) won because the motor car industry is still operating and because the elephants in the room were so bad. The commentary on Australian TV today (one of my computers in my office is following the results even though I am “disinterested” :-]) has become obsessed with the “fiscal cliff” with all the experts appearing demonstrating their vast ignorance about macroeconomics. An ex-federal Opposition leader (failed) in Australia (and a former professor of economics) just said that the US deficit and debt is reaching European proportions, which tells you that he is either deliberately choosing to mislead the viewers or doesn’t know the difference between a currency-issuer (the US) and a currency-user (Eurozone nations). The election result will probably not change much. The political impasse is saving the US economy at present – the deficit is still flowing each day and supporting some growth.
I often get E-mails from readers – some hostile others more reasonable – telling me that I should stop arguing for more economic growth. The reasoning is relatively straightforward – the Earth is buckling under the rapacious resources demands of the capitalist system and not only is that process likely to be finite, notwithstanding substitution via technological advances, but also in the process of exhaustion the amenity declines. The argument juxtaposes ecological claims with other claims relating to the desirability of the current neo-liberal dominated system which relies, seemingly, on creating more inequality, a reduction in government oversight and allows the worst aspects of the capitalist system to run amok. However, somewhere along the way, the 99% or whatever percentage it is (I think it is substantially lower than 99) miss the boat. The current crisis is used to demonstrate that conjecture. I haven’t time to reply to all the E-mails and I try to provide “collective” replies (which should tell you something in itself) via my blog posts. So today I am addressing that issue. The message is simple – I am very sympathetic to localised, new economy-type collective ways of organising social and economic activities. I support egalitarianism and co-operative solutions rather than competitive, dog-eats-dog approaches. I don’t mind working and giving my surplus to aid those who are unable for whatever reason to achieve the same material outcomes by their own hand. I am happy with consolidation rather than growth. But despite the romantic appeal of all this – as the solution – we have to understand that there is still something called a monetary system and a currency to deal with. Localised solutions are still constrained by the sovereign state they are located in and their fortunes are determined in no small way by the way the currency-issuing government conducts its fiscal policy. There is no escape from that.
Research has shown conclusively in the past that those who undergo mainstream economics training are more selfish, less co-operative, less honest and less generous than other groups. These insidious qualities are reinforced and strengthen over the course of their undergraduate years. There has also been conjecture about the political role played by conservative economists – that is, that they provide authority for the industrial and financial elites to lobby politicians to introduce policy regimes that create the conditions whereby these groups can appropriate an ever increasing share of real income. They have been used to perpetuate the myth that the “business cycle” was dead and hence governments should have limited involvement in the “market economy” which was promoted as being self-regulating and capable of maximising wealth creation for the benefit of everyone. It was clear that this was always a sham and ideologically based rather than ground in any theoretical legitimacy or evidence-based standing. The fact that the mainstream failed to predict the crisis and have no tools in their models to provide a solution to the dramatic private spending collapse reinforced the notion that mainstream economists were ideological warriors. But new research has provided another clue – their brains are thinner!
Today’s blog was a little later than usual for various reasons – travel, time differences and other activities that had to take precedence. The title comes from a paper I wrote in 2008 which was published last year and reflects the notion that fiscal policy – appropriately applied can always make a difference for the better. I have noted some scepticism about this proposition and claims that the situation in countries such as Iceland refute the confidence I have in the effectiveness of fiscal policy. My response is that these claims misconstrue my statement and like a lot of criticisms of Modern Monetary Theory (MMT) they choose to set up stylisations that are not those advanced by the leading writers of MMT. So I thought I would just reflect a bit on that today.
My RSS feed and E-mails have brought some shockers in the last few days from the financial markets – official bulletins from banks that don’t make any sense at all (US about to default-type arguments); hysterical Austrian school logic (from a large player in the Asian markets) and news commentary from a so-called business insider magazine. The latter should immediately close its doors and declare they are not competent to comment on matters relating to banking. Coincidentally, I also received several E-mails in the last few days asking me to comment on the particular Austrian document noted above that has been circulating within financial markets recently. I deal with that later in the post. Anyway, apart from my main research and other writing activities this blog stuff is “all in a day’s work” – Friday March 19, 2010.