Saturday, 29 October 2016

The Treasurer's XI - a short allegory on deficits

The Bean Counters Score

It was a long week-end and the Treasurer’s Eleven – aka, The Bean Counters - had come up from Canberra to play the Village; they lost the toss, the Villager’s openers took the field – but consternation, for the bowling was underarm! ‘Do these guys know what they’re up to?’ was the general reaction around the ground.

But there was consternation amongst the scorers as well for the Treasurer’s scorer started with a bag full of kidney beans – transferring them methodically into a black box as runs were made.

The runs were coming freely once the Villagers got the hang of slow, low, curly deliveries – wickets were lost mainly through carelessness and hilarity but at 256 for 7 the Treasurer’s captain called a halt; all the beans had been used – there were no more runs to be had!

‘But what about our other three batsmen?’ complained the local skipper; mark them as ‘unemployed’ was the response, ‘there are no more runs for them score’.

Lunch was a slow, somewhat sombre affair - the visitors seemingly uninterested in taking the field. ‘What’s the point’ said the Treasury skipper, ‘Where will the runs come from? You lot have used up all the beans, there are no runs for us to score.

‘Don’t worry where the runs will come from’ assured the Village scorer, ‘we use a computer – so we have just as many runs as you need and more besides. No need for any of your batsmen to be unemployed.’

Free from the dread of the beans running out, the Treasury boys batted happily scoring 221 before the last wicket fell.

Net result, Treasury suffered a 35 run deficit, the Villagers enjoyed a 35 run surplus.

And the point is?

  •         The game of life should not be restricted by how many beans are to hand.
  •         When Treasury loses, others enjoy a win. And vice versa.
  •         Bean counters can learn a thing or two from the SCG scoreboard
  •         No reason for anyone to be marked, ‘unemployed’ if you understand cricket scoring - or Modern Money Creation (Ref Bank of England Q1 2014)

CC Oct 2016

Background brief

The Australia Federal Government is a CICG, a Currency Issuing Central Government.  The currency it issues is the Australian dollar which, since 12 December 1983 has been a FIAT currency; that is, ‘State-issued money which is neither convertible by law to any other thing, nor fixed in value in terms of any objective standard’ (Wikipedia). In short, our dollar is backed by no material substance but is a constitutional project and its value is underwritten by the willingness of the Federal Government to accept it in payment of taxes.#

Our dollars mostly appear as book keeping entries, numbers on computer screens not as ‘real money’; ordinary folk cannot create A$s to add to their own balances or those of their friends, only the CICG can do that. Because a FIAT currency has no material backing, literally no thing limits how much can be produced but the amount of currency that should be created is fixed by the sum total of the national resources – human, material, administrative and constitutional. To issue more FIAT money than that would be inflationary.

·         #  And we all have confidence that this is so; this confidence is important for it is mutually supportive and what makes FIAT currencies work; they are not ‘a trick’ but an essential tool for modern societies.

Prosperity without Growth - book review

‘Prosperity without growth’

by Professor Tim Jackson (Earthcscan Books) 

From a study that examined “the kind of economic growth that is compatible with the transition to a genuinely sustainable society and the kind that absolutely isn’t’.”

review by Colin Cook  

First published in 2009 and based on a 2003 initiative of the UK government, ‘Prosperity without Growth’ by Prof Tim Jackson, is still very relevant. The passage of years has seen global increases in inequality – within and between nations - as political elites, often yielding to self-interested lobby groups, pursue economic growth; economic growth with but scant respect for the environment, social consequences and historical examples. How many millions of people are now ‘displaced’, how much debt ‘burdens’ nations – and more dangerously – their citizens?  
All such relate to the subject matter of this well-researched, invaluable look at where we are and where we ought to be heading.


The Term Growth is commonly understood to mean an ever increasing GDP figure – GDP being a measure of a ‘society’s busyness’.  It can be seen as ‘a fair reflection  in broad terms of rising incomes’  and since we continue to spend more and more on commodities and services, it can be argued that we would not do so unless they improved our lives, unless we valued them; hence, increasing per capita GDP is taken as a reasonable measure of increasing prosperity. But this conclusion is tempered by increasing inequalities within a population; an increase in the national average GDP can easily mask a significantly large disadvantaged population.

Jackson analyses growth in detail –
  • its importance to the workings of the modern economy,
  • its significance in our own ‘western’ lives,
  • its incompatibility with obvious ‘only one world’ ecological and resource limits.

The modern economy must grow because labour efficiency is continually improving – we produce more for less labour input. Prof Jackson shows that labour productivity is a two-edged sword; producing the same amount of goods and services more efficiently means some will lose their jobs or income; producing more with the same labour means more resource depletion/ecological impacts. In Australia, we have the Productivity Commission to keep that sword finely honed.

We need more ‘stuff’ in our lives because we have invested material goods with attributes way beyond their strictly utility purposes. We ‘imbue material things with social and psychological meanings’. Our material possessions are felt to be part of the ‘extended self’. ’Our relationships to our homes, our cars, our bicycles, our favourite clothes, our books, our CD or DVD collections, our photographs and so on, all have this character’(p98). And in our social relationships, ‘Consumer goods provide a symbolic language in which we communicate continually with each other …. About what really matters to us: family, friendship, sense of belonging, community, identity, social status, meaning and purposed in life’(p50). Technology delivers an ever increasing array of goods and innovations so we need to keep updating our possessions so they continue to fulfil these needs; this latest gizmo heading for obsolescence is a powerful driver of economic growth – itself amplified by new ‘middle-class’ aspirations around the world. In consequence, we demand ‘growth’ from our politicians. A politician who does not promise growth is un-electable!

The growth of GDP needs continually increasing consumption of non-renewable resources – oil, natural gas, coal, steel, rare earths But there is a proposition that if we economise and recycle , we can de-couple growth of GDP from these ecological limits. ‘No way’, is Jackson’s conclusion. True, we can use less material per unit of GDP but if GDP were to keep growing indefinitely, the maths is conclusive; sooner rather than later, total material needs will overcome the supply.  The chapter, ‘The Myth of Decoupling’ makes the case indubitably.


The capabilities, the possibilities of members of society ‘to flourish’, translates to ‘prosperity’ for Jackson. He writes, ‘Physical and mental health matter. Educational and democratic entitlements count too. Trust, security and a sense of community are vital to social well-being. Relationships, meaningful employment and the ability to participate in the life of society appear to be important almost everywhere’. And taking a wider view, ‘Prosperity is a shared vision’ - encompassing the elimination of hunger and homelessness, end to poverty and injustice, hope for a secure and peaceful world. Prof Jackson characterises the world today as having ‘islands of prosperity’ within ‘oceans of poverty’. Certainly, prosperity is not economic growth pure and simple.

But, he observes, ‘The role of government has been framed so narrowly by material aims and hollowed out by a misguided vision of unbounded consumer freedoms’. Recommending extensive change, Jackson later comments, that a critical task is ‘to identify and correct ..    those ..perverse incentives that are in favour of a materialistic individualism and undermine the potential for a shared prosperity’.

There is some evidence to suggest that up to a point, rising income levels/National GDP figures enable citizens to flourish better; being at the top of the social pile does give benefits in terms of health and happiness, of life satisfaction. So how can we meet the expectations of a population without growing GDP? There is much data showing that growth of GDP per capita above $15,000 (2005$) contributes little to factors enabling the population at large to flourish. Some recent work in OECD countries looking at a range of health and social issues shows that ‘Inequality has damaging impacts across the nation as a whole’.  Indeed. there is an underlying theme throughout the book that the world needs greater equality – for social cohesion, to make fairer use of its resources, to give everyone a chance ‘to flourish’, to enjoy their talents and opportunities within the ecological limits available. ‘An unequal society is an anxious society….’


Stating early on that, ‘Our technologies, our economy and our social aspirations are all mis-aligned with any meaningful expression of prosperity’ it is not surprising that Prof Jackson’s study calls for major changes. The chapter on the Transition to a Sustainable Economy lists a dozen of so areas of change under the headings of Establishing the limits, Fixing the economic model and Changing the social logic. Summarising he writes, ‘In the first place we need to establish ecological bounds (limits) on human activity. Secondly there is an urgent need to fix the illiterate economics of relentless growth. Finally, we must transform the damaging social logic of consumerism’. They comprise a daunting agenda demanding action from all sectors of society. This is the ‘must read’ chapter – encouraging, hopeful, even inspirational.


The economic model to which Jackson refers is, of course, capitalism and he is obliged to devote several pages to the question, Is this the end of capitalism?

There are several observations that may well ‘frighten the horses’! The need to develop the technical capacity…for ecological macro-economics  …..and to …..increase public control over money supply, the need for more public ownership to yield necessary infrastructure for people to ‘flourish’, stronger regulation in relation to the commercial media, …the creation of jobs whenever…...labour is employed in protecting or improving public assets. And, ‘The capitalist model has no easy route to a steady state position. Its natural dynamics push it towards…. expansion or collapse’.

The observations ‘A capitalist economy runs on debt’ and ‘A fundamental principle of capitalism is that these liabilities (aka financial debts) attract interest over time’ are of particular interest if you have read anything about usury – the charging of interest on loans. Much has been written arguing that interest can never be re-paid save by pushing others to take out other interest bearing loans – or ‘lose their shirt’, maybe bankruptcy. En passant, all major religions have strictures on usury – notably ignored by Christians! Increasing global indebtedness and ‘loss of shirts’ seem to confirm this hypothesis. Jackson does not go down this path but you can Google ‘usury’!

Prof Jackson does point out that capitalism exhibits varying characteristics under various circumstances – even nationalising banks when it suits! But generally economic growth and minimal regulation of commerce are accepted features of a ‘good’ capitalistic economy. He asserts that investment in capital assets will remain ‘critically important’ but how this happens will be very different from the way capital markets work today. ‘Probably a good thing too’ in view of their culpability for the 2008 crisis, he observes.

And is it ‘The End?  It could be the end of capitalism as we know it or it might remain as capitalism, ‘But not as we know it’! Take your pick – there will be changes.


What you take from a timely read of this stimulating, provocative book will depend on whether you are an optimist or a pessimist – there are convincing pointers, and excellent references for us all.  Prof Jackson makes a plausible case for the possibility encapsulated by the title and the inevitability of it if we are to survive as a civilised society in the face of the earth’s ecological restraints. Indeed, he writes, ‘For the advanced economies of the western world, prosperity without growth is no longer a utopian dream. It is a financial and ecological necessity.’
But the case rests on fundamental changes in us humans - our behaviour, value systems and outlooks – and there is the rub. It is up to us!


The book is the outcome of an extensive enquiry by the UK Sustainable Development Commission (SDC). The enquiry was launched in 2003  on the publication of the Commission’s landmark report – Redefine Prosperity which challenged government ’fundamentally to rethink the dominance of economic growth as the driving force in the modern political economy, and to be far more rigorous in distinguishing between the kind of economic growth that is compatible with the transition to a genuinely sustainable society and the kind that absolutely isn’t’.  See Wikipedia for Tim Jackson (Economist)

Saturday, 22 October 2016

The Great Economic Divide Explained

'The 5% own more and more, the 95% owe more and more'
This was the title of a piece I wrote some time ago but last September, Independent Australia did a great editorial job on it - many useful links plus the graphic - and published it here as:
The great economic divide explained,9466

Below is the text for your easy reference:

(Image via

Colin Cook discusses the failures of our economic system and why the gap between the "haves" and "have-nots" is only deepening, via a modern-day parable.
THE POPULATION is divided in two: 5% are "Munnies", the other 95%, "Wallies". 
The Wallies are the ones that make the "stuff" and give the services that everybody needs. 
The Munnies are the ones that organise it all — manage and manipulate it so that things happen. To this end, they have a money machine — a system to create money. The Wallies are, of course, paid for their work — not proportional to the value of their output, but sufficient for them, on average, to raise a family.
The value of the Wallies output is well in excess of their combined incomes and even though the Munnies do help out with some conspicuous consumption, there is still a surplus that must be consumed if the system is to keep functioning. But how?
Simple. The Munnies crank up their money machine to lend the Wallies the necessary money so that they can buy more goods and services than their income allows. This is fine, though there is a problem; the Munnies’ loans need to be repaid with interest so that now the Wallies not only buy the extra goods they want (the stuff the system needs to be consumed) but must pay the Munnies interest for the use of the money.
Thus, money flows back to the Munnies away from the Wallies, reducing their purchasing power to even less than it was when they first recognised the need to borrow. And so, to keep up their standards, the Wallies need to borrow yet more.
Private equity — public inequity
The Munnies also have a problem — they have more money than they can spend, as there is a limit to the number of cars, yachts and cases of champagne a dynasty can use. So they have to buy other stuff — like land, toll-roads, coalfields, houses, public utilities and facilities that everyone uses. They "munnitise" things.
Sometimes, they pool their money in to private equity funds so they can buy bigger things that once belonged to the public. Private equity makes for public inequity because the Munnies expect a return on their investments and paying to use the facilities, further eats into the spending power of the 95%. More borrowing is needed, but to make this possible, the interest charged by the Munnies is lowered. Nevertheless, it becomes increasingly problematic to keep the 95% employed, paid and, most importantly, consuming.
Debt is building upon debt and some of the Wallies acquire so much debt they just surrender everything they have to the Munnies — and, in some cases, promise to give a slice of all their future earnings to the Munnies, as well.
The Polimedia
The above is a great simplification, for there is another group, the "Polimedia".
Members of this are also members of the Munnies and the Wallies and, whilst they are generally most friendly with the Munnies, they have some sympathies with the Wallies. The Polimedia is very visible – even though on the sidelines – for they provide endless entertainment, diversions and illusions.
In their work, the Polimedia make it more difficult for the Wallies to consume as much as they should by taking a slice of everyone’s income and also by taxing everyone whenever they spend money — a 10% take on all spending. They keep a bit for themselves and spend some on diversions like war and the preparations for war: war on drugs, people smugglers, drought, crime, binge drinkers, tax havens, enemies and enemies of friends.
But most of the money that the Polimedia collects goes to the Wallies to restore their purchasing power caused by taking their money in the first place! The Polimedia does help make the ability to consume more equal amongst the Wallies — which is kind of nice and sort of fair.
From time to time, everyone gets to choose some members of the Polimedia and this creates the biggest illusion of them all — that who is chosen will make a significant difference to the five versus 95 equation.
But the money continues to flow from the Wallies (95%), to the Munnies (5%), as the Wallies take on more and more debt to keep feeling good about themselves, helping the economy and keeping a roof over their heads. It cannot keep going this way.
Debt is feeding upon itself grotesquely — exponentially. The 5% own more and more; the 95% owe more and more. The situation is heading for disaster. It cannot be sustained.

What is to be done?

Mme Lagarde – who is in charge of the biggest money machine in all the world, the International Money Fund (IMF) – has declared:
'To be sustainable there has to be less inequality rather then more.’ 
She has since explained that this is so we can get "more growth". In short, more of the money has to go to the Wallies to spend, but Christine Lagarde does not explain how this will be achieved.
The start of a solution (Modernising Money2012, Andrew Jackson and Ben Dyson) would be to move the money machine from the Munnies to the Wallies — so the Wallies can generate the debt-free, sovereign, positive money they need* (cf Author's Note) and not be forced to borrow and pay interest to the Munnies. The "cash flow" from Wallies to Munnies must be reduced – even reversed – if consumerist growth is to continue. 
This is not "class warfare" — just  mathematics.
Another useful move would to be increase welfare payments, even institute a citizens' or basic income, as proposed by Thomas Payne in 1797, and soon to be undertaken in Denmark, trialled in Finland and is being considered by many other countries. 
If the profits are to keep flowing, there must be financially viable consumers, consuming!
Author's Note:
*Moving the creation – and first use – of money from the privately owned banks to the public domain is fully explained in ‘Modernising Money’ by Andrew Jackson and Ben Dyson of Positive Money. The failures and drawbacks of the present system are analysed and the transition to a different system of creating sovereign money – and spending it into circulation debt free – fully explained.
An important feature of the "modernised system" would be an arrangement to ensure no bank would be "too big to fail" and to obviate government guarantees to the banks. Retail banks would be required to offer their customers two types of deposit accounts, a "safe" one and an ‘"investment" one; the money in the first goes straight through the bank’s ledgers to the central bank for safe keeping, the second pays interest and is invested "at risk" by the bank; the depositor would have choice of risks/interest return. If the investments failed, the bank and its customers would lose. The "safe" deposit accounts would in no way be affected. Indeed, if the bank "failed", depositors would simply access their "safe" deposit held in the central bank through another High Street bank.
Visit for more information.
Colin Cook