THREE (3) THINGS TO WATCH BEFORE YOU PASS COMMENT ON MMT

The Basics of Modern Money

Angry Birds Approach to Understanding the Modern Economy

Stephanie Kelton explains Modern Monetary Theory from 4:13

The Value in Understanding MMT

…instead of saying they want to reduce government deficits and debt, supporters of “fiscal consolidation” and other such policies should say that they want to lower growth and lower private sector net saving, since that’s what the impact of their policies is likely to be. At the very least, supporters of austerity should indicate which of the other two balances will be reduced along with the government’s budget deficit, and how they will do this. The budget deficit cannot be reduced without reducing the private sector surplus and/or the current account deficit.

When we reframe the issue of deficits and debt and look at it from the perspective of how government actions affect the private sector, we get a completely different perspective on the economy. This is what MMT economists try to do—to evaluate government (fiscal and monetary) policy actions based on their impact on the private sector, rather than on some vague metric of what is an acceptable level of deficits and debt.

As I argued, high deficits can be correlated with high growth, but also with slow growth. Similarly, there is a good way and a bad way to reduce deficits. We can try to reduce deficits through austerity measures, in which case the response of the economy may end up increasing the deficit, as it slows growth. Or we may choose to boost growth through proactive fiscal policies which could then increase tax revenues and reduce transfer spending, thus lowering the deficit. Because the deficit or the debt ratio is not a good indication of economic performance, it should not be the focus of policymaking in any case.

An extract from the congressional testimony: Reexamining the Economic Costs of Debt Hearing before the House Budget Committee, November 20, 2019

Frydenberg Sends Mixed Messages

Previously we examined the Treasurer’s opinion piece from the Fin Review with our progressive and modern monetary frame and now we examine the message contained within.

From that frame we learned the Treasurer at least admits we are not investing enough in childcare and perhaps schools.

The Government is currently reducing its ‘real spending growth’ thus is removing the real income effect from Australian households and businesses. This is a deliberate lowering of investment in Australians.

The treasurer recognises that unemployment statistics have fallen but fails to acknowledge underemployment statistics according to the Australian Burea of Statistics have grown. This is a sign that people desire to work but there is a lack of willingness of the current government to put Australians to work.

Many of the facts the Treasurer quotes are not in dispute but nor are they given in their full context.

The government has committed $1 billion to farmers and local drought-affected communities. This is only a small contribution of GDP to the economy. It doesn’t take into account…

CLIMATE ACTION NEEDED NOW SAY SCIENTISTS AND FIRE CHIEFS

Michelle Grattan from The Conversation puts it best.

When five former fire chiefs held a news conference on Thursday to urge the federal government to take more action on climate change, it was a challenging moment for Scott Morrison.

Those who fronted the cameras represented a group of 21 men and two women, who make up the Emergency Leaders for Climate Action. These people have led fire and emergency services all around the nation.

They’re powerful voices, because they are advocates with compelling experience and expertise. The group’s messages are that we’re in “a new age of unprecedented bushfire danger”, climate change is the key reason why things are getting worse, and the government needs to respond with more resources and a better policy to reduce emissions and move to clean energy.

There is much more to read on this at The Conversation.

At the end of the day, we have the scientists and the men and women on the ground in agreement that we need climate action now. And we have almost half a million Australians in agreement.

This needs reinforcing.

We must marshall our full forces of democratic power now to save our lives and our jobs.  We do this through activism, protest, lobbying, education, structural reform in political parties, we push and persist until something happens.  We all have our own unique strengths and we pursue it in our own way and our cumulative efforts will make a difference.

REMIX: TREASURER FRYDENBERG CONFESSES AUSTRALIA LACKS GOVERNMENT INVESTMENT

Australian Treasurer Josh Frydenberg has an opinion piece in the Australian Financial Review today, the complete article can be read on the Treasurer’s website.

What I have written below is a re-write of the Treasurer’s article from a Modern Money and Australian Real Progressive frame.  Let’s see what the Treasurer really has to say.

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With the Australian government fiscal statement back in balance for the first time in 11 years and on track to return to surplus, it’s important that we focus not just on the ‘‘what” but the ‘‘why”.

At $19 billion per annum, what we are paying the wealthiest with Australian Government Securities at no cost to anyone is more than double what we invest in childcare and nearly as much as we spend on schools.

Our debt burden represents not just a revenue cost to the fiscal statement but also a cost therefore to every Australian, but also an opportunity cost as it is artificially restraining the government’s ability to invest in other areas by governmental choice.

If we don’t invest today, the next generation will have to pick up the financial, social and environmental costs.

The return to fiscal statement surplus will have been hard-fought.

When we came to government, we inherited an Australian private sector surplus of $48.5 billion or 3 per cent of gross domestic product, the second-highest in Australia’s history even though five years had elapsed since the global financial crisis and has not been nearly high enough.

Since then, we have steadily decreased what we put into the Australian community, with real spending growth halved to 2 per cent of GDP, the lowest level of any government in 50 years. We are making sure that the Australian people have to

LABOR: GOOD VISION BUT WRONG DIRECTION

Originally posted at Australian Real Progressives

By now you have probably noticed Australian Real Progressives has a rather heavy focus on jobs.  This is because 2 million Australians are looking for work or more hours.

Labor party leader Anthony Albanese gave a great speech in a vision statement about jobs.

Labor will always be better on health and education than the Coalition. That’s true. We actually believe that education is about creating opportunity, not just entrenching privilege. And we believe that health should be accessible to anyone regardless of their income. You should get proper health care. So, that’s a given. Specific policies, we’ll work on. We obviously will work on, in terms of the funding, that will be available. If we don’t have the same level of revenue, you can’t have the same level of expenditure. That’s just a fact.

Translating:

We obviously will work on [specific policies] in terms of funding that will be available.  If we don’t have the same level of revenue, you can’t have the same level of expenditure.  That’s just a fact.

Labor is often better on education and health, however, Albanese is mistaken in how modern macroeconomics works.  Australian Real Progressives uses the Modern Macroeconomic Toolkit (MMT) and knows that revenue raised by the Australian government is little more than an accounting artefact.  It does not shape funding.

Albanese and active members of the Labor Party would do well to take a look at

Phil Lawn: Understanding Natural Resources

It is critical that economists build into their models what ‘production’ and ‘consumption’ actually involves. Production does not involve the creation of anything (first law of thermodynamics). It involves the rearrangement of matter-energy – the physical transformation of natural resources through the agency of capital and labour – whereby use value is added to the natural resources we extract from the ecosphere. Consumption involves the disarrangement of matter-energy, where upon we destroy the use value embodied in the matter-energy that subsequently exists in the form of ‘goods’. Ultimately, when all goods have been directly consumed or have depreciated through use, the output of the economic process is waste that returns to the ecosphere. – Phil Lawn

You can hear Phil expand upon this at the Sustainable Prosperity Conference in Adelaide January 2020

If you liked this, you can see more at Australian Real Progressives

Restoring True Full Employment in Australia

“So far as it can humanly contrive, never again will the dole queues be seen in this country. Never again will competent workmen stand idle for months and years while limitless work remains to be done. Never again will young men drift hopelessly from town to town and from State to State, searching for the jobs which, in all this wide land, did not exist for them.”

Ben Chifley, 1949.

 

It is a stark and painful reminder of the follies of the last century that what was a powerful statement of factual accomplishment in 1949 is today seen as the dreams of the delusional.

As a society we once embraced the idea of full employment. We embraced the idea that the most precious of the finite resources available to our nation is the men and women who comprise it; that the wealth of our nation is in the well-worn hands of our working countrymen.

It is an idea that has slowly been eroded since the rise of neoliberalism in the 70’s, an insidious spectre of wastage and artificial scarcity that  leaves our society stagnant and pallid. We have transitioned from a country of full employment to full employability, which is the farcical notion that endless reiterations of training programs will provide people with the skills they need to attract employment, employment that does not exist for them.

The Indue card is the latest example of this mendacious disregard for our society that the neoliberal holds. The superficial argument for its unjustifiable existence is that the men and women who make up the un- and underemployed are helpless drunks, louts and liars. That the state, in the best interests of these misfortunate souls, should deprive them of what mediocre freedom they have to ensure that they don’t waste it on addiction and unproductive escapism. The reality is that it is a mechanism to justify an economic rent to a significant figure within the National party for “managing” the administration of this scheme and ensuring that the paychecks of the poorest in our society end up in the hands of large supermarkets, rather than local greengrocers who are not a part of the “approved” list of vendors.

Andrew Leigh on Modern Monetary Theory

Andrew Leigh is an incredibly nice guy and I used to follow his blog before he entered parliament.  He had many very useful statistics on that blog which I believe you can find at PreviousLeigh (see a sense of humour too).

Unfortunately as a practising economist he has zero understanding of Modern Monetary Theory (MMT).

Does Money Really Grow on Rich People?

In my previous post I outlined why jobs don’t come from rich people: capitalism runs on spending (sales), not savings. Job opportunities appear naturally when businesses forecast sales growth and expand output accordingly (and similarly disappear under reverse conditions). When viewing the economy as a whole, we can observe that private sector investment responds to rising incomes and spending as entrepreneurs expand output to match market demand and banks have confidence lending. In the absence of spending growth, accumulated savings do nothing.

So when tax policy provides powerful incentives for all households with surplus earnings to not spend their income (e.g. incentives like salary-sacrifice and other investment tax advantages), another source of spending must compensate for such savings and buy the output that workers are being paid to produce. If there is no other source of spending to replace what is being saved then sales decline, inventories build up, the economy slows, and people lose jobs.

To state the problem in simple terms, incomes are a cost to businesses. So if some portion of incomes in the economy are saved and not spent, then some portion of the economy is not able to sell all its output. Spending equals business income. Economic growth necessitates that incomes are spent, or some other source of spending must make up the difference.

This begs the question: how do we get more spending, especially when the economy is in decline?