Regular Features Sandpit September 30, 2019 John Quiggin33 Comments A new sandpit for long side discussions, conspiracy theories, idees fixes and so on. Like this:Like Loading... Related
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There seems to be less focus on productivity at the moment. Labour productivity suffers from underemployment. Capital productivity suffers from shortsighted business investment decisions. Multi=factor productivity suffers from poor management decisions. Yet there seems little political will to make any long term policy decisions to improve these areas.
We are not going to get sane business decisions under cartelised banking and ponzi money. The great thing about Bretton Woods is that just about the time the speculative side of business was getting out of hand there would be a banking squeeze. And the recession would get rid of all the bad practices that the auditors missed.
It would be better to never have recessions of course. But that would mean no fractional reserve, continually growing business revenues, continually falling prices, almost debt, and stable land prices. It would take some time to get there. The Capitalist ideology makes no sense under a system of funny money.
Almost NO debt.
A hydrogen plant is going up in South Australia. At first I couldn’t see the point of the exercise. But they are blending just 5% of hydrogen gas with natural gas. So one wants to keep open-minded. If the renewables needed for the plant could be detached from the grid then this would be progress and a substitute for storage. I don’t think they will be doing this in this instance. One supposes that would overly complicate the difficulties of the innovation, and so I would see this as an okay thing on the basis of experimentation and intermediate steps. But in the longer run it is possible that you could have this electrolysis going intermittently.
And in the even longer run I’d be hoping for nuclear power and concentrated solar power , to produce hydrogen, heat and electricity, to be enhancing coal (and any spare organic matter) into high value hydrocarbons. We would want more energy imbedded in the materials than when they went into the process. The heat and H2 actually putting more chemical energy into the raw materials than they had before they reached the plant. Big pipelines and tanks transporting these enhanced products around. Heavy metal don’t mean rock and roll to me.
So baby steps. We should congratulate the South Australians on their new project and hope they get all the knowledge to drive solutions to this energy crisis forwards. Even as we remember that a full-blown hydrogen economy makes no sense at all.
Here’s my “I told you so” comment.
The RBA has now cut interest rates to 0.75 percent, and will cut again over the next year. This catastrophic situation – a classic liquidity trap – is the direct result of sustained macroeconomic mismanagement over the past decade, including but not limited to the RBA.
Since 2008 sensible people have understood that the combination of population aging (which drives equilibrium interest rates down – its simple Solow-Swan) and a worldwide capital glut (ie a Marxist declining rate of profit) must mean ultra-low growth in developed economies and a tendency towards deflation.
Instead we got the “debt emergency” (a deliberate, poltically motivated, misunderstanding of the nature of government debt), the RBA for years talking about “a return to normal monetary policy from the current emergency lows” (a complete misunderstanding of what “normal” is) and, as a result of both, a dollar above parity.
As a result, we are now in deep shit. It took a decade of mismanagment to get us there.
The whole world has these ultra low interest rates. If it’s all down to things like a worldwide capital glut and population ageing that is hardly the fault of the RBA or governments over the past 10 years. Maybe there were slow to see it coming but what could they have done about it?
Most of the world has (IIRC?) lower interest rates. We’re just following suit because we’re forced to. We rely on housing (construction & movement) so much. If you look at the exports of resources and the gov spending on infrastructure and investment you would be forgiven for assuming our per capita GDP growth should be upwards of 3%. Couple that with current interest rates and you would be forgiven to assume CPI would be upwards of 3%.
I agree with GB that the world economy is ultimately powered by red ink. Lead by economies like China.
No all roses…
It is impossible for a country that has its own currency — as Australia does — to suffer from too low an interest rate or deflation unless — for whatever reason — it decides to have too low an interest rate or deflation. If you have trouble seeing why this is the case, just remember that Australia has a fiat currency. That means it’s just pretend and not backed by chunks of yellow tooth metal or that stuff they make silverware out of.
It’s not black and white though. There are limits as the professor as recently pointed out. The RBA or gov can’t just go creating all the money they like to drive inflation or growth as there will be a point where it will have a serious detrimental effect on the AUD. The reason why we can import very expensive bits and pieces (like military kit) from OS and pay in AUD is because the financial markets and suppliers have confidence in the AUD.
The reason a sovereign gov like Australia that can issue its own currency can avoid serious financial poo is not just because we can issue our own currency – that currency needs international confidence behind it to be worth anything OS and when you rely on imports as much as we do, that’s pretty frig’n fundamentally important. This is a point many MMT followers don’t seem to appreciate.
The Australian dollar would of course fall, but we are talking about getting interest rates out of the Kenny Logins Zone of under 3%. That doesn’t seem terribly far to me. And since we’re just — for the moment — bumping interest rates up rather than making up for a sudden economic shortfall we could take a very conservative and careful approach.
DD, Low growth seems to be a problem because the absolute standard of living in our economy depends on growth. For example, we need a rapidly growing housing sector based on population growth because large sections of the workforce are involved in housing construction. This mean that housing investment becomes a target of policy rather than a consumption instrument.
I’d prefer to think longer-term about developed countries targeting a stationary state which population is fixed and where the workforce services a relatively fixed population. The key problems facing our society are distributional and environmental (climate change and improving the public environment) not whether we can sustain growth indefinitely at 1-2% in real per capita terms.
Imagine in simple terms if the current generation simply purchased (or were left as bequests) the housing stock rather than depending on the construction industry for new dwellings. The price of housing would collapse and the next generation could spend their disposal income on environmentally neutral activities such as education, sport and culture rather than spending half their life repaying a mortgage and devoting the dollars that are left over to new iPhones and environmentally destructive consumption. .
The economy would collapse if you tries to move towards a stationary state in a hurry but a useful start would be to recognize that we cannot and should not believe we can enjoy exponential growth forever. Then the task would be to be enthusiastic about fertility decline and decreased net immigration intakes rather than to see these things as a ‘problem”.
We do see to be in an era where real per capita growth is slowing in rich economies. So what? We just need to live well with this and we have the resource base to do this already.
And if the G20 governments all declared a climate emergency tomorrow and set out to decarbonise and regenerate their environments over the next 10 years and throw in a tax on carbon emissions I think all idle $billions held by the relatively few wealthy individuals, multinational corporations and financial institutions might suddenly find productive investment opportunities creating more jobs and more income. J M Keynes might even agree.
In my opinion the most crucial thing that I learned from from Bill Mitchell is that private funds are not needed to get ANYTHING done. That is not the same thing as saying that public institutions can get everything done. The world’s (nations, governments) capabilty to get things done is constrained by resource availabity.
The choice for mankind is simple in the sense of the number of options available.
1. Governments use (fiat) money and tax policy to command the (their) economy of privately owned businesses.
2.) Ditto except the businesses are owned by the government
3.) Governments use bayonnets (or wooden spears in a primative or a sustainable economy) to command the economy.
4.) Governments use gold,silver, platinum, oil, wheat, or some other commodity to command the economy in which case money only represents (one of) those commodities.
OK sidebar, anarcho capitalists will say that governments should not command an economy that this should be left up to individuals. But in that case there will still be a defacto government and it sure as hell will not be a decentralized decision making process like the anarcho capitlalists imagine. Therefore people have to accept that there is no such thing as an unplanned economy. The only questions to be decided is WHO will be planning the economy and for What purposes they will be directing an economy.
Now you know that the joke is on humanity because to say that all of these choices are bad is an understatement. They are all terrible. Expect perhaps the draw backs of what choice one makes could perhaps be countered by making further choices.
But I am digressng here a bit because the very I M P O R T A N T implication is that if a person understands that choices number one and number two are possible then one realizes that this whole rigamoral that we need to have a stock market and a bond market to raise funds to be able to carry out (collective) economic activity and just as importantly to save for our own personal retirements is a giant fraud.
And just as importantly there is a reason that this fraud is perpetuated. It is perpetuated to maintain the extremely hiarchical structure of the capitalist economy. Most of us have to invest in the system to get some crumbs of the spoils of the system. But if the (private) system is overthrown we have been trained (socialized) to believe that we lose everything that we have invested if everything (most things) should become publicly (government).
Now just a small digression in to why all of these choices have thier problems. Options number one and two lead to the weaponization of currency at the international level. Now one might say that that problem could be solved with a world government. Is a world government really a good idea?? Humanity would be placing all of its eggs in one basket. (Do people say that in Australia?) It is true that a world with borders does not make any sense. Nature does not recognize borders. But a world with out any borders does not make any sense either. The idea that an American should have as much say to what goes on in China or Iran as a Chinese or Iranian is clearly absurd, and vice versa.
Now choice number 4 above might seem to offer a way out of the currency as weapon problem. But is the principle that he who controls the gold or oil makes the rules really an any better way to get things done.
Of course a whole new set of choices must be made in determining who will be the directors commanding a national (or world) economy. There is absolutely no systemic way of ensuring that the people who come in to positions of governmental (or other institutional) power have any talent for the job what so ever.
Participitory Economics might be a way out of that problem. But I have a lot of doubt about whether Parecon can react fast enough to changes in conditions to provide for human happiness.
There is a lot of delusional talk here. If you run red ink you will destroy your economy and if you allow the money supply to increase quickly you are going to have galloping inflation and frequent currency devaluations. The contrary view is MMT delusion, as shown everywhere, except perhaps in the US for reasons explained.
Stop the silly talk. Its ridiculous crankery from bankers and morons. The thing is the claim that a sovereign government can spend as much as they want without taxation is put about by people who are getting in the way of monetary reform and allowing the commercial banks to create the lions share of new money supply. The mean-spirited nature and stupidity of the MMT advocates is a thing to behold. They may even have a point if their intention was to transfer new money creation from the commercial banks to the treasury but they don’t intend to do so. This makes their proposals for fiscal incontinence more than usually idiotic.
Thank you for your point highlighting the crucial nature that a rational tax policy would play in avoiding hyper inflation due to to much demand for natural resources.
GB, I’m certainly no MMT expert or advocate, but do know that taxation is a central (if not *the* central) control within the doctrine/theory.
Mosler wanted to get rid of payroll tax. If this proposal could be properly funded by department closures this would be a phenomenal job creator and it would also constitute relief for low page workers. He doesn’t talk about spending cuts to fund it. Mosler talks about guaranteed jobs at $15 per hour. Thats an overeach if its full-time. But we really need something like this for (lets say) 5 days per fortnight so that people have cash coming in during all the changes that need to be made. Again he doesn’t talk about department closures to pay for this. He says also that once you decide you aren’t going to let people die in the streets you have to go to single payer medical. Thats important for our current time period when anyone who gets sick is in deep trouble. I would just say here that the pharmaceuticals have to be taken out of the medical subsidy and the patent system has to be altered or trashed. Because all the loot at the moment is going to the pharmaceuticals and the insurance looters. And for the most part the drugs don’t work as the Verve said. They focus mostly on symptoms. But I agree with the direction of what he’s saying here.
He’s is a very smooth and polished serpent-in-the-garden this fellow. And all the momentum we had to bring back the reserve asset ratio, then increase it every time our cash injections threatened to be too stimulatory …. all that momentum for central bank reform has been diverted by this banker. Slippery fellow. Whereas monetary reformers like me wanted cash going out in the vans to be stimulation, interest rates that the banks could borrow at maybe 30% in the meantime (that is to say strictly for a run on the banks). Retrospective forcing down of interest rates for existing debt. Surplus budgets at all levels of government as far as the eye can see, and an eventual world of no taxes on retained earnings for sole traders, at least small sole traders, and the evolution to a world of more cash than debt …….
This was the kind of thinking as to where reform needed to go. And this very convincing snake has come in and sweet-talked all the momentum in a completely different direction.
Yes that 15 dollar an hour comment reminds me of something. Confederate (Counterfit)Americans always go on and on about their freedom and their rights. Especially their second amendment rights.
I wonder if Austrian conservatives are any different. Well I am not especially keen to get between a conservative and his/her M16. Not because I do not like picking on conservatives in any country. But because conservatives actually are practical solid ground here. You see although mass shootings get lots and lots of publlicity way way more people die from handguns than assult rifles. So I should I start a fight over a weapon system that kills hundreds when I should be fighting over a weapon system that kills thousands.
But the problem is in American society, especially in the 21st century, carring an effective self defence weapon is a perfectly reasonable desire. Yet the cost to allowing that desire to be fullfilled is a lot of peoples lives. But it is a cost that I am willing to bear because I do not think that in any society the population should be disarmed. My desire for a population that does have firearms is rooted in my appreciation for the idea that imbalances in power result in warped results.
But I do think that further clarification is needed. While I do support the right of citizens to own and carry pistols and hunting firearms for sport or self defence I do not support the right to carry any kind of firearm for sport or self defence. I support only those weapons that can fire a maximum of two rounds before needing to reload.
Two rounds is all a true American or Australian needs to defend themselves. If you are a true American or a true Australian in a civilian setting of course with two rounds you can kill at least two people. Well, that is if you have been properly trained and no how to hoister your weapon. I guess that many conservatives just have a fear than when the time comes they will not be able to draw it out.
Realalistically I can not imagine that anyone would be attacked by more than two people in a civilian setting. This type of thing only happens in the minds of conservatives when they are fantasizing. OK i can imagine a black person being attacked by confederates or the KKK. But in this case two rounds will kill at least 6 people. Why, because conservatives and klansman always line up one behind the other behind their leader. So two rounds will suffice. If you need more I will call you a sissy even though I might get in trouble with the politically correct police for doing that.
But wait, I just wrote up above that I am not keen on gettng between a conservative and his/her M16.
Yes because I do not think that conservatives have a right to own an M16 I am willing to tolerate it because I think fighting to stop wars of aggression which kill tens of thousands and hundreds of thousands of innocent people is more important than fighting over an assault rifle ban which would save only hundreds. in the mean time I can point out how warped people are who think that they need to own an assault rifle or even a pistol with a large capacity magazine for self defence. What incompetent warriors they are. Pathetic sissys. The kind of people who would try to defeat Nazi Germany by invading Trinidad and Tobago.
But that was not even the point that I was going to make when I started writing this post. No it was about the $15 an hour thing. My point was to point out that one of the important differences between a confederate (counterfit) American and a True American is that the confenderate believes that one of the sacred freedoms is the freedom to exploit other peoples bad luck to the fullest extent possible. True Americans on the other hand recognize the eliminating economic exploitation from American Society as being a sacred mission given to us by the spiritual mother of the USA, Thomas Paine.
Does this hold up in Australia?
“Mosler wanted to get rid of payroll tax.”
Well, (if true) he’d certainly be no Robinson Crusoe with that sentiment. Unfortunately, our states rely on it all too much (a tax that penalises businesses for employing people).
Yeah it would be fantastic to get rid of it. Small business people everywhere would soon decide to put another worker on. In Australia we’d recoup a lot of the money via GST. Massive job creation and wealth creation initiative. But these things have to be funded. Mosler never talks about spending cuts. This is what the MMT guys are like. They lay down some monetary realities, pretend to be monetary reformers, and then they say “look over there” and start proposing blowing red ink everywhere. Its definitely a campaign of misdirection coming out of the banking sector so as to avoid reform.
Payroll taxes have relatively low dead-weight losses associated with them as they are essentially proportional income taxes. From an efficiency viewpoint there are far worse taxes – e.g. conveyancing costs and taxes on insurance.
Relatively maybe. Yes I get that. All those little charges everywhere would have a lot of deadweight.
In the States payroll tax is a key tax that the minimum wage worker sees. You know that organic growth of government departments has run out of control when you have to tax minimum wage workers. In the States payroll tax is supposed to be for the purposes of Social Security but that became a fiction a long time ago.
If you look at the 50’s as compared to today, comparatively speaking that would be smaller government egalitarianism when compared to today. I think thats what we go after. Smaller government egalitarianism. More jobs programs, as much welfare, more infrastructure. But much less government departments and banker fortunes. We can have the welfare-welfare. But this public servant and banker welfare. Or real estate fortune building welfare. This is the type of welfare we could use less of.
If all these people getting great salaries in these report writing government departments, could be redirected to more worthy undertakings … Like swaling hills, infrastructure projects, making artificial reefs and things …. sure one would be open to a more socialist approach.
What’s the difference between a low dead-weight loss and a relatively low dead-weight loss?
“Payroll taxes have relatively low dead-weight losses associated with them as they are essentially proportional income taxes.”
In theory, yes. In practice, no, because of all the exemptions that apply.
my own cup of tax tea is for a government to impose lots of different kinds of taxes but not to make the rates on any of them terribly high, except for making income taxes very progressive with a top rate of 100% at around a level, hmmm i forget now exactly. But it was around 300,000 or 350,000 $, or E, or P.
I seem to recall that my proposal would allow a family to have an take home pay of 200,000 a year.
Any family that can not make ends meet on 200,000 a year should be liquidated. (forced in to bankruptcy proceedings??) Yes I know that Harvard, and Oxford, and Yale and so forth cost 200,000 a year now. But prices will certianly come down when the situation changes.
Now since I have never proposed a carbon tax, though I am not in princiople opposed to the idea, I really have no idea at what level a carbon tax should start. But I do think that the gasoline and diesel taxes should be raised starting at 25 cents per gallon (or 4 liters) the first year and then double each year until it gets 8 $,P.,E which would take 6 years. Then Europe can take a short break but the USA and Canada and Australia and New Zealand would have to keep raising the gasoline taxes until they are at the same level as the EU average. They would have to do this over a 2 or 3 year period.
Then these tax rates can be reevaluted bases upon the world conditions at that time. So that is 9 years from now max. I stronly suspect that there will still be functioning governments by that time, though perhaps a few less than there are today.
Read carefully, I wrote “allowed to make 200,000 a year.” I am not proposing that everyone be allowed to earn that much. I have in mind trauma surgeons, senior airline pilots (until air travel is outlawed) air traffic controlers, coast guard life guards, professional athletes, especially in sports with high levels of serious injury. civil engineers, and writers of top level TV series that I approve of.
Of course no spouse of someone who earns that much money needs to bother to work at a paying job.
I am a bit surprised that no one has commented on my tax proposals so far. Either the audiance is to small or the proposal is to obvious to need further comment.
Curt you sound a lot like the assassinated young Governor of Louisiana. Huey Long. But his threshold was much higher. He was happy for people to be rich. But he was a great threat to the oligarchy. Because he wanted to cut them off at 1 million per year, depression era money. He said that they could have their house, their second house, and even their mistress. But at some point the extra money was meaningless to their standard of living and so should be eliminated.
He only wanted the government to be a little bit bigger than it was in his day. Just a bit of welfare for poorer workers and the unemployed. So hence he was what I would call a small government egalitarian. The oligarchy will tolerate communists. Big government types, small government types. They will tolerate a lot of people. But they will not and cannot tolerate small government egalitarians. So Kingfish had to die.
We should be almost totally free enterprise for sole traders. But the Misean assumptions start breaking down when their is unemployment in both good times and bad and when there are these big corporations. So there is a lot of room for disagreement outside of the sole trader realm in my view. A lot of room for compromise and discussion. But really we ought to be very free enterprise with small business.
People are dying from unregulated vaping in the US. Unregulated business, big or small, never works. You cannot trust the self-interest motive to care for anyone or anything except self. The Governor of Massachusetts has put a 4 month ban on the sale of all vaping products. Only democratic governance, not self-interested business, can protect the rights and well-being of all people.
As one health professional, a pulmonary expert, said sarcastically , “Let’s permit the inhaling of a superheated mix of toxic gases, some unknown to science until recently synthesised. Gee, what could go wrong?” – Ikonoclast.
Perhaps it is even much worse. Can we even expect the self intrests motive to protect “self”. For if self intererst is to be able to protect the self, people would have to know what is or is not in their interest. I charge that most people have been so misindoctrinated that they do not even know what is or is not in their (best) interests. (short term or long term.) They need neo stoic and neo taoist philosophers to dictate to them what is an is not in their interest.
That is a polite way of saying that they need me and those that I delegate to tell them what is safe and what is not safe for them to have.
Yes I know that such a statement sounds extraordinairily arrogant. But more importantly it is extraordinairily accurate.
here is a link with a song about the fog that has not yet been released.
I remembered I needed to add something to my income tax reccommendattion which is that I do favor income averaging over a “several” year period because I do realize that there are businesses which have wild swings income year to year. These farmers for example should not be penalized for having one good year out of three.
Thank you for your patience in waiting for me to remember that.
“People are dying from unregulated vaping in the US. Unregulated business, big or small, never works.” Yes we want well-regulated markets, not unregulated markets. But putting aside whether a sole trader millionaire could have the economies of scale to provide safer vaping services; Don’t you think if its your name being associated with these injuries, don’t you think you would respond better to these disasters than a big corporate?
I was in food manufacturing for a couple of decades. And I found we were doing all sorts of things that would hurt the physical and mental health of the final customer. But because we were buying from other corporations, were selling to other corporations and we were ourself a big corporation owned by giant corporations there was nothing I could do.
So we could have gotten rid of the food acid. Or replaced it with a natural food acid like vitamin C or citric acid. We could have gotten our egg yolks freeze dried rather than spray dried to preserve the excellence of the fat. There was a whole string of things we could have done so that the kids growing up on our gear grew up up healthier and happier. But we were never going to do it. Because that would have taken a moral stance over the interests of our creditors (in 2019 companies respond to creditors, not minority shareholders) and our creditors couldn’t give a toss about the kids.
I think a sole trader bias would lead to far more ethical business practices. I think we need a few billionaires. So long as all their wealth is wrapped up in single site economies of scale. So you’d have your dirigible manufacturers, your ship-builders. Some of these guys would be billionaires if they paid their land-tax and put their earnings back into their giant factory I’d let them stay billionaires. But drawings? Thats another matter. Maybe a person like that might be paying 70% on drawings. And I think if such a person tried to influence politics he’d have to be slapped down.