It’s Thursday and I have decided I will write three posts a week. Tuesday, Wednesday and Thursday. Today’s post continues on from yesterdays Unemployment is a Political Choice which described when, why, and how we started counting the unemployed. How it began in an era of Full Employment where the Australian Government aimed for spending in aggregate to target more jobs advertised than demanded. I described some detail around what was involved in aggregate spending and finally why unemployment is a political choice. Governments with their monopoly on the currency can always purchase what is for sale, including idle labour.
In yesterday’s post I mentioned the recently elected labour governments decision to maintain below poverty unemployment benefits and maintain the pernicious system of ‘mutual obligations’ that penalises those on the unemployment benefit if they fail to complete certain tasks. This ABC article gives you an overview of what is happening with the changes to the system. The system is summarised
….more than 750,000 people will be placed into one of two Workforce Australia streams: an online portal for self-managing job searches, or into the management of a new job provider for face-to-face appointments.
Significantly, those who will be required to complete mutual obligations will also transition to a process where they will earn points for activities in return for income support.
Which may seem ‘fair’. Absolutely we should aim to have those that can work into work. That includes creating workplaces and designing work for people with disabilities so they too can feel a sense of belonging, a sense of contributing to their communities and an ability to feel in control of their lives with enough income to be able to do that. However, our unemployment system doesn’t do any of that. Some of the nastiness pieces of the system are being retained by the ALP. (emphasis mine)
ACOSS acting chief executive Edwina MacDonald said her organisation welcomed some of the changes outlined by Mr Burke, but voiced concern about the continuation of the “punitive” work-for-the-dole program and automated payment suspensions.
The system automates payment suspensions and we require some people to work for their unemployment benefit while they look for work to receive their below poverty line payment.
I decided to look at the number of people seeking work and the number of jobs advertised. This relationship is known as the Beveridge curve named after a conservative member of the House of Lords in the UK, William Beveridge. You can read why the conservatives decided to deal with the rising levels of unemployment in my post Advocating a Right to Work.
Anyway back to the Beveridge Curve. Wikipedia tells us The curve is a graphical representation of the relationship between unemployment and the job vacancy rate which is the number of unfilled jobs expressed as a proportion of the labour force. The ABS says more less the same thing. The Beveridge Curve is widely used to depict the relationship between the unemployment rate and the job vacancy rate. Economists will study this curve and hope that as vacancy rate increases, unemployment decreases. i.e the higher the vacancy rate, the lower the unemployment.
When you grasp that as a monopolist of the currency – the government chooses the level of unemployment the Beveridge curve becomes somewhat pointless, unless you wanted to measure how much the private sector is contributing to economic activity.
I ran some numbers on the number of job vacancies v the number of unemployed and underemployed workers. As of the March quarter 2022 there is 0.88 jobs for every unemployed worker. This doesn’t take into account skills mismatches or location.
The ABS gives the quarterly figures for job vacancies at a different quarter to the unemployment figures to make comparisons a pain in the arse. Anyway I did it!
The first image is a table of job vacancies and numbers of people who are seeking work. The last column is the number of jobs advertised relative to the number of unemployed people.
The graph is a visual depiction of the table. The blue columns are the number of advertised jobs and the grey and yellow lines are the number of unemployed and underemployed people in the quarter.
To calculate quarterly figures for those two groups I found the monthly data and calculated an average. The data then matched the ABS job vacancy figures. The orange line is the underutilisation rate – which is the unemployment + underemployment rate.
Sadly, our Government thinks it is fine to force people to seek work that does not exist in sufficient quantity for all those that desire it and punish them for not jumping through bureaucratic hoops to receive a below poverty level payment. In some cases asking them to work for it!
Policy positions a progressive party should be taking;
Immediately lift the unemployment (and other support payments) to $88 a day.
Stop mutual obligations
Transition the unemployment benefit (not other benefits) into a voluntary living wage Job Guarantee run under a nationalised unemployment agency.
The new national unemployment agency would form a ‘key pillar’ in a newly established full employment policy – helping those in the JG with education and training and seek employment in the public service or private sector.
Establish a full employment policy with things like expansion of the public sector (childcare, better resourced heath and education etc…)
The labour movement has a history of fighting for ‘the right to work’. I believe this should be at the forefront of any labour movement. The ALP like the Liberal Party are protecting the unemployment industry in Australia – a series of privately owned companies paid to punish those without employment under a system that ensures there is insufficient work.
That is all from me!
*Update: there were minor errors in my spreadsheet and graph. I corrected these and updated accordingly. Update II graph is fixed now. Administrative spreadsheet error.
I read this article on SBS news today. It is to do with our pernicious system of ‘mutual obligations’ needed to be performed in order to receive the below poverty line unemployment benefit of $46 a day. The ALP is ‘wiping’ the demerits accrued under the previous government and ‘tweaking’ the points based system. The advocacy of the Australian Unemployed Workers Union (AUWU) is highlighted in the article.
But Unemployed Workers Union spokesperson Jeremy Poxon said it was “incredibly disappointing” the new government had maintained its support for mutual obligations, and not removed them completely. *** “The problem is this new system will just immediately start forcing people to accrue demerits again in huge numbers.”
The commentary from the AUWU is juxtaposed against the Australian Council of Trade Unions who said
ACTU assistant secretary Scott Connolly said the union welcomed the Albanese government’s new approach to “helping people get back to work.”
The commentary from the ACTU is more than disappointing. It ignores the frame that unemployment is systemic, a political choice and chosen by the government of the day and places the fault of the unemployment onto the individual who needs ‘help to get back to work’
I don’t deny there are those who need assistance in getting back to work. However, a system that cuts people from a below poverty line payment for not seeking work that doesn’t exist in enough numbers is a sad reflection on how we treat some of the most vulnerable people in society. There is little change in the new governments attitude to the unemployed.
Counting the Unemployed under a Policy of Full Employment
I’ve ordered a copy of Inventing Unemployment by Anthony O’Donnell. Unemployment as we know it is a relatively new concept. In his conversation piece he says;
As I outline in my book, Inventing Unemployment, before the second world war censuses tended to divide the population differently – into breadwinners and dependants.
A breadwinner who wasn’t employed would be recorded as a breadwinner rather than unemployed (with their usual occupation noted).
That’s probably because until the 20th century, irregular work was the norm.
The way we conceive unemployment and count it started in 1947 in Australia and a quarterly survey counting a labour force and dividing it into ’employed’ and ‘unemployed’ started in the September quarter 1959.
It was the post war consensus that gave rise to full employment policies, and albeit under a ‘male breadwinner’ model aimed to ensure
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.
The quote above is from the Australian 1945 tax white paper written by H.C Coombs who would later become Governor of the Commonwealth Bank and serve a variety of roles within the Australian public service. His essay From Curtin to Keating is well worth a read to see his views on the demise of full employment policies.
The way the framework for counting the unemployed was devised operated under different policy settings where the Government would ensure spending in aggregate would aim to ensure there were more jobs than needed to match the workforce preferences. Menzies in 1961 match the then opposition ALP promise to increase the deficit and bring the unemployment rate back below two percent.
I have included a historical graph of the participation rate going back to August 1966. The participation rate rate is the number of people employed or seeking work. You can see under full employment policies (and male breadwinner model) the participation rate for males was higher. The rise in female participation rate is a result of changing social attitudes towards women in the workforce. It used to be the case for instance women were no longer allowed to work once they were married. That is why the female rate is lower in August 1966 than 2022.
The way we count the unemployed hasn’t changed but a policy of ensuring more hours of work available than those seeking work isn’t in place today. That change of policy has to do with the way economists view the role of fiscal policy. Within the public discourse today you will hear aims of ‘reducing the deficit’ and needing to ‘pay down debt’. Over the full employment era government ‘budgets’ were referred to as full employment or high employment budgets. The fiscal position was not an aim of itself. I’ve wrote what fiscal policy *should* be about in the below posts and the demise of Full Employment here. Budgets Should Target Socioeconomic Well-Being. What is the purpose of fiscal policy?
What Causes Unemployment?
When economist speak about spending needing to increase they are referring to several aggregates that make up Gross Domestic Product. These are Government Spending (G), Investment (I), Consumption (C), and Exports (X). Reasons are given for why one sector can/ can not increase or what incentives should be made to increase one aggregate over another. However, spending in aggregate is the aggregate of G, I, C, and X and whether it is sufficient with Full Employment.
Depending on your theory of macroeconomics there are different ways of thinking about Government Spending. These are a bit like religions and economists pick and choose different aspects from different schools of thoughts.
Keynesians/Post Keynesians – budget deficit are warranted to maintain full employment but should be balanced over the business cycle. Governments invest in productive infrastructure and grow GDP to shrink debt:GDP ratio over time.
Monetarist/New Keynesians – aims for budget surpluses, strong incentives for private enterprises, governments should eliminate debt, remove fiscal policy as primary tool of economic management, focus on monetary policy.
Modern Monetary Theorist – Governments that issue their own currency face no insolvency constraint. They can purchase whatever is for sale. Fiscal positions are outcomes and shouldn’t be targets. Monetary policy is a poor tool for controlling aggregate spending.
While there is different thinking with the role of government spending and the definition of what constitutes full employment, there is consensus unemployment arises as a lack of insufficient spending.
Enter the MMT Money Story
MMT places the tax liability as the foremost thing a currency issuing government needs to do to have its currency accepted. The tax liability causes unemployment and government spending alleviates the unemployment. It is always within the governments power to increase its spending and purchase what is for sale, including idle labour. Thus unemployment is a political choice.
That is what is meant by ‘tax liability’ creating a demand for a governments unit of account. It is a coercive mechanism.
(2002) where she describes Colonial Africa as an illustration of a tax driven currency.
“Historians of the African colonial experience have often remarked on the manner in which the European colonizers were able to establish new currencies, to give those currencies value, and to compel Africans to provide goods and services in exchange for those currencies.”
Tcherneva cites Sticher (1985) [In Malawi there was an] imposition of a Sh.3 annual hut tax over the whole colony in 1896. This was a high figure for the northern areas. And undoubtedly stimulated further labor migration [to find work paying shillings].
Further evidence of taxation driving a currency can be found during the colonisation of Nyasaland.
It is sometimes forgotten that the plantation sector in Nyasaland dates from as early as the 1890s. During the early years of colonial occupation, most officials shared the opinion of Sir Harry Johnston, the first Commissioner and Consul General, that “the one hope of this, country lies in plantation work and in the cultivation of coffee, tobacco, sugar, etc., for which cheap labour is necessary”.3 Some 800,000 acres were alienated to settlers in the Shire Highlands, the most fertile and densely populated area in the country; hut tax was introduced from 1891 as a means of introducing “the native labourer to the European capitalist”4 and coffee was grown with such success that in 1900 a thousand to exported worth 62,00 making Nyasaland the centre of European agricultural enterprise in Central Africa”
McCracken, J.,Peasants Planters and The Colonial State: The Case of Malawi, 1905-1940; Journal of Eastern African Research & Development, Vol. 12, 1982, pp. 21-35
Unemployment is caused by a lack of spending in aggregate. Currency issuing governments can always hire the unemployed, thus making unemployment a political choice. If the vast majority of the population understood that we could begin to dismantle pernicious unemployment system that punishes people for a failure of our governments to create enough work for all.
Comments from ACTU on ‘helping people get back to work’ are not helpful unless they are backed by a call to abandon targeting of fiscal positions and have a full employment policy. There seems to be little understanding from the ACTU leadership unemployment and underemployment is one of the largest factors that act as wage suppression. As there are more people seeking work, employers have their pick of employees. It is a disservice to the workers they represent. Though workers have come harder to find for some sectors, there are still just under 1.4million under-utilised workers in Australia.
Solidarity with under-utilised workers would call for an end to mutual obligations, an abandoning of fiscal targets, lifting the unemployment rate to at least $88 a day, a full employment policy that guaranteed more hours of work available than demanded and the implementation of a Job Guarantee.
It is custom in Australia to make an event around the various state/territory and federal budgets. In the past achieving some fiscal ratio has been seen as ‘responsible’ In 2016 Economics professor Ross Garnaut stated (source)
“These measures should be backed by moderate and gradual cuts in spending, and moderate and gradual tax increases to repair the budget.“
Post COVID, the framing when discussing a budget, has moved from achieving a fiscal outcome (balanced/surplus) to targeting a particular employment rate within a framework called the ‘natural accelerating inflation rate of unemployment’ (NAIRU)
“Globally most respected economic institutions believe the risk of recession has increased and some pundits fear “winter is coming”.……Stimulus measures by the Chinese authorities will exacerbate already excessive debt levels and add to vulnerabilities“
The report continued to discuss Australia and the ‘limited’ tools in response to the ‘economic challenges’ we face.
“Economic fear is mounting and because of very high debt levels and limited scope for expansive monetary policy governments have limited tools in responding to these challenges“
Although the NAIRU framing is still incorrect. And the left still talk about currency issuing governments as ‘borrowing’ to invest!
The ACTU report on the upcoming federal budget still says
“The government has ample fiscal capacity to manage those deficits moving forward, thanks to record-low interest rates and the actions of the Reserve Bank (whose bond purchase program has supported low interest rates and facilitated the government’s fiscal response to the pandemic).“
“Borrowing to finance long-lived, productive investments is the exact same rationale that leads other parts of our economy – notably businesses and households – to also take on debt.”
The report suffers as a result of that illogic. The Federal Government issues the Australian dollar. It must spend first (that is logic101). It is nothing like a household or business that must borrow to finance expenditure in excess of what it earns. The fiscal position is residual. It needs to satisfy the savings desires of the non-government sector if we desire full employment (more jobs advertised than demanded)
I gather that I am a nobody but when I was discussing modern monetary theory with ‘progressive’ institutes such as the Australia Institute (affiliated to the organisation that helped prepare the ACTU report) or PerCapita, I would cop hostility from people within those institutes for articulating
Government debt was an after the fact operation and a tool of monetary policy (interest rates) (there is no need to issue it) It doesn’t fund a currency issuing governments ability to spend.
The unemployment rate is a political choice; Governments can always purchase idle labour. They issue the currency and;
A Job Guarantee is a replacement of the NAIRU framework
I have been called ‘simplistic and naive’ and accused of being ‘anti-tax’ because I stress the purpose of taxation (or bonds) are not a funding mechanism. Which I wrote about here and in various other places throughout this blog.
I have some people write to me now asking for further explanation and I can direct them to appropriate sources. The blog is not intended as an education resource but to document my own understandings of macroeconomics and the impacts how a flawed framework leaves us materially poorer as a society.
I recently attended a Northern Territory budget briefing with Treasury officials. I was disappointed to the whole approach that the government was taking to the budget. The reality is the NT Government is a currency user (the largest source of its revenue being the GST)
Though the framework it is taking to the budget process and the policies of wage freezes and cuts too spending will ensure the most vulnerable in our society suffer.
The spending measures taken in the budget are aimed at subsidising private investment (tourist vouchers, local jobs fund) and not at direct job creation. The public sector has a wages freeze and staffing caps.
The 2021‐22 Budget includes investment aimed at accelerating economic recovery through a $120 million expansion of the Local Jobs Fund and additional funding to support growth and development of new and existing industries recommended by the Territory Economic Reconstruction Commission.
When I pressed the treasury officials for more detail on that programs, they were described as measures that subsidised businesses to employ people. When I asked why there were no direct job creation programs the answer was because The Government doesn’t want to do that and that they were more interested in subsidising private investment.
I prodded with further questions on debt, the RBAs Quantitative Easing program (which means the states/territories owe dollars to the RBA) and the inadequacy of relying on a consumption tax to fund the majority of our public expenditure. Treasury agreed the GST was not fit for purpose though insisted the largest priority must be getting rid of public debt (according to treasury that means wage freezes, staffing caps and subsidies to private business)
The GST is a consumption tax (at a federal level) that then is hypothecated amongst the states/territories. It is a terrible way to determine funding to these jurisdictions who are required to have the revenues to deliver healthcare and educational systems because of the structure of how we are federated and the responsibilities within the constitution. States and Territories have the responsibility for those services while the federal government issues the currency.
By using a consumption tax to hypothecate the revenue allocated that is then used to deliver the above services is what requires the states/territories to issue bonds (and thus make interest payments)
If the non-government sector desires to save more and thus reduce consumption then the collection of GST falls (relative to GDP) and the states/territories have less to spend and either need to make up the shortfall by issuing bonds or raising taxes.
The states don’t have the power to impose income taxes and they’ve been reliant on increasing stamp duties and in some cases payroll taxes. (Two taxes that are not efficient and are not achieving much in terms of socioeconomic outcomes)
Discussion of government budgets has moved to needing to spend more but are still within a framework that Governments must tax, borrow or print in order to spend. At a federal level that is false. In terms of the states/territories we need to be questioning just how fit for purpose the funding mechanisms to deliver public services are.
While it is pleasing to see the public discourse move to discussing employment levels this is still operating under a NAIRU framework. A mythical number that is not known by anybody. This has been the definition used for full employment for the past 40 or so years and any progressive should reject it.
Full employment is 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)
Modern Monetary Theory (MMT) is an incredibly complex body of work that studies macroeconomics. At its most elemental level it says a currency is a social and legal construct. Currency issuers spend via an appropriation bill and are not financially constrained, though they are constrained by real resources. A monopolist of a currency can purchase whatever is for sale in the currency it issues, including idle labour. Thus unemployment is a political choice.
To understand that statement we need to make a distinction between monetary based and non-monetary based societies. The latter doesn’t have employment or unemployment. So what causes people to become unemployed?
It is the imposition of a tax liability that is the coercive mechanism that creates a desire to earn the governments unit of account. There is a paper Monopoly money: The State as a Price Setter that articulates a ‘tax-driven’ currency from when African nations were colonised. Prior to colonisation those communities consisted of subsistence production, internal trades and didn’t have a need to use a currency. Especially a European currency. It was the imposition of a hut tax in Malawi that forced communities to sell produce to the European colonisers or become labourers.
In the absence of having a good or service to sell that the currency issuer desires you need to sell your labour to earn the currency to pay the tax. So the imposition of the tax liability creates unemployment and spending (in the right area) creates employment.
Spending then gets more complicated and we make distinctions between different types of spending, however – the currency issuers spending is the currency users income. That is an accounting statement. If the government deficit over a given period is $X the non-government surplus has to equal $X. It is a question of whether the government has spent enough and directed the spending into the right areas as to whether we have full employment.
Within the body of work that is MMT it uses a Job Guarantee (JG) as a macroeconomic price anchor and stabiliser which I will explain below.
There have been claims that the Job Guarantee is workfare. It is not. It is a voluntary offer of a job to anyone, anywhere paid at a living wage with access to all the National Employment Standards just like every other worker.
The social policy setting of the JG is the policy manifestation of a technical concept to eliminate the tradeoff between unemployment and inflation. Current orthodox economists identify a link between rising employment and rising inflation and use unemployment to discipline the inflation rate.
That link is known as the Phillips Curve and rising employment is supposed to give rise to rising inflation. When the inflation rate rises above the central banks target range they raise the rate of monetary policy to slow aggregate demand (total spending in the economy) to ‘put the brakes’ on the rate of inflation (causing unemployment). There is a theoretical limit known as the natural accelerating inflation rate of unemployment (NAIRU) that theoretically if employment is to fall below inflation breaks out.
The trade-off clearly has not happened for quite some time. And it is questionable whether the NAIRU concept and natural rates of employment exist at all. We don’t very well go down to the river and stare at a school of fish and say ‘look at that pool of unemployed fish’ Employment is a social construct and it is hard to think we have run out of things for people to do.
Inflation is a continuous rise in the general price level. Which is different to a price rise. A price rise can lead to inflation if a conflict ensures and eventually you need a way to ameliorate the conflict.
Imagine all the workers on a small island. And they work producing widgets. At the end of the year you measure the widget output as X. The X is just the measure – whether it is one million or one billion doesn’t matter. The questions are; Is there enough widgets to satisfy everybody’s needs?Does everyone have access to all the widgets they need? How do we ensure equitable access to widgets?
The general price level itself is an abstract concept. There is a curiosity in saying that total output is X but the general price level compared to one year or ten years ago is higher or lower.
Imagine labour and capital fighting over those widgets. As one increases the price, the other seeks higher wages. Inflation gets more complex than that but the point is that labour or capital will end up with a higher share of GDP as a result of inflation.
It is a question as to whether total output is enough to satisfy our domestic needs, whether we are producing that output in an environmentally and socially sustainable way and whether we have equitable access to all the real resources we need. Are we as workers getting a fair share of our productive output?
I can appreciate there is a politically unacceptable level of inflation because people don’t like it. MMT economists say you can achieve a stable rate of inflation by using a ‘buffer stock of employed’ rather than a ‘buffer stock of unemployed’. This is what the Job Guarantee is.
The reason for the fixed wage in the JG is the anchor. It sets the general price level for an economy. We as a society set a floor for wages that says one hour of labour is equal to $X and guarantee it.
All prices within an economy are a function of government spending. The initial spend determines the price level.
The automatic spending triggered by those entering the JG mean the governments spending is directed when and where it is needed most – the unemployed. It allows for the governments fiscal position to float ensuring that we remain at the very least at ‘loose’ full employment and price stability.
The Government via its legislative powers has the ability to command real resources as well (such as what it did with private hospitals over the initial covid period and make childcare free) The latter took away a financial cost for households contributing to deflation.
The ABS writes;
The most significant price falls in the June quarter were child care (-95.0%), automotive fuel (-19.3%), preschool and primary education (-16.2%) and rents (-1.3%).
Free childcare, cheaper fuel, cheaper education, and falling rents are advantageous to the working class.
The JG chooses to use employment as the anchor for the general price level.If the rate of inflation is deemed politically unacceptable more workers would move into the JG pool. If the rate of inflation was lower than the politically acceptable rate of inflation there is scope to have the pool smaller.
In the event of accelerating inflation the cause of inflation can never be the wages of the JG workers because by definition they are purchased from the bottom and released from the pool when a better offer is made. It is only a small part of a broader full employment agenda.
Ideally you want the pool to be as small as possible. It is not there to replace existing skills based employment. It is there to sit alongside a national skills development framework to assist those that need it in finding future employment.
Similar to the wool price stabilisation scheme in Australia, The Australian Government guaranteed the purchase of excess wool and stored them in redbrick sheds to sell when the demand picked up again. The difference being is that people won’t work to produce excess labourers.
The JG ensures ’loose’ full employment as workers are drawn in and out of the JG pool rather than ending up unemployed. It can be thought of as a trasintionary arrangement for those that need it.
In a similar way to how the Commonwealth Employment Service worked, the unemployed person would have a case manager that held their CV and attempted to match that person to a job but rather than having that individual lay idle, they have the opportunity to maintain and enhance their skillset while seeking better employment working actively with their case manager to match them with an appropriate job.
A Job Guarantee is designed to create work to suit the individual. It is administered at the local level but funded by the federal government. The workers within this program are free to unionise and advocate whether something should be classed as a JG job. They are free to take part in determining what the living wage should be.
The work would be of public benefit and assist the JG worker in up skilling and finding work in the private or public sector. It is there to enhance the individual’s well-being and provide a public purpose. It is not used as a punitive system of punishment.
The types of work that can be done are limited only by our imaginations. We could pay musicians to give workshops on band dynamics, pay them to create and assist in the organisation of community festivals, we can have arts programs where artists can paint murals in public spaces and aid others in their own skill development. Surfers could be paid to pass on surf life safety skills and teach others how to identify and avoid rips. They could take part in sand dune rehabilitation. There is massive potential to enlist thousands of unemployed in ecological restoration and plant trees along with other flora to mitigate against climate change while they undergo study in a related area.
The advantage workers have, particularly those at the bottom who often hold little, if any bargaining power is that the JG sets the floor for wages. Private employers would be forced to compete with what we as a society determine to be the absolute minimum socially inclusive wage. It allows us to redefine our concepts of productive employment by including jobs that currently go unrecognised but provide value to our communities.
Most importantly the JG allows the most disadvantaged in our society an opportunity to engage in paid employment which would lead to recognition in the community, and vastly improved self perceptions and a more prosperous society.
This post follows on from the post ‘(Not) A Green New Deal being Proposed in Australia’. In that post I outlined the origins of the original New Deal, gave a brief overview of what the original New Deal was and followed on with a summary of what a Green New Deal is in the USA, it’s intellectual underpinnings and how that informs policy options.
I critiqued The Australian Greens proposals of their version of a GND (Which to date don’t seem to exist so I critiqued their policy page) and how their flawed macroeconomic understandings lead to flawed policy proposals. For example The Greens concept for support for coal workers isn’t specific, there is mention of a future work commission and looking into how technological change will impact jobs. Unlike the GND that outright says;
“Ensure a just transition for communities where the fossil fuel industry holds significant control over the labor market. This includes not only training and wage replacement programs for fossil fuel workers themselves, but also investment in the businesses and workers that previously served them.” [emphasis added]
Reading further about the GND, it draws parallels that the mobilisation required is on a similar scale to WWII.
“In fact, as the U.S. prepared to enter World War II, our economy lacked the capacity to build the ships, tanks, airplanes and other armaments and munitions that would be needed, or to produce needed inputs like steel, aluminum, rubber, concrete, and other essential materials in adequate quantities. Many were skeptical whether the country could “gear up” fast enough to avoid losing a war that it had neither sought nor prepared for.”
And very forthright answers the how will you pay for it question as follows;
“What a nation can do and can build is ultimately limited only by the size, skills, and creative energies of its population; the capacities of its companies, organizations and governments; and its available natural resources.”
There is nothing in the GND that links any of the expenditure required to taxation. Unlike most political parties that say “If everyone paid their fair share of tax, we’d all get a fair go at living a decent life.”
Modern Monetary Theory will tell you limits to spending at the Federal level, by the currency issuer, is constrained by available real resources (including labour) and ecological constraints. All Federal Government spending is new dollars and taxation removes spending power. It is not a proposal for unlimited spending.
Often when we think about ‘the economy’ we define it as an abstraction to our own reality. An entity that we need to serve in order to prosper. Terms like ‘cost’ are applied to public spending. When your mind is buttressed by the analogy ‘a currency issuing government is like a household’ – you think in terms of taxes needing to ‘pay for’ a particular public service.
I prefer to think about a cost in terms of the real resources required to implement a particular policy. The NBN is a good example. All manner of numbers where thrown around in order to justify a reason to roll out an inferior network, and the justification was the government would save dollars and needed make a commercial return.
The cost in rolling out a broadband network isn’t financial, it is the real resources. We need fibre, labour and IT infrastructure. The NBN isn’t a cost, it is a tremendous benefit. It provides employment in the construction phase and gives Australian households and industries huge opportunities.
The ridiculous notion that a government needs to make a commercial return is based on the notion that profit is a means to measure efficiency. The Federal Government is the only entity that never needs to be concerned with insolvency, savings is the act of forgoing current expenditure to spend at a later date. It applies to a user of a currency.
Last week I was listening to a lawyer speak at some training and he was speaking in relation to assisting people with disabilities and he said something along the lines of ‘it is the idea we give up something to help somebody else less fortunate’ the implication is he was referring to taxation. I thought to myself, ‘well we don’t have to give up anything’. Provided we have medical professionals, a system in place to help people, and the ability to build the equipment needed, everyone else doesn’t have to sacrifice anything. I haven’t lost anything as a result of the NDIS being in place. The issue becomes if we didn’t have sufficient physical resources (including labour) and then needed to make choices about who got assistance.
You can apply that thinking to our education system, the energy sector and our healthcare system. The issues facing private healthcare is a good example. It’s being billed as a ‘crisis’ by private insurers. In the story linked to we see a health insurance representative stating:
“Now, my idea is I should be able to opt out of Medicare, take the pressure off the public system and taxation as a funding mechanism and take care of my own lifetime healthcare costs.
I believe I should have that option and I think inevitably, that Medicare, as an insurance scheme, is retained for the vulnerable and those who would otherwise not be able to take out appropriate levels of cover.“
This is a strategy in place to drive more people into the for-profit healthcare industry as customers decline. The industry associates public spending as a cost. Any government committed to public healthcare, would look at the data of declining private health insurance, realise as citizens we’ve made a decision to be covered by a public healthcare system, and use this opportunity to employ the medical professionals made underemployed and unemployed in that sector and boost the resources in the public system.
Orthodox economics is full of language and metaphors that try to convince us that despite having sufficient real resources we can’t deploy them for a public purpose.
Ultimately we do have limited resources and need to make choices, For what purpose do we deploy our labour power, what is the most efficient way to use our real resources to provide the services our society desires? What do we leave for the public sector and what do we allow as an activity in the pursuit of profit? Limits to spending from any source, are inflationary which depends on the nations productive capacity.
The GND proposal for dealing with inflation is;
“Were inflation to return as a threat for the first time in half a century, furthermore, there are time-honored ways of preempting it. These include not only taxes and bond issuances, but also “macroprudential” limits on bank over-lending and financial market speculation.”
Macro-prudential rules are the rules that banks lend under. Like all western countries, Australia has a system that benefits the finance industry and has placed our households amongst the most indebted in the world.
A GND in regards to finance would mean understanding loans create deposits, giving private financial institutions the ability to create credit gives bank an incomparable power over the rest of the economy. Banks should be publicly owned an democratically controlled. The public banking sector should not replicate the profit seeking model of the private sector. The only functions a bank should perform is to facilitate payments and provide loans to credit worthy customers. A strong public banking sector needs to be instated that adheres to the below mentioned rules:
Financial Institutions should only be permitted to lend directly to borrowers. All loans would have to be shown and kept on their balance sheets. This would stop all third-party commission deals which might involve banks acting as “brokers” and on-selling loans or other financial assets for profit. They should not be permitted to speculate as counter-parties with other banks.
Banks should not be allowed to accept any financial asset as collateral to support loans. The collateral should be the estimated value of the income stream on the asset for which the loan is being advanced. This will force banks to appraise the credit risk more fully.
Banks should be prevented from having “off-balance sheet” assets, such as finance company arms which can evade regulation.
Banks should never be allowed to trade in credit default insurance. This is related to whom should price risk.
Banks should be restricted to the facilitation of loans and not engage in any other commercial activity.
Banks should not be allowed to contract in foreign interest rates nor issue foreign-currency denominated loans.There is no public sense achieved in allowing them to do this.
Social, labour and environmental criteria should be introduced to determine how the banking system allocates credit.
I would go further and advocate “All Australian deposits should be guaranteed and private banks should NEVER be bailed out through public expenditure but instead have assets taken over by the Federal Governmentand nationalised.”Credit issuance should be seen as a public good.
A Green New Deal in the USA also recognises;
Where the original New Deal kept people of color — particularly Black people — subordinated as a servant class vulnerable to economic exploitation and instability, the Green New Deal will bring the employment, business ownership, and wealth- generating opportunities that these communities need in order finally to have full and unfettered access to our economy and our political processes.
The civil rights movement in the USA fought for Guaranteed Jobs. Martin Luther King’s infamous ‘I have a dream speech’ was at “The March on Washington for Jobs and Freedom”
This article about Coretta Scott Kingoutlineswhy she fought for a system of guaranteed employment.
“Four days after her husband’s murder on April 4, 1968, Scott King returned to Memphis to support the city’s striking sanitation workers. She marched with an estimated 50,000 people before concluding at a rally at the Memphis city hall. Amidst drizzling rain, she reminded her audience of the terrain they had traversed and the journey ahead: “We moved through . . . the period of desegregating public accommodations and on through voting rights, so that we could have political power. And now we are at the point where we must have economic power.”
“In 1974 Scott King co-founded the National Committee for Full Employment/Full Employment Action Council (NCFE/FEAC) to fight for legislation that guaranteed jobs for all Americans. Guaranteed jobs for all who wanted them—regardless of race or gender—had long been a goal of Scott King’s and the black freedom movement.”
The GND looks at indigenous rights issues;
Where indigenous rights have been previously neglected or pushed aside, the Green New Deal will affirm treaty rights and respect the claims that Native Americans have to tribal lands as sovereign peoples.
This is an opportunity for an Australian framework to recognise the rights of its Indigenous peoples. Which not only includes recognition of their voices but active participation and an ability of self-determination.
“…we believe that Aboriginal people and Torres Straight Islanders will be able to refocus their energies on the everyday requirements for self determination. Importantly this will include participation in the labour market and, for many, forms of employment that occur on Country in ways that strengthen and add contemporary value to Indigenous forms of knowledge.”
Flea, J et al. The Uluru Statement: A First Nation’s perspective of the implications for social reconstructive race relations in Australia, International Journal of Critical Indigenous Studies, Vol 12. No. #1, 2019 https://ijcis.qut.edu.au/article/view/532/704
The GND in the USA also recognises;
Where the New Deal often excluded or underpaid women in ways that kept them financially dependent, the Green New Deal will expand economic security and opportunity for women, so that they have the means to support themselves and their families, even into retirement.
This within an Australian context requires to look at enhancing maternity leave provisions, include stay at home parenting with a paid salary, and reviewing our superannuation system. A system that has skewed wealth to a relative few, has not provided for many Australian retirees (We have the highest rates of pensioners living in poverty in the OECD) and set up under the non-sensical notion that a currency issuer needs to save when it can always spend.
It is why we should look at enhancing the aged pension and scrapping our system of superannuation.
“It fails to meet the standards of a retirement income system. It is costly and inefficient, unnecessary, and incredibly unfair. The age pension system is by far the most economically efficient retirement income system. Scrap superannuation. Expand the age pension. Boost the economy.“
The Green New Deal (or whatever else you choose to call it) is a mammoth undertaking that within the USA is not only about a transition to a zero emission renewable energy sector. It is about a redistributive agenda that brings power to the most marginalised within their society.
I’ll close with a quote from Noam Chomsky in the book Understanding Power.
“Look, part of the whole technique of disempowering people is to make sure that the real agents of change fall out of history, and are never recognized in the culture for what they are. So it’s necessary to distort history and make it look as if Great Men did everything – that’s part of how you teach people they can’t do anything, they’re helpless, they just have to wait for some Great Man to come along and do it for them.”
Any political and economic transformation is going to require a movement willing to take action to bring in that change. That means political demonstrations, strikes, being able to refute ‘junk economics’
I’ve finally finished the site design and colour scheme. It took me much longer than expected as it proved more difficult than expected. Alas, I have a final design. Today’s topic is a continuation from my post Full Employment Demise and is a history of ‘The Right to Work’
The right to work movement has its origins in the 14th century. Now a days, within a USA context, it is a term used for anti union laws under the guise of a right to not be a member of a union. They are laws designed to limit organising and collective power.
Work on a a lords land circa 14th century was usually for a subsistence living and the surplus value of your labour (literally your harvest) was the property of the lord. The peasants that occupied the land were not its owners. Agrarian property was controlled by a class of feudal lords. Their were limits on travel for working people, ‘Villeins regardant’ were usually granted plots of lands to farm for a subsistence and these plots along with those on them could be bought and sold. ‘Bordarri’ who were usually tradesmen/artisans were usually granted a cottage to live in exchange for their labour. Conditions of servitude were inherited and you were bound in perpetuity. Under capitalism the exchange value disguises the use value of your labour and the capturing of surplus value by the capitalist class is more opaque.
There was growing demand for wage labour (most likely because of the leaving of taxes demanded a necessity for the sovereigns currency) Waged-labour was more cost effective than feudalist servitude as it absolved the owners of needing to house and feed their workforce. There was less direct need for surveillance and motivation came from the workers needing to obtain income.
As waged-labour became more common there were a series of laws through Britain and the rest of Europe to preserve distress amongst the unemployed. The notion that it ‘built character’, ‘unemployment acted as a motivator and increased the productivity of the working class’, and it limited what the capitalist class saw as ‘excessive wages’ as workers competed for scarce work.
There were laws that under the guise of ‘providing for’ or to ‘assist’ the unemployed acted as a mechanism for forcing the unemployed to take any job at any condition. Elizabethan poor laws, such as the system of Speemhamsland, which was a sliding scale payment tied to the price of grain, designed to mitigate against rural poverty but ended up as a wage subsidy and resulted in increases in the price of grain, leaving the poor no better off.
There were also workhouses during the 19th and 20th century. The unemployed would be required to work in dangerous conditions, usually in a factory, for their below subsistence welfare payment. Conditions were often so pernicious, it resulted in death. It is similar to today’s modern day mutual obligation requirements under our welfare system. Welfare recipients are required to undergo Work for the Dole or Community Development Program (CDEP) for their below subsistence payment. It is mandatory and there have been cases of workers dying as a result of the conditions. The CDEP is often work for a private for profit corporation.
By 1848 during the Second Republic of France and the idea of a ‘right to work’ had gained traction having been popularised over the proceeding decade by Louis Blanc. The abolition of unemployment was a goal of the Parisian workers who had backed the Second Republic. ‘National Workshops’ were established where unemployed Parisian workers could show up and be paid. The scheme was contentious and had divided the cabinet, that resulted in a chaotic scheme. Many within cabinet wanted political reform not necessarily social reform such as the elimination of unemployment and wealth redistribution. The municipal engineers organising the work resented the use of unskilled labour. Often there was no planned work for the idle workers they would be paid one and a half francs a day to do nothing or two francs when work was given. The program started at approximately 14,000 workers and within half a year and expanded to 117,00 workers.
False promises were made to expand the program throughout The Republic however, the ‘right to work’ was withdrawn which led to what is known as ‘The June Day Uprisings’, warfare amongst the national guard and the workers which left thousands of protestors dead.
The ‘right to work’ movement reached the political discourse in Britain in 1889 and became a goal of the Independent Labour Party. Ken Hardie an ILP member in parliament breathed life into the unemployment debate. His maiden speech to parliament called for a policy on employing the unemployed.
“…we ought to have some permanent machinery to deal with the unemployed, the conditions of which should be twofold. In the first place it should be elastic. Labour should be organised in what he might call skeletal battalions, which might be filled in times of distress to their full strength, and which might go down again to skeletons when employment was plentiful. In the second place, the employment should be of a temporary character, and not such as to induce the recipients of it to remain in it in preference to seeking employment elsewhere”
The right to work and having the government act as an ‘employer of last resort’ gained traction across the political spectrum over this period. The choice for policy makers was, admit they had the capacity to employ the unemployed during downturns and they could set up works to to do or they could leave the unemployed to face destitution and misery, risk electoral defeat or a social revolution. The conservatives came with a counter offer found in the works of a conservative member of the House of Lords, William Beveridge in Unemployment: A Problem of Industry.
Beveridge argued in 1909 though unemployment was a result of the capitalist system it was only necessary to eliminate frictional unemployment and provide relief for the unemployed through unemployment insurance. The conservative alternative to Labour’s ‘Right to Work’ was a system of labour exchanges between the public and private sectors and and a contributory unemployment insurance scheme. By 1911, this was the system in place in Britain.
In 1919 E.G Theodore, Queensland Premier with the Australian Labour Party attempted to pass the Unemployed Workers Bill. The goal was to place the full resources of the State and Local Government in the hands of a council dedicated to the elimination of unemployment. The State Government would undertake major works to increase the number of jobs, there were powers that would order private employers that could assist to augment their projects, while local authorities would delay or expedite programs to deal with the seasonal variations in the number of jobs available. The councils role would be to undertake research and commission vocational training. Welfare payments were to be transitional while employment was being organised.
Naturally there were objections from the capitalist class towards this goal. Headlines described this system as a ‘loafers paradise’ by The Courier Mail
“The so-called “Unemployed Workers” Bill and its extraordinary provisions were widely discussed in the city yesterday. Needless to say, the measure was very strongly condemned as a premium upon idleness…”
Mainstream media warned of communist atrocities and the perils of socialism. The bill never passed but we saw a shift in the language used by opponents of full employment. Whereas in Hardie’s 1908 bill we saw opposition to full employment, laying open the capitalist class opposition to a system of full employment by 1919 arguments were around how methods of achieving full employment were flawed.
Much of the ‘economic’ theories being used (Quantity Theory of Money;late 19th early 20th century, Loanable funds theory;circa. 1930s) were funded by industrialist and used as justification on why full employment was ‘unachievable’.
Throughout history there have been different ‘monetary systems’ in place. Today we operate under a ‘fiat’ system. (Literally Latin for by decree). A fiat monetary system is one where a sovereign power issues its own currency and floats it on an exchange rate for trade.
The monetary system in use during post WWII was a gold standard. Governments would specify a particular amount of gold specie in return for the currency that they issue. Thus currency was limited by the supply of gold.
During war periods the gold standard was often suspended. This allowed a government to spend without concern toward the gold supply. During the Napoleonic wars Britain entered a period know as ‘The Restriction’ which suspended the gold standard and they invested in building their navy and colonising half the world. Similarly the gold standard was suspended over WWI and WWII.
During times of war, it is ‘normal’ to have all real resources, including labour in use. There is often a shortage of raw materials and labour power. Hitler used a fiat system to build Germany’s military. Japan avoided a Great Depression because the Japanese Prime Minister, Takahashi Korekiyo, took Japan off the Gold standard in 1931, and introduced a major fiscal stimulus with central bank credit. (Jargon for issuing money without issuing a bond)
The Great Depression was largely a result of insufficient spending, being tied to a gold standard and opposition to full employment by the capitalist class. Full employment policies have enormous political consequences as the threat of unemployment is taken away. It ensures workers have higher bargaining power, politically we have more power to ensure greater provisions of public service, which erodes capitals claims on national income.
The period of WWII in Australia saw full employment in Australia. As I mentioned in this post. Australia experienced a period of a full employment policy were unemployment seldom rose above two per cent. The work of J.M Keynes and his General Theory influenced most western policy towards achieving this goal. Full employment was defined as more jobs advertised than demanded (Beveridge curve) and Keynes ‘pump priming’ was used to ensure aggregate demand (total spending) was sufficient with this goal. Keynes very clearly articulated unemployment was a result of insufficient aggregate demand. (Spending in total)
Pump priming is a mechanism where you stimulate the economy enough to increase the marginal propensity to consume and the additional spending reaches enough to generate full employment.
The right to work was once a goal of workers movements in France, Britain with the Independent Labour Party, and an early goal of the Australian Labour Party. It sat alongside universal suffrage and the eight hour day.
Systems of unemployment insurance were compromises over policy goals of guaranteed employment. Today the workhouses of the 18th century are back in a modern form (WftD, CDEP), the pernicious nature of making unemployment so unattractive so the unemployed take any available job, no matter how atrocious the conditions.
Full employment policies were introduced post WWII though didn’t use a system of guaranteed jobs and provided unemployment insurance while workers waited for work to be created. However, there was a clearly defined goal of ensuring more jobs than work demanded. Today definitions of full employment are pathetically defined.
The next post will look at how a fiat currency can always be used to employ all available labour using a Job Guarantee as a buffer stock mechanism and changing the definition of productive work!
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 harder.
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.
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.