Thursday, 2 April 2020

Where is all the money coming from?

Covid-19 will cost us heaps - but don't worry; or should we!

As these strange days turn into weeks and months, it will become increasingly important for us to understand where money comes from. The Federal Government is committing billions of spending to combat the health and economic impacts of Covid-19 but where is it coming from?  Already Ministers and commentators are speaking of massive debts being incurred.

No financial limits
Our Federal Government  is a ‘currency issuing sovereign government’, which means that it issues its own currency and is free to purchase any ‘goods or services’ available in Australian Dollars that it wishes and is authorised by the Australian Parliament. It does not need to borrow before it credits a supplier’s, contractor’s or employee’s account. Contrary to all the ‘pollie speak’ over the past decades, there is no financial limit to how much the Federal Government can spend into circulation and it does not need our taxes to enable its spending.

There are however finite, practical limits to Federal Government spending; the productive capacity of the nation must not be pushed beyond its real, physical limits by the money put into circulation otherwise undesirable inflation will be generated.  The Government can control the amount in circulation by the collection of taxes. 

The radical ideas above - no need to borrow and no financial limits on Federal Government spending - are encompassed by Modern Monetary Theory. MMT explains how the system actually works! We have a very complicated and extensive monetary system and MMT covers every aspect even though the basic ideas are quite simple! But it is important to understand that MMT is not a new system of government finance; it is a different way of understanding what already is and how it functions.

MMT and Turbo-Jet Propulsion
It is vital that greater numbers of us make the effort to see the system through the insights of MMT because Modern Monetary Theory has the same relationship to our politicians’ professed concept of Federal finance as the theory of turbo-jet aircraft propulsion has with the concept of aeroplanes clawing their way through the skies with wooden propellers.  Our political class - and their supporting commentators - have a very elementary concept of Federal Government finance - we pay taxes, then they can provide the public services.

Like the theory of turbo-jet aircraft propulsion, Modern Monetary Theory has been developed by looking at the existing factors and relationships from a different, more fundamental angle and has, like turbo-jet propulsion, the potential to revolutionise how the public is served by the system – for better or worse! Airliners or bombers!

A Wicked Problem
Unless more of us get a grasp of these ideas, we may be dragged into times of unnecessary scarcity, austerity and greater inequality by uncomprehending politicians; we could be having properly funded public schools, hospitals and transport links and enjoying near-zero under-employment. The danger is that if politicians do come to understand that there are no financial constraints on spending - and Covid-19 spending is demonstrating just that - the Government of the day may spend heavily to buy the next election, overspend on corporate welfare or indulge other extravagances with our money. There is form here!  

Understanding how a system really works allows its potential to be used and its limits to be recognised. We are going to need the full potential of MMT – backed by widespread public understanding - to rebuild Australia decently. 
The ‘wicked problem’ of political ignorance of MMT versus understanding the potential and misusing that knowledge, is very well debated in the latter part of the discussion between Alan Kohler and Bill Mitchell on Bill’s blog and in Bill’s subsequent comments posted there. 

From the Horses.......
To increase your understanding of where money comes from and how it can be used, listen to the founders of MMT, Professor Bill Mitchell of University of Newcastle, NSW and Warren Mosler in An Introduction to MMT at a recent ERA conference in Adelaide

Also, Google Modern Monetary Theory and follow any link that names Prof Bill Mitchell, Prof Stephanie Kelton, a respected US proponent of MMT or the Adelaide based, ERA.

See also my post, 'Paying for public Services......' of 16 January 2017

Wednesday, 13 December 2017

Productivity Commission - still useful?

The Productivity Commission – is it still useful?

The Productivity Commission was created as an independent authority by an Act of Parliament in 1998, to replace the Industry Commission, Bureau of Industry Economics and the Economic Planning Advisory Commission. However its roots go deeper, to the establishment of the Industries Assistance Commission in 1974. 

The emphasis on economics continues to this day. The tertiary qualifications shown to be held by the thirteen Commissioners and Associate Commissioners comprise 10 in economics, 3 in law and one each in ethics, commerce, zoology and environmental science; the last two being held by the same Commissioner. 

PC's role
In the preamble of their 2015/16 Annual Report, the PC tells us:
The Productivity Commission is the Australian Government’s independent research and advisory body on a range of economic, social and environmental issues affecting the welfare of Australians. Its role, expressed most simply, is to help governments make better policies, in the long term interest of the Australian community (My emphasis). Later, in the Overview of the report, it states that the PC’s  ‘remit covers all sectors of the economy, with a view to better informing policy making to raise national productivity and living standards

There is no doubt of the conventional economic expertise of the Productivity Commission (but they advise on social and environmental issues!), the range of their remit or the extent of their reporting. But one may question how effective the PC is in the current political scenario of climate change and inequality - not to mention the relentless approach of ecological constraints! It seems too, that the independence of the PC is being compromised by reduced resources and increased Government workload. 

In the Foreword to the Annual Report, the Chair, Peter Harris advises that ‘In 2015-16, the Commission completed six government-commissioned inquiries and studies, as well as six self-initiated research projects but this will not be repeated.’ Ten new Government initiated projects are lined up and this precludes any repeat of the recent high volume of PC initiated research. The Chair also observes, ‘In recent years, Government responses to our reports have been provided in some cases only after substantial delay.’

Competitive neutrality nonsense
Another aspect of the PC that restricts ‘independence’ is that one of its Core Functions  is handling Competitive Neutrality Complaints. The entry reads,  
Competitive neutrality policies aim to promote efficient competition between public and private businesses. Specifically they seek to ensure that Government businesses do not enjoy competitive advantages over their private sector competitors simply by virtue of their public sector ownership.

This bizarre neoliberal concept - the opposite of‘horses for courses’ - is the basis of the new Government enquiry into the ABC and SBS fostered by M/s Hanson’s One Nation party to undermine public broadcasting.

Because Governments have the powers to raise taxes and the Federal Government can and does create currency, they are nothing like businesses so it is not in the public interest to pretend they are and to ‘straight jacket’ government enterprise. 

For example the RBA could offer risk-free accounts to all citizens; this would obviate the need for us ‘taxpayers’ to guarantee the banks because they ‘are too big to fail’ and would free us from the ‘bail in provisions’ which would permit commercial banks to raid the accounts of their customers if this was more politically acceptable than the Government/us’ bailing them out! The RBA could do this simply by virtue of its public sector ownership; commercial bank accounts cannot be risk free. RBA risk-free accounts for all citizens would not acceptable to the Productivity Commission.

The Commission’s legislative ‘instructions’ are summarised in 8 ‘bullet points’. Actions in support of industry, the economy and productivity feature strongly in these; this is in line with the Commission’s history and parentage. Further down, the list itemises that the interest of the community should be ‘recognised’, note just ‘recognised’. 

Productivity's downside
So if we think the Productivity Commission is past its use by date, ideologically constrained and overloaded with establishment economics, what might serve this young nation and its future generations better?

Firstly let us recognise that ‘productivity’ is a two edged sword – especially as the term usually means labour productivity. We produce more – use more resources and increase environmental impacts - with the same labour or produce the same goods and services with fewer jobs. So, accepting our planet’s ecological limits, it is, to coin a phrase, ‘jobs and growth with environmental over-reach or fewer jobs’.

We must accept our planet’s ecological limits; we may not know right now what they are but we know, really know, that for our children and their children’s sakes we must transition to a society hat lives within the limits our ecological resources.

Prosperity without Growth
This is the cogent argument set forth in Professor Tim Jackson’s, Prosperity without Growth (Routledge) Second Edition. We need to plan a way out of ‘The Iron cage of Cosumerism’, recognizing that our addiction to ‘growth’ has trapped our political class into pursuing policies that ensure social stability but are totally unsustainable. ‘An economy predicated the continual expansion of debt-driven materialistic consumption is unsustainable ecologically, problematic socially and unstable economically’, says Tim Jackson.

So, if we disband the Productivity Commission what might we need to help our Australia transition to an economy fit for our future circumstances? An Ecological Commission? A Sustainable Council? A Transition Directorate? A Low-growth Agency?

Prosperity Commission
I cannot go past Tim Jackson’s work! We need a Prosperity Commission - as one of host of new institutions to break free from the ‘economic growth’ addiction and move to a governance and economy, fit for purpose; a society designed and built for the well-being of all citizens within our accepted ecological limits.

Aiming for widespread prosperity? Think of the lift in national spirits! Not threatening austerity, not living within our meanest means, not forever competing to own the latest piece of startling novelty. But building a commonwealth for the best, most fulfilling lives and vibrant communities throughout the nation; our children being educated for living and caring; not primarily getting a job and managing digital devices. Living as if other people, our fellow creatures and our environment mattered.

New PC's role
The new Commission might be announced as follows (with apologies to the old PC!):

The Prosperity Commission is Australia’s research and advisory body on ecological, social and environmental issues affecting the welfare of its citizens. Its role, expressed most simply, is to ensure governments develop policies that encourage inclusive prosperity throughout the community within our ecological limits, in the long-term interests of all life in Australia.

The Commission's legislative ambitions are:-
1.   Determine the ecological limits of the nation
2.   To introduce all necessary legislation and regulatory mechanisms to ensure these limits are regularly updated and firmly maintained
3.   Foster the change from individual consumerism to community integrity and resilience.
4.   To develop policies to give secure, viable land access for housing, education, farming and commerce throughout the nation.
5.   To develop appropriate industries to meet the needs of the nation in individual and socially rewarding ways.
6.   To co-operate with international bodies in the determination and policing of ecological limits.

Such a body would require a broad range of disciplines, not just economists with a similar range of affiliations.  And maybe not all appointees of the Governor General.
Would the Prosperity Commission be an early proclamation of our first directly elected Australian President? It is too urgent for that – but do get your copy of Tim Jackson’s, Prosperity without Growth; it is a stimulating and encouraging read, charting a course that needs to be travelled. If you are pessimistic and half-hearted about the prospects, read the last two chapters first! The Progressive State and A Lasting Prosperity will brighten your horizons.

Tuesday, 4 July 2017

This democracy thing ......

Is it something ‘we’ have and ‘they’ don’t?

The demonization of China in our media – mainstream and not-so – is constant. Our biggest trading partner is often the subject of critical comments because it is not ‘a democracy’’ - not like us. It is worth reflecting on a few comparative news items.

Last October, the China Daily news site reported that  a province in China had just elected over 400 new lawmakers, saying,  ‘The new legislators were elected Tuesday and Wednesday in 14 cities in the province. The 12th Liaoning Provincial People's Congress now has 594 deputies.’
Why would a province in China need 600 lawmakers when for our central government we elect a mere total of 226 members? It transpires that Liaoning - - has a population of 43.9 million!  Adjoing North Korea, Liaoning has 14 prefectures, 100 counties and 1511 townships  (2012 figures). 
Thus this northern Chinese population elected, on the above figures, 13.5 lawmakers per million of population, whereas, we make do with about 10 per million: increases in population since 2012 would reduce both figures but the indications are that Liaoning has at least as many elected lawmakers as Australia has federally.
Of course there are many differences. The article in China Daily also advised, ‘The by-elections for lawmakers were carried out in Liaoning after an election fraud scandal in January 2013 that implicated 523 deputies to the Liaoning Provincial People's Congress. They either resigned or had their qualification as deputies terminated.’ Which just goes to show what a crooked bunch they are or what an effective anti-corruption watchdog they now have; take your pick.
Than again, our Parliament has an estimated 900 registered lobbyists  - If we add just half these to our 225 representatives giving us 676 lawmakers in Canberra, then we can boast as having 30 lawmakers per million population! Lobbying is a tax deductible business expense, so they are all on our payroll one way or another; but only10 are democratically elected.

The phrase ‘…..qualification as deputies terminated’ indicates that there is a mandatory  qualification before a Chinese would-be lawmaker can stand for election. In Australia almost anyone can stand for election but one has a much better chance of success if one has been ‘pre-selected’ by an existing political party – proven party loyalty and compliance being prerequisites to get the party’s ‘blessing’.

Thus, both in Liaoning and Australia, voters do get a choice of candidates – but in practice it is just a choice between candidates who have already been singled out, nominated, by some other body.

Doubtless too the successful Chinese candidates must espouse the communist system with specific adherence to the current 5-Year plan that has been developed by some higher authority, the central government in Beijing. In Australian it is assumed that one accepts capitalism – any other ‘ism’ will create difficulties for one’s public image – especially the variety embracing the neoliberal philosophy of globalisation, reduced regulation, privatization programs and balanced budgets.  Thus, both sets of candidates have prescribed ideologies. The Beijing Consensus and the Washington Consensus?

That the Liaoning Provincial People's Congress does not have any say about what the Beijing government does in the South China Sea goes without saying. Similarly, our national Parliament has no say in the deployment of Australian forces in foreign parts--– or the deployment of foreign troops in Australian parts such as Darwin!
So can ‘democracy’ be rated? It is not just a binary matter that a country either has it or it doesn’t and it is not just a matter of ‘free and fair’ elections. Democracy does not stop at the ballot box, it is a system and the way it functions and serves its purpose is the true measure of it.  Is it not time that we realised that ‘democracy’ is a work in progress and that we would do well to concentrate on improving ours and let other countries attend to theirs?
We could begin by accepting:
·      that ‘democracy’ was a dirty word at the beginning of white settlement,
·      our first governments were top down affairs; grass roots were to be trodden on,
·      the ethos of white settlement was of centralist governance of all aspects of society; it was after all a prison
·      our democracy is not the result of a lengthy, natural gestation
 This is in contrast to indigenous, old societies where, in the very beginning, tribal groups, settler communities managed their own resources and affairs and over millennia coalesced – with much skullduggery and bloodshed - into larger more extensive governing bodies; and finally central, national governments. In this sense, Australia got it the ‘wrong way up’ and has never sought to accept that local communities are best managing their own affairs and resources; at present in Australia local government exists only at the convenience of State governments.
This status quo is firmly ensconced in our ‘community DNA’; witness how often local initiatives and programs are conditional upon grants – bestowed by Government - and how revered are those who are skilled at writing the applications. No thought that the grant money may have been extracted from other communities lacking the ‘nous’ and application skills!
If we do aim to improve our democracy, the way it works and what it delivers, we must recognize that democratic governance naturally grows from the small to the big; witness how the States came together to form the Federal body. Sadly our States lack legitimacy in the sense that they did not grow from self-governing communities.
We need local governance to be fully, constitutionally recognised – it is the bedrock of genuine, effective democracy.

Unsourced quote – a Chinese national explains to an Australian,  ‘The difference is that you can change the party governing but not the economic system whereas we cannot change the governing party but we can change the system’.

Note well the New Matilda article by Paul Spinks, 'It's time for our baby democracy to walk' See
A great critique of the present with lots of thoughts on what changes could improve it; Citizen Juries, electronic voting, start locally etc

Note that this article was published by Independent Australia (1 July 2017) - with many extra useful and informative links - at,10456  I would have preferred that my sub-title (Is it something we have and they don't) had not been changed. The comparison is not really important, the immaturity of Australian democracy is!