No jobs and no plan…

I spent a bit of time after work playing with the layout of the site. It can get frustrating with different themes because one theme will have a feature you want but not another so it is trying to find the best one that suits. Annoyingly the footer at the bottom of the page won’t take the whole page width when I have the side column up. I am not sure why but I’ve decided to live with it. I have also managed a music page in the hope it will inspire me to play more than I do but we will see.

Anyway….I came across this article in The Age newspaper which tells us workers in regional areas ‘bear the brunt’ of a decline in expenditure and as a result have high rates of underutilisation. It states what is obvious, that what matters is whether people can get enough hours and they job security.

Yesterday’s post gave us a brief overview of how we have shifted from a goal of full employment to using the unemployed as a means of discipling the rate of inflation under a NAIRU approach. It’s a pernicious thing to do it, it effects peoples livelihoods and future prospects and it assumes that inflation is a bigger problem than unemployment!

A superior option which we briefly touched on yesterday was a Job Guarantee. A so called Non-Accelerating Inflation Buffer Employment Ratio (NAIBER) that is it uses a buffer stock of employed rather than a buffer stock of unemployed. A Job Guarantee is a transition arrangement that would function with a National Skills Framework and help workers seek employment in the public or private sectors. Workers rejected by the market have a floor price of $o. A worker ‘from the bottom’ can not be inflationary because there is no other bid for them in the non-JG sector. It is what is termed ‘loose’ full employment as the aim is to have the JG pool has small as possible. It has the advantage of setting a floor for wages which by default becomes the minimum employment conditions. The private sector has to exceed the conditions of the JG if it wants to attract a worker. It practically eliminates wage theft and directs spending directly to where it is needed.

A JG doesn’t take away or replace from other public services. In many of those areas mentioned in the article, increased expenditure on worthwhile public infrastructure, investments in renewables, health and eduction, would direct spending to where it is needed and create jobs. It all requires logistical planning and targeting full employment.

In political discourse there’s always a politician or an economist mystified as to how they create more jobs and the emphasis is on subsidies for mining companies, setting up nonsense funds to spend on infrastructure at some point in the future, yet all that is required is for our Government to have a plan and directly create jobs. As a monopolist of the currency it can always purchase whatever is for sale in Australian dollars, including idle labour. If there is high underutilisation in an area you can have a plan to use that skillset and employ them in some worthwhile public investment.

Articles like the one linked to irritate me because there is a problem stated and generalisations stated by a politician of why that is bad and people needing more work but there is never an actual plan on employing those people.

Conclusion

Only a short post today because I’ve told myself I would attempt to get daily output in an attempt to train myself to write cohesively.

Full Employment Demise

I’ve recently been reading a number of different sources on unemployment, its causes and its use as tool of social domination.

Article 23 on the UN declaration of Human rights

(1) Everyone has the right to work to free choice of employment, to just and favourable conditions of work and to protection against unemployment.

Throughout history there has always been opposition to full employment policies. During the post WWII era Australia defined a full employment as;

a society as one in which there are more jobs on offer than people seeking them, so that work providing a secure dignified existence may be easily obtained by all. (Beveridge, 1944, Full Employment in a Free Society)

Our current system of more people chasing fewer jobs than demanded and the pernicious work for the dole (WftD) and community development employment program (CDEP) uses unemployment as a fear to ‘force’ individuals to accept terrible working conditions and lower wages. Our current system punishes people without work because we have made a policy choice to ensure a shortage of jobs.

Our employment system wasn’t always like this. During WWII and the post WWII period unemployment seldom rose above 2%. This policy was guided by the 1945 tax white paper on Full Employment, under a public servant by the name of H.C Coombs. It was a fundamental aim of The Australian Government to ensure enough jobs for all up until its abandonment in the mid nineteen-seventies.

This policy for full employment will maintain such a pressure of demand on resources that for the economy as a whole there will be a tendency towards a shortage of men instead of a shortage of jobs. This does not, of course, mean that at any particular time everybody will be at work: some people will be away from work because of sickness, some will be taking a spell between seasonal or periodical employment, some will be in the process of changing from one employment to another offering better prospects, some will take time to acquire new training to equip them for other employment. These reasons for unavoidable absences from work can gradually be made less important. but in any case there is no need for them to entail poverty, insecurity and the feeling of being unwanted for the individuals concerned. (1945 Tax White Paper on Full Employment)

Our current system justifies high rates of unemployment and underemployment under a concept called the non accelerating inflation rate of unemployment (NAIRU) that determines there is some natural market determined rate of unemployment that if we were to fall below would trigger inflationary pressures.

During the 1970’s the prevailing school of thought became that we needed a pool of unemployed to discipline the rate of inflation. It ignores that for a quarter of a century Australia managed to eliminate involuntary unemployment, matching the labour market to the hours desired. It was an enormously successful policy that kept in place because the public understood that the Government of the day chose the unemployment rate. They witnessed it during WWII when every available resource in the country, including labour, was devoted to the war effort and there was consensus that we could maintain this after the war.

Unemployment is far more costly than inflation. There are physical and psychological costs to unemployment. It is a cause of a loss of skill, the longer you are employed the longer you are unable to participate meaningfully in society. There can be, a sense of isolation, family and relationship breakdowns, a loss of security, homelessness, and our communities are poorer because of it.

The oil shocks of the 1970s caused supply side inflationary shocks throughout most of the world. We had what is termed ‘stagflation’ high unemployment and high inflation and the prevailing school of thought that was emerging was from Milton Friedman. On a tour through Australia The Age newspaper on 11 November 1975 reported “…The inflation rate was caused primarily by an excessive broth in real wages, which led the professor to opine that our long cherished arbitration system ‘seems to be highly unfortunate’ in the way it sets wages…” Despite oil rising over 400% Friedman’s lectures focused only on demand-side pressures.

The primary objective of this era became fight inflation first. In the dying days of the Whitlam Government, The treasurer, Bill Hayden, reversed commitment to Full Employment and caved into the consensus of Treasury who wished to have unemployment remain high until the underlying rate of inflation fell. Whitlam’s embarkment of Swedish style ‘active labour market policies’, principal job creation scheme (Regional Employment Development) and public sector job creation was cut from the 1976/77 budget.

From the Fraser government onwards the political discourse turned to excessive wage growth causing unemployment. It was a message targeted towards unions and an excuse to deunionise the workforce. Attacks on real wages began, the language turned from a full employment economy being able to provide welfare assistance to welfare assistance induced people to be unemployed and used a justification for cutting welfare.

There has always been an understanding amongst the capital class that unemployment is necessary to further their interests. Cabinet meetings from 1951 in the Menzies Cabinet;

McEwan: Inflation results from two things: too much money and too little work. The circumstances of full employment are the greatest single cause of inflation.
Menzies: If we can reduce public spending and private investment we will be attacking that problem.
McEwan: It is a terrible thing to think that the fear of unemployment is the only way that men can be made to work harde
r.

During the proceeding decade both major parties had ‘stop inflation first’ policies by using the unemployed. The Hawke years saw the Prices and Income Accord which saw real wages fall by 7 percent over 5 years. Coombs called this a ‘return to scarcity’ The average duration of unemployment grew from 3 weeks in 1966 to 9 weeks in 1973, 28 weeks in 1978, 47 weeks in 1984 and 49.7 weeks by May 1988.

This increase in the period people were unemployed saw public sector reforms to drive productivity. This included huge changes to the Commonwealth Employment Service such as including activity tests where incomes could be stopped or reduced for non-compliance. It arks back to the philosophy that the fear of unemployment marks people work harder. This was the fundamental idea around theses changes. Public sector job creation was cut and there was emphasis on private sector job creation. By 1991 the Keating Government was saying ‘this is the recession we have to have’ Keating saw unemployment as international, necessary and inevitable. ‘It is the unemployment we had to have’. There was one incidence where he was so animated in discussing the need for the unemployed he was made to promise that he would never perform like that in public.

By 1998, under the Howard Liberal Government the CES was shut and it was outsourced to the Job Network. Despite criticising the policy for twelve years, when the ALP won office in 2007 they maintained it. The Prime Ministers wife had made millions as a Job Network service contractor.

Conclusion

This is a very brief overview of the demise of what was once a bi-partisan policy that worked to ensure jobs for all. Today the policy for unemployment has to be masked behind false sentiment that the government is doing all it can to create jobs. The reality is as a monopolist of The Australian dollar, the Government can purchase whatever is for sale in Australian dollars, including idle labour.

Later I’ll look at Right to work movements in France, Britain and Australia and solutions to ending unemployment and underemployment through public sector job creation and a Job Guarantee (JG). The JG is an alternate to the NAIRU approach mentioned above and rather than using a buffer stock of unemployed, it uses a buffer stock of employed. The idea is then to transition people from the buffer stock of employed people into a public or private sector job.

Northern Territory Fracking

Recently I’ve been involved in some protests opposing the NT Governments decision to approve fracking in the Betaloo Basin. The current frack site is near a community called Marlinja. The video below shows what happened.

It seems rather clear it is companies like Origin energy and Santos that run government policy. This article from April last year says fracking in the Betaloo Basin is equivalent to fifty coal fired power plants and this article from 3 years ago says that those figures could be vastly underestimated. The other issue is the water used in fracking. Origin admits that one frack can use as much as 60million litres of water. That is water being used from one of the driest parts of the driest continent on earth. That information is from an article in the Centralian Advocate on 10 January, 2020 “Growing Gas Exports Cause for Concern” – It is paywalled though I have a physical copy.

One of the ‘positives’ governments talk about with these projects are the ‘economic incentives’. One of the hurdles progressives need to overcome is a neoliberal understanding of what constitutes the economy. Even those opposing fracking state things like

“….despite economic incentives, few Territorians would receive a significant benefit from current offshore gas exports as well as future fracking projects.”

‘Economic incentives’ are viewed in the sense of revenue or subsidies usually for corporations. The economy shouldn’t be distilled down to mere accounting statements.

Below are two different perceptions of ‘the economy’

Connors, L et al., Framing Modern Monetary Theory (2013), Centre of Full Employment and Equity, CDU, Casuarina NT

The neoliberal vision is the one envisioned of those wanting to frack. We need to sacrifice our own environment and wellbeing to serve it. The progressive vision is that any economic activity should be there to serve our environment and our wellbeing.

Two of the arguments used by Governments for these projects are job creation and revenue. It is stated we need the revenue to ‘pay for’ public services. At a State or Territory level, Governments do need revenue, they are currency users but that isn’t true at the Federal level.

As a monopolist over the currency, the Federal Government can always purchase whatever is for sale in the currency it issues (including idle labour). It faces no insolvency constraint. Taxes at that level serve to deprive the non-government sector of spending power, so it can control real resources.

A lot of the time our minds are buttressed by ‘The Government is like a household’ metaphor and that makes sense because we think about our own finances. Though at the Federal level, the Government is nothing like a household, it is a currency issuer. Its spending is not at all equivalent to a currency user who has to finance their expenditure from their income.

We are entirely correct to question the institutionalised arrangements around Local, State and Territory funding. It’s important to keep in mind that Local, State and Territory Governments are currency users and it is the Federal Government that is a currency issuer. Not making a distinction between a currency issuer and user leads to flawed proposals such as a renewable export industry because ‘we need the revenue’

Seperate in your mind the macro-level and micro-level. Think of the macro-level as three sectors – The Government, the private domestic sector and the foreign sector. The microlevel are the individual households, businesses and corporations that sit inside those macro-sectors.

At a macro-level an export is a cost, it is a real good or service that is delivered from the private domestic sector to the foreign sector. It is income generation for the exporter but never the less it is something we don’t use locally. Ask yourself the question who is benefiting in terms of the real resource usage and who is benefiting from the income generated.

Think tanks like beyond zero emissions write in their reports

“The global export market for renewable hydrogen is set to boom, driven by demand from East Asia. The NT is an ideal location for making renewable hydrogen, and could capture two-thirds of the national expansion of this industry by 2030.”

I had a friend pose the question on energy losses and the mode of transporting/transmitting that energy, especially in the case of hydrogen exports at a recent conference I attended.

“How would it be obtained? Splitting water molecules by electrolysis is very energy intensive, but more importantly whose water? Would the hydrogen be shipped using diesel powered ships or hydrogen (battery) powered ships adding further energy (efficiency) losses to the equation? Would any of these proposals require public funding?”

A progressive movement needs to use the opportunity of transition to move back to publicly owned electricity generation. It is entirely possible to deliver a free quota to every Australian household. What we need is massive public investment in replacing the NT fossil fuel power plants with renewables, cutting out the private retailers making electricity a public good. We need not ask the question “How will you pay for it?” but “How will you resource it?”

Are there currently unused resources (labour, raw materials) that can be purchased by the Federal Government? If yes then its spending is unconstrained and it can be deployed for a public purpose.

If the answer is no; what can the government do to remove those resources being used by the private domestic sector in a non-inflationary way.

Conclusion

It is disappointing the transition to renewables is stuck within a framework of private capital profiting off the transition with it controlling the supply of electricity generation. It is even more disappointing that Governments have tokenistic climate change policy where they leave renewable options to the private market while they allow more fossil fuel activity that does nothing to reduce our CO2 emissions.

Money is a creature of the State

I’ve had a number of friends that have been encouraging me to write a blog for at least a few years now. This is my attempt at a blog.

For the last five years I’ve been informally studying Modern Monetary Theory. I became captivated by the elegance and internal consistency of the body of work. The captivation went so far that I named a fighting fish (the one pictured on the main blog page) after a well known MMT academic. I did so because the fish happened to sit under one of Randall Wray’s books on my bookshelf. Irrelevant to the topic at hand but Randy (the fish) spends his life in the Darwin Festival office.

I looked after Randy the fish over the Christmas/New Year and he reminded me of one of the first papers I read while learning MMT. “The Credit Money and State Money Approaches” by L.Randall Wray.

Orthodox economist will tell a simplistic story about barter and ‘money’ evolving out of that.

A credit approach to money stems from the work of an economist Alfred-Mitchell Innes where he emphasises credit and debt are the same thing but from a different view point. David Graeber’s book, Debt:The First 5000 years is recommended if you wanted to delve into detail about credit and debt relations throughout history and I might write more about on what debt is at a latter date. Simply put think of it as ‘Someone else’s debt is someone else’s asset.’

The State Theory of Money comes from the work of Georg Friedrich Knapp where he states “Validity by proclamation is not bound to any material” That is a states currency gains its value from the liability enforced in that same unit of account.

Wray in the conclusion of his paper writes there is an integration between the creditary and state money approaches. I’ll discuss the state money approach first.

…the state chooses the unit of account in which the various money things will be denominated. In all modern economies, it does this when it chooses the unit in which taxes will be denominated and names what is accepted in tax payments. Imposition of the tax liability is what makes these money things desirable in the first place. And those things will then become the money-thing at the top of the “money pyramid” used for ultimate clearing.

L. Randall Wray, The Credit Money and State Money Approaches, Center for Full Employment and Price Stability, University of Missouri-Kansas City.

An easy way to think about that is to first distinguish between a Currency Issuer and a Currency User.

Say you want chores completed around your house and you offer your business cards in exchange for household chores. Why would your children desire your business cards?

The MMT money story states the tax liability comes first, followed up by government spending, so the people can meet the liability imposed and taxation comes after the fact the currency issuer has spent.

In the business card example sighted above, you would impose a tax of say 30 cards a month and without payment at the end of each month there would be consequences. It’s the coercive power of the state that drives the value for the currency.

Soon the kids are doing chores, earning their cards (that only you issue) and they develop a market and trade cards with each other getting their siblings to do chores when they’d rather not. You tell the kids that if they want to snack between meals and have desert there is charge, denominated in business cards.

There is a limit to the kids spending because eventually they have to earn more to pay their taxes and be able to eat desert and snack between meals.

Think of the snacks and desert as a fee imposed to gain access to things you may want to limit. Breakfast, Lunch and Dinner involve no exchange of cards and are akin to a public service – they can always be provided by you, provided you have the food to cook!

Going back to Wray’s conclusion and discussing the creditary money approach.

The private credit system leverages state money, which in turn is supported by the state’s ability to impose social obligations mostly in the form of taxes. 

L. Randall Wray, The Credit Money and State Money Approaches, Center for Full Employment and Price Stability, University of Missouri-Kansas City.

You may have heard loans create deposits. The Bank of England in this paper says;

‘Commercial banks create money, in the form of bank deposits, by making new loans. When a bank makes a loan, for example to someone taking out a mortgage to buy a house, it does not typically do so by giving them thousands of pounds worth of banknotes. Instead, it credits their bank account with a bank deposit of the size of the mortgage. At that moment, new money is created

That is the bank creating itself an asset which becomes the borrowers liability.

There are several different ‘money things’ we refer to as money:

1. Physical notes and coins
2. Reserves – like you have an account with the bank, your bank has an account with the central bank. They use this account to settle payments with each other.
3. Bonds – What we refer to as Government debt. Banks exchange their reserves to purchase these and they earn interest and the face value paid upon maturity, similar to what you would do with a term deposit account
4. Demand deposits – what you see when you check your online bank account.

And I’ll write more about these in the future.

Federal Government spending adds to reserves and then is placed in a demand deposit. Banks create demand deposits and need to ensure their reserves are in surplus at the end of each day. It is the central bank’s job to ensure there are sufficient reserves for financial institutes to pay each other otherwise the payments system would grind to a halt. Banks are reliant on the consolidated government (treasury and the central bank) to add to those reserves.

What we call ‘money‘ is a social construct. Each of the numbered points above are created using different ‘mechanisms’. What matters is whether we have the real resources (labour, skills, raw materials) to provide for our society. There are only political constraints that stop a currency issuer from deploying real resources for a public purpose.


I recently attended the Sustainable Prosperity Conference in Adelaide. It was great to meet people I’ve linked in with through social media and meeting several of the keynote speakers whose work I have been reading. This lecture was put on by the university of Adelaide for the Harcourt Lecture an annual talk featuring a prominent economist. This year it was Stephanie Kelton and is an excellent introduction to modern monetary theory and understanding economics.

© Jengis 2020