Everything You Believe About #?@$ Is Wrong
Saturday 1 August 2020, 3pm - 5pm
Venue: Cafe Brunelli, 187 Rundle St · Adelaide
Secret Confession: Lot's of people have dreams about jumping out upper floor windows to see if they can fly, you know, like Superman. Ordinary folk haven't noticed, but for quite a few years, governments in a handful of big money countries like USA, China and Japan have been flying like Superman. Now Australia too. In fact, post corona virus, most world governments are trying this magic. It's about belief. You have to keep believing you can stay in the air, not plunge 20 stories to your death... What am I talking about? If I didn't put #?@$ in the topic, instead of "economy" or "money" or "debt" you would have stopped reading. So here's the secret: like a cult where leaders say (even believe) one thing but do another, money-wise our countries are presented to do one thing with your money, but actually do something quite the opposite. Does it matter? Yeah, your cooperation is needed, or you will be suckered. .... This meetup is based on maybe the longest article ABC news has ever printed: Gareth Hutchens (17 July 2020) "Modern Monetary Theory: How MMT is challenging the economic establishment" @ https://www.abc.net.au/news/2020-07-17/what-is-modern-monetary-theory/12455806 . You are intelligent enough to get it - Please, please read the article before you come.
About Focus Questions: a) Please read them before you come to the meetup. Think about them so you have more than "instant opinions" to offer. b) Feel free to add more focus questions. c) THE FOCUS QUESTIONS ARE JUST A MENU TO CHOOSE FROM. From this menu we can discuss whatever seems interesting. d) Focus questions are not intended to push one viewpoint! You can adopt any position you wish. We actually like friendly disagreement - it can lead to deeper understanding
1. If a government spends more than it earns, what are the consequences? For about a generation, mainstream economics (neoLiberalism) has followed the dictum that a government can only spend what it has earned, mostly through taxation. This is "the household debt" model which you hear in public statements. In fact many governments spend far more than they earn, partly by printing money. The corona virus emergency has made debt driven government mainstream.
2. U.S. debt will never be repaid in a 'household debt' sense. It is too large. The same is true for Japan. China's largest banks (really arms of the government) have been technically bankrupt for decades. These debts are disastrous in conventional economic thinking, yet they have been created (hypocritically) largely by very conservative governments. Are they really bad? Or are we thinking about government debt in the wrong way ?
3. What are the upsides and downsides of thinking about full employment as a human right? Most modern economies have been run on the (neoLiberal) principle that an unemployment rate of about 5% is not only unavoidable, but is desirable. Unspoken rationale: without that risk of unemployment, lazy bastards won't get off their bums. Public presentation: demonize the unemployed as lazy bums. China aims for (but doesn't achieve) full employment to protect the legitimacy of the CCP. Belarus actually fines people for being unemployed (calls them parasites). Modern Monetary Theory (MMT) says that the aim of full employment should be the key driver of government policy.
4. What sort of system could provide a minimum guarantee of a job of some kind for everyone without discounting better jobs, and without demotivating people and creating worthless pretend-jobs? [This is a serious challenge. Can we innovate our culture to overcome the handicap?]. The Universal Basic Income Movement says that every citizen should receive a basic survival income, no questions asked. This, it is said, would put a floor under the economy and keep the money going around, while minimizing bureaucracy. MMT disagrees with UBI. MMT says that the self-worth deriving from labour is the most basic human right. Also, if everyone has a job, there will be a floor under the economy and money will keep going around.
5. What criteria should be used to distribute government money? Strangely, there is never a shortage of money for armaments (Australia has just committed $270 billion to this) . However, there is always a shortage of money for human services (and witness the Robo-debt Scandal) . Supporters MMT — who are growing in number — say many of the world's problems today (extreme wealth inequality, poorly funded public hospitals and schools, chronic underemployment, stagnant wages) are a consequence of misunderstanding government financing.
6. How much money is it legitimate for governments to create 'out of thin air'? In 1972 America went off the gold standard which guaranteed currency with stored gold. America now has a fiat currency, like Australia and Japan and China. These governments just print money (e.g. "quantitative easing", a.k.a. "helicopter money") and they have printed trillions of dollars, while pretending to the unwashed public that they have not.
7. Is traditional economics dead? What can replace it? The covid-19 virus crisis has forced governments around the world to publicly throw the economics rule books out the window. To give people money which will keep business functioning and jobs alive, governments have just printed and distributed free money. The euphemism is that they have 'borrowed it' from themselves. In fact, they have been practicing MMT, while pretending that it is only an emergency measure. Why can't they keep practicing MMT?
8. How can we manage the 'moral hazards' of unlimited fiscal (government) money? A sovereign government (unlike a company or individual) can create money without restriction (fiat currency) so long as people continue to believe that the money has value. Governments (e.g. the United States, the old USSR) have used this freedom to buy every more armaments, but not to provide social services. They have managed this, basically by lying about the nature of money. What mechanisms could hold governments to a monetary moral compass?
Extra Reading, Comments and Links
Wikipedia (2020) "Australian Government Debt" @ https://en.wikipedia.org/wiki/Australian_government_debt
Gareth Hutchens (17 July 2020) "Modern Monetary Theory: How MMT is challenging the economic establishment" @ https://www.abc.net.au/news/2020-07-17/what-is-modern-monetary-theory/12455806
Peter Hartcher (19 July 2020) "Hey, Josh Frydenberg, this is the season for fiscal rejoicing". Brisbane Times @ https://www.brisbanetimes.com.au/politics/federal/hey-josh-frydenberg-this-is-the-season-for-fiscal-rejoicing-20200717-p55d5f.html [Quote: "... Until a vaccine is found, or the virus exhausts itself and disappears from the earth, national income will be much reduced. The federal government will need to borrow more and spend more to prevent relapse. And generate some sort of confidence. But can Australia afford it? Australia has been able easily to afford its emergency spending so far. And here's the key point – it can afford to do much more. Compare Australia's situation. After looking at all countries, the International Monetary Fund in April issued its forecasts for government debt levels for next year. Don't be baffled by dollar figures. The best measure to look at is net debt, not in dollars but as a proportion of a nation's total economy. On this measure, US net debt will be 107 per cent of GDP, Japan's 165 per cent, Italy's 138, France's 107, Britain's 86, and Germany's 47, according to the IMF. And Australia's is forecast to be 40 per cent. Practically identical to Canada's 40.1 per cent."]
Tom - I read the questions...I like it so much that I will read the longest article.... even though I cannot attend on the day. cheers.
Thor May (2014) "What will be the dominant ideologies of the 21st Century? The Passionate Skeptic website @ http://thormay.net/unwiseideas/unwisendx.html [Quote: "Ideologies are going to be with us forever. The question is how seriously the herd takes them, and who become the high priests for interpreting them to the unwashed masses. The 20th Century gave us some pretty horrible examples of ideologies used as vehicles for mass extinction while claiming to be vehicles for mass progress. There is no particular reason to expect that the 21st Century will be more enlightened in this regard amongst those people who always form the bulk of ideological foot soldiers. It is true that there are more formally educated people on the planet than ever before, and more available tools for critical thinking, especially in the online world. Yet it is also true that the tools for mass mobilization are more powerful than they have ever been, while their control passes with increasing rapidity to compromised governments, corporations and secretive elites. This secrecy makes a considered response to genuine threats especially difficult."]
Thor May (2017) "Some failures and disincentives in a welfare system: the Australian case". Academia.edu @ https://www.academia.edu/31553099/Some_failures_and_disincentives_in_a
_welfare_system_the_Australian_case [ Thor, comment: I prepared this as a submission to the Senate of the Australian Parliament for the inquiry on the “Design, scope, cost-benefit analysis, contracts awarded and implementation associated with the Better Management of the Social Welfare System initiative” in 2017. Many of the issues I address in this paper are central to the arguments in our meetup topic. Since the Senate enquiry I have seen no hint that the social welfare system has become better designed or better managed. Quite the contrary. The political and administrative will is not there, nor the competence]
ian beutler - you are on a dead cert winner with this topic, Thor. You just can't go wrong with the ultimate in evil that is money-worship... and you with secret "Labor-sympathies"...?
=> Thor May - Ian, I am interested in what works. I don't wear wings, left or right.
=> ian beutler - i know, i k ow, dear THor. ws just having a stir... but you ARE CERTAINLY a Worker... of the noblest kind.. i dont mind saying i've learned to detest those socalled "builders"... & "developers" ... not to mention "workers" in general ...
Ben Piven (17 July 2020) "Universal Basic Income: Is recession pushing the US towards permanent cash payments? - As Congress prepares to debate the next economic stimulus package, UBI pilot projects are underway." Al Jazeera @ https://www.aljazeera.com/ajimpact/ubi-recession-pushing-permanent-cash-payments-200716202949256.html
Joseph Zeballos-Roig (April 7, 2020) "Spain is moving to permanently establish universal basic income in the wake of the coronavirus pandemic". Business Insider @ https://www.businessinsider.com.au/spain-universal-basic-income-coronavirus-yang-ubi-permanent-first-europe-2020-4?r=US&IR=T
Thor May (2016) "A Universal Basic Income $400 per week indexed to the CPI". Academia.edu @ https://www.academia.edu/25127267/A_Universal_Basic_Income_400_per_week
Thor May (2014) "The Problem of Work and the Rise of the Precariat" The Passionate Skeptic website @ http://thormay.net/unwiseideas/WorkProblem.htm [Quote: "Work, as a life experience, has evolved greatly over historical time. For most ordinary people, their job is not something that they enjoy much. However, without formal work many lose focus, may become dependent on welfare, and certainly become socially stigmatized. It seems that increasing numbers of people will never be able to have secure employment. They have joined a new social class now called the precariat. What are the consequences of that? How have we reached this point? What is a practical, long term solution to “the problem of work” for ordinary people?"]
Thor May (2014) "What will be the dominant ideologies of the 21st Century?" Passionate Skeptic website @ http://thormay.net/unwiseideas/Ideology21stCentury2.htm [Quote: "The 20 th Century revolved politically around competing interpretations of Capitalism, Communism, Socialism and Fascism. These are all ways to organize the lives of people on a large scale. Are real alternatives or new interpretations likely to emerge in the challenging years ahead? What might they look like?"]
Ross Gittins (April 8 2017) "Australia has $1 trillion foreign debt. Should we be worried? - Our foreign debt will grow and it already exceeds $1 trillion deficit. But that's not necessarily bad, says Ross Gittins." Brisbane Times @ http://www.brisbanetimes.com.au/business/the-economy/australias-1-trillion-foreign-debt-level-should-worry-us-all-20170407-gvfsqq.html
Alan Kohler (20 July 2020) "In 2020, a return to Keynes and a Cold War". The Australian @ https://www.theaustralian.com.au/business/economics/in-2020-a-return-to-keynes-and-a-cold-war/news-story/80fafb7e50a8c79055d03265b01558ae [Quote: "As 2020 drags on, and so does the coronavirus, it’s becoming clearer that this will be a watershed year for the world in a few big ways. [There are events] that will make us forever to refer to “Before 2020” and “After 2020” are first, a revolution in the role of government, and specifically how spending and deficits are funded and thought about, and second, the western world’s relationship with China. This is now the second time in not much more than a decade that governments have had to rescue the private sector, but while in the GFC it was from a sickness within capitalism itself, this time it’s from an external pathogen. After the GFC, policy was still focused on balancing budgets and repaying government debts through fiscal austerity that was either disastrously implemented (Europe) or just talked about (Australia), but that can’t happen this time. The sums are simply too large and any return to surplus budgets too far off to be credible or worth promising. Instead we are seeing the ideas of Modern Monetary Theory (MMT) begin to filter into the mainstream, and while the notion that deficits and government debt don’t matter are being furiously resisted by traditional economists and conservative politicians, variations of what might be called MMT-lite are already happening.] [Thor, comment: This argument is extraordinary to see in the conservative News Ltd press]
[Quote 2: "Since 2009, global central bank assets have increased from $US5 trillion to $US25 trillion through the creation of money to buy (mainly) government bonds. The Bank of England agreed in April to a big increase in the UK government’s overdraft, in effect directly monetising government spending. In Australia the Reserve Bank has been engaging in yield curve control, which involves buying government bonds to cap long-term interest rates. As time goes on, and 2020 turns into 2021, the long-held idea that governments are like households and businesses that have to repay their debts, or even that government deficits must be financed by debt at all, will increasingly be exposed as a mistake. [Thor, comment: What nobody is game to say yet is that these economic practices (and much else) are indistinguishable from what happens in "communist" China. Ideologies are just marketing tools for retail politics]
=> Bryn Williams - I've never ever been able to get my head around any concept of 'economics'. I've heard it said if you put 8 economists in a room and ask for an explanation you will get at least 12 answers. The entire issue with 'money' etc is it is notional, the value is what you determine it to be and when you move away from an agreed standard even more so. The whole notion of quantative easing baffles me. If I can't pay my bills can I go and photocopy some $50 notes and say now I'm better off?? So clearly there has to be a link in terms of what I have to offer relative to what I owe, isn't this our GDP relativity. Then I become confused how something like Google which has relatively small physical assets can be assessed as worth billions yet if a viable and improved competitor arises could become worthless overnight. I'm guessing one of the problems is at an individual level we know at some point we will be called to ' account'. If we knew our demises in advance maybe we could organise our finances to just make it through without leaving massive debts in our estates ( actually maybe that is the trick). However for a government at the worst you simply go out of power leaving a trail of disaster for the next incumbents to pick up. Oh now I get it!!
=> Thor May - Bryn, I see that your confusion and distaste is widely shared since nobody seems to want to come to this meetup. I have found the same in the past with economics topics. It's a shame because the general public, quite a few mentally pre-programmed 'experts', and countless politicians are similarly handicapped. In short, few people are prepared to think from first principles (not only in economics). To start with the simplest part, your comment about the 'value' of companies like Google. The value of anything is what people are prepared to pay for it. What people are paying for with Google etc is reputation and hope, not the traditional investment metric of price/earnings ratio (p/e) which is linked to real world production. That is why the stock market now has little to do with the 'real economy' where you earn your salary. And yes, that Google-type value can disappear in a puff of smoke. Beware. When journalists and politicians puff up their chests and talk about 'the economy' remember to ask 'which eonomy?". 'Quantitative easing' is a two-hand card trick which weaponizes the same psychology (and arrogance) as D. Trump when he said he could shoot someone on 5th Avenue, New York, and never be arrested. QE to remain credible depends upon the mental distance between you and a Reserve Bank, Central Monetary Authority, Federal Reserve etc (choose your country). If someone told you that you could have as much money as you liked forever, you would become prolifigate, pay any amount for anything, and inflation would go through the roof. However, if the government prints an extra bunch of money, and gives it to some banks (free at the moment) to hand out pretending to be virtuous, then you, John Citizen, and the lady who owns your favourite coffee shop, remain frugal because you don't understand that the government is printing free money. Money goes around, and if it doesn't circulate at excessive speed (or wind up in an offshore tax haven) then everyone feels better off. We use a fiat currency, which is all aboout faith. The QE game is actually a form of Modern Monetary Theory in action and has been going on for over a decade. MMT economists are saying, 'for god's sake, governments are already doing this. Let's cut the moralizing bullshit about "deficits" and actually create enough money to get the best outcomes. Sovereign nations only have "deficits" internally if they want them. They are a mental construct. (Trading with other countries is a different game)".
=> ian beutler - Bryn, I suspect when an economist talks about "quantitative easing" he reminds himself of being in the loo for a number two & freeing up some shit for general circulation..
Stephen Long (21 July 2020) "As Australia's 'fiscal cliff' becomes a 'fiscal slope', talk of a 'snap back' has all but disappeared". ABC News @ https://www.abc.net.au/news/world/
Farhad Manjoo, New York Times (July 23, 2020) "The US is broke and broken - spending may be the only way to fix it" Brisbane Times @ https://www.brisbanetimes.com.au/business/the-economy/the-us-is-broke-and-broken-spending-may-be-the-only-way-to-fix-it-20200723-p55ell.html [ Quote: "I read two hot new books about macroeconomics [on my vacation]. The first book was "The Price of Peace," Zachary Carter's incisive biography of the British economist John Maynard Keynes, which illustrates the awesome power of economic theory to alter the fates of nations and the lives of millions of people. The second was the "The Deficit Myth," in which the economist Stephanie Kelton convincingly overturns the conventional wisdom that federal budget deficits are somehow bad for the nation. Kelton is one of the leading proponents of Modern Monetary Theory, or MMT. The theory argues that because the government is in charge of its own currency, it cannot "run out" of money the way a household or a business can, and it therefore does not need to raise taxes to fund government spending.
This doesn't mean that the government's resources are infinite, just that deficits are not a true limit on what's possible. Instead of being constrained by deficits, Kelton and other MMT-ers argue, policymakers should care about "real" measures of economic activity: unemployment and inflation. Whatever the deficit, if unemployment is rife, it's an indication that aggregate demand is low; to boost demand, the government can freely spend, spend, spend — and should stop spending only when there is a danger that it will lead to a rise in prices — that is, inflation."
Peter Martin (22 July 2020) "Should the Australian government keep running up debt to get out of this crisis? Economists say yes - Overwhelmingly, leading economists say ongoing fiscal support should be provided to boost demand." The Guardian @ https://www.theguardian.com/commentisfree/2020/jul/22/should-the-australian-government-keep-running-up-debt-to-get-out-of-this-crisis-economists-say-yes
=> Bryn Williams - Certainly a proposition which seems to gathering wide spread support in many countries. I heard a commentator yesterday pointing out Aus is considered such a good credit risk that even if it chose to 'borrow' funds it could get virtually unlimited amounts at 1% interest on 10 year terms.
=> Thor May - Goood credit is one of the perks of shipping all those minerals out to East Asia, even if we are not actually receiving anything like their actual value into the treasury. It's also why the A$ is pretty bullet proof. However, the comprador capitalists who run this place are content with small rents and personal favours from multinationals. "Entrepreneur" and Original
Rachel Pupazzoni (23 July 2020) "Australian manufacturing has been in terminal decline but coronavirus might revive it". ABC News @ https://www.abc.net.au/news/2020-07-23/coronavirus-pandemic-leads-to-australian-manufacturing-revival/12481568
Sonali Basak (July 24, 2020) "'Elephant in the room': Wall Street begs Washington to spend, despite fears of aftershocks". Bribane Times for Bloomberg @ https://www.brisbanetimes.com.au/business/the-economy/elephant-in-the-room-wall-street-begs-washington-to-spend-despite-fears-of-aftershocks-20200724-p55f00.html
Ian Verrender (23 July 2020) "Debt and deficit go out the window as the reality of the coronavirus crisis hits home". ABC News analysis @ https://www.abc.net.au/news/2020-07-23/frydenberg-budget-update-record-debt-and-deficit/12484184
David Crowe (July 23, 2020) "No government has been mugged by reality quite like this". Brisbane Times @ https://www.brisbanetimes.com.au/national/no-government-has-been-mugged-by-reality-quite-like-this-20200723-p55euj.html
Katharine Murphy (25 July 2020) "Can we now have a less brain-dead conversation about debt and deficit? The Guardian @ https://www.theguardian.com/australia-news/2020/jul/25/can-we-now-have-a-less-brain-dead-conversation-about-debt-and-deficit
Greg Jericho (26 July 2020) "The Morrison government's hypocrisy on debt and deficit is galling - During the global financial crisis, Mathias Cormann said Labor’s budget debt was ‘panic stuff’". The Guardian @ https://www.theguardian.com/business/commentisfree/2020/jul/26/the-morrison-governments-hypocrisy-on-debt-and-deficit-is-galling
=> Bryn Williams - Thor as no takers on the economy per se I was thinking about the lack of understanding of company tax, royalties etc etc if you are depending on a government income from these sources. I bet very few have ever looked at the budget papers , I must be a total nerd because I download the whole file, But just a couple of comparisons. The dates are a little askew but I'd imagine still very relevant. https://minerals.org.au/news/australian-mining-delivers-record-tax-and-royalty-payments-benefit-communities-and-families#:~:text=In%202017%2D18%20Australian%20mining,decade%20ago%20in%202007%2D08 . &
=> Bryn Williams - Maybe a broken link in second reference so here's hoping this will work. https://www.minister.industry.gov.au/ministers/canavan/media-releases/mining-industry-earn-australia-record-quarter-trillion-dollars#:~:text=Mining%20industry%20to%20earn%20Australia%20a%20record%20quarter%2Dtrillion%20dollars%20in%20exports,-2%20October%202018&text=Australia%27s%20mining%20industry%20is%20set,the%20Australian%20economy%20this%20year .
=> Thor May => Thanks for the links Bryn. From these documents ... of course, what Canavan calls 'The Australian economy' is a mythical statistical beast. $250 billion did NOT coming into the Australian treasury from minerals exports in 2018. Overwhelmingly it went to mining companies (and much of it likely to tax havens). The Minerals Council of Australia is also a pig wearing lipstick of course. Their figures need careful forensic analysis, but their quoted $18.6 billion in company tax + $12 billion in royalties to state governments is edging closer to the truth. If Canavan was confusing the quoted MCA figure of $224.8 billion over 11 years with this year's industry value, he shouldn't be in the job. As it happens, none of this matters. Overwhelmingly the Australian public does not understand or want to understand arithmetic (ditto for the current PM and Treasurer who are visibly out of their depth, as well as, I suspect, the Leader of the Opposition). One local consequence, as you noted, is the zero participation in this week's DX4 meetup on macro-economics. Hmm, look up Parkinson's Law of Triviality where people will spend far more time and effort focussing on something trivial that they do understand than something complicated that they don’t. The former offers far more scope for contribution and influence. And people do love trivial things.
=> Bryn Williams - That was my point. To try and align the figures is not easy however clearly it is miniscule if one was to take a turnover / return benefit to the local economy outside of the infrastructure / employment and continuity of some sort of international involvement from one of the world's largest iron ore reserves. I've had history with this with being a migrant kid into WA in 1962 a year after Lang Hancock got his ability to export iron ore after sitting on the largest find in the world from 1952 (?) when he persuaded the Govt to allow international exports. ( it had been presumed to be in such short supply as to be protected ) He knew he had the licences for the greatest reserves in the world. My Father worked in Mt. Tom Price in tents when it opened up.
=> ian beutler - oH..PUH-leese, dear Bryn, NEVAH apologise fr bein' a nerd ! ! Nerds WITH A COMPLETE CONSCIENCE... are becoming extremely RARE these daze...
=> Bryn Williams - Like many things Ian, my good looks, allure, memory, joint flexibility and so much has well and truly sailed that boat. However, thanks, we try.
Bryan Walsh (26 July 2020) "The pandemic shows that the future of aid is cash - Direct cash payments are typically one of the cheapest ways to provide help - last month 11 city leaders around the U.S. came together to form Mayors for a Guaranteed Income - Universal Basic Income has been on the fringes of policy discussions for decades, but the unprecedented shock of the pandemic could finally push it into the mainstream". Axios @ https://www.axios.com/coronavirus-pandemic-stimulus-aid-cash-ca030558-fc4d-4563-b253-5779081abfca.html
Ross Gittins (28 July 2020) "This is why we don't need to panic about record budget deficits" Brisbane Times @ https://www.brisbanetimes.com.au/business/the-economy/this-is-why-we-don-t-need-to-panic-about-record-budget-deficits-20200726-p55fj3.html
John Waggoner (March 27, 2020) "10 Facts You Must Know About Recessions - What you need to know when it comes to recessions, including what constitutes an official recession, how long they typically last and what to do with your money". from Kiplinger website via GetPocket @ https://getpocket.com/explore/item/10-facts-you-must-know-about-recessions
Ross Gittins [Fairfax Economics Editor] (November 10, 2019) "Confessions of a pet shop galah: a lot of reform backfired". Brisbane Times @ https://www.brisbanetimes.com.au/business/the-economy/confessions-of-a-pet-shop-galah-a-lot-of-reform-backfired-20191107-p538gr.html
John Rapley (11 July 2017) "How economics became a religion - Its moral code promises salvation, its high priests uphold their orthodoxy. But perhaps too many of its doctrines are taken on faith". The Guardian @ https://www.theguardian.com/news/2017/jul/11/how-economics-became-a-religion
Bill Mitchell, Randy Wray and Martin Watts (March 10, 2016) "MMT Textbook - Modern Monetary Theory and Practice: an Introductory Text". Online @ http://bilbo.economicoutlook.net/blog/?page_id=33139 and (Google reference) http://e1.newcastle.edu.au/mmt/
Index of past discussion topics & questions: http://thormay.net/unwiseideas/DiscussionTopics/DiscussionIndex.htm
Convenor : Thor May firstname.lastname@example.org Personal website (legacy) http://thormay.net
Articles http://independent.academia.edu/thormay (.. about 147 articles by Thor)