During the election campaign we were nearly bored to death with the Coalition mantra “jobs and growth”. The slogan was nauseous in the extreme and the mechanics were vague and unconvincing.
Not one government member was able to give a convincing explanation of how jobs would be created and growth delivered, or what the slogan itself actually meant. It was a hollow campaign tactic and not surprisingly, few fell for it.
But now, hollow or not, the government must deliver on jobs and growth. So where are they? The truth is, nowhere in the government plan, does a job creation program that will bring growth, exist. Growth over the last three years has failed to keep pace with the increase in population.
Unemployment has increased over the past three years and would be far worse but for current government spending which is propping up a stagnant private sector.
Despite this, the government wants to further cut spending to a level that will suffocate growth, simply to balance a budget. A balanced budget is the opposite of what we need to stimulate growth.
At the moment our Coalition government and the Labor opposition subscribe to managing our economy as if it were a corporation or a household. Every expense must be balanced by taxation revenue or deficit spending sourced by issuing bonds.
Government spending is a vertical transaction where new money is introduced into the economy, as opposed to a horizontal transaction where money already in circulation simply moves around from one point, to another, one bank account to another.
New government money is being introduced into the economy every day and progressively drained through taxation and bond issuance. The present method of accounting for government net spending, i.e. debt and deficit, is a political decision, not an economic one.
There is no cut and dried economic dogma or argument that says a sovereign currency issuing government must borrow to cover deficit spending. It is purely a political choice.
Long term economic stagnation, such as we are facing now, poses serious social risks for all nations currently recovering from the GFC. Unemployment, underemployment, a lowering of living standards and greater inequality will, if not checked, eventually lead to civil unrest.
There will be a day of reckoning, either for the country or a government that fails to deliver. If the government and opposition are serious about jobs and growth, serious that is, beyond repeating a slogan ad nausea just to win an election, they should be thinking about Overt Monetary Financing.
The timetable for the implementation of both the NDIS (National Disability Insurance Scheme) and the National Broadband Network (NBN), two Labor devised programs worthy of fast tracking, could be brought forward and funded through Overt Monetary Financing (OMF), a source of funding that would not cost anyone a cent. Nor would it require borrowing from any source, nor would it be inflationary.
This is not a pipe dream, it’s not funny money, it is economic management the way it should be, in a fiat currency environment. Overt Monetary Financing means dispensing with the unnecessary procedures of governments matching their deficit spending with bond-issuance to the private bond markets, as if the latter are funding the former, and simply creating the money from nothing.
With OMF, the Reserve Bank simply credits one government account with the necessary funds and debits another with a corresponding amount. The RBA’s books balance and the government then spends the money accordingly. It’s really just rearranging numbers in a computer.
The debit never has to be repaid, or if they chose to, the RBA could simply repay itself. It’s all just numbers in a computer. With Philip Lowe about to take charge at the Reserve Bank, there’s never been a better time.
Neo-liberal economists see OMF as inflationary because the additional money is not compensated by revenue being removed from circulation. But this view is quite wrong and short-sighted. Inflation occurs when too much money is chasing too few goods.
Funding projects like the NDIS and the NBN with new money does not create excessive demand for goods and services, rather it stimulates activity proportionate to the employment it creates. Furthermore, it adds value to the economy reflected in our GDP. In short, it creates jobs and stimulates growth.
Those who oppose OMF will argue that once you begin funding this way, politicians will go crazy funding everything from salary increases for public servants and politicians and dropping money out of helicopters, to bankrolling stock market investment, all of which would set off an inflationary spiral that would send us down the same path experienced by Zimbabwe and Venezuela.
This is a valid argument. Any funding that simply increases the money supply without a corresponding increase in production can cause inflation. But funding major infrastructure projects like the NDIS or the NBN that grow the economy, where a clear benefit is provided, a benefit that serves the interests of the general public and the business community, cannot be inflationary.
As for politicians mis-using this viable, yet cautionary economic tool, while such is possible, it is unlikely. Governments have to be really stupid, reckless and unconstrained to create hyperinflation of the kind experienced in Zimbabwe and Venezuela.
If an argument not to proceed with OMF is based on the competency of those managing it, then our country is already doomed. We just don’t know it yet.
Either way, this is a debate we should be having in the mainstream and while it is above the heads of our current government, it is a vastly superior option to the mamby-pamby they quack on about, at the moment.