Australian Budget Owls is a group of concerned citizen economists who believe debate in Australia should be informed by Modern Monetary Theory. Australian Budget Owls write open letters challenging what we see as false and misleading statements, based on a zombie economic orthodoxy, described variously as “fake knowledge” and “junk economics” by leading academic economists. We ask the proponents to put up or shut up, provide clear and valid reasoning, which we would say doesn’t exist, to support their position or, change.
Dear Senator Hinch,
We write to address your comments in the media regarding home ownership for younger Australians.
Australian Budget Owls is a group of concerned citizen economists, informed by Modern Monetary Theory.
In our model of the economy we believe that money is created by banks endogenously. While this is somewhat controversial, we note that the Bank of England released a working paper in 2015 essentially confirming our views. The banking system can create as much money as it can sell, at the interest rate set by the government through the reserve bank.
The consequence of this is obvious. The supply of money, available for speculation on house prices, and hence the resulting bubble and corresponding levels of private debt, are constrained by:
- the interest-rate set by the reserve bank,
- prudential rules set by APRA,
- any other laws constraining the lending by banks that may be decided by Parliament and,
- taxation of the proceeds of housing speculation currently given discounted treatment.
The aforementioned all fall within the purview of the parliament and government, and therefore are the responsibility of you and your colleagues.
Conclusion – Parliamentarians have a social responsibility.
Your comments that younger Australians should not expect to own their own home are, from the perspective of social equity, unacceptable to us.
We would like to suggest that you, and your colleagues in parliament, consider the work of economist Prof Steve Keen on private-sector debt. Specifically, adopting a long-term policy targeting a private sector debt to GDP ratio in a similar manner to the way we now target inflation. In addition, you may wish to consider professor Keen’s Modern Debt Jubilee proposal to defuse the systemic risk associated with current high levels of private debt.
Best regards,
Damien Smith
Australian Budget Owls
