The ALP are not friends of the working class

I’ve been working on a project with UnionsNT strongertogethernt.com.au The last week has been foucsed on breaking down economic jargon and giving a decent analysis on the governments ‘budget’.

Anyone that has had some introduction to economics knows government budgets are not like households. MMT states the difference between a currency issuer and a currency user. The latter has to finance its expenditure while the former can always spend. That doesn’t mean it should always spend. Though its spending represents a socio-economic agenda.

MMT uses the sectoral balances as a tool to assess the context of the governmnets spending. The sectroal balances was developed by British post-keynesian economist Wynne Godley. The rule holds as a matter of accounting.

When assessing governmnet fiscal policy we need to look at whether spending in aggregate supports full employment and is meeting our desired social objectives. The image to the right shows the inflows (injections) into the private domestic sector and the outflows (leakages) that subtract from spending. Injections are Government Investment and Exports. Leakages are Taxes, Savings and Imports. If leakages are more than the injections the private domestic sector is in deficit.

Current Account

A nation like Australia commonly runs current account deficits. This is our exports – imports. Imports are foriegners saving Australian dollars. When we purchase a good from say the USA a currency exchange needs to happen first. An Australian entity changes an $AUD for a $USD and then hands over the $USD to purchase the desired good. The $AUD is then accounted for in the US Federal Reserves account at the Reserve Bank of Australia. That is why imports are foreigners desire to save $AUD. The process in the real world is vastly more complex but this is a simple explanation of how foreigners end up saving $AUD.

Government Spending

Governmnet deficit spending is the Australian government spending more than it taxes. Australia on average runs current account deficits of between 3-4% of GDP. If we in the private domestic sector desire to save overall the government deficit spending has to be larger than the current account deficit. That is just accounting.

Governmnet spending plays a significant role within our economy. (pictured above) It is the largest injection into the private domestic sector. As an issuer of the currency, it has the power to maintain spending in aggregate sufficient with full employment. Government deficits aren’t relevant in terms of future governments ability to spend. However, entities like businesses and households have to finance their expenditure. The fiscal position of the private domestic sector matters. I have graphed the sectoral balances based on treasury projections in their budget papers for the next 4 years.

The solid coloured lines are the results of the various sectors. The dotted lines are treasury projections. Except for the current account (red line) years, 24/25 and 25/26, which I have assumed the long term aveargage of 3.5%. Treasury does not predict those years. The red line is positive because a current account deficit is savings of Australian dollars non-residents (see above). The government deficit (green line) is an injection to the private domestic sector (blue line). While the media focuses on the governments fiscal position, which is irrelevant in terms of its ability to spend, it neglects what is happening with the balance of the private domestic sector.

In this neoliberal era it is ‘normal’ for the private domestic sector to be in deficit as the government pursues surplus. This policy objective is unsustainable as it deprives the non-governmnet sector of its ability to save and destroys the net financial assets, leaving the sector financially poorer. We can analyse the domestic sector further between the distribution of wages and profits. Though because we run current account deficits the Australian government needs to deficit spend if we want the private domestic sector to save overall. That is not a theory, it is a matter of accounting.

Further Analysis

I wrote a simple analysis of what is driving the inflationary pressures in the economy here. I’ll repeat the conclusion of what I said there.

Inflation is driven by price increases. Price increases are administered by those with enough power to raise prices. Take a simplistic economy where we have no new production. If corporations hike their prices by 6% and workers achieve a 6% wage increase there has been no change in the wage and profit share of the economy but prices have increased. What is currently happening is as production costs increase, those with enough power are able to pass on those costs.

What we are interested in is relativities between sectors. Inflation is redistributive. If someone is paying more, someone is receiving more. Our current inflation has nothing to do with wage rises or government spending. Our governments have enormous power (as currency issuers) to set domestic prices. It made childcare temporarily free over covid and we saw a fall in the consumer price index as a result of that decision.


Narratives that depoliticise current events that harm workers

Governments need to reduce deficit to save to build savings for the future.

This is one of the most recited points in relation to a governments budget. It is nonsensical. Savings are an act of forgoing current expenditure to spend at a later date. It does not apply to a currency issuer that can always spend. As shown above, as a matter of accounting, the government deficit equals the non-government sector income. We should question where it is spending and the distribution of that income but the notion it needs to save is irrelevant. It issues the currency!! Its fiscal policy should be determined as to whether it is meeting ouer desired socio-economic objectives and by how well the bottom of the income spectum are doing. Discussion around taxes should be around how we should redistrute income and wealth more fairly. A progressive position would be to tax unearned income (capital gains, rent, dividends et ceterea) at higher rate than waged labour. These are what we call economic rents and are extractive. The recipients of unearned income have not contributed to the output of that product and thus it is referred to as unearned income. i.e. They have not laboured to produce a good or service but still derive a financial benefit.

Global economic slowdown

Another reason citied is because of changing global economic ‘headwinds’. This is a term used in the budget papers. ‘Changing headwinds’ is a sailing terminology that refers to a turn in the weather for the worst. The current global circumstances of the war in the Ukraine has led to increased prices for

Petroleum refining and petroleum fuel manufacturing (+31.5%) due to a decrease in global crude oil supplies and increased demand in response to easing COVID19 restrictions. abs import price index – June 2022

That has now eased. The September import price index notes

The main offsetting contributor was:
Petroleum, petroleum products and related materials (-2.6%), reflecting an easing in global oil demand.

The increased prices for imported necessities has labour and capital fight over who should take the real income losses. The data shows for the trade price index Petroleum, petroleum products and related materials reflected an easing in global oil demand.

The current global slowdown does not change the domestic capacity of the local economy.

World gas prices are high because of Ukraine war.

The largest increases to prices for the trade price index – exports are

Through the year, the Export Price Index rose 25.9%. The main contributors were: Coal, coke and briquettes (+134.8%), and Gas, natural and manufactured (+98.6%)

These rises reflect a rising world spot price because of the war in the Ukraine. The gas companies are charging the domestic market world spot price which in the Consumer Price Index has led to an increase of Gas and other household fuels (+10.9%) for the September quarter 2022.

The Australian government could set a reservation policy and price cap for the domestic market of gas but it has chosen to allow the gas corporations to extort citizens. We are one of the worlds largest gas exporters. A government interested in getting inflation under control and mitigating against climate change would:

1. allow the expiration of long term gas contracts.
2. ban exports at the world spot price
3. mandate a domestic gas reservation and set a price cap.

Narratives on persistent inflation being something the government can not do much depoliticise falling real wages and blame ‘global’ factors outside our governments control.

Supply-Chain Disruptions

The latest consumer price index notes

Strong price rises were seen across all food and non-food grocery products in the September quarter. These increases reflected a range of price pressures including supply chain disruptions, weather-related events, such as flooding, and increased transport and input costs. In the 12 months to the September quarter fruit and vegetables prices rose 16.2% and dairy products increased 12.1%.

While supply side constraints and severe weather is indeed a problem, what are we doing to mitigate against these types of disruptions (e.g. more locally based production, climate change mitigation) The government can target income to lower income households to ease cost of living pressures.

Interest rates need to rise to ‘tame’ inflation

The use of interest rates to control spending in aggregate is class warfare. The Reserve Banks role to maintain inflation within a particular range is a development that started from 1993

In September 1997 a speech Monetary Policy Regimes: Past and Future the then Governor gave an overview of the role of monetary policy.

The latest irritation of targeting an inflation band in the belief that rises in interest rates dampen demand holds no empirical evidence. We do not know the outcomes in aggregate as businesses pass on costs to service loans used to invest in capital equipment and borrowers are forced to pay more in interest. There is also the outgoing payments on the interest of government bonds that needs to be factored in.

The only way monetary policy would work to lower inflation is if enough people were to becoming unemployed and businesses would be forced to concede profit margins as they lost sales. Then because the current dynamic on inflation is driven by climate related weather disasters and unregulated gas prices – I doubt the current profit share for these corporations would decline.

The Marxist economist Pat Devine describes it as below.

The attribution of the cause of inflation to asocial abstractions like the money supply,-” or excess demand, obscures the social conflicts underlying the chronic inflation of modern capitalism. Thus, to say that inflation can be “”cured”” by curbing the rate of increase in the money supply is in fact merely the currently fashionable way of saying that state expenditure on the social services and welfare pro- grammes should be cut, or that private consumption should be held back by increasing taxes, or that unemployment should be allowed to increase until the workers come to their senses. Of course, if these things were possible there would be no problem of inflation to cure in the first place. It makes no sense to propose “”technical”‘ cures for inflation which depend for their implementation on the absence of the very socio-political pressures which cause the inflation they are supposed to cure; no sense, that is, except as a means of mystifying the nature of social reality and holding out the forlorn hope that it is possible to control inflation without fundamental changes in that reality.

Inflation and Marxist Theory, Marxist Today, 1974, p.87

Conclusion

Our government is using a depoliticisation strategy and avoiding any discussion on policy that would help stabilise prices and bring about real wages growth.

The current fiscal policy settings will see a return of the private domestic sector in deficit. It is sold as a neccisitty and ‘good’ economic management. A lack of investment in climate change and rising unemployment is not my definition of ‘good’.

The war in the Ukraine and broader global economic factors are being used as cover to avoid having policy that stabilises current gas prices and the need to reduce government spending (aka surplus). The Australian government has the power to regulate gas prices. Meanwhile the faux progressives are out calling for taxes on ‘excessive’ profits. I am not sure how that would bring about price stability. These things would.

1. Allow the expiration of long term gas contracts.
2. Ban exports at the world spot price
3. Mandate a domestic gas reservation and set a price cap.

The government needs to stop working within the interest of gas corporations and control domestic prices. Further, slowdowns of growth in other countries do not affect the Australian governments ability to spend and invest in our domestic economy.

The paradigm of rate rises depoliticise policy to be the decision of ‘expert’ technocrats so our elected representatives can shift blame to unelected officials. Rate rises will do nothing to address currently inflationary pressures.

What we need now is targeted income payments to lower income households to assist with the rise to food prices resulting from climate related weather disasters.

The ALP is currently using a strategy of shifting blame to external factors it has no control over (or pretends it has no control over. i.e. interest rates) as it presides over the largest fall to real wages, and a dramatic drop in the wage share of national income, to their lowest levels in our history.

The NT Government lost in neoliberal spin

I’ve been active writing the stronger together campaign blog. The positions our elected representatives take are increasingly more and more to the advantage of capital. When you are so close to elected representatives (as I am here by virtue of my work and a small population in the NT) you can see the sitting members are bereft of an intellect and blindly follow advice given to them by treasury. Even if an elected representative hoped to say increase the deficit, they would be mocked by those within the department and ostracised by cabinet. Why would an elected members do this? Because they have career prospects to think about. Michael Gunner, the previous chief minister resigned from parliament and six months later had a highly paid role with the ‘green arm’ of the fortesque metals group. Apparently they are planning some ammonium export business. The public benefit to such a project is practically nil. Let alone looking at the environmental impact such a project will have.

The legislation in the NT says a retired politician has six months before they can be appointed to a position within the private sector. The federal legislation is 18 months. Not that extending the waiting period would make much of a difference of the movement from sitting member to receiving political favours. You’d put an outright ban on it if it is something you wanted to stop.

You can bet things are similar if not worse when you get to more powerful and larger state and federal government. Worse in terms of the political favours that advance capitalist interest, and the ‘deals’ done with ‘jobs for mates’.

I said in the linked blog post how the Northern Territory Government is essentially a marketing arm for capital. It has the NT News publishing propaganda on achieving a $40billion dollar economy. How it will achieve this is unknown. What it will produce to do this is also unknown. Why has it chosen this number. It was plucked out of the air.

I said this in my linked post but I will repeat it here

Achieving a goal of $40bn GSP doesn’t account for our public well-being. GDP(GSP) is a measure of aggregate production. Producing $15billion in mining, military and other private sector for-profit investments is the same as investing $15bn in education, health and indigenous communities. It is measuring what we output. It is a quantitive and not qualitative. It is a residual number. We shouldn’t target it or look at it without context!

Achieving a goal of $40bn GSP doesn’t account for our public well-being. GDP(GSP) is a measure of aggregate production. Producing $15billion in mining, military and other private sector for-profit investments is the same as investing $15bn in education, health and indigenous communities. It is measuring what we output. It is a quantitive and not qualitative. It is a residual number. We shouldn’t target it or look at it without context!

We need to be targeting fair wages, housing for all, universal public services, (free childcare anyone?), investments in our health and education systems, guaranteed work, the list is endless on what we need to be doing. Things like ensuring our communities are using sustainable energy and developing agricultural systems that are local is a start. Rather than focusing on GDP(GSP) we need to focus on social and ecological indicators.

https://www.strongertogethernt.com.au/blog/towards-a-40bn-economy-what-for

With a bit of time I should be able to delve deeper into the GSP data set and see what is driving GSP and look at detail and provide evidence of neglect within the public sector. That is what I suspect I will find. This is what every state treasury department should be doing and advocating for greater spending on public goods and our communities well-being. Instead we have a nasty ideology that controls the purse strings. An ideology that uses an economic framework that has no evidence to support it and leaves working people worse off in material terms. And that’s before I even start talking about the impacts of climate change!!

That’s all from me.

And that’s a wrap!

Well it has been a busy few weeks and I have managed to launch an MMT informed campaign for a union peak body and commence work on a workers journal. I’ve developed some decent graphic design and website building skills. Canva is unbelievable. I can take ideas and turn them into simple pictures. I’m most proud of the below image describing inflation as a conflict. If someone is paying more, someone else is receiving more.

As much as things change though, things stay the same. I read this in the guardian on an article advocating why we should scrap the stage 3 tax cuts.

Australia is one of the richest countries in the world; we are in the middle of an energy price boom; we have enormous opportunities in renewable energy; but decades of tax cuts have trained us to feel poor, that we can’t have nice things, and that the future is something to fear rather than embrace.

https://www.theguardian.com/australia-news/commentisfree/2022/oct/06/australians-on-120k-are-not-middle-income-earners-we-must-remake-australia-not-spend-243bn-on-the-rich

And I agree we should scrap those cuts from an equity perspective. Though insinuating ‘tax cuts’ have trained us to feel poor is illogical. More dollars in people’s pockets actually makes you wealthier in financial terms. We can argue about how that income has been distributed and I certainly would’ve liked to see more dollars flow to the bottom of the income spectrum. To bring about greater equity we need to be spending at the bottom, delivering universal public services and I’d argue guaranteeing a right to work.

None of that is possible without breaking the myths we hold around debt and deficits. Deficits are merely an outcome of the saving desires of the non-government sector. Where the government spends is important in terms of the society we’d like to live in. But it never has a revenue constraint.

I listened to some nonsense about needing tax Woodside because it’s profits increased by 44%. Woodside’s profits increased because we have been enduring years of wage suppression. Woodside’s profits increased because we allow the export of things we should be keeping in the ground. I don’t want to tax them. I want that industry to be shut down.

It’s pathetic the alleged progressives in Australia seem to be nothing but. Where is their advocacy of raising the unemployment benefit? Where is the advocacy for raising the aged pension? We’ve one of the highest rates of pensioner poverty in the OECD. Why are they not fighting for a guaranteed right to work? It is what the early labour movements fought for!


Anyway hopefully some of what I am working on will help change the narrative on economics. The message is out there and I feel regular everyday people grasp the basics. We needn’t worry about running out of dollars, inflation is about power. Now we need our collective voices saying that. I am in talks with some other organisations about getting them on board with the stronger together campaign and spreading the message on flawed economic frameworks – and how using a decent lens can have us enact on climate change. Hopefully, that will come to fruition. I’ve got a lot of writing to do between now and the end of the year.

It’s time to develop decent working class material

In an earlier post We need to organise and attack current fiscal policy I wrote about a project I was working on to take a different perspective on what the economy is and our view of government deficits. That framework would then take place for acting on climate change, alleviating poverty and creating a better world for ordinary people. That campaign has now launched as strongertogethernt.com.au. It is early days still but I hope to build the site and campaign to give small social organisations resources to fight back against the economic orthodoxy that dominates treasury departments.

While most of us ignore economics and the technical detail. Flawed social policy whether we realise it or not is a result of a dud economic framework.

me – jengis

The other small project I’ve been working on is one through a small social club The Darwin Workers Club. We have the capacity to begin publishing a quality journal that allows working class voice to permeate. Currently media bias is so strong and dictated by a group of elite, any debate is done within a framework that ensures working people lose. For example the merry-go round we need to tax the rich to fund public services. We know we need to tax the rich for equity purposes. But for public services and public expenditure we need governments to be commanding real resources (mostly labour) to begin delivering public goods (like childcare) and enacting on climate change. Instead ‘the left’ lay blame on multi-nationals not paying tax. The reason we don’t have decent public services isn’t because multi-national doesn’t pay tax, it is because our governments have not provided those services. In any case for fossil fuels companies a progressive agenda shouldn’t want them to pay more tax, it should want to eliminate them so we are don’t releasing carbon into the atmosphere. That’s one example of how the public debate is constrained. We are laying blame on the wrong entities.

In the days prior to the union merges during the 1980’s we had hundreds of unions that were local and grassroots producing material and disseminating information from a working class perspective. I won’t detail how I think the union merges over the neoliberal period broke solidarity from grassroots members here.

The journal will detail struggles of working class and aim to be an educative tool on economics. Economics itself is a broad term that applies to microeconomics, macroeconomics, political economics and multiple other forms and I think it is important we start making that distinction amongst the membership base of trade unions. The first issue will look something like the image below and I am hoping have quarterly issues. I’d note we are using terminology of tropical seasons for when the issues are released.

There are six seasons in Australia’s tropical north. Each indigenous tribe has different names for the seasons, depending on their location and language. The Bininj and Munnguy from Kakadu use the following.

Gudjewg | Monsoon season | Dec-Mar

Banggerreng | Knock ’em down storm season | April

Yegge | Cooler but still humid season | May-mid Jun

Wurrgeng | Cold weather season | mid Jun-mid Aug

Gurrung | Hot dry weather | mid Aug-mid Oct

Gunumeleng | Pre-monsoon storm season | mid Oct-late Dec

Conclusion

I’ve got a lot of writing to do and a lot of things to co-ordinate to make these things happen. If you or you know anyone that’d like to contribute get in touch. darwinworkers@gmail.com