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

Union Advocates for Real Wages Cuts!

I’ve been enjoying a period of annual leave but today I got word the Queensland Teachers Union (QTU) was advocating for real wages cuts! (source)

Wage increases in Australia are determined by varying methods. Award wages determine the minimum wage and increases are made on an annual basis by the Fair Work Commission after considering the submissions by interested parties and making a decision based on the framework determined by the Fair Work Act. In practice it is a political process with an ideological bent in favouring capital but I’ll stop there because that is a deep deep rabbit hole we don’t need to go down.

The other method wages are set is via enterprise agreements. These are negotiated between employers and employees (usually represented by a trade union) and voted on by all staff. Though an employee can choose to represent themselves (non-sensical under a collective agreement) or employees can choose to appoint any other party. Often workers unions are sidelined from the process and sometimes not even informed negotiations have begun! The move from awards setting market conditions to enterprise bargaining where employees have to negotiate by employer rather than negotiate via profession was a move that helped break solidarity amongst the working classes and is far more resource intensive. Instead of say negotiating one agreement that covers a profession, trade unions need to negotiate agreements with each individual employer.

Although Australia has moved to a national legislative framework for wage determination. The States still have jurisdiction and a legislative framework with their state industrial bodies. These only apply to state or local government employees. So Queensland state teachers use a different (though similar) framework to Queensland Catholic school teachers.


Real vs Nominal

Compensating for increases in ‘cost of living’ can be complicated. Employees and employers negotiate nominal wages. Nominal are the numbers we see and use everyday.

Rises in the cost of living and productivity increases are an unknown variable – so employees and employers need to make assumptions about what these may be.

There is then a conflictual nature over who receives the increased productivity. Rises in the CPI can be attributed to the conflict between labour and capital as the groups seek to battle over the productivity increases.

To adjust for movements in price indexes (in this case CPI) economist choose a reference point and convert the dollars into that year. The purpose of tracking prices with this index is to try and account for whether our economy is increasing output. Is GDP rising because of price increases or is it rising because we are producing more? Adjusting figures from nominal to real allows us to answer that question.


The Queensland public sector is currently negotiating with its public sector employees. Public sector employees had a 2.5% pay increase on 1 July 2020, however had a pay freeze in 2021 (with the Queensland government citing covid as the reason) and the increases resumed at the beginning 2022 and a ‘catch-up’ payment in July 2022. You can see below the ‘catch-up’ payment in real terms failed to match 2019/20 rates.

The QTU memo to members states the offer as follows:

Increases to wages and existing allowances (normally adjusted in accordance with wage increases) as follows: 4% payable from 1 July 2022; 4% payable from 1 July 2023; and 3% payable from 1 July 2024.

A cost of living adjustment: (COLA)
In each year of the agreement, if annual inflation (at March Quarter, Brisbane Consumer Price Index (CPI)) exceeds the base wage increase, a one-off lump sum payment equal to the difference between the CPI increase and the base wage increase (up to 3 per cent) will be paid to all employees at the end of that year of the agreement.

In the first graph I adjusted teacher wages into 2019/20 dollars. To do this I hade to make some assumptions about future CPI increases. I assumed 5.1% for June quarter 2022 – 2025 (note: June quarter 2022 data isn’t released until later this month)

I gave the 2019/20 real figure a score of 100 and tracked the movement in wages. There are two aspects to wage increases one is the percentage increased negotiated for each year and the other is increases in an individuals step based on experience. This analysis tracks the percentage increases and doesn’t account for movement in steps.

In 2021 the Queensland government initiated their wages freeze, there was a nominal increase at the beginning of 2022 though it failed to maintain the real value of wages. The second increase or ‘catch-up’ payment was delivered on 1 July 2022 and the real value of wages rose though it failed to reach the level in 2019/20. From that point on the real value of the Queensland governments offer has wages falling.

The next graph accounts for the Cost of Living Allowance (COLA) payment. Because the COLA doesn’t add to wages you can see the COLA in real terms diminishes as real wages fall.

The QTU wrote to members advising them

Executive was clear that the offer is substantial and includes initiatives that respond to the Union’s priorities as determined by members. It therefore recommends acceptance of the offer to members.

A real wages cut doesn’t sound like a ‘substantial’ offer to me. This decision was made by the union executive who are

The Executive, which is the Union’s decision-making body between meetings of State Council, is made up of the six senior officers and 14 rank and file activists elected by Council, from across the state.

In my experience with union bodies the paid executive have little to no understanding of accounting for real wages and often accept government arguments of needing to reduce deficits! These lousy offers (and Queensland is a more ‘generous’ offer than other states) are driven by ideology of treasury departments that think real wages need cutting to keep inflation in check and reduce deficits. (Which I covered why they don’t in my last blogs)

Members should reject these lousy offers and push for representatives to put forward CPI increases as a minimum toward wage increases! If the paid executive disagree they should be replaced.

Unemployment is a Political Choice

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.

https://theconversation.com/how-we-invented-unemployment-and-why-were-outgrowing-it-183545

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.

http://www.billmitchell.org/White_Paper_1945/index.html

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.

https://www.abs.gov.au/articles/historical-charts-august-1966-may-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].

Tcherneva, P., Monopoly Money: The State as a Price Setter, Oeconomics Volume V, winter 2002

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

Conclusion

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.

Solving inequality requires getting macro right!

The ACTU last year in April released this report into inequality in Australia. It starts with the statement “Extreme inequality – which is what we are now experiencing in Australia – slows economic growth, creates social havoc and undermines faith in our political institutions.” Which I wholeheartedly agree with. In this post I aim to show why the report is flawed and how that can lead to flawed policy proposals.

The report in its summary recommends policy reform:

  1. Ensuring that real wages rise in line with national productivity improvements through the introduction of a new Living Wage, tackling insecure work, restoring penalty rates for 700,000 low paid workers, raising public sector wages and reform the collective bargaining system so it can deliver rising living standards;
  2. Making sure everyone pays their fair share of tax including corporations and the wealthiest members of our society. This includes reforms to capital gains, negative gearing and family trusts;
  3. Lifting the very poorest Australians out of dire poverty including through an increase in Newstart and an increase in the aged pension for those without adequate superannuation;
  4. Increased expenditure on health and education;
  5. A comprehensive Jobs Plan to reduce underemployment and unemployment; and,
  6. Measures to tackle excessive corporate power. The Banking Royal Commission has shown the extent of corporate excess and law breaking. Australia is also littered by firms with oligopoly power in certain sectors. Stronger competition policy is required to ensure people are not being ripped off by excessive prices.

Point 1 is what used to happen through institutionalised arrangements in Australia. I quoted in this post that the attack to decouple this arrangement began in the mid seventies were The Age newspaper quoted Friedman as saying .”….led the professor to opine that our long cherished arbitration system ‘seems to be highly unfortunate’ in the way it sets wages…”

Productivity is output level per hour worked. So for every hour, if you output $X, you need $X in wages in order to purchase that output. Real wages (wages adjusted for inflation) need to rise in line in productivity increases in order for the wages share of national income (GDP) to increase. Real wages can continue to grow below productivity but it means a growing share of the output we produce with our labour goes to profits. Arrangements that make bargaining difficult, make wage rises harder to negotiate and Government policy to cut spending and therefore public sector wages and employment (surplus) contribute to this.

http://bilbo.economicoutlook.net/blog/?p=2723.

The above graph is what has happened with the real wage and productivity levels since 1980 to 2009. There hasn’t been substantial change over the past decade to 2020 and share of wages is at historic lows.

http://bilbo.economicoutlook.net/blog/?p=43621

When wages fail to grow with rising productivity levels it means we need credit to purchase the output our labour produces and in Australia we have seen record levels of rising household debt. One of the highest in the OECD.

https://www.rba.gov.au/speeches/2019/sp-ag-2019-03-20.html

Pre 1980s capitals dilemma was how do you ensure workers can still purchase what they produce and suppress wages. Thus began a process of breaking institutionalised arrangements around wages growth with productivity, ending full employment policies and allowing a reserve army of labour, deregulating and privatising financial services (e.g the commonwealth and various state banks), and what I think is the key contributing factor, leaving fiscal policy out as a tool and using the analogy that a government is like a household and a surplus obsession and fear mongering around debt and deficit.


One of the analogies used to ensure public spending remains low is the household metaphor, which assumes the currency issuing Governments face the same constraints as a household and a ‘surplus’ is desirable.

Under a fiat currency, that is clearly non-sensical. A currency issuing government promises nothing in return for the currency it issues (not in gold or a foreign currency) and it can spend regardless of past deficits or surpluses. As a monopolist over the currency it can always purchase whatever is for sale in the currency it issues.

When we look at sector balances, assessing the macroeconomy as a relationship between three sectors (Government, private domestic and Foreign sector), accounting wise the total sum has to add to zero. For example if the government spends 100 and taxes 30 we record that as a deficit of -70 though that +70 has to sit somewhere. All deficits go somewhere but the question that should be asked is where and for whom?

Looking at the data for sectoral balances in Australia we get the below picture.

Image from this lecture:

The period of government surpluses in Australia was a result of private sector deficits. The hallmark of ‘good’ fiscal policy isn’t whether a particular fiscal outcome is reached. It is a meaningless irrelevant statistical artefact. It is whether we have our resources, including labour all in use, whether we a meeting our objectives in terms of ecological limits, and we should judge fiscal policy based on how well the bottom of the income spectrum are doing.


Point 3 relates to increasing Newstart and the aged pension for those without adequate superannuation.

Increases to the unemployment benefit need us to assess why unemployment exists in the first place.

Unemployment is a systemic issue that can ALWAYS be resolved by the government of the day. Involuntary unemployment is not an issue that is beyond us to solve. The Government of the day chooses the level of unemployment because it can always purchase whatever is for sale in the currency it issues. We can still have generous unemployment benefits, a welfare system that ensures for those unable to work are provided with living wages, guaranteed housing, and other public provisioning.

Keynes noted in his General Theory of Money, Employment and Interest, that it was aggregate spending levels that determined economic activity, and that inadequate spending levels could lead to high periods of unemployment. 

From a national accounting perspective at the macro level the sources of income are Government Spending (G), Investment (I), Consumption (C) and Exports (X). Are all these sources of expenditure sufficient to full employment?

Modern Monetary Theory will note that as a monopolist of the currency, the federal government can always purchase whatever is for sale in the currency it issues and thus can always employ any idle labour. It is a political choice. The Government of the day chooses the unemployment rate.

Unless we ensure more job vacancies advertised than demanded, we will not have enough work for all those that desire to work. As a society we can not achieve equality, fairness and a public purpose unless that is what we set out to do.

Precarious work conditions exist because we have laws in place that allow such conditions to exist. People don’t have enough to retire on because we have a system that places retirement on the onus of the individual and leave retirement up to the speculations and abstractions of ‘the market’.

It is often overlooked that a Governments spending is representative of a socio-economic agenda. For as long as a society has the real resources to implement its desired policy objectives, these objectives are achievable.

Rather than ‘force’ people to save for retirement, we need to acknowledge the superannuation was set up under the false premise that currency issuing governments need to save. Saving is the act of forgoing current expenditure to spend at a later date. It applies to a user of a currency. A public pension doesn’t have to be a minimal subsistence living. The impacts of the spending whether from a public pension or a private super account are exactly the same. It is a question of whether we have the available real resources to purchase when that spending occurs.

The challenge with providing for an ageing population is not financial, it is rising dependency ratios as a larger percentage of the population exits the workforce and we need to ensure our productivity levels increase to maintain our same standard of material well-being. Current policy that seeks to cut government spending (surplus) and leave youth underemployed or unemployed jeopardises increases in future productivity. That is lost skills, trades and professions we have by leaving youth idle. These will be people we need to provide for elder Australians as they age; In terms of the services they will need to ensure they are cared for in their homes, in terms of services they will need to feel included within the communities they live, the services they will need to maintain their residences, the services they will need in terms of their health, services they will need in the event they are no longer able to stay at home and need greater care. These are the challenges we face with an ageing population not some non-issue finding the ‘money’ nonsense. Obsessions with fiscal balances undermine the very issue we are supposed to be solving. And we are the poorer for it. (In terms of real resources)

A system of subsistence public pensions leaves those that have been out of the workforce at a disadvantage, particularly women, those on low incomes usually in precarious work, and those vested in the system to speculations and the expectations of unearned income.

The early classical economists distinguished between the use of earned and unearned income. From Michael Hudson’s Killing the Host

The guiding principle was that everyone deserves to receive the fruits of their own labor, but not that of others. Classical value and price theory provided the analytic tool to define and measure unearned income as overhead classical economics. It aimed to distinguish the necessary costs of production – value – from the unnecessary (and hence, parasitic) excess of price over and above these costs. This monopoly rent, along with land rent or credit over intrinsic worth came to be called economic rent, the source of rentier income. An efficient economy should minimize economic rent in order to prevent dissipation and exploitation by the rentier classes. For the past eight centuries the political aim of value theory has been to liberate nations from the three legacies of feudal Europe’s military and financial conquests: land rent, monopoly pricing and interest.



Distinguishing the return to labor from that to special privilege (headed by monopolies) became part of the Enlightenment’s reform program to make economies more fair, and also lower-cost and more industrially competitive. But the rent-receiving classes – rentiers – argue that their charges do not add to the cost of living and doing business. Claiming that their gains are invested productively (not to acquire more assets or luxuries or extend more loans), their supporters seek to distract attention from how excessive charges polarize and impoverish economies.

Australia’s superannuation plays into the concept of deriving rentier income, a concept that was thought as immoral and landed power in the hands of a ruling feudalist class during the enlightenment era. A system that was discussed in Moral Philosophy classes during the 19th century. (Moral Philosophy is what encompassed economics).

Today in economics courses concepts of rentier income and earned and unearned income are not discussed or their use in amassing political power for a financial services sector and the bankers and CEOs of major corporations. Why should we be ‘forced’ to guarantee an unending flow of dollars to a sector that is immoral, bloated and seeks to extract the value of our labour in order to engage in speculative activity on share markets, currency exchanges, housing and anything else our society financialises.

This brings me to another criticism within the ACTU report;

The ACTU also supports the right of all Australians to derive income from investments and accumulate wealth. These are fundamental and desirable attributes of a market based economy.”

This fails to define a difference between types of income. Earned and unearned income. You should not, in any moral society, be able to derive an income and amass wealth because of monopoly rents.

Joesph Stiglitz describes economic rents as;

The term ‘rent’ was originally used to describe the returns to land, since the owner of the land receives these payments by virtue of his or his ownership and not because of anything he or she does. The term was then extended to include monopoly profits (or monopoly rents)— the income that one receives simply from control of a monopoly— and in general returns due to similar ownership claims. Thus, rent-seeking means getting an income not as a reward for creating wealth but by grabbing a larger share of the wealth that would have been produced anyway. Indeed, rent-seekers typically destroy wealth, as a by-product of their taking away from others. A monopolist who overcharges for her or his product takes money from those whom she or he is overcharging and at the same time destroys value. To get her or his monopoly price, she or he has to restrict production.

https://evonomics.com/joseph-stiglitz-inequality-unearned-income/

It is obscene that a ACTU report into worker inequality would not make a distinction between these two types of income and outright say we need to tax; rents, capital gains, share dividends at a higher rate than that of wages if we are serious about delivering wealth to the labouring class and reducing our levels of inequality.


The report states other incorrect information such as;

“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

How can a stimulus measure exacerbate debt levels? The Chinese Government issues its own currency. A simple understanding of double entry book keeping will show dollar for dollar the Chinese government deficit is equal to the non-government sector surplus which would reduce private sector debt levels, all other things equal.

The idea that somehow the Chinese Government ‘borrows’ its own currency is nonsensical. It offers investors a bond and moves money from a reserve account at the central bank to a securities account at the central bank. The latter pays interest. It is an entirely voluntary choice.  Where do financial institutes obtain Chinese yuan from to buy government debt? 

Any government that issues its own currency can always deal with any financial crisis no matter what the size.

The below statement is in relation to Australia.

“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.”

The statement above discusses monetary policy (interest rates) The evidence is clear. Monetary policy is an ineffective way to stimulate aggregate demand. It is blunt, you can’t control where the spending goes and you are relying on already indebted households to go further into debt to spend.  

The report ignores fiscal policy (spending and taxation decisions) For a currency issuing government it is a tool that is unlimited. It is constrained by what is available for sale. What limited tools is the report referring to? Monetary policy has a limit, which is zero. Then it is a useless way to try and direct spending where you need it to go.

Conclusion

I’ve run out of time to discuss all the points above but I’ve given an overview of why I think the report is flawed.

An incorrect understanding of macro leads to incorrect policy prescriptions and the non-sensical idea that somehow a currency issuing government is constrained by revenue. It is never nor can it ever be short of the currency it issues. We have a series of analogies and metaphors in place that are there to ensure, despite the real resources exisiting we can’t deploy them for a public purpose.  This includes the government is like a household, mortgaging our future and leaving our children in debt, budget black holes that need to be filled, deficit spending / government spending is inflationary, pulling out a credit card from the bank of China etc…I hope to write a post on each of these analogies and state why they are wrong.