Professor Bill Mitchell’s blog, dated 22 November 2018, “Japan still to slip in the sea under its central bank debt burden” gives MMT advocates all the ammunition they need to present a case for greater fiscal participation in the economy.
It signals quite clearly that government spending, not monetary policy (RBA interest rate management), is the more effective tool to bring about full employment and maximise the use of Australia’s available resources.
For nearly 30 years now, the Bank of Japan, the nation’s central bank, has been buying government debt (deficit spending), to the point where its current holdings are now greater than the country’s GDP.
However, despite massive injections of ‘created money’ into its monetary base, Professor Mitchell says, “inflation (in Japan) remains low and despite low interest rates, economic activity is hardly booming.”
Mainstream economists seem unable to connect this reality with their more dire predictions that Japan’s fiscal policy over this period, must lead to hyperinflation. It has done nothing of the sort.
For the past 30 years, mainstream macroeconomists the world over, have been predicting the demise of the Japanese economy, claiming it will slip into the sea, that its debt burden is unsustainable, that there are limits to the amount of assets the Bank of Japan can buy.
What has happened is that, “the Bank of Japan continues to demonstrate the categorical failure of mainstream macroeconomics and, conversely, ratify the core principles of Modern Monetary Theory (MMT).”
Each time their predictions have been proved wrong they have been forced to invent excuses, such as closed markets and cultural peculiarities. It’s all hogwash!
What these Economists are really concerned about, is that by buying government debt and keeping interest rates low, the Bank of Japan is effectively preventing the commercial banks using the bond market to make profits.
By not issuing bonds to offset government debt, it is depriving the commercial banks off a risk-free asset from which they can make money. The BOJ has “effectively killed regular trading in the once lucrative bond market.”
It has defied claims that currency-issuing governments like Australia, are captive to the yields in play on secondary bond markets.
How terrible is that?
Australia currently has 5% of the workforce, or 700,000 people looking for work with a further 800,000 working less hours than most would prefer. This represents a huge underutilisation of available resources, yet our government and the media, via their economic “experts” claim our economy is humming along nicely. More hogwash! Our economy is underperforming.
By way of comparison, Japan’s unemployment rate as at September 2018 was just 2.3%
To the further detriment of our underperforming economy, it is just what our government wants. It might appear that they are concerned at the slow rate of growth and the low wages growth, but deep down, captive as they are to the demands of the big end of town, they do not want full employment, or any significant wages growth.
Such economically beneficial activity would impact on the profits of commerce and industry, the source of their political funding. It is corporate welfare by stealth. The state of the Japanese economy, proves that decades of deficit spending and huge injections of money into what was a stagnant economy, does not risk inflation when the injection is correctly targeted.
There is no reason why we, in Australia, cannot do this and achieve full employment, a higher GDP, which itself will attract further private investment and in the process, improve living standards for all Australians.
We can do this, if we can change the mentality that dominates current mainstream economic thinking. But, at the moment, our prime minister is so intent on fuelling an outbreak of anti-Islamic sentiment, for no other reason than to attract votes, that our economy is destined to continue underperforming.
As Bill Mitchell says, “All those commentators who claim that accelerating inflation would result if governments abandoned debt-issuance but continued to run deficits, have been repeatedly shown to be wrong.”
What will it take to get this simply message across to those in treasury who have the power to change government thinking?
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