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Galileo, modern monetary theory and the job guarantee

Image by uprisingradio.org

Image by uprisingradio.org

If you lived around the time of Galileo, the argument that the Sun went around the Earth would make perfect sense.

After all, it appeared in the East in the morning, passed overhead in an arc during the day, and finally disappeared in the West in the evening, much like that of a wheel going around the axis of a hub.

The Moon also did this at night and why shouldn’t it?

God had created the Earth, and in the absence  of Martians or Moon-tians coming forward to claim there was life anywhere else in the universe, it simply stood to reason that that the Earth was the center of the Universe and everything else moved around it.

To argue otherwise was either lunacy or heresy – or both, and as the accusation of being either carried dire consequences at the time it was best to keep your mouth shut, even if like Galileo you could prove your argument.

In those days when the Roman Inquisition asked you to drop by for a grill and to bring your own stake, the only rump they were referring to was attached to yourself.

Galileo’s experience in challenging long established beliefs and the Roman Inquisition’s reaction, serves as a good example of what is these days termed cognitive dissonance – stress at being confronted with new facts or ideas which contradict long held beliefs, but more of this later.

In economics, Milton Friedman’s Chicago School of economic theory with its focus on ‘supply side’ theory has held sway over most of the developed world for more than three decades.

Put simply, the base of which all economic theory rests is that of supply and demand and the best way to manage both in order to promote economic growth and the well-being of the populace.

Friedman argued that supply created demand and that the demand should be governed by market forces driven through the private sector with only light (if any) regulation through government.

Intrinsic to Friedman’s theories is the NAIRU or Non Accelerating Inflation Rate of Unemployment.

The operative word is ‘Non-Accelarating.’

The NAIRU dictates the level of unemployment necessary to counter inflation.

In Friedman’s theory, this is pegged at between 5.1 to 5.8% of the available workforce and constantly maintained as a permanent ‘floating pool’ of unemployed labour – skilled or unskilled.

This idea of a permanent pool of unemployed immediately found favour among employers who could then pick and choose from a far more compliant work force who were far less likely to insist on pay increases or award conditions.

The NAIRU has both directly and indirectly enabled the perpetration and propagation of the myth of the need for ‘surplus’ in government budgets, and of ‘workplace reform’ in policy formulation.

The fact is however, that this is simply an excuse to give the upper hand to  employers who have the ‘flexibility’ to tell employees; ‘if you don’t want the job, there are plenty who do.’

When wed to the Phillips Curve or ‘trickle down effect’, the NAIRU serves as one column of the twin pillars of the economic support for the ‘market forces’ policies so beloved by Neo-liberal economists.

So here in a sense we have the world at the time of Galileo.

Over the past three and a half decades, the electorate has been steadily pressured into believing  that the Sun moves around the Earth.

In this case, the Sun is represented by society and the environment, and the Earth is represented by the economy.

Enter Galileo in the form of Modern Monetary Theory.

M.M.T. contends that not only does the Earth move around the Sun ( that the economy is subservient to both society and the environment) – in direct contradiction to the prevailing beliefs but also insists that it is demand which creates supply and governments need to constantly run deficits to do this.

Needless to say, the cognitive dissonance from the adherents to ‘supply side’ economics has been stonier than the Great Wall of China, and accusations of ‘heresy!, lunacy!’ shrieked from every corner of  Neo-liberalism.

Like Galileo however, M.M.T. can prove its theory through the argument that governments which have sovereignty over their currency and floating exchange rates and therefore are not fiscally constrained, can easily utilize the nation’s most productive resource – its people.

Especially the underemployed and unemployed who currently languish either in poverty or hover on its brink due to the the imposition of the NAIRU and its cold dead hand on 5.1 to 5.8% of the work force.

Modern Monetary Theory refutes the NAIRU through its counter argument of ‘the Job Guarantee’.

The Job Guarantee entails creating useful work through schemes that are aimed at social or environmental needs which are unmet by the public or private sectors.

Rather than create a permanent pool of unemployed to control inflation, the Job Guarantee insists on the payment of the minimum wage ($606.40 pw) while at the same time offers genuine vocational training and the opportunity for further education.

This allows the recipient to maintain a modest existence and acts as an incentive to enter the conventional job market when the opportunity arises.

As Victor Quirk from the University of Newcastle’s Center of full Employment and Equity argues;

“Through a well-designed system, that integrated a flexible pool of public sector minimum wage jobs with vocational training and rehabilitation institutions, and regional labour market analysis and strategic planning, the productive capacity of the workforce could be constantly developed, maximizing national competitive advantage in a race to the top, not the bottom.

By thus enhancing the efficiency of the labour market, the enhanced economic security of workers (that would tend to empower them to make greater demands in the lower levels of the labour market) would be offset  from the employers’ point of view by an increased supply both quantitatively and qualitatively of available productive workers.”

The Job Guarantee is in direct contrast to the ‘work for the dole’ schemes advanced by the LNP, which offer the hapless participant little or nothing in the way of either training or vocational guidance and merely serve as a sop to middle class disapproval of ‘those bludgers who are living off our taxes.’

The Job Guarantee also serves to stimulate the economy by placing greater spending power in the hands of those who participate, thereby creating a greater demand for goods and services.

It also encompasses targeted employment schemes directed at those with disabilities in order to enable them to join the work force should they wish to do so.

‘But what of inflation?’ scream the Neo-libs.

Inflation is checked in part by the payment of the minimum wage, and in part through the normal methods; adjustment to taxation and interest rates.

Tony Abbott and Joe Hockey argue that there are ‘budget emergencies’, ‘welfare emergencies’, the need for ‘structural reform’ in order to prevent ‘the burden of debt being passed on to our children’ and most importantly, that society and the environment must serve the economy in order to conform to the Neo-liberal philosophy of the ‘the invisible and guiding hand of market forces’.

‘There is no other God save for ‘The Market’ and ‘Surplus’ is its Prophet!’

Or in other words, the Sun goes around the Earth.

Modern Monetary Theory and the Job Guarantee argue that demand creates supply.

Nations which have sovereignty over their own currency are never revenue constrained and able to create full employment through the Job Guarantee which offers economic stimulus, training that is geared toward genuine skills advancement or further education, and the payment of a minimum wage.

MMT insists that the economy is able to, and must serve both the environment and society.

Who are you going to believe?

Also by Edward Eastwood:

ABBOTT, ANZUS, AND THE DILEMMA OF THE MID-SIZED SUPER POWER ALLY

Conscription by stealth: is cordite the new fragrance for the unemployed?

81 comments

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  1. DanDark

    Galileo, one of the old masters, who knew his stuff 😉
    A brilliant mind born before his time, or was he?

  2. Kaye Lee

    While reading this article I copied the line “Friedman argued that supply created demand ” to rail about later. Then as I got towards the end, I read “Modern Monetary Theory and the Job Guarantee argue that demand creates supply.”

    Even without delving into the arcane world of economics, the second statement just passes the common sense test. How can supply create demand if the majority of the population do not have the disposable income to take advantage of the supply? Of course demand creates supply! I also wonder why incentives are seen as a good thing when talking about polluters but when talking about the unemployed or asylum seekers, punitive measures become the better course.

    This government gives me frown wrinkles.

  3. John Kelly

    Thank you, Edward. Great analogies.

  4. corvus boreus

    “Supply creates demand” is based on the idea that even totally worthless crap, manufactured superfluously, can be retailed if advertised aggressively enough.
    Frown wrinkles be damned, these destructivist, incompetarian ineptards are giving me brain spasms and facial tics, and re-awakening my inner anarchististical assassinarian.
    (pseudo-apologies for the inventionese parlance)

  5. Edward Eastwood

    Just briefly and broadly Kaye, Friedman’s argument rests on the premise that if you remove restrictions on business through privatization of the public sector then this will create greater competition – supply- from which the consumer benefits through better services and lower prices – consumer demand. Does this sound familiar.

    As the most competitive businesses rise to the top and the others drop off, you run the risk of inflation – too much money chasing too few goods and services.

    According to ‘supply side’ economic theory, you need take money out of the economy in order to prevent it from ‘overheating’
    The best way to do this is to have (ideally) a floating permanent pool of unemployed numbering between 5.1 to 5.8 of the working population.

    As they’re unemployed, they don’t have the money to spend and therefore inflation stays level. Or at least that’s the theory.

  6. Edward Eastwood

    Thanks, John Kelly, how’s the homework coming along?

  7. Edward Eastwood

    Corvus Boreus; Great alliteration and may I add; mine also.

  8. DanDark

    Can you “regurgitate” that for me please 🙂

  9. corvus boreus

    Thank you, Edward, praise from the praise-worthy; never to be lightly received.
    Belated thanks and acknowledgement for another excellent article, loved the Galileo reference, particularly in the current, Church of Rome dominated, irrationally ideological national paradigm.
    The donkey pushes the cart with it’s flaring nose.

  10. DanDark

    🙂 Thanks I think, I will get it eventually Corvus, just takes me a ibit if it’s not about , tapeworms and stuff lol

  11. DanDark

    In high school, I chose to do an essay/assignment on Galileo, was a few choices to pick from, and I still have it somewhere , and got 98 out of 100″ it’s the best mark I ever pulled, and it’s something I have never forgotten, I luv Galileo…..

  12. corvus boreus

    DanDark, just a complicated(and non-grammatical) way of saying;
    the dumb phuqs who currently rule us are giving me a case of the steaming trots, badly.

  13. DanDark

    Oky I will let you go as your need might call any minute, Clive’s been out in force tonight

  14. darrel nay

    Australia, as it stands, is not a socialist country, although we have some socialist tendencies. Surely if the Labor Party wishes to ascend to power it needs to focus on the workers rather than the unemployed. MMT, if implemented, will encourage larger government deficits which will necessarily mean the government will sign more cheques and this in turn will equate to a bigger public sector. I think the average Labor Party voter is actually sick of big government. The casual observer will feel that big public deficits lead to pressure on the private sector. Large public deficits may be popular with the sort of politicians who enjoy signing large cheques but many Australians are tired of the government over-reaching. Governments are so inefficient that if we support big deficits we are ultimately supporting big waste.

    Maybe the most telling weakness of MMT is the fact that if it is implemented we will face extremely negative foreign and domestic market sentiment – there is no mandate for large government deficits.

    The Labor party can win elections by identifying with workers:
    – How about cutting taxes for all of us who have multiple jobs.
    – An entire industry has been created in this country to service job seekers but unemployment rates have remained relatively constant – maybe if we had fewer job centres the path to employment would be less tortuous.
    – How about removing some of the thousands of regulations and countless government agencies which discourage small and medium businesses from employing workers.

    cheers !

  15. corvus boreus

    darrel nay,
    So your ideas are;
    small ‘guvment’, lower taxes, less services and deregulation?
    cheerz for the ‘fresh’ ideaz!

  16. Kade

    Both models still rely on the premise that resources are endless. When we have cut down the last tree, dug the last hole, burnt the last remnant of oil, and are drowning in our own waste …. will ‘an economy’ be relevant? We all need to reduce our own consumption, audit our ‘needs’ and our ‘wants’ and wake up to the fact that we are borrowing the future from our children. Then start talking about how to live within our planets means.

  17. corvus boreus

    Kade, we were having a nice abstract talk about economics, and you go throwing the curve ball of the limited resource base of a finite planet and reliance upon the biosphere into the equation.
    Haven’t you heard of the term “externality”?

  18. corvus boreus

    Ps dig the raven 😉

  19. John Armour

    Australia, as it stands, is not a socialist country, although we have some socialist tendencies.

    Is that a problem Darrel ? Sounds like a virtue to me.

    Surely if the Labor Party wishes to ascend to power it needs to focus on the workers rather than the unemployed.

    “First they came for my neighbour…” Ensuring everyone who wants a job can have one is the most important duty for any government, as it used to be. Unemployment averaged 1.9% for 25 years after WW2.

    MMT, if implemented, will encourage larger government deficits which will necessarily mean the government will sign more cheques and this in turn will equate to a bigger public sector.

    The size of the public sector is a political choice. It’s got nothing to do with the size of deficits.

    I think the average Labor Party voter is actually sick of big government.

    We don’t have a big government Darrel. We’re in the bottom third.

    The casual observer will feel that big public deficits lead to pressure on the private sector

    Only if the government deliberately sets out to compete with the private sector for resources. Budget deficits actually provide the only means by which the private sector can save.

    Large public deficits may be popular with the sort of politicians who enjoy signing large cheques but many Australians are tired of the government over-reaching

    The government is actually under-reaching Darrel. We’re running at only 3/4 throttle because the private sector is sitting on its hands waiting for something to happen.

    Governments are so inefficient that if we support big deficits we are ultimately supporting big waste.

    That Darrel is bullshit. The Rudd deficits kept hundreds of thousands in jobs. If you want to talk about waste multiply those would’ve lost their jobs in the GFC by average weekly earnings for say 2 years, then add the cost of the dole, and then the social costs.of having 10% unemployed. That’s what I call waste !

    An entire industry has been created in this country to service job seekers but unemployment rates have remained relatively constant

    You got that right. But the path to employment, when the private sector won’t do its bit, can only be provided by the government.

    There are 7 unemployed people for every vacancy. Making life even harder for them won’t create more jobs.

  20. jimhaz

    I just watched the little video Möbius Ecko posted on the The Ridiculous Debt and Deficit Scam thread.

    Now while m post is more or less off topic, that video and the above quality article, has prompted me to post it somewhere fresh. I’m not sure how long threads remain active. It was a reply meant for another comment on an article.

    [Only Ponzi schemes should depend on confidence]

    This one caught my eye, as I had been writing about last night, in relation to the price of housing.

    I would want a government that would be prepared to do something about housing costs.

    “A primary cause of the mid-1970s, early 1980s and early 1990s recessions were the bursting of smaller commercial and residential bubbles, financed by rising business and mortgage debt. The total private debt to GDP ratio reached a historical high of 158% in 2008, on an immense rise in household debt (mostly mortgage debt), driving the largest housing bubble on record.”
    One of the more real reasons that poverty is rising AND why we are losing export manufacturing jobs, is not anything to do with the state of government finances, it is housing inflation.

    Housing could now cost half of what it does if we had socially responsible governments. Due to housing inflation, in repaying unnecessary debt caused by controllable inflation, we will pay trillions to Oz and overseas banks for them to ticket clip on the higher commissions that result. Housing inflation in particular is a gift to US banks who create money out of thin air and we give them 100’s of billions of dollars for this magic trick.

    Housing inflation is a Ponzi scheme caused by the deregulation of finance for properties. It seems to be the banks in partnership with government – government polices like stamp duty, first home buyers, neg gearing, allowance of overseas investment, high immigration with inadequate land release and so on all helped to inflate pricing. Don’t forget all these add to the amount required to be borrowed and thus the banks benefit greatly.

    Now it is true that a decent portion of the Oz wage and wealth increase was the result of consumer confidence stemming from housing inflation – many baby boomers and other ordinary folk who saved and spent wisely became relatively wealthy, super accounts were looking good, emerging markets and internet competition was keeping prices low, and so on.

    Trouble is this benefited the rich and their servants and sycophants the most – it’s where much higher wage inflation and executive thievery was occurring. The worst part though was that it was built using debt – thus not based on sustainable underlying causes. And it was the worst kind of debt – totally non-productive in itself. Does paying 40-60% more for something than one needs to, make any sense?

    Imagine if half the portion of our wages that we now pay for housing, instead went into taxation and into productive investment by individuals! We’d have a far less strained lower class and a richer middle class. With more disposable income around more self-employed could charge more and provide better quality, making them richer.

    Anyway, if real income does not increase, as it has not been since the GST for the majority, then suffering is more common amongst the masses. Perhaps the Greens should campaign on housing cost reduction policies.

  21. John Armour

    Supply creates demand” is based on the idea that even totally worthless crap, manufactured superfluously, can be retailed if advertised aggressively enough

    Something like that, corvus b. It’s actually known as “Say’s Law”. Been around for a long time. It’s nonsense of course.

  22. darrel nay

    Mr Raven,
    There really is no need to demean – we may disagree but let it be respectfully.
    Even a novice is aware that MMT is hardly a fresh idea.
    For the sake of accuracy – yes I believe in small government, if you like.
    – I would love taxes to be lowered and I am not alone on this one.
    – I believe in less government services NOT less services.
    and – I will generally choose freedom as opposed to regulation. ( I intended no reference to the privatisation/deregulation issue, if that was your inference. )

    Respect

  23. DanDark

    “Due to the recession, to save on energy costs, the light at end of the tunnel will be turned off.”-God

  24. corvus boreus

    darrel,
    OK, sorry about the z’s and “guvment”.
    I too would love to pay less tax on my earnings, but understand the need for governments to garnish revenue to provide socially essential services(although often irresponsibly allocated).
    The employment services you referred to are competing, privatised agencies(replacing the centralised CES). Other privatised services invariably lead to increased consumer costs.
    The regulations regarding employment you refer to also provide protection for workers, society and the environment, and we just lost over 8000 of them last March. You cannot oppose regulation then deny any reference to deregulation, they are defining opposites.
    As for freedoms, responsible individual freedoms, shit-yeah, corporate non-accountability, hell-no.
    Respect returned.

  25. RalphG

    “Both models still rely on the premise that resources are endless.”

  26. darrel nay

    I love jimhaz’s idea of policies to reduce house prices (inc. financing costs).

    reply for Mr. Armour,
    I don’t have the stats here but I’ll guess that for the 25 year period after WWII, to which you refer, that we had lower real rates of tax (inc. no GST), a growing world economy and less govt. spending as a proportion of GDP. We also had a different national psyche then – we had an “I can do this” attitude as opposed to the increasingly entitled attitude of “I need the nanny-state to do it for me”. I have a mate, who is a chef and tried to start a hot-dog stand a few years ago. He had to submit three applications to govt. and was ultimately rejected for allegedly too little bench space. This is typical of how over-regulation is stifling enterprise and preventing job creation. Another friend tried to produce cheese but was told by the government inspector that a $Million dollar fridge was required to meet the Standard. This sort of interference was, I’d imagine, far less common post WWII.

    As for the relationship between govt. deficits and public sector size, I would ask you to imagine a ten trillion dollar deficit – this would mean, hypothetically, a massive government and so, I think, there is a relationship between deficit and the size of govt. Watch how the current government will swamp the Australian people with advertising/propaganda which it will pay for at the expense of real programs. We may have a relatively small public sector compared to other nations (although there is room for some debate here). Nonetheless many of us want a smaller government that fears, or at least serves, the people rather than the tyranny where a people fears the government, to quote some American.

    I know how hard it is to be unemployed and I agree that it only looks like getting harder. We are moving into a time when we will really need to look out for each other. I think we need individuals, families, neighbours, communities and organisations to be generous and adapt, like Australians have in the past, in order to help each other and ensure that our unemployed friends are given meaningful options as opposed to institutionalised dependence.

    best wishes all

  27. darrel nay

    Thanks corvus boreus. I think we’re on the same page mate. I vote we all tackle corporate non-accountability with our wallets. I am really struggling with the whole GMO thing at the moment – has anyone seen that research where mice et. al. are sterile and afflicted with wicked tumors after three generations of eating GMOs?

  28. Venetta

    If the unemployed are a necessary part of our economic equation why do we heap so much shame and blame upon their shoulders?

  29. DanDark

    To justify it, it’s easier too blame them, vilify, demonise, than pollies to come out and say,”you are apart of the game and we will use you to keep the economics all going but we won’t tell you that, because that’s the truth, and we can’t tell you that or you might protest, and we cannot have that, you would be like the uni students, wait for it………. ” that waited six years to protest against this LNP government ” quote from Pyne the grub, that’s my take on it anyways Venetta

  30. John921Fraser

    <

    Dear Mr Eastwood,

    This is a very good Article, thank you.

    Unfortunately I have been programmed into 3 word slogans.

    My current slogan is …. "Hockey talks bullshit".

    And by a remarkable coincidence it mirrors your Article.

  31. DanDark

    John921
    Check your chickens, you might find next winning numbers for this weeks lotto 😉
    Worth a try, while you are on a roll, great article I agree 🙂

  32. DanDark

    Check eggs, and numbers should be written on them in Texta
    Don’t wash them, or the numbers may wash off, my chickens are boys it seems 😉

  33. John.R.

    Supply and Demand.Thats it?Supply will effect prices in many ways,not all of which are under anyones control.Demand comes from peoples spending priorities,that is necessities then luxuries,just to condense it.Works quite well when it is with real money that you have worked for and saved,But what happens when others do it with debt,borrowed money and there becomes more borrowed money around then real money,when the borrowed money is leveraged against something which has its value written on a piece of paper and agreed by both parties
    The world is awash with debt.When it is all tallied up there is more debt then assets at “current”values
    So as soon as there is a little default (in the next couple of months)up will go interest rates(as a measure of risk against borrowers)and the deck of cards will fall when no one can pay.
    What will that do to the supply and demand theory

  34. RalphG

    “I don’t have the stats here but I’ll guess that for the 25 year period after WWII, to which you refer, that we had lower real rates of tax (inc. no GST), a growing world economy and less govt. spending as a proportion of GDP. “

    It was also a feature of this period that the Federal Government ran a budget deficit around 80% of the time. It was also a period where there wasn’t a single recession and we had an average unemployment rate of around 2%.

    Compare that to the past 40 years during which a budget surplus has been the desired state. We have had three major recessions and unemployment which has averaged around 7%.

  35. John Armour

    Darrel,

    Respect cuts both ways.

    I go to a lot of trouble to make sure that what I write is factual. I respect the intelligence of those who may read it.

    You shoot from the hip. “I don’t have the stats here but I’ll guess…” You’re entitled to your own opinions but not your own facts.

    Tax-to-GDP was lower back in those days of full employment, as you “guessed”. Do you think it might’ve had something to do with the government not having to fork out unemployment benefits for people who’d lost their jobs just so’s business could have its buffer-stock of misery to keep the workforce disciplined ?

    We also had main interstate highways that were gravel and the ‘night-cart’ took away household sewage in large swathes of suburbia in our capital cities. Private enterprise had no interest in providing any of that nation building infrastructure, only the “nanny state”.

    Personal income tax back in those days by the way hit an eye-watering 90% for the top marginal rate. Was that a disincentive to enterprise ? Seems not.

    Your example of the “million dollar fridge” as a burdensome regulation that killed your friend’s ambitions to manufacture cheese is clearly meant to muddy the waters. Why didn’t you say a “million dollar processing plant” which would’ve been the truth. Cheese wasn’t the best example to choose to make your argument because when a batch of cheese goes wrong people can die. I’m glad we have such regulations to keep the cowboys in check.

    To support your belief that bigger deficits mean bigger government you show disrespect for our intelligence by proposing a ridiculous 10 trillion dollar deficit, but you can’t be bothered trying to back your claim with any reasoned argument. It only takes a vote on supply and a Treasury official to authorise the issuing of the cheques to create any deficit, so where’s the connection with big government ?

    Ignoring the inflationary consequences of your proposition, such a deficit would actually put a rocket under the private sector.

    All the discussion on AIMN over the last few days on the subject of debt and deficits seems to have gone either over your head or in one ear and out the other. Or you’ve chosen to just ignore it. Does that show respect ?

    Your attitude to the size of government, seems to be informed by “some American’s” irrational fears. I’d suggest you look to Scandinavia where the citizenry love their “big government” for a more balanced view.

    If you’re really are “one of the many” who want smaller government, rejoice for your dreams have come true.

  36. Edward Eastwood

    John.R. You really need to go back and re-read the article.

    Secondly, you’re comparing apples with oranges.

    Private debt which is what you’re arguing about is constrained by income – government deficit is not, despite what Hockey et.al. would have you believe.

    As for ‘supply and demand’ I think that you’ll find that the management of these two continue to be the basic premise of which all economic theory is based be it MMT, Chicago School, or any other theory.

    The scenario which you describe, recession leading to depression; arises out of the government withdrawing funds from the private sector which then must shoulder the burden of making up the shortfall.

    As the private sector is also constrained by income, it begins to shed workers in order to meet its debts. Once the number of uenemployed begins to swell (as it is at the moment), consumer spending and confidence plummets, leading to recession – a downturn for two consecutive quarters of GDP.
    If this trend continues for more than two quarters, then it is officially termed a Depression.

    To circumvent this, governments usually respond by adjusting their macro-economic policies – stimulus.

    At present however, the current government is ideologically opposed to providing the private sector with a stimulus but rather is determined to leave them to their own fate and let the invisible guiding hand of the market sort it all out.

    This is akin to walking into a restaurant, ordering a meal and then asking the waiter to slowly strangle you in order to aid digestion.

  37. Kaye Lee

    Slightly off topic, but a prime example of ignoring the facts.

    On February 15, 1990, in a speech delivered at La Sapienza University in Rome, Cardinal Ratzinger, the future Pope Benedict XVI, said:

    “The Church at the time of Galileo kept much more closely to reason than did Galileo himself, and she took into consideration the ethical and social consequences of Galileo’s teaching too. Her verdict against Galileo was rational and just, and the revision of this verdict can be justified only on the grounds of what is politically opportune.”

    In January 2008, students and professors protested the planned visit of Pope Benedict XVI to La Sapienza University, stating in a letter that the pope’s expressed views on Galileo “offend and humiliate us as scientists who are loyal to reason and as teachers who have dedicated our lives to the advance and dissemination of knowledge.”

  38. Möbius Ecko

    darrel nay a lot of what you have stated has been civilly addressed by others but I cannot allow this absolute furphy to go by.

    “The casual observer will feel that big public deficits lead to pressure on the private sector.”

    To which casual observer are you referring to? The general population, voters, economists, who?

    The reality and empirical information does not bear that out in any way, and you don’t have to look much further back than John Howard for that evidence.

    I’m sorry I haven’t got the link to the data and graphs at this moment but you can see a significant, indeed sky rocket, rise in public debt not long after Howard took power as he pursued surpluses at all costs. He deliberately shifted debt from the public sector to the private and kept encouraging that private debt to world record per capita levels until the day he was kicked out. So much so that Peter Costello intoned that what Howard was doing was unsustainable, and it was but Howard kept on doing it anyway.

    So public debt does not lead to pressure on the private sector, the opposite is the case, it eases pressure on the private sector.

    As to you other furphies the only other one I want to address is this one:

    “I think the average Labor Party voter is actually sick of big government.”

    Huh? And you do know that the last Labor government, despite what you say about large debt = large government, was significantly smaller than the preceding Howard ones, which were the largest governments in our history despite racking up record surplus after record surplus.

  39. Edward Eastwood

    Kaye Lee; There are none so blind as those who flat out refuse to see (the entire front bench of the LNP comes to mind – a bunch of anti helio-centric whacko’s if there was ever one)

    No wonder Benny stepped down, he just couldn’t accept reality.

    Mobius; Well said!

  40. Dan Rowden

    Can someone explain to me what “big government” actually is? I mean, I understand the words ‘n’ all, but what makes a government, “big”, exactly?

  41. John921Fraser

    <

    The Queensland newman LNP government gives Abbotts government a run for their money when it comes to willful blindness.

  42. petermartin2001

    If we total up the world’s national debts it comes to over $58 trillion. Fellow Earthling’s we are all in deep sh1t !

    http://www.nationaldebtclocks.org/

    We all need to learn to live within our means, stop spending like drunken sailors, and start to think about how our children will be crippled by having to repay this debt! 🙂

  43. Edward Eastwood

    Quite right Petermartin2001. By the way, be careful of the bollards, I put them there to prevent supply side economists from sailing off the edge of the Earth.

    🙂 🙂

  44. darrel nay

    Apologies to Mr Armour and Mr Ecko if I have been disrespectful or factually incorrect. I intend no disrespect. As for factual inaccuracy, in my defense, I will say that facts are often somewhat relative – they can only be viewed with perspective. For example, a fan of John Howard may claim that the fact is that John Howard was great while others will state that the fact is that Howard was terrible. Personally, I would prefer not to dwell on thoughts of Mr. Howard but for the record I think he was a corporate fascist who trampled on the freedoms of all Australians.

    We all try to be factually correct but this thread asks for ‘replies/comments’ not proofs. I love mathematics and realise the value of proof but in the context of a thread or conscious conversation, proof can often be a little cumbersome and perhaps even counter-productive. That being said, the ‘facts’ and opinions readers are bringing to the forum are thought-provoking and stimulating. I appreciate the healthy variety of perspectives.

  45. Edward Eastwood

    Dan Rowden; Ummm…. Clive Palmer? (sorry Dan I just couldn’t resist it) 🙂

  46. Möbius Ecko

    Is that a sarcasm emoticon petermartin2001?

    Was going to take that paragraph hook line and sinker until I saw the emoticon.

    What would happen if that $58 trillion in debt was shifted from the public to the private sector?

  47. Edward Eastwood

    Darrel Nay: Glad to hear it but with respect; Fact (Fakt) (n) a thing that is indisputably the case.

    Furthermore, if you think that proof is cumbersome or counter productive – I hope that you never have to go to trial.

  48. Möbius Ecko

    Nicely said darrel nay.

    Facts can be relative and taken from another perspective, but a sourced verified and validated statement, figure or statistic remains extant for the time and context it encompasses. They can even be projected to current times and context, thus the oft stated term; “in today’s dollars”.

    Fact is, and there’s much data that is still valid today to show it, Howard shifted debt from the public to the private sector, thus putting pressure onto the private sector, the opposite of what you stated.

    Fact is the Howard ran Australia’s biggest governments and it ran record surpluses, indeed it voraciously pursued them, whilst the Labor governments were significantly smaller in comparison whilst running up deficits because of the GFC. That’s the opposite of what you claimed in deficit equalling large government.

  49. John Armour

    “We all need to learn to “live within our means”, stop “spending like drunken sailors”, and start to think about how “our children will be crippled by having to repay this debt!””

    I’ve put pejorative quotes around some of your phrases Peter to emphasise the irony. There might be some who don’t “get it” !

    Can I also add “maxing out the nation’s credit card”, “Labor’s mess”, “repair the budget”, “debts to China” etc.

  50. John Armour

    Darrel, if you love maths, and facts, you’ll enjoy this. The maths is trivial but the insights it brings are anything but…

    Norway and sectoral balances

  51. Kaye Lee

    Let me make it absolutely crystal clear, a rising tide will lift all boats, provided the leaners do some heavy lifting for the good of the nation.

  52. sdrawkcaB

    Darrel Nay,
    I believe the ALP for workers is gone.
    It needs to reposition itself.

    The ALP could easily be for the middle class. To do this they need to simply ditch the Chicago School and get back to Keynes and FD Roosevelt.

    Under these two, the middle classes expanded. In fact these two represent a blip in history where there is a middle class to speak of.

    The neo-liberals talk of their style of economic lifting people out of poverty. This is not borne by fact. You lift people out of poverty by expanding the middle class and having those below, join it. This has been proven to work over a 40 year period.

    The simple fact is FDR and Keynes have runs on the board. The Chicago school does not.

    So, not small government, deregulation and smaller taxes. Ever since the Chicago school stuffed up Chile in 1973, we have seen their doctrine fail time and time again.

  53. darrel nay

    In regards to Chile I think this case emphasizes the importance of exercising monetary policy in context. Which is to say that policy which ignores its cultural environment will face an uphill battle. Is it fair to say that the Chicago School was implemented in concert with the military industrial complex?

  54. Edward Eastwood

    Succinctly put sdrawcaB. The ALP could easily regain lost ground by ditching Chicago School theory.

    By their continued clinging to this theory they constantly put themselves at disadvantage in playing by the LNP’s rules.

    It’s hard to decide whether this springs from fear or ignorance.

    Perhaps they fear a tsunami of Murdoch media and LNP backlash if they embrace Keynesian economics.
    You know the usual manipulative metaphors;

    Black holes, Ballooning deficits, Living beyond our means, Maxed out our credit card, Debt to our children, Economy in dire need of emergency surgery- THERE IS NO ALTERNATIVE!!!!

    Perhaps they have believed the free market bullshit for so long that they now remain ignorant of alternatives.

  55. RalphG

    “We all try to be factually correct but this thread asks for ‘replies/comments’ not proofs.”

    Whilst that may be true, if you want people to accept a claim that you make then providing credible evidence for that claim goes a long way.

    Opinions are different in that they are very subjective but remember:

    “Opinions are like assholes. Everybody’s got one and everyone thinks everyone else’s stinks.” The Dead Pool (1998)

  56. Edward Eastwood

    RalphG; Thanks a million for posting both those links.

    Heard the interview live this morning – great stuff in contrast to former Keating financial advisor John Edwards who’s still spouting the same old Neo-lib fantasy. He even gave Joe Hockey’s budget a tick.

  57. John Armour

    I’ve read a couple of books by Stiglitz. There’s a great story in “The Roaring Nineties” about how the Clinton surpluses came about. That is, by accident. Needless to say, they were followed by a recession, as usual.

    Stiglitz has not been known for his understanding of Modern Monetary Theory, but Professor Stephanie Kelton speaks very highly of him in this interview 18 months ago, and says that his position is coming closer and closer to MMT. As it must if he’s as smart as she says.

    http://harryshearer.com/transcript-stephanie-kelton-interview/

    The podcast is worth a listen too.

  58. Totaram

    Nothing to add except “Go MMT!”. I will continue my reading in Bill Mitchell’s blog and other resources, including Stephanie Kelton (above). The details are complex (as one should expect) and it will take time to master them, but I do have time. And I try to spread the word, in my limited way, wherever I can. So should every one here. How many people can we reach by 2016?

    My biggest disappointment is that all the members of the Labor party and the Greens, as politicians, do not understand the BASIC ideas of MMT and have been completely brainwashed by the neo-liberal or necocon rubbish. These are the people who should be thinking on these lines, as politicians, while the rest of us spend all our time doing what we are supposed to do in our professions. They are supposed to be the “leaders”. And it is not as if MMT is new. The ideas have floating around for decades. But it seems it is now left to us, the people, to educate them.

    Oh, and for those who worry about the fact that most people don’t think rationally about things, but think in metaphors (as shown by cognitive science), of course we need the right “frames” for talking about these issues. The people working in the MMT area have become aware of this issue. This is where the “right wing” have stolen a march on the “left”: They have spent the last 30 odd years working out how to pitch their ideas to ordinary folk – down to writing children’s books that will advance their cause. So the people in MMT have some suggestions in this area and they are here:

    http://www.youtube.com/watch?feature=player_detailpage&v=FHcueExMkOU

    You need to choose your “frames” and language in a suitable way to be able to “convince” people. Simple logic or reason, expressed any old how, is NOT the way to go. While the right-wingers have their well-funded think-tanks to do all this grunt-work, for us, the people, there is just us. So get into it guys and do your bit.

  59. Möbius Ecko

    Damn, I can never get the hang of this HTML stuff!

    RalphG if you aren’t using it use Firefox and then install an add-on called BBCodeXtra

    There are a couple of similar ones around as well including a composer for blogs.

  60. RalphG

    Thanks for the tip Mobius but sadly Firefox isn’t available for the iPad. If this link works I’m okay.

  61. RalphG

    “And it is not as if MMT is new. The ideas have floating around for decades. But it seems it is now left to us, the people, to educate them.”

    The first time I tried to explain to someone about MMT, the response was “I understand what you’re saying, I just don’t believe it.”

    On another occasion I was talking to an accountant and the response was “rubbish, the dollar is backed by gold.”

    I tried four times to explain it to a friend of mine and he still didn’t get it.

    “The pain of a new idea is one of the greatest pains in human nature … Your favorite notion may be wrong, your firmest beliefs ill founded. And your favorite foods may be the root cause of your greatest pains! It’s a fact of life that people find it much easier to believe a lie they’ve heard a thousand times than a fact they’ve never heard before.”
    – Daniel P. Reid

  62. sam

    Another good and simple explanation of MMT. Well written.

    The explanation of ‘job guarantee’ is a bit brief but essentially Bill, COFFEE, Molser etc have written great artivcles/books about this and its use as an ‘Automatic stabiliser’ for inflation.

    If you want a laugh. Get a hold of a datasets for NAIRU and put them into a spreadsheet program with a few friends whom are engineers/mathematicians to help. Its amazing that NAIRU is accepted as a ‘useful’ heuristic to predict anything.

  63. sam

    Ralph! Forgot to Add:

    “””The first time I tried to explain to someone about MMT, the response was “I understand what you’re saying, I just don’t believe it.””””

    Ralph.

    Remove the label MMT. Replace it with ‘Keynesian economics’. eg: post depression/WW2 etc. (history lesson)
    Then introduce existing + ‘nordic style job guarantee’ + ‘how inflation actually works’ + ‘how banking system actually works’ + ‘fiat currency/gold standard’.
    MMT was explained to me in 2002 or 2003? (coffee conference in newcastle) with diagrams, simple words and the ‘top down’ stuff. eg: sectorial balances.

    I suspect the word ‘theory’ in the name MMT makes people think the components are untested and ‘owned’ by the term MMT when its really just a bunch of existing methods and observations.

    Also might be good to understand a bit of psychology: I think its ‘cognitive dissonance’ or perhaps also ‘confirmation bias’ those two factors come in when people start saying arguing about say inflation.

    In fact the MMT does a much better job at explaining inflation than anything else but its natural when grasping at a new concept (or concept(s) inverted) to bring this up as people start to polarise the structural defecits as ‘unlimited flood of money for everybody’ as a microeconomic concept. (and this would only be worse if talking to a conservative i could imagine).

    http://en.wikipedia.org/wiki/Cognitive_dissonance

  64. Edward Eastwood

    Thanks for both those comments Sam. Sorry that the explanation of the JG was brief, as every blogger- writer-essayist knows, it’s not what you put into your piece its what you leave out.

    I the main I wanted to draw attention to the Galileo analogy of how long held beliefs are sometimes the opposite of what is accepted as ‘gospel’ and try to cover a bit on the NAIRU as well.
    And the central aim was to encourage discussion (which this certainly has).

    I will expand on the JG in the near future.

    Once again, thanks for your input

  65. Edward Eastwood

    Stirring words Totaram, look forward to your article in the near future. 🙂

  66. corvus boreus

    “There’s no harder task, or ask, than removal
    of cognitive dissonance and lucid disparity”.
    Thank you all for the clear, comprehensible explanation of the logic of Keynesian economics compared to Chicago/Freidman school gangster-nomics. Makes sense to both the brain and gut.
    Unfortunately, for this one, numerical ADHD kicked in mid-teens and focus centered on life and languages, so I won’t make a high grade advocate.
    Besides, I am already experiencing emotional and mental fatigue(like many others) at trying to get across the concept of the absurdity of a model based on exponential growth of both population and individual consumption within the physical parameters of the finite resource base of our biosphere, and our central reliance upon living systems.
    Best of luck, sincerely.

  67. John Armour

    Totaram,

    Silly me. I just looked at your video link and it’s Bill Mitchell.

    The PDF I linked to was the paper for that conference.

    Bill says repetition is good.

  68. John Armour

    Besides, I am already experiencing emotional and mental fatigue(like many others) at trying to get across the concept of the absurdity of a model based on exponential growth of both population and individual consumption within the physical parameters of the finite resource base of our biosphere, and our central reliance upon living systems.

    That’s the nightmare that wakes most of us up in the middle of the night, corvus.

    Getting the basics of MMT insights into the thick heads of policy makers however could be the first step in ameliorating some of the consequences of that unrestrained growth.

    If the myth of the government budget constraint could be exposed, money could flow freely into massive JG projects to repair some of the damage, giving us 2 bangs for each buck.

    One would like to think the Greens might be curious about such proposals but they’re not. I don’t even get an acknowledgement of receipt when I send an email to them these days. Their economic policy is still all about “balanced budgets”.

    Bill Mitchell addressed the Green’s Adelaide conference some time back, and in private conversation with Bill, Bob Brown appeared to understand MMT but thought it too risky politically to embrace. This was the bloke who defied the bulldozers and bogan bullies with chainsaws.

  69. Edward Eastwood

    Corvus; Rest assured that one of the primary aspects of the JG is that it is ‘green’. After all you don’t need to be a rocket scientist to realise that this in not only the first priority in addressing climate change but as far as job creation goes – the area in which there are both exciting and expanding opportunities on a multitude of levels.

    For example, rather than have the ‘Green Army’ working for the dole and planting trees which is a cosmetic exercise at best,

    Why not make it a real green army who are paid the minimum wage and assist in soil and land reclamation through the process of ‘direct seeding’ of trees which are native to the area.

    In this way, much of the overhead of watering and maintaining saplings is eliminated and the strike rate is much higher for natives which also survive at a greater rate.

    Such a scheme could also utilize, botanists, horticulturalists, aborists, environmental scientists and other tertiary graduates most of whom are struggling to find employment under the current economic conditions (curse you, Abbott).

    There’s plenty of room for administration staff as well with the establishment of local seed banks – and nurseries if necessary.

    All of this, and much more is possible in replenishing diminishing resources. However, what is desperately needed is politicians with not only vision but guts as well…
    Alas, while the demand for said politicians is growing, the supply seems to be rapidly dwindling.

  70. John Armour

    Is it fair to say that the Chicago School was implemented in concert with the military industrial complex?

    An interesting thought Darrel. They’re certainly a good fit politically.

    Eisenhower warned about the military-industrial complex in his famous valedictory speech in 1961 so that was a project well under way before Friedman started to promote his free market ideology.

    I think what motivated the Chicago School was the fear that continuing acceptance of Keynesian economics was going to hollow out the wealth base of the elites and so they set out to discredit it.

    The oil shocks and stagflation of the early 70s opened the door for them and it’s been downhill for the working class ever since with the collusion of centre-left parties being the bitterest pill to swallow.

  71. Kaye Lee

    “I am already experiencing emotional and mental fatigue”

    I feel like I am spinning my way to China in that there is so much I must protest against. It’s hard to concentrate when everything is under attack. You guys are doing a great job with the economics side of things. I love the Scandinavian philosophy of “welfare from cradle to grave”. They see this as a duty, not a burden.

    Welfare means “the health, happiness, and fortunes of a person or group” or “statutory procedure or social effort designed to promote the basic physical and material well-being of people in need.” What sort of government wants to REDUCE the welfare of its people?

  72. John Armour

    What sort of government wants to REDUCE the welfare of its people?

    A government of ideologues and sociopaths is the answer to your rhetorical question, Kaye Lee.

    But they can only get away with it if they can convince the citizenry they’ve been ‘naughty’…that is,’living beyond their means’, which they seem to be doing with relative ease.

    It’s amazing what people will believe if they’re told often enough.

  73. John Armour

    On another occasion I was talking to an accountant and the response was “rubbish, the dollar is backed by gold.”

    I can top that Ralph. I was talking to an official from APRA, the banking regulator, who told me emphatically that “of course banks lend depositors money, where do you think money comes from”.

    To prove his point he quoted the aggregate numbers for loans and deposits across the whole banking sector. He didn’t realise that loans created most of those deposits.

  74. jimhaz

    Why property inflation and propaganda is promoted.

    “Sounds like I went into the wrong business,” says Zip Industries founder Michael Crouch, upon hearing that there are 53 property moguls in 2014’s BRW Rich 200 list, but only 12 who, like him, owe their wealth to manufacturing.

  75. John.R.

    It wasn`t the Stagflation and Oilshocks of the 70`s that opened the door to the creation of artificial wealth,it was Nixons removal of the gold standard from under the dollar that let bank and financial institutions devise fancy schemes to invent money and assist asset inflation beyond the average persons wage increases

    http://www.dailyreckoning.com.au/the-sour-taste-left-when-debt-goes-bad/2014/06/25/
    This article has a few insights to the understandings by “Economists”? mist being the operative word.
    http://www.dailyreckoning.com.au/why-listening-to-economists-is-dangerous-for-your-health/2014/06/20/

  76. darrel nay

    Thanks John R the links were great. Nixon has a lot to answer for.

    I’ve been wondering lately if it is fair to describe derivatives as insurance. Thoughts anyone?

  77. Andre Levy

    “Eisenhower warned about the military-industrial complex in his famous valedictory speech in 1961 so that was a project well under way before Friedman started to promote his free market ideology.””

    Until 1951 Friedman was a standard liberal, but by 1955 he was already peddling unfettered markets:

    Friedman M. “Liberalism, Old Style.” Collier’s Year Book. New York: P.F. Collier and Son; 1955. p. 360–363

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