This blog is concerned with the influence of land access on individuals and communities - their behaviour and governance. Also on the table will be the interrelationship between land access, finance and taxation.
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.
Nearly all the money circulating in Australia is ‘on loan’ from the High Street banks. When a loan is granted, the bank simply enters the amount, digitally, in the borrowers bank account and the borrower proceeds to spend that into circulation. Don’t accept my word for this, read the Bank of England’s first Quarterly Newsletter of 2014; this explains how ‘we’ get money into circulation.
No financial limits
However, 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 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 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.
A new angle: Air Commodore Frank Whittle who designed the first aircraft jet engine, did not seek to change any fundamentals (he couldn't, of course) – he worked with the same gravitational and centrifugal forces and the same air with its temperature/density coefficients and its chemistry as had always existed. But he looked at the propulsion of heavier than air bodies from a different angle, delved into the fundamental physics and relationships involved, applied a heap of mathematics and thermodynamics - and the results have been life changing on a global scale.
Like the theory of 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 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.
Good studying - be diligent and alert but do get your head around MMT
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
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,
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
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.
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.
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
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
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!):
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.
legislative ambitions are:-
ecological limits of the nation
all necessary legislation and regulatory mechanisms to ensure these limits are regularly
updated and firmly maintained
change from individual consumerism to community integrity and resilience.
policies to give secure, viable land access for housing, education, farming and
commerce throughout the nation.
appropriate industries to meet the needs of the nation in individual and
socially rewarding ways.
with international bodies in the determination and policing of ecological
Finale 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.
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 http://www.chinadaily.com.cn/china/2016-10/22/content_27142506.htm
thata 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 - https://en.wikipedia.org/wiki/Liaoning
- has a population of 43.9 million!Adjoing North Korea, Liaoning has 14 prefectures, 100 counties and 1511
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 -http://johnmenadue.com/john-menadue-who-can-we-trust/.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
The phrase ‘…..qualification as
deputies terminated’ indicates that there is a mandatoryqualification 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
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?
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:
‘democracy’ was a dirty word at the beginning of white settlement,
first governments were top down affairs; grass roots were to be trodden on,
ethos of white settlement was of centralist governance of all aspects of society;
it was after all a prison
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 https://newmatilda.com/2017/07/30/its-time-for-our-baby-democracy-to-walk/ 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 - athttps://independentaustralia.net/politics/politics-display/this-democracy-thing,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!