Last week’s farce enacted in parliament, where the government lost control on three voting issues, is but a symptom of a much broader problem. These incidents demonstrated that it is unable to control the parliament and unable to govern.
The government is a deceptive rabble falling apart both physically and psychologically. Its supposed strength, economic management, is a lie, a thinly veiled smokescreen hiding a mountain of incompetence.
The economy, about which they fumble and stumble trying to explain, is stagnant. It requires an injection of stimulus the Coalition is incapable of making because of its flawed ideology. They are taking themselves, and us, in the opposite direction, headlong into a recession.
What will it take to end this charade we call government debt? What will it take to end unemployment? There should be no government debt. It is a myth. There should be no unemployment either.
The Australian government is the currency issuer of Australian dollars. Its refusal to recognise its own sovereign power exposes its incompetence. It can afford to buy anything that is available in its own currency, without recourse to borrowing or collecting taxation. And, it has a responsibility to spend what is necessary to ensure that every Australian who wants to work, is able to do so.
These simple facts expose the treachery of the neo-liberal ideology that continues to dominate the way in which the Australian economy is managed.
That people cannot find work and are reduced to a welfare payment that is inadequate to maintain a reasonable standard of living, is a betrayal of their rights. That they are then demonised as dole bludgers compounds this betrayal.
That a currency issuing government pretends to borrow money that it creates, is an oxymoron. It is a traitorous act and defies an unwritten contract that implies if people can work, they should be working, not receiving welfare and that the government should be providing that work.
Unemployment represents a failure of the government’s inherent responsibility. Likewise, a government that borrows in its own currency is ignorant of its own sovereign power. How much longer do we tolerate this absurd conduct?
There is absolutely no need to fund deficit spending by selling bonds any more than there is a need to issue securities to fix an interest rate the RBA pays on bank reserves.
The government can instruct the RBA to set a rate at which they will pay interest on reserves and have it pay that directly to the commercial banks. That becomes the target rate.
Commercial bank reserves do not need to be drained from the money supply. It doesn’t matter what the level of reserves are. Commercial banks don’t require reserve funds to lend. They require willing borrowers.
Measures to support bank reserves don’t expand credit. This was the reason QE failed to stimulate the economies of The US, the U.K. and the Eurozone. For every successful lender there must be willing borrowers, not billions in reserves. There weren’t any.
Another great myth on money creation is that it is inflationary. Inflation occurs when too much money chases too few goods. Money creation specifically targeted at employment cannot be inflationary because it stimulates demand proportionate to the level of employment it creates.
It is inconceivable that a program of reduced government spending in a sluggish economy could stimulate growth. It is simply a flawed policy, particularly so here in Australia, where the level of private debt is at 150% of GDP, the highest in the world.
The government’s “jobs and growth” mantra is a hollow effort designed to convince the public that it knows what it is doing. It doesn’t.
What will it take to get these simple facts into the minds of the voters and expose this treasonous activity?
Interesting article John and pessimistic persons like me when see the current alternatives think that what will take will be remove the current politicians in both parties that have the responsibility to put forward and implement a plan.
My pessimistic view in some ways it is backe up by Bill Mitchell view in his article June 6, 2015
“Why no-one should vote for the Australian Labor Party”
http://bilbo.economicoutlook.net/blog/?p=31107
It will take a deep recession with the LNP in control before the questions are asked why. Sadly.
What frequently amazes me is that so many of my well-educated pro-business friends have a household budget understanding of economics. Drives me nuts. Try to step them through it and……nothing…. One friend believes Australia borrows money from China to finance printing Australian currency. Arrrrrggghhhh!
We will need a recession on the LNP’s watch before any real analysis is done. Assuming of course “it’s Labor’s fault for the debt” excuse doesn’t work.
what will it take? a responsible open media for one, then some thought from the general populace, hopefully after an accounting of the BS spewed out by shockjocks and mediocre media commentators.
John, they haven’t been able to enunciate a plan for jobs, for growth, or for anything else. Australians need to wake up and realize that the LNP car is driverless there is nobody at the wheel. That is why Morgan’s research puts July unemployment at 10.5%, we are drifting, no one is taking charge, nobody is able to take charge. We are in a car driving slowly down a country road without a driver, thankfully the wheel alignment has been done so it will go in a straight line for a while, but after 3 years, the lead weights are beginning to fall off the wheels.
We are heading into a recession/depression and the governing party has a civil war continuing between the extremist ultra right wing faction and the moderate faction. They are too busy squabbling to notice that the car is beginning to lose its alignment and is beginning to swerve violently, they have to go or we will end up a mangled wreck at the end of our road.
I believe that this government is about to ‘hit the wall’ and this started with Abbott and his ‘cut the waste’. Yet upon entering government discovered that there was little waste left to cut. It was all going to be terribly simple, cut Labor’s waste and away we go with a surplus in just a few short years. And then we stagnated. The only way that the Libs could adhere to their philosophy of waste = the unemployed, pensioners, the disabled = lifters and leaners, was Hockey’s disastrous budget.
Do the Libs honestly believe that by getting granny to pay 80 cents extra for her prescriptions will do anything at all except create some hardship for granny? Sorry, LNP but there’s no fat left to trim except at the top end of town. But will they be game, will they have the gumption? I doubt it. It’s going to take a change of government to do that.
After watching The Insiders last Wednesday night, I don’t think we’ve got any hope in hell of ever getting a decent government, if that audience is any indication of Australian voters, which I think it was.
We need to have reputable journalists with good economic understanding like Laura Tingle and Lenore Taylor talking about and explaining Modern Monetary Theory. That way, it becomes part of the conversation that any of the parties can’t ignore.
Once it is part of the conversation, Labor and the Greens will win themselves brownie points by showing how they can work together to devise policies that achieve full employment, improved standards of living and a robust economy with new home-grown industries.
That conversation can start straight away and be timed to impact favourably on this next Federal election in just over 2 years.
What it should take is that all of the MSM journalists should be locked into a room where they be taughed about micro-eceomics and soveriegn wealth of Australia and how it could actually work!
Great work John, everytime you write one of your very well explained articles I for one, understand more & more about what my son in law was trying to explan to me 20 years ago when he was at uni.
To me, its clear as crystal so to speak.
Keep up the good work John.
When the politicians, ie. all politicians including Labor and the Greens talk about ‘Budget Repair’, they are caught up in the same Neo-liberal groupthink that has permeated through the public debate. As a Sovereign Nation, Australia has absolute power over its own currency. Australia is the monopoly issuer of its own fiat currency.
How does the economy work?
The interaction of households and firms with certain influences of Injections and Leakages. Pumping money into the system and taking money out of the system.
Leakages = Taxation, Savings and Imports.
Injections = Government Spending, Investment and Exports.
If the Private Domestic Sector (Households and Firms) spends less than it earns (tend to save) and the nation runs a small External Deficit, ie. Imports are greater than Exports, then the government’s fiscal position will always be in Deficit.
If the nation is running a Current Account Deficit, ie. Imports are greater than Exports, which is accompanied by a Government Sector Surplus of equal size, then the Private Domestic Sector (households and firms) will always be spending more than it earns (credit card spending).
The Government cannot control the Non Government Sector, they can influence it but they cannot control it.
The Government can only control the Government Sector.
All these relationships hold as a matter of accounting and not matters of opinion.
This is the Basic Rule of the National Accounts and must apply at all times.
Writing this whilst travelling in Asia – better internet connectivity in Dili, Timor Leste today than at home – what is very evident is the anticipation of the demise of the Australian auto industry as the carmakers of Indonesia, Thailand, S Korea , India, Japan etc gear up to fill the gap that will start to become apparent from next year when we manufacture our last car.
Clearly cars imported directly from Asian manufacturers will be considerably cheaper as there are any number of hybrids in the Toyota, Hyundai and Nissan range particularly not to mention Tata, Mahindra and the like all selling at a fraction of the price we pay in Australia.
So, we are not content to destroy our own vehicle building capability with the consequent loss of jobs and technological expertise based on some vague ideological belief that these industries are not worth supporting, but we are also quite relaxed about degrading our vehicle dealership networks as people import directly from offshore.
People I have spoken with just do not comprehend a country that seems to be hell bent on destroying established industries that actually provide employment and training for the next generation when they are scrambling to develop and subsidise such industries. To mention that we are also happy to sell off our essential community infrastructure to offshore entities (electricity being the case in point) for a quick quid brings looks of incredulity.
If we are going to have any Royal Commissions perhaps we need to start with neo-liberal economic theory which could just be bringing about the demise of Australia.
The government spends currency into existence and taxpayers use that currency to pay their obligations. We often hear statements like “if I ran my household budget the way that the Federal Government runs its budget, I’d go broke,” followed by the claim “therefore, we need to get the government deficit under control,” this is a distressingly false analogy. A sovereign, currency-issuing government is NOTHING like a currency – using household or firm. The sovereign government cannot become insolvent in its own currency. Sovereign Governments don’t need to borrow their own currency in order to spend. The government deficit ought to be higher, a well targeted budget deficit allows for a Private Sector surplus and injects demand into the economy, it does not burden future generations.
Wouldn’t it be great if we half a parliament of people all working together to come up with the best way to tackle the issues. As long a we have the two party system of confrontation, nothing will ever be done for us, the people.
@Terry2
If we are going to have any Royal Commissions perhaps we need to start with neo-liberal economic theory
Bring it on – so the LNP and the Labor party have no more excuses for the neo-liberal economy to nowhere.
I support a Royal Commission into the fallacies of neoliberal economic theory too. That will cover the the RC on the banks as well since they play the same lie game about where money comes from.
Baby Jewel, the program you mention is not Insiders, it was Insight (on SBS). Yes, wasnt it illuminating. The only very small comfort I took from it was the number of Liberal voters who changed, partly to Xenophon, partly to Hanson. But of course could not bring themselves to vote for the Labor party (very downmarket Im sure they think, plus believe 50 years worth of mainly Murdoch propaganda). Which has a whole platform of sensible, thought out policies, compared to the Libs lazy jobsngrowth slogan. I noticed during the election campagin that whenever Turnbull was asked “What are your policies” he always replied “Its in the Budget, the budget is our policy”. With regard to John’s last question “What will it take to get these simple facts into the minds of the voters and expose this treasonous activity?” you do have to look at the media. Fairfax’s The Age had an editorial “urging” voters to give Turnbull another go, despite admitting that their policies were a bit thin on the ground. Yes, it actually URGED readers to vote for the Liberals. A good many readers cancelled their subscriptions because of this editorial.
The “flawed ideology” is the delusion of infinite growth on a finite planet.
“Inflation” is the expansion of the currency supply.
There are too many people for the decreasing number of jobs that our planet can support.
All fiat currencies are intrinsically worthless.
John Kelly has once again displayed his ignorance of the physical realities that are affecting our economy.
Sorry John. There ain’t no magic fix. Either we conserve, preserve and depopulate or we perish. Articles such as this are just more wishful thinking econobabble by those who have no understanding of energy and the law of diminishing returns.
“All paper money eventually returns to its intrinsic value – zero.” — Voltaire.
This is the big economic news this week. Keep your eye on Deutsche Bank. It is one of many cards that could bring everything down.
“despite claims that every virtual gram of gold is backed by the same amount of physical gold, clients have been refused the precious metal upon demand.”
http://www.activistpost.com/2016/09/germanys-largest-bank-refuses-deliveries-physical-gold-customer-request.html
“In essence, Nixon’s decision ended gold redemption and placed the U.S. and the rest of the world on a purely fiat paper standard for the first time in recorded time. By doing so, the U.S., in effect, became a deadbeat nation which no longer honored its obligations and was set on the road to its current banana republic status.”
“Despite what is taught in social science courses, a true gold standard is a greater protector of individuals’ economic well being and, ultimately, their political liberty than any legislation or “rights” document ever penned. Hard money limits state power!”
“Global material efficiency started to decline around 2000, so now the global economy needs more materials per unit of GDP than it did at the turn of the century.”
“Limits to growth means a shrinking piece of pie for everyone.”
http://energyskeptic.com/2016/limits-to-growth-2016-united-nations-report-provides-best-evidence-yet/
Great post, even Blind Freddy can see it was not a good time to dismantle our car industry together with all the businesses and employees it supports. it seems like there is only one way way that Australia can go with these Liberal goons and that is KAPUTO!.
We have the worst government . since 1949 and it’s the LNP,……As the Australia Institute’s research in June found – across a broad range of economic measures, the Abbott/Turnbull government has performed the worst of any Australian government since 1949. Economist Jim Stanford’s report examines economic performance across 12 indicators – including GDP per capita, the unemployment rate, employment growth and the growth of real business investment and intellectual property investment …
Free thinker I stopped reading here,(The topic is why no-one should vote for the Australian Labor Party although the argument is applicable to all parties like it). whats the point more Labor bashing?
Good read John! You have identified the root cause of our predicament. It took me a long time to realize that the current LNP Government doesn’t govern for ALL Australians now. I remember John Howard making the point that the transition from Opposition to Government, means governing for ALL Australians! (Probably his only statement I remember now, too). The best brains in the country do not all reside in the Liberal nor National Party. An effective prime minister and government would harness all the best minds and problem solvers to assist the government to navigate through the current and pending crises. Somehow I feel the black cloud of the previous prime minister is prevailing still!
I believe we need the media to get MMT but I have tried engaging quite a few on the matter and get nowhere. They are so far down the neoliberal rabbit hole.
jim
“Free thinker I stopped reading here,(The topic is why no-one should vote for the Australian Labor Party although the argument is applicable to all parties like it). whats the point more Labor bashing?”
Why Labor bash?
Because they aren’t Greens !
It’s a hobby, a pass time, an obsession with a little crew here, get used to it 😀
Even the Greens, who sponsored a talk on MMT in South Australia by Steven Hail have not taken it on board! Just vague talk of putting it on an agenda..
But, then they are Labor 😀
Government borrowing is unnecessary but it is not an evil to be entirely eradicated. Peter Martin in the SMH:
“But governments aren’t like people. They are more like corporations with a multitude borrowings, each paid off when it falls due and each overlapping. There is no such thing as “the” government debt. Instead it is like the water in a bath being kept warm as old water escapes and new water flows in. The volume of water in the bath may not change, but the composition changes all the time. Lenders lend and get repaid continuously. And, unlike people, governments never die. There is never an end point at which “the government debt” has to be extinguished.
And extinguishing it would be a bad idea. In 2002-03, when the Howard government no longer needed government debt, it commissioned a review into whether it should bother continuing to issue government bonds. The review concluded that financial markets need government bonds in order to price private sector loans. Without them, interest rates would be higher. And financial institutions are required by regulators to hold some of their capital in extremely safe assets. Without government bonds they would be struggling. So the Howard government undertook to ensure it always borrowed at least $25 billion whether it needed it or not. It invested what it borrowed in shares and the like, allowing it to boast that it had no net debt while maintaining a gross debt.”
http://www.smh.com.au/federal-politics/its-the-debt-not-the-spending-why-the-budget-is-bleeding-20140503-zr3mo.html
Martin’s non-MMT (but more Keynsian than neocon) frame of reference only allowed for government to “finance” its spending by two of three options: taxing or borrowing. That’s a bit like, albeit more fundamentally flawed than, only allowing for money to be spent into existence or taxed out of existence and denying investors the option of a safe low interest bond market which at the same time gives government an extra monetary policy lever on the economy.
Dr Ellen Hodgson Brown is a champion of public banking — as it SHOULD be. She celebrates the original founding of Australia’s Commonwealth Bank, as a heroic rebellion against the gnomes and their fractional reserve banking scam. This is an almost unknown chapter of Australia’s history we should be proud of, and learn from.
http://www.webofdebt.com/articles/commonwealth_bank_aus.php
cornlegend,
why don’t you write an article on how you think we can improve our political landscape?
Jennifer Meyer-SmithToo busy with Labor stuff, 😀
The other lot can blunder along
Harquebus, MMT recognises the real limits of economics is the real finite resources of the national economy and planet. Mainstream economics ignores this and much much more it’s a pure fantasy.
MMT is just explaining how fiat floating currencies actually work so you’re confusing issues.
Why waste real resources digging up a shiny yellow metal for money? Money is just a trusted IOU. It’s what people do to get and use the IOU that matters not some shiny yellow metal which is limited in supply and lead to constant deflation and booms and busts as the rich continually hoarded the limited metal unlike fiat currency which can pay anyone to work if they want to.
Watch Alan Greenspan explain it simply in this short video: https://m.youtube.com/watch?v=Ccb_BNdRN80 we don’t need superannuation we can pay pensions as long as the government invests in the future which this current mob is failing to do. That’s real theft from future generations.
Jason
“Greenspan’s simple solution to economic struggles: return to the gold standard. He notes that the economy performed successfully under the gold standard, even before the Federal Reserve was created.”
http://www.marketslant.com/articles/greenspan-urges-return-gold-standard
MMT is rubbish and will be proved to be such just as Keynesian economics has proved to be. Extend and pretend is not a solution.
John, a clear article, thank you. And interesting comments, although flapping hard to keep up as they soared into rarified air. MMT? I googled modern monetary theory …?
So, to your question: what will it take?
A website – “Government policies for Dummies”! – would be a step in a good direction.
During the election campaign we had the ABC-supported Vote Compass. Simple and clear. If a similarly simple approach could be taken for explaining the policies of the various parties and others, simply examining them and their counter-arguments, then that would help raise the Policy IQ of the people. Well, mine at least.
Alandownunder, there is nothing a bond sale can do that a short term deposit arrangement with the RBA cannot do.
the vast majority of us, have no idea about the economy and don’t give a rat’s arse if the dax are down showing the hangseng over all ords.
We struggle to understand mortgages but know debt. So what the media says goes unless challenged.(I did hear koch call morrison an economic twit)
What will it take to get these simple facts into the minds of the voters and expose this treasonous activity?
Keep having many conversations. The politicians in the parties opposing the current rabble can only do as much as they can. Join your party, join movements like Unions and Get Up! Share information, hold conversations and concern yourself and encourage others to actively participate and understand what all parties are about – especially the LNP and the parties who support them!
Another great article John.
Trish
Support the very same people who got us into this mess? Yeah, that’s a real good idea.
great article john.i first read about mmt on bill mitchells blog 4 or 5 years ago and was blown away at the implications.i thought that the concepts were so important that it would spread like wildfire but was met with blank looks when i tried to explain it (probably my fault).however i have noticed a marked increase in mmt awareness lately.it cannot be long before the mainstream media pick it up.i’m hopefull anyway.
Here we going again with Jim and cornlegend posts taken comments as Labor bashing and assuming that I am a member of the Greens.
It is not ALP bashing it is the theory behind how to manage the economy that the article criticize.
Get it right once for all or refrain to come with reply that are only up to childish standards or simple ignorance of the facts.
Are you both of you claim that have better understanding of Bill Mitchell macroeconomics or just simple do not bother to read his article because the title?
I think that the participants and readers of this site are looking for better contributions that simple the ALP bashing claim in some posts.
One thread already was stopped for comments for bringing the debate to a low level.
Please not keep doing it.
End of the rant from this grumpy old man.
Aha Harquebus – this is where you show you do not understand Labor. If there is something that members feel should be progressed (say for example a basic wage, as current hot topic), we have the built in democratic mechanisms within the party to do just that. It is no longer 1983 and we do not need to continue to accept that we are living in the same times those decisions began to be made. The fall of the banks and the GFC has come and gone and poverty is rising. It is the conservatives who want to restore the status quo of the ‘old times’ Labor members continuously discuss progress.
Trish
If that was so, making large donations would be a waste of money.
It doesn’t matter which side is governing or what Labor policies currently are. As long as growth is the basis of their solutions, they will fail and the solution offered by John Kelly is just as absurd. Throughout history, there has not been a single fiat currency that hasn’t failed and these fools think that, just like those fools from past, they know better.
cornlegend,
what do you think about MMT?
Why isn’t Labor heralding its virtues, as opposed to the neoliberalism introduced by Bobby Hawke and Keating and perpetuated by every other Labor leader since?
Instead of pointing the finger at everybody else, start answering those questions.
Harquebus,
beside less consumerism and population growth which both deplete our natural resources, how would you manage the economy? (And please say you’d shut down, neoliberalist economic theoretical practices and strangleholds!)
Possibly lets talk about the merits within the article, rather than Labor. They are not even in Government. Why not discuss the LNP and Turnbull? He touts himself as a ‘progressive”
Jennifer.
Gold, silver and other metal coins.
See my post above with this quote.
“Despite what is taught in social science courses, a true gold standard is a greater protector of individuals’ economic well being and, ultimately, their political liberty than any legislation or “rights” document ever penned. Hard money limits state power!”
Harquebus, we know what you think won’t work. Tell us what you think will work.
Ok H,
I see some logic there but how do the valuable denominations become accessible to ordinary grassroots people?
Trish, why instead of talking about ALP, Coalition, Greens or any other political party or organizations involved on macroeconomics we do not talk about John’s article, Bill Mitchell article or concerns, or possible approach by economists that have expressed their opinion ?
Jennifer Meyer-Smith
To be honest, I haven’t got a clue about the positives or negatives of MMT but see it as still being still debated by much wiser people with economic knowledge than me .
Bugger it, that’s why I employ financial advisors and accountants.
Not something I have much personal interest in .
The smarties years ago advised me to save gold and I have been into that.
Freethinker, the discussion on political parties probably arose from your early comment
Bill Mitchells
““Why no-one should vote for the Australian Labor Party”
Maybe the title of the article you mentioned would give a clue?
I’m not following Free thinker? I suppose my position is is I’d like to learn more about this topic, and I’m not interested in engaging in another round of talking about Labor when everyone in this thread has made their positions on Labor clear, time and time again.
“The Reserve Bank Board’s obligations with respect to monetary policy are laid out in Sections 10(2) and 11(1) of the Act. Section 10(2) of the Act, which is often referred to as the Bank’s ‘charter’, says:
It is the duty of the Reserve Bank Board, within the limits of its powers, to ensure that the monetary and banking policy of the Bank is directed to the greatest advantage of the people of Australia and that the powers of the Bank … are exercised in such a manner as, in the opinion of the Reserve Bank Board, will best contribute to:
a. the stability of the currency of Australia;
b. the maintenance of full employment in Australia; and
c. the economic prosperity and welfare of the people of Australia.”
The 1945 ‘white paper’ on management of the national economy made employment creation/maintenance the policy keystone. Australia maintained an average unemployment rate of approx 2.2% for the next 25 years, …and repaid all foreign currency/ war-debt…and never recorded a significant fiscal surplus until 1988. Resultant GDP growth performed its ‘magic’.
Since the 1970’s rise of neoliberalism, RBA policy has morphed into inflation control via ‘trickle down’ fomenting monetarism, with ongoing high unemployment rates relegated to collateral damage status – the higher rates rationalised through various neoliberal constructs & mantras; such ‘natural rate hypothesis (NRH)’, ‘Nairu’s’ , & ‘Structural unemployment’.
In essence, ‘the maintenance of full employment in Australia’ has been quietly abandoned in favour of primarily controlling interest rate settings/guarantees that subsidise the profitability of banks & financiers – all at the expense of “economic prosperity and welfare of the people”.
Direct fiscal policies (à la Rudd 2008, that bypass financier loans) are off the table.
Not unlike the GST, interest rate charges are regressive in effect – business/investors can adjust product pricing to ‘pass it on’ and claim a tax deduction, depreciation & neg gearing benefits; while the private end consumer pays full price with after income tax dollars.
The RBA’s interest ‘floor’ cost citizens dearly…and daily; the cost is embedded in every item/service citizens purchase.
Employment dependent ‘end consumers’ of financier credit and its myriad of flow-on credit products, essential goods and services are hit the hardest financially by current application of RBA monetarism.
Growing wealth inequality is the inevitable outcome of regressive economic management – and the neoliberals know it only too well!
Hence their contemptuous dismissal/disregard of MMT.
John Kelly
Hard currency has been tried and works. Fiat currencies usually begin with governments debasing their currency. No pure fiat currency has ever survived. If it based on nothing, that’s pretty much what it is.
Jennifer
Population reduction puts more resources in peoples hands or, at least more than they will have if business as usual continues.
Trish, I have expressed myself wrong, I was trying to reinforce what you have suggested.
My apologies for my spanglish.
IMHO will be a very constructive debate or exchange of ideas if we leave the political parties on one side and look on the present and past approach by the economists in charge of the finances in this country.
Well I like MMT, although and economist friend has said it is flawed (and he understands economics thoroughly). I do follow Alan Austin online, but I have not seen any of his posts for a while. Does anyone know what he thinks of MMT? Or if he has written about it.
I do know about MMT as such but there has been a lot of discussion about pushing for a basic wage of late. I am in favour of a basic wage to replace unemployment payments, as I think it would severely reduce stigma for one.
Agreed Freethinker.
I’m interested in MMT in relation to:
1. What will this mean for how we pay our taxes
2. How will this assist to create jobs
3. Is there a risk to small business (as many are now teetering on the edge)
4. What are the implications for creating income equality, particularly between rural, regional and remote areas vs. the metropolitan areas?
5. Is this something that is conducive to our existing set up of trade (and what we currently trade in) or will that need to change?
6. How will it address issues of poverty, include housing affordability.
I am not an economist, I find it a difficult topic to engage in and if answers in simple terms could be given, that would be great!
In many comments in past articles we mention the neoliberalism and I have mentioned an article by the International Monetary Fund which IMO can be a good read for those interested in the subject.
Neoliberalism: Oversold? http://www.imf.org/external/pubs/ft/fandd/2016/06/ostry.htm
The pdf document is here: https://www.imf.org/external/pubs/ft/fandd/2016/06/pdf/ostry.pdf
cornlegend,
whether you leave MMT to smarter economic thinkers or not, you as a Labor apparatchik are expected to pass on the commenters’ interests into Labor’s inner sanctum, taking on board MMT, as its economic agenda.
So, kindly don’t pass the buck in your usual ‘congenial’ manner.
Jennifer Meyer-Smith
this could be a lesson.
first you need to know what the hell you are passing on, or leave it to others who do.
My limit is keeping the Cornie Budget in the black and staying out of deficit.
John B {above}
JohnBSeptember 4, 2016 at 8:40 pm
Is a true blue Labor stalwart and gets the message passed on. I leave that to knowledgeable ones like him
He has tried educating me for years and even good old JB must have just about given up
Thinking about ‘hard’ currency, basing a currency on gold or similar, sounds nice and foundational and all, but it is a limited resource. Also, gold values fluctuate, at present gold is looking good, 20 years ago not so good – just like any product.
Given that our entire idea of economics has mutated into something so vast and complex – all economic ideologies are basically fantasies. They work because we want them to work – well sort of. These systems mainly work for a minority of people, as we at AIMn know only too well. These systems are growth systems based on finite resources, as I stated above, gold is finite.
Another point I’d like to make; we have made no changes to western countries economies since the GFC – the banks did not fall, no one was brought to account and the banks are rolling in profits as usual. There were a couple of casualties here and there – none in Australia and no really, really huge banking corporations failed.
Which means, we can experience another GFC – maybe not as a result of shonky home-loans but the system is there to be rorted, any time at all.
Ok cornlegend,
if you don’t pass on anything, then you don’t matter.
Some might be interested in this.
“A number of trenchant reasons have been given for the General Theory’s continued dominance, however, one stands above all else: Keynesian economics provides the intellectual justification for economists, statisticians, technocrats, bureaucrats, and policy wonks in their exalted positions as “fine tuners” of economies the world over.”
Trish
I’m certainly no economics guru, but I would advise being aware when listening to those who critique MMT (or any economic framework) that they often misrepresent what the ‘theory’ is to discredit it. I have come across this technique numerous times when reading those who poo-poo MMT.
They’ll make statements like ‘MMT says xyz’, whereas if you understand even a little of what MMT actually says… The classic here is ‘MMT says that government spending is unconstrained…’ The reality is government isn’t financially constrained, but IS constrained by the productive capacity of the economy.
I’ll leave the likes of John or totaram or John Amore (haven’t seen him for a while) to answer your other excellent questions in a manner better than I am able.
Just as an aside, it was known by those on the inside as far back as the 1940s that taxes don’t fund government spending, yet the neoliberals (which unfortunately still includes Labor and the Greens) are stuck in the era of ‘gold-standard’ thinking, because it ‘limits state power’ (a neoliberal construct if ever I’ve heard one!)
http://home.hiwaay.net/~becraft/RUMLTAXES.html
Trish,
Another good, easy to follow resource is Warren Mosler – you could think this guy SHOULD be a follower of classical neoliberal economic theory, given he’s been a Wall St insider, a banker, an entrepreneur who has designed and built his own car company, as well as a financial services company, but he tells it how it actually works.
His fairly short ebook, ‘The 7 Deadly Innocent Frauds of Economic Policy‘ available for free download from his website is WELL worth a read, especially Parts I & II – part III gets a bit technical for me.
This, I believe, is the economic direction Labor should be heading towards.
Thanks Bacchus. I also logged onto the Library and search through many academic journals and there appears to be more criticism than praise for MMT than promotion.
I suppose, this does make me question. However, there are rebuttals in all areas of academic literature and I don’t think this is unique; however, say for example in management, when a new theory emerges, it does tend to really take off.
As a layperson, how should this be viewed?
It might be a dumb question, but those links are USA – is that relevant to how we operate in Australia?
Trish, there is not enough room here to answer your questions. But know this, those who criticise MMT are those who will stand to lose by it and they are the very rich who currently hold the bulk of the world’s wealth. MMT is the great social and economic equaliser. A minimum wage for all. Full employment with production proportionate to the level of employment. You will find critics but their criticism betrays their fear for what they will lose.
I think we all need to know a bit about the history of Modern Money Mechanics. – Between 1870 and 1914 there was a global fixed exchange rate. Currencies were linked to gold. This was known as the gold standard. With the start of World War 1, the gold standard was abandoned. At the end of World War 2 the conference at Bretton Woods, an effort to generate global economic stability and increase global trade established the basic rules and regulations governing International exchange. As such, an International Monetary System, embodied in the International Monetary Fund (IMF), was established to promote foreign trade and to maintain the monetary stability of countries and therefore that of the global economy.
It was agreed that currencies would once again be fixed, or pegged, but this time to the U.S. Dollar, which in turn was pegged to gold at US$35 per ounce. What this meant was that the value of a currency was directly linked with the value of the US.Dollar. So, if you needed to buy Japanese Yen, the value of the Yen would be expressed in US.Dollars, whose value in turn was determined in the value of gold. If a country needed to readjust the value of its currency, It could approach the IMF to adjust the pegged value of its currency.
The peg was maintained until 1971, when the U.S. Dollar could no longer hold the value of the pegged rate of US$35 per ounce of gold. From this point on, Governments used fiat currency as the basis of the monetary system. This system had two defining characteristics: (a) Non-convertibility, and (b) Flexible exchange rates. You need to recognise this major shift in history before you can understand why the economic policy ideas that prevailed in the previous monetary systems (based on convertibility) are no longer applicable. You cannot assume that the logic that applied in the fixed exchange rate – convertibility days translates over into the fiat currency era. The fact is that it doesn’t.
Great synopsis, Don.
Now I gotta look up this neo-liberal thingy, again.
“But if gold and silver are not real money and they are not safe haven assets, then why did the central banks of Switzerland and Norway just print $2 billion dollars in currency and immediately move that paper currency into gold mining companies?”
http://www.shtfplan.com/headline-news/jumping-ship-two-central-banks-just-printed-billions-in-paper-currency-and-immediately-bought-gold-mining-stocks-with-it_09022016
The monetary systems are pretty much the same – US, UK, Japan, Australia – most systems outside of the Eurozone are sovereign in their own currencies, so the principles apply. In Australia, the resources from my perspective as posted on this site, are mainly Bill Mitchell and Steven Hail .
I’m not surprised there are many criticisms of MMT from the ‘mainstream’ – they are also ‘must-reads’. Academically, there are ‘schools’ of thought on economics, each jealously guarded. The neoclassical school comes largely from the Chicago school of economics; you also have the Austrian school which takes a libertarian view of economics and MMT which seems to have found a home in the University of Missouri-Kansas with the likes of Randy L Wray and Stephanie Kelton (economics advisor to Bernie Sanders) and various other institutions aroundf the world
These ‘theories’ aren’t new by any means – to me, MMT is a bit of a misnomer, being less of a theory than an explanation of how fiat systems actually work. Everything I’ve looked at from an MMT perspective explains, without need to ‘beat the models into submission’, the way macroeconomics actually works.
The extension of MMT into policy areas (like the Job Guarantee {JG}) is still a political perspective. There are those, especially those thinking of future employment prospects, who promote a Universal Basic Income as opposed to a JG. This is for brighter minds than mine to ponder…
There is no logic at all in the creation of fiat currency. We are governed by the laws of physics and it is these laws that will prevail.
The mindless pursuit of budget surplus began during the Reagan / Thatcher era.
The neo-liberal period from 1943 to 1974 when the government assumed that their policy’s would create enough employment , they ran almost permanent deficits, in fact the deficit during the period of low unemployment was 8 times greater than during the Rudd / Gillard era, (the so-called debt and deficit disaster), and nobody noticed. The sharp rise in unemployment came following the introduction of Bill Hayden’s budget, (I am not Labor bashing, just stating a fact). Unemployment has never gone down to the 1974 level again. It was during this time that Bill Hayden and Clyde Cameron began to vilify the unemployed to cover up the fact that they were deliberately causing unemployment in late 1974 and 75. They started to attack the victims of their policy failure by calling them “dole bludgers” and “out of work lion tamers”. Fraser and subsequent governments just refined all of that and now it’s the norm, it’s part of the public narrative that the unemployed are lazy and can’t be bothered looking. That’s not true at all, unemployment is because there is not enough spending .
I was obviously too young to recognise that subtle change happening in 1974 and 1975. If 1943 to 1974 was the neo-liberal period, what do we call 1975 to 2016: uber neo-liberal?
Lucky you! Wish I could say the same. 🙁
Harquebus
Gold & silver bullion have value as a product, these metals are used in a variety of applications from jewellery to electronics. Their value increases or decreases according to the stock market. The stock market is an abstract concept, just like neo-economics – they work according to whatever conditions people believe they are facing. This can be based on anything from human imagination or to something very real like world wars.
Another valuable product are diamonds – one can invest in diamonds as easily as investing in gold or silver – however, they are all finite and all only given a value according to human interests.
Which is why MMT is worth consideration because it does place value on the environment and human beings as part of its foundational elements.
diannaart
Consider it all you like. It’s still just fiat crap.
“Recognizing that the departure from gold and silver backing to our money has led to crushing debt and great financial instability, a few freedom-minded state legislatures have begun to consider how to defend themselves and their citizens.”
https://mises.org/blog/how-us-states-can-pave-way-greater-use-sound-money
Who the hell is don a Kelly talk about rewriting history or just lying