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Money Is No Object!

Paul Sheahan wrote something rather interesting today…

Well, that’s incorrect. He wrote something that caught my eye. And I’m trying to work out whether the man suffers from memory problems or is simply lying. He wrote:

“In politics, the Rudd Labor government went berserk on deficit spending to remain popular.”

Now, I’m happy for someone to debate whether the Rudd government’s policies were effective, or whether they just postponed the inevitable recession. I’m happy for someone to debate whether the money could have been better spent. I’m even happy for them to debate whether or not the pink batts problems were caused by socialism or unchecked capitalism.

But to suggest that the deficit spending was all about “being popular” just strikes me as a total rewriting of history. Even at the time, much of the spending wasn’t popular. The Liberals were telling us that Labor had gone too hard, too early and there’d be no money left when we were actually in recession – which they assured us was unavoidable.. Many asserted that the $900 would be wasted on alcohol and pokies.

(On a side note, isn’t it interesting that when Labor tried to introduce a voluntary pre-commitment amount for pokies, the Liberals teamed up the Clubs and screamed “nanny state”, but the Ceduna trial of a welfare card which can’t be spent on alcohol or gambling is just fine and dandy.)

Anyway, Paul Sheahan thinks that all the Rudd government’s spending was only to make his government “popular”. And I’d like to point out that he does specifically say the “Rudd Labor government”, so he is talking about the spending that was done at the height of the GFC. This not about things like the NBN or the National Disability Scheme.

Sheahan is one of people who like to remind us of that factoid that there’s a limited amount of money. (Note the use of the word “factoid” which, as I pointed out when Christopher Pyne used the word in parliament, means something that’s repeated often enough for people to take it as fact.)

The problem when we discuss “money” is that many people take it as synonymous with “cash” of which there is a limited amount at any given moment. “Money”, on the other hand, is a measure rather than being a thing in itself. Money tells you how much of the limited resources of the world you can access should you convert your money into something else. Of course, should everyone decide to convert their money into things at the same time, then we’d have inflation. And if they all decided to convert their money into the same thing – such as tulips – we’d have a bubble. (See Dutch Tulip Bubble.) We have people telling us that bubbles are inevitable and just part of the capitalist system.

As banks and governments can create money with the stroke of a computer key. money is infinite. Of course, if they do create an excessive amount of extra money, then the existing values of the “money” will diminish. There are a limited amount of tulips and if there’s suddenly an extra trillion dollars in the tulip market that million dollars for a bulb is going to look like a bargain.

Perhaps a good way to look at it is to use a sporting analogy. Money is the score and while sometimes scoring is hard, that’s only because there’s a team that keeps taking the ball of us and trying to score themselves. In the unusual event that we all decide that we’d rather see a good fast, high-scoring game and we start kicking for the same end, scoring becomes a lot easier. Of course, in real life, this doesn’t happen very often, and many people who are scoring like it’s a basketball game, wonder why the soccer players are finding it so hard to score and conclude that it’s because they’re lazy.

So when people start talking about there being a limited amount of money, what they actually mean is that there are a limited amount of resources. However, if governments can use money to reorganise the economy so that more “resources” are being created then it can actually add to the wealth of the country. If a person is working instead of being unemployed or underemployed, then that adds to the overall pool of “resources”.

The question is not whether such things can be done. Of course they can. The question is what is the most effective and worthwhile way to do it. Will reducing unemployment by two percent create  a wages breakout? And a tulip bubble which leads to problems down the track? Will increasing unemployment by one percent mean that we have a tulip glut on our hands? Or is it better to have a regulated tulip market and stop all this speculation.

Creating more money was more or less what the Rudd Labor government did in the early days of the GFC. It was about economic management. Given that we were in danger of recession, there was little prospect of inflation.

So the idea that it was about popularity is another one of those little factoids that certain columnists are so fond of helping to create.

 

19 comments

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  1. M-R

    Agreed. Absolutely,

  2. Emily Davison

    I notice that Ross Leigh has his own category…. the brilliant Victoria Rollison and the fabulous Kaye Lee don’t have their own category. I think maybe it is time they did, I know they are the main reason I come to this blog.

    Am wondering why this is posted in News And Politics and Not under RossLeigh’s category.

  3. Terry2

    It is always open to debate, whether a politician is motivated by political expediency in making decisions of economic management : probably and inevitably a combination of influences at play.

    Over the weekend we had a case in point where Turnbull, as a new Prime Minister trying to assert and differentiate himself from his predecessor, reversed an Abbott Nope, Nope, Nope and provided a $95 million grant to Queensland to allow for the completion of stage two of the Gold Coast light rail link in time for the 2018 Commonwealth Games.

    Abbott’s view had been that the federal government only invested in roads – and specifically not in public transport – and that the states would have to sell public assets to release federal infrastructure funding.

    The change of approach by Turnbull is refreshing in that it allows some flexibility in economic planning and management rather than the Abbott approach which, despite his mantra of being the infrastructure Prime Minister, resulted in infrastructure development stalling.

    Clearly, in my view, the light rail at the Gold Coast will enhance the visitor’s experience and provide for seamless efficient transportation from Brisbane for the games and will set a template for urban public transport in this country.

  4. John Lord

    That statement is an utter nonsense.

  5. metadatalata

    It is refreshing to see journalists called out when they spout rubbish in mainstream media. If it cannot be done within their publication, I am fine with seeing it in independent media.

  6. Jennifer Meyer-Smith

    Beautifully explained Rossleigh. Using the sporting metaphor worked for me.

    And yes, I 100% agree that sensible, targeted investment in unemployed, under-employed people with welfare bonuses or OMG low-interest or no interest loans or highly accessible grants aka Micro Credit Loans Micro Finance Grants that help un/under-employed people to derive their own self-employment income in their own micro-businesses and small-businesses, would be the PERFECT way to spend that well-targeted Government money that will stop homelessness, mental illness, social disadvantage and boost the economy.

    If I could stomach reading or listening to Sheahan and his ilk, I would stridently debate this imperative with him. I invite Sheahan to respond on this site.

  7. David

    Haven’t read Sheahan for years, obviously a wise choce.

  8. diannaart

    Jennifer

    sensible, targeted investment in unemployed, under-employed people with welfare bonuses or OMG low-interest or no interest loans or highly accessible grants aka Micro Credit Loans Micro Finance Grants that help un/under-employed people to derive their own self-employment income in their own micro-businesses and small-businesses

    You mean actually supporting people to get back on their feet???? Heresy, m’dear. Better take care the IPA et al don’t hear of your blasphemy.

  9. gangey1959

    Wonderfully explained Rossleigh.
    I do like the sporting analogy.
    BTW. Basketballers score at the rate they do because of the productivity clauses included in the contracts under which they are hired.
    Soccer players (aka “footballers” in the olde world, or “wogballers” here in Oz) on the other hand don’t score often not because they are lazy, because they are overpaid executive sports buffoons who only tackle from behind, and then complain loudly to the referee, (who is likely to be bent.)
    Australian politics is a lot like soccer but played in suits instead of stripey shirts, with invisible sponsorship, and a much abused send off rule.

  10. jim

    The thing that I detest is that those “born to rule” right wing ijiots is when they do lose government there they’ll be fighting everything the ALP bring to the table only for the sake that they want to be in power eg; one right wing nutter was boasting “the more boats that make to Australia the better” They are the words of a Liberal party strategist, though. Anything that makes the other side squirm makes their job easier. Their personal opinions don’t matter: their job requires them to be psychopaths.https://www.reddit.com/r/australia/comments/19r6bv/the_more_boats_that_come_the_better/

  11. Maureen Walton (@maureen_walton)

    Great read, great way of expaining the Article thanks.

    Paul Sheahan is just a Self Serving Liberal, Gets Paid lots to be So….

    .I watch him on the Drum, just for a laugh to see what Stupid reasoning he can come up with and never leaves me dissapointed.

  12. Geoff Andrews

    John Kelly also explained about a year ago(?) the difference between national debt and domestic debt. Dishonestly equating the two is a technique used by the Liberals and their fractious country cousins to justify the “debt & deficit disaster” whine.

  13. i have a nugget of pure green

    the ignorance of economics that is displayed by the parliament is breathtaking.

    It is as if the level of general knowledge got stuck at that of a 2 year old.

  14. stephengb2014

    Having read a little about macreconomics over the last 6 months I find it hard to believe that our politicians of all pursuations keep trotting out this clap trap that the government budget is akin to a household budget. Of course I realise that it suits the free market fundamentalist narrative.

    It took me less than an hour to find that the free market narrative was flawed if not a down right bloody lie designed to keep us ignorant of the truth.

    Thanks to Moseler, Wray, Kelton and not forgetting our own Bill Mitchell plus of course John B Kelly, for helping me understand so much now about a subject about which I was totally ignorant, yet a subject that everyone should be taught at secondary school.

  15. silkworm

    Where are the Modern Monetary Theorists to explain how money is created ex nihilo?

  16. petermartin2001

    “Of course, if they do create an excessive amount of extra money, then the existing values of the “money” will diminish.”

    This is not true. If the government/RBA printed a $100 billion dollars worth of new bank notes and stored them in their vaults they would have no effect at all on inflation. ie the price of goods and services which defines the value of money. Equally if the government chose to hand out lots of money to very rich people and they chose to put the money in their bank accounts that would have no effect either.

    But if they gave it to poor people, like me 🙂 , we’d go out and spend it and that would increase aggregate demand.

    But if rich people decided they wanted to spend lots of existing money which they have in their possession prices would rise. So even without the govt creating any extra money there still could be a reduction in the value of that money.

    Conclusion: The value of money isn’t dependent on the amount there is. It’s dependent on the amount that’s spent. A $1 coin changing hands 100 times has as much impact as a $100 note changing hands once.

    PS @ Silkworm. They are everywhere. They are created endogenously!

  17. Jennifer Meyer-Smith

    I’m with you, petermartin2001, standing in line for the opportunity. 🙂

    This is my solution, as follows: the government/RBA will print the maximum amount (whatever that is without causing inflation etc) of new bank notes and distribute substantial amounts of them to you, me and every other poor person starting with unemployed, under-employed and low-income earners first; then working up the incremental income scales to a capped off level where recipients don’t need the extra money anyway.

    The extra money is to be ear-marked for sustainable living purposes. Obviously that means housing, food, essential services, education, health as basic priorities.

    But it also means such innovative measures as my MFG’s and MCL’s which I advocate above that allow unemployed and under-employed people to move from the misery of poverty and joblessness into their own sustainable and viable self-employment which allows them livable and dignified standards of living.

    Wayne Swan’s $900 bonus to low-income people in the GFC was a brilliant move. I want another brilliant, innovative action to accommodate my MFG’s and MCL’s with a boost of a minimum $10,000 for MFG’s and a minimum $20,000 for MCL’s.

    The money will be government provided and NOT by the banks because I don’t want any bank restrictions on people’s access.

  18. Jennifer Meyer-Smith

    Correction: 4th line of 2nd paragraph should read “non-recipients” not “recipients”. DUH!

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