Greens have Unrealistic Economic Ideas

Here I provide an excerpt from the The Greens Economics Policy platform that was part of their election manifesto. Here are two key macroeconomic policy statements:

8. government finances must be sustainable over the long run; budget deficits and surpluses must balance each other over the business cycle.

9. long term government borrowing is the preferred mechanism for funding long term infrastructure investments.

So they first of all advocate a policy that in the context of our national economy will see the private domestic sector running deficits overall (and continually increasing their indebtedness) commensurate with the external deficits (we always run) over the business cycle. That is the outcome of a government that could actually balance the national budget over the business cycle. It is a mindless fiscal rule to impose on a government because it ignores the fact aht the private sector are likely to desire to save overall.

Or in layman’s terms:  The Greens which to keep the private sector (i.e. you and me) in debt indefinitely and always.

Further, they perpetuate the myth that the federal government has to borrow to spend. A sovereign government such as Australia’s government is never revenue constrained because it is the monopoly issuer of the currency. Issuing debt is an act of corporate welfare and is totally unnecessary from a fiscal policy angle. Why do The Greens support providing guaranteed annuities to the top-end-of-town yet also support policies which maintain persistently high unemployment (which is the outcome implied by the policy 8 statement)?

It doesn’t really matter whether the policy statements represent political posturing or their flawed attempt to understand how the modern monetary economy works. The fact is that they are totally inapplicable depictions of the way a modern monetary economy such as Australia works.

They are also dangerously naive statements because they erode the capacity of the Government to achieve much of what The Greens aspire to.

The other day (September 9, 2010), The Greens Federal Leader Bob Brown was talking to the ABC current affairs program – AM – about the likelihood of them pushing through legislation in cahoots with the conservatives now the Greens have more power in both houses of Parliament under the new arrangements. The discussion was about the monetary (budget) implications of any Green legislative action. Such things as the introduction of mandatory maternal leave were broached.

Brown offered these comments to various related questions (read the full transcript for the entire context):

BOB BROWN: … So what I am looking at here are bills that don’t involve a cost on the public purse but do give a good outcome in terms of governance, for example, a better democracy …

BOB BROWN: Yes that’s true but again the Greens will not be upsetting the bottom line of the budget in this legislation, but…

INTERVIEWER: So it’s more at the fringes rather than…

BOB BROWN: Not a cost on the public purse and that’s what we’ll be concentrating on in terms of getting good outcomes from this situation for the Australian people.

Conclusion: Bob Brown is a neo-liberal macroeconomics conservative. More damaging though is that this sort of ignorance about the way the budget works and its role in a modern monetary economy to further public purpose would undermine the prospects of introducing the good aspects of The Greens platform.

Their complicit consent to the erroneous neo-liberal myths about sovereign government budgets makes them part of the problem and so it is a pity more “left leaning” voters who used to support the Labor Party are now voting for The Greens and giving them the balance of power in the upper house and a more important role in the House of Representatives.

This post adapted from one by Bill Mitchell, if you wish to learn more come visit Modern Money where we show you piece by piece how the modern economy actually works.

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