Senexx is off maintaining three blogs including this one. And for some bizarre reason Senexx is talking about himself in the third person. He blames the title of this post, maybe he should have filled that in last eh?
Senexx’s primary blog is about economics with the only economic school of thought that seems to make sense and doesn’t have to make up models to fit the gaps other economic schools of thought leave – that’s at http://modernmoney.wordpress.com/
I’m not sure what will happen to this blog (senexx.wordpress.com) in the meantime. It will either stick to more generic politics (non-Independents) or diversify into other areas. And would you look at that <—- First Person is Back!!
Oh wait I all ready do support Windsor, Oakeshott and reluctantly Katter as well as the late Peter Andren.
What a perfect election result. I did not get the local member I voted for but I got the election result I voted for. I couldn’t be happier. I’d prefer a balance of power in both houses every time. We’ve had a BoP in the Senate for a while with Xenophon and Fielding but whereas Fielding was predictable, Xenophon was a bit of a let down. I would still like to see some more competent and intelligent broad based Independents in the Senate.
So often, the government with little or cursory debate rams through legislation, knowing it has the numbers. Government and Opposition backbenchers, and independents, are treated with disdain.
- Peter Andren
It will be interesting to see how the Victorian DLP Senator goes, I’m predicting predictable.
A cross-bench of independents (whose preselection and election is one and the same), holding the balance of power, seems to me the most satisfactory solution to what is currently a representative vacuum.
- Peter Andren
And that is exactly what we have. The outcome democratic process has always intended. The winner is Democracy and effective Representation at long last.
Support the Independents, Democracy always needs and requires a Balance of Power.
I think Minnie Mace who I saw on SBS’s Living Black quite some time ago talking about various faiths of today’s Aboriginals said it best.
She said:
I think that all faiths, religions are like a string of pearls with a thread of truth running through all of them. And I believe that respect for one’s self, respect of others and respect for the environment, the sum total is the respect for God. I don’t believe in an invasion because I believe in a divine arrangement. The English language has broken down 600 language barriers – we couldn’t even talk to each other. And if I don’t want to get up in the morning, I don’t have to – I’ve got a fridge at home, I don’t have to hunt and gather every day to survive. And I’d rather be tracking down a kangaroo on the back of a fast-moving ute than running him down on foot. Our ancestors suffered so we could have all these benefits today and our kids don’t respect anything because they’re so full of hate and anger and that’s brought about by these academics perpetuating a noble savage on one hand, and we have a sense of grieving for paradise lost, and, on the other hand, it’s an invasion. We were advancing spiritually and they were advancing technologically and now we’ve all been brought together we have to understand each other’s culture, each other’s belief and then set a good standard for the future generations.
That’s such a beautiful and honest way of looking at it.
Jeremy Kewley from the former police drama stingers, once summed up Australia day in this way:
Australia Day is a day of celebration, commemoration and a day of profound reflection.
A day where we can pause to look back over thousands of years,
To what this country was and what it has become,
To what we have done – both good and bad, for and with, our country.
Australia Day is a time to understand and acknowledge our mistakes and learn from them and then to use that knowledge and understanding to move forward.
A day where we can celebrate what we have today ?
Our tolerance – our acceptance of others and their acceptance of us,
Our diversity – from culture to food, from language to religion.
Our landscape – vast and exhilarating, green and gold, deep red and ocean blue.
Our lifestyle – relaxed, casual, informal and welcoming.
Our sense of humour – never taking ourselves too seriously.
Our mateship – a common bond which all Australians seem to ‘understand’.
And our luck at living in Australia,
One of the most beautiful places on Earth.
Another beautiful and honest way.
Personally I think Australia Day is best summed up by the words of the famous song ? I am Australian
I came from the dreamtime from the dusty red soil plains
I am the ancient heart, the keeper of the flame
I stood upon the rocky shore
I watched the tall ships come
For forty thousand years I’d been the first Australian.
I came upon the prison ship bowed down by iron chains.
I cleared the land, endured the lash and waited for the rains.
I’m a settler.
I’m a farmer’s wife on a dry and barren run
A convict then a free man I became Australian.
I’m the daughter of a digger who sought the mother lode
The girl became a woman on the long and dusty road
I’m a child of the depression
I saw the good times come
I’m a bushy, I’m a battler
I am Australian
We are one, but we are many
And from all the lands on earth we come
We share a dream and sing with one voice:
I am, you are, we are Australian
I am, you are, we are Australian.
As Australians we come from a variety of backgrounds, a variety of cultures and today we celebrate, commemorate and reflect on our history. It is the new millennium; it is a time to move forward, it is a time for progress. It is time for Australia to succeed. Australia is proud of her history of hard yakka. It is in our blood, it is in our hearts, its in our hands. Today I am proud to be Australian.
MMT proponents argue is that there is a difference between money created by fiscal deficits and money created by bank lending. When the government issues currency into non-government it does so through the Treasury directing its bank, the Fed, to credit non-government deposit accounts, e. g., to pay for fighter planes or to pay grannie’s social security. The transmission from reserves to bank deposits is direct and does not depend on bank lending. Moreover, since there is no liability corresponding to the assets created in non-government in crediting these bank accounts, deficit disbursements inject net financial assets into non-government. Conversely, bank lending nets to zero since each asset has a corresponding liability, so non-government net financial assets remain unchanged no matter how much banks lend.
The reason that NGDP targeting will not work is the flawed notion of the transmission mechanism from reserves to spendable bank deposits. When the Fed buys financial assets of whatever type, it simply increases bank reserves. The erroneous presumption about transmission is that that banks lend against reserves or lend out reserves. Neither is the case, as MMT points out. Rather, bank lend against capital based on demand from creditworthy borrowers willing to pay a rate that is profitable enough for the bank to risk it’s capital against. Increasing bank reserves does not spur banking lending and it does not affect the factors banks take into consideration in lending.
From this is simple to see why NGDP through increasing bank reserves, e.g., via QE, will not increase effective demand and spur increased investment to meet it. The transmission mechanism is bank lending, which is in abeyance, and increasing reserves will not increase it as the failure of QE has shown. Unless the Fed would buy real assets like houses instead of financial assets like MBS, it cannot not inject net financial assets into non-government, and there is no reason to expect an increase in effective demand due to increased bank reserves.The US is already at ZIRP and has been for some time. That has done nothing either. MMT predicted the failure of monetary policy — QE1 and QE2, as well as ZIRP, and QE3 will also fail unless the Fed would purchase real assets, which it is not permitted to do under current statute even under emergency powers, at least as I understand it. Time for fiscal policy to step up to the plate.
NGDP = nominal GDP
MBS = Mortgage Backed Securities
QE = Quantitative Easing
ZIRP = Zero Interest Rate Policy
The nation’s dependence upon a dated model of private debt expansion, as well as its chosen management strategies for the mining boom, have locked us into a paradigm that is, over time, leading to the selling off of assets to fund the current account deficit and the hollowing out of the economy’s productive capacity.
This is a history of Job Guarantees in Australia and how they came to be, that is how they evolved. This is a four part series of about 15 minutes each history of the man known as Red Ted in Australia – Edward G Theodore. I confess the title was to sucker you in but Part IV is particularly relevant particularly to those promoting the MMT paradigm
On the 1st of October Senator Barnaby Joyce and I had a little exchange on twitter and I must say I was very impressed that he engaged and did not just use twitter as a broadcast mechanism as many other politicians do. The exchange went like this:
Barnaby: Our Treasurer of the Millennia borrow another 2 billion for the week. At least he is consistent. Apparently this habit is not a problem.
Me: As long as it is Australian Dollars he is borrowing it really is not a problem
Barnaby: 73% of borrowing is from overseas last time we asked so i suppose that is a concern.
So it is today I was updating some data that I first became aware of on the 14th of April 2010 and Barnaby Joyce is quite correct, over 73% of borrowing comes from overseas, it is in fact closer to 75%. However, he is wrong to be worried about this amount of money being borrowed from overseas. Why? Because it is all in Australian dollars.
Using the RBA Statistical Table E10, as of June 30, 2011, the only obligation of the Australian federal government in a currency it doesn’t control (have sovereignty over) is UK Pounds £1 million and USD $5 million.
And with underlying inflation of 1.2% annualised, accelerating inflation or hyperinflation is not likely to be a problem any time soon.
Australian Government being the monopoly issuer of the $A will never default on its debts unless for political purposes it decides to default.
Being worried about Australia’s debt is a mug’s game.
1. Debt is a social/political arrangement, open to negotiation and renegotiation. As Graeber emphasizes, this is frequently recognized when it comes to renegotiating debts between the wealthy, between governments, or between governments and the wealthy. Debt obligations suddenly become “sacrosanct” only when it is a case of the poor or middle class owing the rich. Suddenly there is great moral outrage at the thought of “broken promises”. Any thought of renegotiating debt is suddenly beyond the pale.
2. High taxes on the wealthy have accompanied strong employment and economic growth in the past, for instance during the immediate postwar period.
3. The most effective way to reduce public “debt” is through policies that encourage growth in income and employment and therefore tax revenue. This could be achieved through a combination of government deficit expenditure and private-debt forgiveness, the latter freeing up household income for expenditures.
The “Sanctity” of Private Debt
The reason for the double standard on debt seems clear: the debt of the poor and “middle class” helps to reproduce a category of people – most people – who need to sell their labor power to capitalists in exchange for wage or salary income or rely on someone (e.g. a partner, a parent) who does. It is harder, for example, to opt for a low-income, non-materialistic lifestyle – less paid employment, more free time – if a person has incurred debt obligations in the form of student loans, home mortgages, etc. Even if a person opts to rent cheaply, not go to university, etc., the imperative to work is stronger as a result of private-debt relations in general, which impact on the availability and cost of accommodation. Under capitalist social arrangements, that rented apartment or house in most instances would not have been built in the absence of private debt being issued. Private loans were only forthcoming to the extent that an interest obligation could be imposed on somebody.
In a fiat-currency system, there is actually no necessity for private-debt relations at all. Their existence is a political choice. Housing could be built and provided without requiring anyone to go into debt, as a basic social right. Needless to say, this is anathema to capitalism, because it weakens the compulsion of the majority of people to work for capitalists on capitalists’ terms rather than organize productive activity along different, perhaps more democratic, lines.
At one point in the interview Graeber says “debt is not really an issue”. By this I took him to mean the public debt of a sovereign currency issuer. He gives an example of “debt being higher in the past” alongside strong growth, which could relate to U.S. public debt in the immediate postwar period. MMT is clearly in agreement with Graeber on this point.
The debt of currency users, in contrast, can obviously be problematic. Renegotiating this debt is clearly an issue for the elites when it comes to the middle class and poor, and is an issue for the middle class and poor when they can’t meet their debt obligations due to unemployment or loss of income.
Taxes and “Incentives”
Graeber’s observation that high tax rates on the wealthy have accompanied strong employment and growth outcomes in the past, including in the immediate postwar period, is accurate. Here is a link to an interview in which Michael Hudson discusses this point in some depth.
The claim, often made by apologists for the wealthy, that taxes create a “disincentive” to produce does not withstand scrutiny in many cases. There are many instances where taxes will in fact create an incentive to produce. This will be so whenever unproductive activity rather than productive activity is the target of the tax. Estate taxes, wealth taxes, taxes on interest income, lump sum taxes of all kinds, are actually incentives to produce, not disincentives. If a government were to tax away all property and interest income, suddenly many in the leisure class would find they had to work for a living in order to meet their tax obligations. Whether this would be good or bad is not the point currently being addressed: such a tax is an incentive to produce, not a disincentive.
Taxes on income and consumption, in contrast, can conceivably create disincentives to produce, but they can also create incentives. In terms of taxes on employment income, it is not clear that there will be strong incentive effects on aggregate output and employment in either direction, despite the orthodoxy searching hard for any such effects. It may well make sense, on normative grounds, not to tax productive activity highly, but purely in terms of aggregate employment outcomes, the impact is not obvious from the empirical evidence.
It is easy to see why taxes on employment income may not create much of a disincentive for many workers. By definition, workers are mostly people who have “chosen” (are compelled) to sell their labor power to capitalists or capitalist governments in exchange for wage or salary income. The less independent income they have and the more indebted they are, the more they will have to work, irrespective of taxes on employment income. In fact, higher taxes on employment income would mean they have to work more, not less, to meet their debt obligations.
In other instances, taxes might induce some workers to alter the productive activities they undertake, rather than the overall level of those activities. For example, if taxes on employment income were made steeply progressive, people might opt in increasing numbers to take lower paying jobs. Even if this occurred, it is not clear that it would matter. It is a political question. Less people might be drawn into high paying jobs in the financial sector, for example, and more enticed into less lucrative occupations in engineering, science, teaching, nursing, aged care services, etc. If this was considered a bad thing – a political judgment – a special tax exemption might be needed to maintain numbers working in finance … Or maybe it would be considered a good thing. Again, that would be a political judgment.
To those who would suggest we “let the market decide”, rather than “interfere” through tax policy, patterns of demand reflect income distribution. If the market distribution is considered just – a political judgment – the resulting demand patterns may also be considered just. But if not – a different political judgment – a change in distribution is called for, and this will alter patterns of demand and the market assessment of different activities.
Overall, the incentive effects of taxes on wage and salary income are not important when it comes to the determination of aggregate employment. More likely is that taxes may to some extent alter the kinds of activities undertaken.
What matters more for total employment is the overall impact of all taxes on aggregate demand. If tax increases for some income groups are not at least partly offset by tax cuts for other income groups, then for a given level of government expenditure there will be a reduction in aggregate demand, and this will reduce total employment. This has nothing to do with incentives or disincentives. It is simply that taxes subtract from aggregate demand.
Taxes, Distribution and Saving Behavior
There are really two important aspects of the debate over fiscal policy. MMT economists frequently stress the technical, apolitical aspect, which concerns the impact of the deficit on aggregate demand and employment. But there is also the political aspect of how tax policy affects the distribution of income. This is recognized in MMT, but understood to be a political choice and analyzed as such.
Regarding the first, technical aspect, MMT demonstrates that if full employment is to be attained, the budget deficit must be sufficient to enable non-government net-saving intentions to be realized. This theoretical result is not remotely political. It dictates no particular position on income distribution or the size of government. It dictates no particular position on the legitimacy of private property, capital and wage labor as a social relation, private saving, private wealth accumulation, or any other political choice. A budget deficit of a given size can involve high spending and taxing or low spending and taxing. Again, MMT is silent on the choice. The MMT result simply says that whatever non-government net saving intentions happen to be, the budget deficit will need to match them if full employment is a policy goal.
Is full employment a policy goal? Should it be? MMT does not dictate answers to these questions. They are questions that will be answered politically. But if full employment is a goal, MMT indicates an effective way to deliver it (the job guarantee) and indicates that this will also entail the budget deficit (whether high or low tax/spend) being sufficient to enable non-government net saving intentions.
Clearly, lower net saving intentions will mean full employment is attainable with a smaller budget deficit. In the case of higher aggregate saving, full employment can only occur alongside a larger budget deficit.
This raises the question of what determines non-government net saving intentions. The short answer is: many things. Culture, political stability, past accumulation of private debt, the breadth and depth of the social safety net, the extent to which private saving is compelled (e.g. through compulsory superannuation), the current economic outlook, and much more. All these factors will have an impact on non-government net saving behavior.
Graeber touches on a significant determinant of aggregate saving behavior: income distribution. Because of different spending propensities across different income groups – the poor and middle class spend a higher proportion of income than the wealthy – a more equal distribution of income will tend to result in stronger private spending for a given level of income. It will therefore take less deficit spending by government to maintain any given level of aggregate spending and aggregate income.
An implication of this is that non-government net saving intentions will tend to be lower for any given level of income when that income is distributed more equally. So if one policy goal is to achieve full employment and another policy goal (even if for spurious reasons) is to achieve a smaller budget deficit, then redistributing income downwards will be appropriate.
Does that mean MMT says we must do it? No. It depends on our politics. Maybe we think inequality is good for its own sake, or an appropriate reflection of merit, productiveness, morality, or whatever. Maybe we think high unemployment is good for its own sake, or is beneficial in some way either for the unemployed or the rest of society. If we want extreme inequality and high unemployment, MMT indicates we can cut taxes on the wealthy and increase them on the poor, increase corporate welfare and cut social services, and implement austerity measures to keep aggregate demand far too weak to sustain full employment. Every capitalist government in the world seems to be putting this set of policies to work. Either this is our political preference or we are nations of idiots!
If, instead, we want full employment and less inequality, MMT indicates that in redistributing income downwards, we will still need to make sure that aggregate demand is sufficient to sustain full employment alongside non-government net saving behavior. Greater income equality, to the extent that it reduces the level of intended non-government net saving, will reduce the size of the budget deficit associated with full employment. However, a deficit will still be required if the non-government intends to net save.
As long as we continue with the social arrangement of private property rights, private markets, private wealth accumulation, private debt, private superannuation funds, etc., the non-government will in all likelihood continue in its intention to net save, and that will mean full employment, if desired, will continue to require budget deficits except in a minority of countries that run current account surpluses. At the global level, governments in aggregate will need to be in deficit
This is a modified form of the original post Debt and Taxes that appeared at Heteconomist
A common misconception is that if everybody was prepared to take awful enough jobs, unemployment would be eradicated automatically, irrespective of the government’s fiscal stance. Embedded in this argument is a misconception that unemployment, overall, can be eliminated through lower wages or deteriorating working conditions. In a capitalist monetary economy, this is not true. To think otherwise is to succumb to a fallacy of composition.
Orthodox neoclassical economists clung to this fallacy – many uninformed ones still do – but it has been shown to be unfounded in the Capital Debates as well as by later work by neoclassical general equilibrium theorists themselves. No other economic school of thought (other than the Austrians) ever suggested such a nonsensical notion. It was a fiction dreamed up by neoclassical economists to serve an ideological purpose (it implies everything will be hunky dory as long as markets are left to their own devices).
The reason no other economists ever supposed such a ridiculous relationship between wages and aggregate employment is that, even intuitively, there is no reason to think it would hold. A reduction in the price of anything always means two things simultaneously. It means: (i) somebody has to pay less for something they want; and (ii) somebody else is receiving less for providing that thing. At the aggregate level, it means: (i) all of us, taken as a whole, are paying less for the stuff we want; and (ii) all of us, taken as a whole, are receiving less for providing the same stuff. Why would anyone think this has any systematic effect on how much stuff will be produced in the economy? It doesn’t, as has been demonstrated formally in the Capital Debates and later work.
Unemployment is a government policy choice. Redistributing existing income from workers to capitalists by lowering wages has no systematic effect on aggregate employment. Why would it, necessarily? The lower wages mean workers are cheaper for firms to hire, but demand for consumption goods may be reduced. So is there more or less impetus for firms to undertake production of consumption goods? Is there more or less impetus for firms to undertake production of investment goods that will increase the capacity to produce consumption goods in the future? The answer to these questions is indeterminate. A mere redistribution of income (from wages to profits or vice versa) has no systematic effect on output and employment.
The bottom line is there are not enough jobs. One person may be able to get an existing job ahead of somebody else by offering to work for less pay or under worse conditions, but this does not alter the aggregate level of employment and unemployment in a predictable way. It may cause employment to increase. Then again, it might cause it to decrease. For instance, redistributing income to capitalists may merely raise the intended level of net private saving and reduce the level of planned private expenditures. If so, there will be a multiplied contraction in output and income, defeating the private-sector attempt to increase its net saving unless – and to the extent that – the government allows its budget to move sufficiently into deficit to satisfy private-sector net saving desires.
Unemployment is the result of the non-government sector wishing to net save more than is consistent with full employment, given its current level of net financial assets. The government has the capacity to eliminate unemployment, because it can alter the net financial asset position of the non-government sector. The non-government sector cannot do this on its own. It can redistribute existing net financial assets among its members, hoping that in some way – by sheer fluke – this will reduce private-sector net saving desires and boost demand, production and employment, but it can’t of its own accord increase its net financial assets.
By injecting sufficient additional high-powered money into the system (through deficit expenditure), the government is in a position to increase private net financial assets and render the non-government sector’s net saving behavior consistent with full employment. That is the straightforward solution to unemployment, and we can have it the moment the general community puts its collective foot down and insists on it.
This is a modified version of Unemployment is a Macro Problem originally published at Heteconomist
Full Time and Part Time Job Growth since January this year. You can see both trends are particularly volatile. FTE is on a solid downward swing and PTE is on a comfortable upward swing signifying significant loss of income for those losing their full time jobs and either finding no jobs or entering the part-time workforce. This of course translates to a loss for economic growth as well, economic growth will be much less than it could otherwise have been. We will see these numbers in the June Quarter release of the National Accounts in September.
This is going around a lot. It’s this ridiculous false notion that the Fed is printing money and that it has “debased” the dollar.
First of all, the Fed has NO ABILITY TO CREATE NEW MONEY. Only the government can do that via spending. The Fed can only affect the DURATION and COMPOSITION of financial assets held by the private sector. PERIOD!!
Now, on this point that the Fed “money printing” (NOT) has caused the value of the dollar to decline, let’s look at the facts.
Below I give you the US Dollar Index and the size of the Fed’s balance sheet.
Date Dollar Index ValueFed’s Balance Sheet
3/14/2008 71.66 $921 bln
7/13/2011 75.24 $2.9 TRILLION!
So, here are the FACTS…over the past three years the Fed expanded its balance sheet by $2 TRILLION and the dollar went UP!!!!!!!!!!!!!!!!!!!!!!!!!
The lesson here: DON’T LISTEN TO THESE IDIOTS ON CNBC AND FOX OR ANYWHERE ELSE IN THE MEDIA!!!!!!!!!!!!
I’d say it seems to people we have high inflation because their wages and income have been stagnant in real terms for decades. Then in the last two years they have lost income while prices went a bit higher.
It isn’t the inflation, it’s the loss in income
TH Replies:
It’s also the rise in energy prices, increasing costs across the board.
The West is caught in a debt-deflationary spiral together with rising prices of real resources due to increased competition for resources from the EM’s. The East is caught in an inflationary spiral due to the West exporting capital since that is where the growth is, as well as higher interest rates on government securities.
There is too much leverage and to few real resources to support increasing global demand. The excess leverage in the West has exploded into debt-deflation, which imposition of austerity will exacerbate. The trend is in the direction of economic depression, resource scarcity, and eventually war, rather than increasing global prosperity.
