With all the talk of ‘the economy’, spending collapse and an oncoming recession with the Prime Minister stating “We cannot prevent all the many hardships, many sacrifices that we will face in the months ahead” I thought it worth noting that yes it is possible to avoid any financial hardships and a recession.
The analogies we use to describe ‘the economy’ separate it as an abstraction from our own lives. Watching 730 I heard an economist state something along the lines of obviously ‘the economy’ takes a hit and health takes priority.
It may seem useful to separate ‘economic’ activity from our lives, health and social relations. That is a very arbitrary distinction and the reality is there is no separate sphere of economic life. Just because there is a health crisis does not mean workers need to lose income, it does not mean we have to have a recession. Currency issuing Governments can deal with any collapse in spending and avoid recessions.
This article on ABC News used classic neoliberal framing when it stated in regards to the measures put in place to stop the spread of covid-19
”Measures might include forgiving taxes, paying a fraction of wages (but also requiring employees to be paid less overall), mandating big temporary rent reductions (landlords are typically better placed to absorb losses than small businesses), providing loans and encouraging — or requiring — banks to suspend loan repayments and perhaps interest payments.”
This is the sort of strategy you would expect from right wingers and faux progressives. The Australian Federal Government is a monopolist of the $AUD. It can always make payment. A progressive response would nationalise industries that fail (e.g airlines) and nationalise banks, removing interest already paid off home loans, setting the repayments at 0 per cent and enact a Housing Guarantee for all. No worker should be forced to concede wages. A welfare system can easily pay replacement wages while we are in lock down.
I find it somewhat ironic that ‘progressives’ have argued for a $75 a week (later increased to $95) raise to Newstart (which still left the unemployed below the poverty line) and Governments since Howard have refused to raise it arguing it would ‘cost’ the budget. Suddenly we have an impending spending collapse where unemployment would sky rocket and all the questions of ‘how do you pay for it?’ disappear. The conservative Government increased Newstart by $360 a fortnight more than what those ‘progressives’ were calling for. The total for what is now the job seeker allowance is $1,115.70 a fortnight. Albeit a temporary six month measure. Change this payment to a basic income for anyone with no employment and institute a Job Guarantee at a living wage.
Progressives moderate demands based on nonsense that we need to ‘find tax dollars’ ‘tax the rich’ and ‘balance the books’. All federal government spending are instructions that mark up the size of bank accounts. Deficits are meaningless irrelevant statistical artifacts.
I thought it a worthwhile exercise to dissect the language we use when discussing economics and to help others purge neoliberal framing from their minds and use new frames. Using neoliberal framing merely reinforces it undermines the ambition within a progressive goal.
The analogy that a Government is like a household that needs an income in order to spend or borrows in excess of taxation. The question posed for public expenditure is ‘How do you pay for that?’
What the GFC and now the Covid-19 pandemic demonstrate is that currency issuing governments always have spending power. They spend by appropriating a bill through the legislature and marking up numbers in a bank account. All the questions for on ‘pay for’s’ have remarkably disappeared. Government spending is more akin to a scorekeeper at a football match. They mark points up when a goal is scored. These numbers come from nowhere and they are not limited by the points they deduct.
Mortgaging the Future of our Children and Grandchildren / Racking up the Nations Credit Card
This is the analogy used when discussing Government debt. Federal Government debt (debt held by the currency issuer) is a different operation to a user of a currency. Currency issuers choose to sell bonds to match their deficit spending. Like you have an account with a bank your bank has an account at the central bank – when the currency issuer spends it adds to these reserve accounts. Financial institutions buy bonds from currency obtained through previous government deficit spending. It moves currency from their settlement accounts (accounts banks use to pay each other) into a securities account that earns interest. The national debt is nothing more than the amount spent into existence by the currency issuer. If you have a problem with interest; The answer is to not issue treasury bonds.
A deficit is the government spending more than it collects in taxes. Some 7th grade algebra shows you that the other side of the equation has to be in surplus. For example if the government spends 100 and taxes 50, we record that as a deficit of -50 however that +50 sits within the non-government sector. All deficits go somewhere.
The deficit itself is not a mechanism to finance something, it is merely the result of spending decisions and the non-governments net desire to save. (it might be in surplus depending on the current account) All spending by the Federal Government is funded by an appropriation through the legislature.
Printing money is a term that doesn’t relate to any spending operation. Currency issuers spend in the same way regardless of whether a previous deficit or surplus has been run. They don’t spend the proceeds of tax collection or finance themselves via bonds. All these operations require deficit spending from the currency issuer to begin with.
All spending works as follows. There is an appropriation bill and an official in treasury instructs an account to be marked up and the central bank (which is part of the consolidated government) does so.
There are some institutionalsed arrangements where the treasury has numbers in the Official Public Account – this is important from an accounting perspective to show the amount that has been removed from the system. The numbers in the OPA are not included as part of the money supply.
This word gets thrown around and has a dual meaning. There is a financial cost (which is applicable to a user of a currency) and a cost in real resources. So to deal with mass pandemics, you need health workers, cleaners, enough respirators, hospital beds, etc… if any of these things are in short supply you need a strategy to ramp up production and ensure we have the real resources to deal with it. The cost is the labour power, skills and raw materials required to implement this. The financing by a currency issuer has no cost. It marks up accounts.
Welfare dependency / dole bludgers etc..
It is framed that people on welfare (usually the unemployed) are dependent on the ‘tax payer’. Unemployment is a result of insufficient spending. It is a political choice and the Federal Government as a monopolist of the $AUD can always purchase anything for sale in that currency, including idle labour.
This post here outline how the issuers spending creates employment and a lack of spending creates unemployment. In non-monetary based societies you don’t have unemployment or employment. Unemployment exists because we haven’t created enough opportunities for people to engage productively with our society.
Governments can always guarantee employment. Here is an example of the Victorian Government creating direct employment opportunities. It’s a small amount set aside, and $500 million won’t offset the income losses caused by the shutdown but you can easily extend this concept, fund it federally and use it as a transitory arrangement to aid workers seek better employment opportunities even when the crisis ends.
This idea that somehow employment needs to generate profits as a marker of efficiency and to ‘fund’ public expenditure is wrong. Provided the real resources exist, they can always be deployed for a public purpose. There are countless tasks that can be performed that make our communities more livable. From work in the arts, to rehabilitation of wetlands, restoring native flora, creating and maintaining public spaces – caring for the elderly etc…
When we talk of public services as a cost (rather than a benefit) we reinforce a framework that is morally bankrupt, views public spending as a real cost on individuals and we trap ourselves in circular arguments of needing rich people to fund our public services. Everyone needs deficit spending, including the rich.
© Jengis 2020