In print today

I’ve got two newspaper articles out today.

In the Australian Financial Review, a piece written jointly with Warwick McKibbin and Richard Holden, arguing that the Reserve Bank should dump inflation targeting and switch to targeting the level or growth rate of nominal GDP. Paywalled, but a near-final version is over the fold.

And, in Inside Story, a piece looking at the kinds of reforms we need once the lockdown phase of the pandemic is over. Rather than trawling over the remnants of the neoliberal reform agenda, I argue we need transformative changes such as a participation income.

Macroeconomic frameworks need urgent review

The COVID-19 crisis has caused a global rethinking of fiscal policy.  Australia has not been immune. The focus on achieving budget surplus and reducing public debt has given way to large targeted fiscal measures aimed at sustaining Australian households and business through the pandemic. With the Australian government able to borrow for 3 years at 0.25% and for 10 years at 0.85% the interests cost of these measures is small and they lay the foundation for an economic recovery post COVID.

As part of a coordinated macroeconomic response, the RBA cut rates to effectively zero and embarked upon a bond-buying program to keep 3-year bond rates at 25 basis points. This is a good start. But, as with fiscal policy, the entire monetary policy framework needs rethinking. This was clear before COVID tested the existing macroeconomic frameworks. It is even clearer now.

The current monetary policy regime in Australia is “inflation targeting”—keeping inflation in a band between 2% and 3% over the cycle. Inflation targeting served Australia well for a long period from its adoption in the 1990s. It defeated the wage-price spirals of the 1970s and 1980s where the expectations of high inflation caused high wage demands, which in turn led inflation to be high.

The rationale behind inflation targeting by central banks focused on setting stable price expectations for consumers, businesses and markets. The target was set by trading off the costs and benefits of inflation. The RBA put it this way:

“The Governor and the Treasurer have agreed that the appropriate target for monetary policy in Australia is to achieve an inflation rate of 2–3%, on average, over time. This is a rate of inflation sufficiently low that it does not materially distort economic decisions in the community. Seeking to achieve this rate, on average, provides discipline for monetary policy decision-making, and serves as an anchor for private-sector inflation expectations.”

The question that needs urgent attention is: what is the appropriate monetary framework in a post-COVID world?

The world in 2020 is very different to that of the 1990s and 2000s. Well before COVID-19 struck it was clear that many countries, including Australia, were suffering from what Former US Treasury Secretary Larry Summers—picking up on an old idea due to Alvin Hansen—termed “secular stagnation”.

This is the idea that the so-called “equilibrium real interest rate”—the real interest rate consistent with a stable macro economy for countries like Australia—has fallen substantially in recent decades and is now probably negative. This is due to an increasingly large volume of global savings chasing fewer large-dollar investment opportunities. Technological disruption, large demographic shocks, the emergence of large developing countries into the global economy all contributed.

Not surprisingly, Australia has been below the 2-3% target inflation band for the entirety of Governor Philip Lowe’s term. The inflation target is no longer credible—yet credibility is its raison d’etre.

Inflation has been stubbornly, rather than above, the target rate in recent years. This was a problem that was not envisaged when inflation targeting was introduced in the 1990s. But it makes the achievement of a sufficiently negative real interest rate impossible. The nominal interest rate can be pushed a little below zero, as has now happened in many countries, but only to around 0.5 per cent. Combined with inflation below 2 per cent, the real interest rate cannot go below -2.5 per cent.

COVID-19 will only make this worse. Evidence from 15 pandemics dating to 1347 suggests that COVID-19 will put further downward pressure on the equilibrium real interest rate. Depressed economic conditions are also likely to push down the rate of inflation, given constant policy settings.

In light of these considerations, rather than targeting inflation, a better approach would be for central banks, including the RBA, to target some measure of nominal income such as the level or growth rate of nominal GDP. This is still a clear policy rule that can be used to anchor expectations, like inflation targeting, but it has several advantages compared to inflation-targeting.

First, targeting nominal GDP is more robust to imperfect knowledge of the economic environment. A central bank following nominal income-targeting does not need to have real-time knowledge of potential output, whereas an inflation-targeting bank does, and imperfect knowledge can lead to policy errors.

Second, it allows the economy to adapt better to productivity shocks. Consider a fall in productivity (equivalent to a rise in input costs). An inflation-targeting central bank would tighten policy in response to rising inflation. A central bank following a nominal GDP target would combine the rise in inflation with the fall in real GDP and not tighten policy. It might even cut rate if the expected fall in real GDP is larger than the expected rise in inflation. The resulting outcome for the real economy would be better.

Third, in a severe crisis when real interest rates need to fall sharply to stabilise falling output, a nominal GDP target automatically allows expected inflation to rise well above the long-run inflation goal, without damaging policy credibility.

The global economy, including Australia’s, will be transformed after COVID-19. Fiscal policy is already beginning to adjust to that reality. The monetary policy regime that served many countries well, including Australia in the 1990s and 2000s was probably obsolete pre-COVID, but it certainly is now. It’s time for central banks including the RBA to use this moment to move decisively to a regime that is more suited to 2020. The core of that regime should be a new monetary framework with a target for nominal income.

Richard Holden is professor of economics at UNSW Business School. Warwick McKibbin Director of the Centre for Applied Macroeconomic Analysis in the ANU Crawford School of Public Policy Director of Policy Outreach in the ARC Centre of Excellence in Population Ageing Research. John Quiggin is professor of economics at the University of Queensland

17 thoughts on “In print today

  1. > policy regime in Australia is “inflation targeting”—keeping inflation in a band between 2% and 3% over the cycle

    It’s worth mentioning again that this policy has been a dismal failure of late, nothing the reserve bank has done has been able to get inflation into that band for any length of time. The LiberalNationalEtc promise of a wage breakout hasn’t materialised either.

  2. Sorry, lest that read like a “didn’t read the article”, what I’m getting at is the government policy rather than any action of the reserve bank. Perhaps I should have said “legislative intent” or “basic economic competence” on the part of the elected government who are nominally the ones in charge at that level.

    I would expect that *any* government branch reporting conspicuous, consistent failure in its primary mission would get some sort of reform or review.

  3. What I fear most is a return to BAU (Business As Usual). BAU will mean;

    (a) A return to real consumption rates of resources and real release rates of wastes in excess of the environments’ renewable and sustainable capacities; and

    (b) A return to and continuation of the fallacious money-finance-market paradigms of conventional economic managment; essentially of capitalist economic policies meaning corporate capitalist policies in the West and state capitalist policies in China and Russia.

    The fallacious money-finance-market paradigm of conventional economics has no basis in empirical fact nor in scientific ontology. Conventional economics is not a science so it has no business in answering scientific or general empirical questions or making prescriptions for the organization of the real economy for real people in a real environment. We have had an empirical demonstration of the inapplicability of conventional economics to real economies during the COVID-19 crisis.

    The Hard Science Test

    Conventional economics is a prescriptive ideology or moral philosophy construct parading as a science by its use of mathematics and of pseudo-dimensional analysis. It is not in any way a descriptive science. Economics needs to be subjected to a hard science test in order to specifically and precisely reveal its prescriptive-ideological and moral-philosophical propositional nature. Hard science (physics, chemistry, biology) is done in SI units. If it is not done in SI units it is not a science. This is a necessary but not sufficient condition for the definition of “doing” hard science. It follows logically from this that there are many important questions, in political economy and ethics for example, which cannot be determined by hard science. I will return to this issue.

    Let us unpack these statements, starting with those about hard science. The international System of Units (SI) has seven base units. The seven measures and what they measure are the:

    (1) second – time
    (2) meter – length
    (3) kilogram – mass
    (4) ampere – electric current
    (5) kelvin – thermodynamic temperature
    (6) mole – amount of substance
    (7) candela – luminous intensity

    These base units and the units derived from them (for example the Newton – force) have been developed and standardized in the process of historical development of the scientific method and the myriads of investigations made under its auspices. The empirical scientific method, in a formalized sense, consists of;

    (a) hypothesis;
    (b) prediction;
    (c) experiment;
    (d) analysis;
    (e) re-experiment (reproduction or refutation of results by further testing).

    This formal scientific method too, or a variant of it, is a necessary but not sufficient condition for practicing genuine science properly, especially in the peer-reviewed sense.

    The discovery and elucidation of the dependable scientific base units is a meta-discovery – a discovery about the discoveries; a discovery about the dimension consistencies behind and links between all scientific discoveries which are verifiable by repeatable, controlled experiments. In discovering particular dependable results, an elucidation of these results facilitated the derivation and ever more nearly precise definitions of the SI base units. These definitions have been refined over time. The ontological import of the developed base units of science and their consistent, indeed central applicability and usefulness in the theory and practice of science, is that they provide strong support (a “truth warrant” in philosophical terms) to the argument for objective existence; that certain things exist and exist consistently and objectively in their own right, meaning independently of human consciousness and conjectures. Objective reality exists and it can be measured consistently, dependably and objectively with scientific instruments. To put this another way, consistent and dependable laws can be derived to a 5-sigma probability (as a standard): for example, the laws of physics so far derived.

    The Case of Conventional Economics

    Returning to economics, we find that the universal measure used in economics, the numéraire (usually the dollar), is the standard by which values are computed, compared and aggregated. We note that the dollar does not exist in the SI unit table of science. The dollar is not a discovered dimension of objective, physical existence. It is rather a social “dimension” of social, fictive construction. These are no mere cavils. They indicate a basic ontological problem for conventional economics. If one gets the base ontology (what exists at base and how it exists) of a discipline wrong, then everything will be wrong after that. Before the germ theory of disease, the basic ontology of proto- disease theory was wrong, namely the humors theory. Medicine for diseases of pathogenic origin could not be advanced until the humors theory was overturned by the germ theory, by getting the basic ontology right or at least more nearly right: meaning what is in objective reality existent in some way and which confers the explanatory and predictive powers about how it acts as a cause and what effects it can have.

    Physical existence has what we call dimensions. We are familiar with space and time being termed dimensions. In scientific terms, all of the seven base units measure dimensions of objective or material existence. Thus time, length, mass and so on are dimensions in science: objective material dimensions. When a numeric value is given to a defined unit of dimension, for example ten meters (10 m) then the expression has objective, real-world and scientific meaning. The pure numbers and pure mathematics gain practical, pragmatic and applied real meaning from their conjunction with a real dimension and ONLY from their conjunction with a real dimension. When a numeric value is given to a mythical dimension, say 10 bliks (where a blik is undefined or defined as something which is not known to exist and/or seems contradictory to the system of other known existents), then the expression becomes meaningless. The appellation of “10” or any other number gives a false impression of quantification. We cannot meaningfully quantify an unknown or non-existent dimension. Quantifying in meaningless dimensions is meaningless, in hard science terms and in practical real-world terms.

    Quantifying in meaningless, fictional dimensions might be amusing for a fantasy board game where a magician could acquire ten bliks of mana and this could then be linked by rules (rules mind, not laws in the “physics laws” sense) to other parts of the formalized and nominal game system. The mention of game systems at this juncture is intentional and pointed, not whimsical. Conventional money-finance-market economics is a humanly created rule-based game system and not a scientific descriptive discipline describing physically real existents. The social-fictive existents it describes are real only in the sense that any rule instruction or rule set which a calculating or heuristically-guided agent, computer or human, generates or obeys or disobeys, is real. The rule set is real. It is a real instantiation of coded rules in informational patterns in various real media of matter and/or energy; in law books for instance, on computer hard drives and even in human brains (as re-callable

    Any claim by crude conventional economics, of the kind used in public discourse at least, to present any immutable financial-economic laws like “everything must be paid for… with money” or “everything has a money cost in our socioeconomy and the money cost is the most important determinant of whether we should do or not do something in our socioeconomy or in our ecology or biosphere” are entirely false claims. These are arbitrary prescriptive claims. Any rule made may then be made otherwise by a rule maker (one with the power to make rules for humans and enforce human compliance in some degree) with the sole exception that a rule may not, in practical enactment, contradict a fundamental law of nature.

    A rule to execute humans may be made and acted out. Executing humans is physically possible (though morally it is usually considered wrong). A rule to resurrect fully decayed corpses of humans wrongfully executed for murder may also be made but such a rule cannot be acted out because it contradicts some of fundamental laws of nature discovered by hard science. The most fundamental law wich such a rule contradicts is essentially the law of entropy (the second law of thermodynamics) and its related corollary of the irretrievable loss of information due to entropy. There may or may not be the loss of basic genetic information but there will certainly be loss of much more extensive and critical information on phenotype, lived environmental influence, physical and neurological development, idiosyncratic modes of perception and feeling, memories and so on: everything in short which makes a unique living human and unique human personality.

    Of “Utils” and “SNALTs” or “Snarks and Jabberwockies”

    Shimshon Bichler and Jonathan Nitzan in their monograph “Capital as Power” point out that the units of measure used in conventional economics (the “util” meaning one unit of utility) and in Marxist economics (the “SNALT” meaning socially necessary abstract labour time) are not ontologically speaking, objectively or materially real. There is no “util” dimension in material nature and there is no “SNALT” dimension in material nature. “Utils” and “SNALTS” are typically measured in the now common numéraire, the dollar. Even Marxists calculate in political economy by doing calculations in dollars, or pounds sterling as Marx himself once did. In his defence, Marx did give some partial recognition to the social, fictive construction of his unit of exchange labelled the SNALT. It is socially necessary, abstract and average (thus socially fictive in a sense) but it holds as a workable thesis with objective truth warrant only so long as the labour theory of value holds.

    The labour theory of value breaks down in historical development (leaving aside its pure theory problems) as soon as we arrive at the widespread practice of automated production with machines with non-living energy sources (not of direct human or animal muscle power). Marx himself prefigured this dialectical contradiction of his own early-industrial capital theories in the “fragment on the machines” in the Grundrisse Notebook. Marx understood that automated production, comprising machines with sequential instructions which appeared to supersede thinking work as well as power sources which superseded muscle work, would render obsolete both crude industrial capitalism and his theories about it.

    Dollars are supposed to equate use values (utility) in modern economics. Of course, dollars have a social reality. They are a social instantiation of something but of what precisely? And how do social realities relate to objective material realities? These are thorny questions for ontology as well as economics. However, to clarify what I have said up to this point, I must make a return to the discussion of scientific dimensions.

    Lengths and areas and their dimensional differences, to give an example, are dealt with by mathematical conventions. If I add lengths like 10 meters + 10 meters I get 20 meters. If I multiply 10 meters by 10 meters, I get 20 square meters. The convention of squaring the meters suffices. A square meter is a unit derived from a base unit and is m×m. In mathematics, if you write 3×3 (in pure numbers) you mean and/or get the result of 9 (another pure number). In physics terms, these would be dimensionless quantities. If you write 3 meters × 3 meters you mean or get 9 square meters and these are all dimension-ed quantities. In computer programming, you may multiply pure numbers and suffix the correct dimension afterwards or you may use arrays and array conventions depending on requirements. I am speaking here at the ordinary code level, not at the machine code level. I am speaking of the conventions required to encode and decode pure numbers and their dimension literals or appellations consistently in terms of S.I. basic units and their derived units. There are no ontological implications inhering in the conventions themselves.

    Here, I follow Charles Sanders Peirce’s formulation in making my ontological and truth claims:
    “That truth is the correspondence of a representation to its object is, as Kant says, merely the nominal definition of it. Truth belongs exclusively to propositions. A proposition has a subject (or set of subjects) and a predicate. The subject is a sign; the predicate is a sign; and the proposition is a sign that the predicate is a sign of that which the subject is a sign. If it be so, it is true.” – C.S. Peirce.

    If the agreed conventions governing the symbol system in question (here mathematics combined with hard-science defined dimensions) permit the expression to make a meaningful, unambiguously decodable and precise statement where the subject terms and the predicate terms are linked by an expression or expressions such that the statement in its entirety, decoded by an appropriately trained person or persons, can be tested objectively for truth or falsehood against empirical reality or rather against a specific, defined aspect of empirical reality then it is a scientifically objective statement, initially in the form of an hypothesis but later in the form of scientific law if it be reliably tested by repeatable and verifiable tests to 5-simga (as a standard).

    “In short, five-sigma corresponds to a p-value, or probability, of 3×10-7, or about 1 in 3.5 million. This is not the probability that the Higgs boson does… exist; rather, it is the probability that IF the particle does not exist, then the data that CERN scientists collected in Geneva, Switzerland, could be …. what they observed.” – Scientific American.

    In order to avoid any misunderstanding; I reiterate I am not trying to define science solely by the S.I. basic and derived units. I am saying that the use of S.I. units is a necessary but not sufficient condition for the practice of hard science. This was made explicit by my mention of scientific method and empirical experiments earlier. A key point I am making in terms of the ontology of economics is that mathematics using the numéraire (usually the dollar) is pointless for overall socioeconomic or political economy decision making IF one is attempting to make (a) scientific decisions at all or (b) ethical decisions which are not already embedded in the moral presumptions of capitalist economics and the rules of private ownership in the first place. The dollar measures no real dimension nor any real thing (other than the social fictive and institutionally embedded presumptions and assumptions already inherent in its definitions and instantiations). Aggregating disparate items in the dollar “dimension” is pointless scientifically and pointless ethically outside the prescriptive “ethics” of capitalism and private property.

    “In engineering and science, dimensional analysis is the analysis of the relationships between different physical quantities by identifying their base quantities (such as length, mass, time, and electric charge) and units of measure (such as miles vs. kilometers, or pounds vs. kilograms) and tracking these dimensions as calculations or comparisons are performed. The conversion of units from one dimensional unit to another is often easier within the metric or SI system than in others, due to the regular 10-base in all units. Dimensional analysis, or more specifically the factor-label method, also known as the unit-factor method, is a widely used technique for such conversions using the rules of algebra.” – Wikipedia.

    One can see that in the basic production function of conventional economics, the units do not usually match on the two sides of the equation or aren’t usually specified. I have seen it asserted that in the rare cases where they do match, they usually break down somewhere else as in the profit function. I have not yet followed up on these assertions and equations. If all this is true then such equations are entirely worthless, scientifically and pragmatically speaking except for differential enrichment and exploitation on a social classes basis.

    Of Sports Stadiums and Hospitals.

    In contrast to conventional economics’ measures in a non-existent dimension, we need to measure real things in terms of real costs and then make ethical or moral judgements as to which real things are of more benefit compared to their real costs. Let us suppose that my city has one real large sports stadium costing x amount of real up-front energy costs plus embedded energy costs to build (up front and embedded energy costs being reasonable proxies for mass raw material manipulations plus the creation of complexity) and let us suppose my city has one real hospital costing y amount of real up-front and embedded energy costs. These facilities were each of a nominal numéraire cost of A$500 million in current dollars, built in the same year in the same city, so inflation and geographic factors are not significant issues. In a time of COVID-19 which is more valuable to the whole of society if each had the at-time-built numeraire book value or accounting cost of A$500 million?

    Suddenly, we see sports stadiums are now completely useless and worthless (indeed of negative utility if actually used), for the duration of the crisis, and hospitals become even more valuable, for the duration of the crisis, in the real terms of saving real people. We can see in hindsight that it would have been wiser to use this moral philosophy assessment all along. The practical and ethical governance principle with an eye to risk control and the precautionary principle, especially with respect to exogenous novel, zoonotic and emergent epidemiologic risks (an increasing risk category in an over-populated, over-connected world, ever-encroaching on wild habitats) would be that a government should never subsidize sports stadiums at any time and should always subsidize public hospitals and medical research; positively gold-plating them in good times and allocating even further resources during health crises.


    Of course, crude physicalism or a physics-based scientism would not and will not be the way to do the entirety of political economy. It is clear that good economic management requires consistent attention to science, consistent attention to our embedded ethical assumptions and consistent ways to reward contributions and permit shares of consumption within overall ecological limits. However, if via “free markets”we pay sportsmen more money to bash into each other than we pay the doctors and staff who have to deal with their CTE (Chronic Traumatic Encephalopathy), and this is certainly the case for sport’s most elite levels, then what does this say about our scientific, economic and moral values? It certainly says that conventional (now market fundamentalist) economics is getting such valuations entirely wrong.

    Even more to the point, we notice that the rules of conventional economics (they are certainly not fundamental laws) have to be suspended during a serious crisis like the COVID-19 crisis. Suddenly, the rules that you must pay all your employee’s wage yourself (or by loans) or that you must pay your rent or pay your mortgage can become rules suspended, in whole or in part and for a space of time in a significant number of cases, as otherwise personal and societal life patently will collapse; yet considerable real non-boss-paid work and real acts of real living in non-payed rented or mortgaged accommodation etc. still go on. The real processes go on, to a very considerable degree, even when the formal, notional, money-relevant rules governing the real processes are suspended, placed into hibernation or otherwise altered because of their new condition-dependent inoperability.

    What better empirical demonstration could there be than the COVID-19 crisis demonstration that there is no fundamental law relation between (a) conventional economic law prescriptions and their rules for stocks and flows of wealth and incomes, expenses, credits and debts on the one hand and (b) the real processes of physical, personal, social and economic (real economy) living on the other? This eventuality is entirely ontologically explicable as I have shown above, yet it is of radical import for political economy theory and practice when conventional economic practice insists so firmly and fallaciously that money measures something real.

    “Companies exist, trading takes place, markets exist.” So the acolytes of capitalist “extantism” never tire of telling us, as if these things had always existed and will always exist. These things exist these days so they must be true, right, natural, pre-ordained and eternal even though they are really just given artifices of man in a given stage of history; a fictive, social-imaginative construct made concrete in social evolution and emergence, said processes of social evolution and emergence which will of course never end while humans exist. Stolid, fixed and conservative in their unimaginative nature are all such arguments from “extantism” as opposed to arguments from evolution and emergence. It is extant therefore it must be immutable, so they argue. This is the same conservative “argument-spirit” which could never have imagined the continued rise of early, nascent capitalism when medieval feudalism and the rights of the Ancien Regime still held sway in most minds, and especially in the minds of the privileged elites with a vested interest in stasis, in socioeconomic, political economy and knowledge sclerosis.

    “Companies exist, trading takes place, markets exist.” This is currently true but we should care about more than the units of account (the dollar numéraire) which run this artificial world of man and pit it against the natural (real physical) world. We should care about the real “weight” or rather the real burden of these economic existents (companies, trading, markets) on environmental existents and on human existents (human beings). Some of these burdens can be measured in SI units. I am talking about the environmental and human impact sciences here. Where the science tells us something should not be done or should no longer be done (fossil fuel burning is a prime example) then we should cease it, meaning phase it out as rapidly as technically possible WITHOUT regard for the calculations of cost in the numéraire, which ultimately is all of nominal, unreal and profoundly meaningless ontologically, physically and existentially. This is because the costs, both real (and indeed numéraire-based) of wrecking the climate and raising sea levels are incalculably high, namely the extinction of humanity along with the general expansion of the sixth mass extinction.

    Calculations in the numéraire (dollars, money) are specious in many ways, too many to enumerate in a short essay, but the most fundamental way in which they are specious is in relation to un-costed negative externalities. The physical, chemical, biological, ecological, veterinary and medical sciences are the most direct paths to calculating clear physical and biological negative externality costs and predicting the physical and life (biosphere, climate, human, domestic animal and wild-life) outcomes if we do not take real, timely actions. Market calculations play a greatly obscuring role, making their predictions and prescribing their actions in a manner far less accurate (and indeed often wildly inaccurate) compared to scientific predictions and prescriptions for action. Market calculations are riddled with the problems of short-termism, sectional interests, vested interests, political distortions in favour of dominant capital, the general ignoring of negative externalities, the ignoring of the interests of dispossessed and marginalized humans and indeed the “interests” of all life and the biosphere and finally by the unavoidable central issue of making of spurious calculations in an imaginary dimension. Only a combination of the sciences and moral philosophy can address these issues, not the pseudo-refined but ontological ungrounded market/finance calculus performed in an arbitrary, non-real numéraire, according to institutionalized stipulations and largely unrelated to either physical reality or the generally shared basic ethics of most humans.

    7. Footnote : The Imaginary Dimension of Utility.

    Conventional economists are not so naive as to advance too obviously a non-existent dimension as the basis of their calculus. Instead, the numéraire is held, at least implicitly, to have a dimension in human preferences by way of expected utility (the “util”). But measuring things by human preferences is like a man in Plato’s Cave measuring how far light can travel by holding a torch up to the matte black cave wall. It’s a particularly purblind approach. The cave’s conditions thence condition the ensuing deduction or induction. The introduction of two burnished mirrors into the cave on opposite walls would give the man a vastly different measure of the distance light can travel. The receding, repeated and diminishing images might even suggest to him that light possibly could travel an infinite distance.

    The environment greatly conditions perceptions and preferences. Learned expectations condition preferences. Social pressures and persuasion including advertising, distort, diminish or inflame desires and thence preferences. Human preferences are thus the most inconsistent of yard-sticks, growing and shrinking like Alice in Wonderland or being shuffled about like a pack of cards if they are to be regarded as ordinal in nature. No consistent theory can be built on a speculative psycho-social dimension of “preference”. That we should continue to give conventional economics credence when it can be definitively stripped of its ontologically fallacious “emperor’s new clothes” seems scarcely credible in an advanced scientific age.

    Conventional economics commences somewhere back in psychologism where psychology (as the psychology of preferences) is supposed to play a central role in grounding and explaining other, non-psychological facts or fundamental law sets; in this case supposed “laws” of economics. It then attempts to rescue itself with crude behaviourism in the form of “revealed preferences” but preferences are condition-dependent as outlined above (determined by all inter-relating existents as we would say in complex relational system terms). The other plank of conventional economics is that of a simplistic, Newtonian-style mechanism and determinism, deriving simple linear and exponential equations in two dimensions (always one at least of which is not a real dimension) which fail to take note of complex system, emergent and evolutionary phenomena, both in the biological and social senses.

  4. JQ, governments have listened to expert medical and epidemiological advice regarding the covid 19 pandamic and it worked – so far at least. Perhaps and it is a hopeful perhaps, expert economic advice will be taken seriously, too.
    Regarding inflation targeting and its failure – well one of the reasons for its failure is that asset price inflation has not been measured sufficiently (contributing to several issues that have been discussed on this blog – wealth concentration, housing stress, household debt, stagnant wages, …). It seems to me nominal income targeting would be or should be of interest to both, governments and banks, given the public and private debt.

    Your article on participation income makes sense to me, both in terms of the summary of the history and in terms of where to from now. It contains a lot. Hopefully it will be read and appreciated widely. It is so constructive, if I may opine.

  5. The contrast between Hospitals and Sports Stadiums is complete compost. The value of sports stadiums is infinately underestimated. The value of a well played Rugby or Cricket Match is PRICELESS. Another way of placeing a value on a well played Rugby or Cricket Match would be to say that it is Infinite. So if the value of just one well played math is infinate how much greater is the value of many well placed matches. That is just the value of the match. The match takes place on a field of play. A field of play can exist without a stadium. But a stadium adds value to the already infinite value of the well played match. A stadium provides the appropriate sacred setting for the well played match. Over the course of a lifetime the stadium will be sacred ground of numerous sacred and priceless productions. That makes the value of a stadium to society infinately priceless.
    Of course it is totally off the wall to allow billionaires to profit from the sacred priceless collective nature of the stadium. But that is a different subject.
    Furthermore stadiums do not need to be large. We have real life examples of government subsidized stadiums here is Germany that have vast benifit. They are Multi-use halls. These buildings can be used not only for basketball and volleyball. They can be used for city theater and concerts and art exhibitions. In an emergency they can be converted in to refugee centers, or even emergency hospitals.
    Now the value of one hospital in an area is also infinately priceless. It is the setting of real life drama and tradgedy and sometimes even provides the cover story for someone like Tony Soprano or Sherlock Homes to have a secret meeting under the cover story of a routine check up. A second hospital in a geographical area may be priceless as well. But three come on, You are putting me on. If your keep on subsidizing hospitals at the expense of other things you are going to be a silly as the Preppers. The Preppers are kind of cute in away, until they get carried away. And it does not take much to get carried away when it comes to medical care.
    Cuba!! Cuba proves what vast improvements can be made in health performance without spending lots of money on health care so that there is lots of money left over for cricket bats or baseball bats.
    These bats are even multiuse items that carry no danger of coronavirus. As well as the leaving consrutction resources left over for the maintenance or even the building of stadiums when it is neccessary to build a new one.

  6. Simpler version of my above long post.

    (1) We cannot go back to BAU. It was grossly inequitable and it will cause our sustaining environment to collapse.

    (2) We should take advantage of COVID-19 shut-downs of highly resource wasteful and polluting consumer activities to keep them permanently shutdown or at least greatly minimized going forward or find low pollution substitutes.

    (3) We should avoid giving “intellectual oxygen” to the theories that money, finance and markets should be the prime organizing and decision making principles and systems for our socioeconomic system.

    The first point is clear and unassailable if (a) you consider human rights and equality to be positive values and (b) you accept the science on any of climate change, pollution dangers or limits to growth.

    The second point follows from the first. Restarting unsustainable production activities and consumer activities is a “non-starter” idea from the environmental perspective. The challenge then is to find substitute living supports, activities, reasons, rationales, hopes and possibilities for healthy, happy and fulfilling living for formal workers, informal workers, hobbyists, creators, recreators, consumers and so on displaced from their accustomed, pre-COVID-19, work and activities.

    The third point is where I get a little critical of even our most enlightened but still relatively conventional (in my view) economists. Perhaps I am misconstruing matters and being unfair. Staying “in the tent” and using the terminology of dominant discourse is still perhaps the only way to get heard. But it has the unfortunate effect of continually re-legitimizing and reinforcing outright fallacies in the popular mind.

    The quickest way, I have found, to get thrown out of any discussion is to say “I don’t accept your basic ontology” or words to that effect. The two greatest heretical statements one can make in the clearly not-so-modern world are “I don’t believe in God” and “I don’t believe in money”. The “don’t believe in” operator in the formula is a really statement of conviction (from belief, deduction or induction) that the existent postulated either does not exist or it does not exist in the form and manner postulated by its orthodox theorists and acolytes. The latter (“does not exist in the form and manner”) contains the clear claim, when it comes to the economy, that the existents of money, finance and markets do not relate to and interact with other existents in the complex real-formal system of the real-financial economy in the standard posited ways. Something else is happening and it is imperfectly understood by the orthodox thinkers. That is the claim.

    But tell ’em that and they don’t believe ya! (A Monty Python joke.) For then, one has spoken heretically against the most fundamental ontological articles of belief of the religio-ideological system of money, finance and markets.

  7. Well I am concerned that after a couple of years of stable prices, we’ll get high inflation back because of all the cheap money sloshing around. Added to that, we are probably going to have austerity driven fiscal policy, and we’d then back to the 1970s stagflation again. Of course, sustained inflation would ultimately solve the public debt problem but living through several years of economic misery would be unpleasant.

  8. Ernestine’s plaintive cry; “Perhaps and it is a hopeful perhaps, expert economic advice will be taken seriously, too.”

    Perhaps, but Nev Power couldn’t care less about any of this, as his statememt below could read as treason. And smaler government. Haha. This is a power grab of a. smaller excecutive, making a smaller government easy.

    “Nev Power on the role of business in a post-coronavirusworld

    “Power sees a longer-term role for the national cabinet: “I think the national cabinet has been very successful and the results speak for themselves… I believe that there’s a great opportunity to keep it in place to help us accelerate the economy and to put through all of the changes that we need to make sure the economy comes back as quickly as possible.”

    And JQ must be tiring – are you? – of writing similar pieces over and over. How will JQ’s world become reality? Any answers please?

    “The golden age 
    The 15-hour working week predicted by Keynes may soon be within our grasp – but are we ready for freedom from toil?

    By John Quiggin
    27 September, 2012
    3,500 words

    “Writing at a time of deep economic depression, Keynes argued that technological progress offered the path to a bright future. In the long run, he said, humanity could solve the economic problem of scarcity and do away with the need to work in order to live. That in turn implied that we would be free to discard ‘all kinds of social customs and economic practices, affecting the distribution of wealth and of economic rewards and penalties, which we now maintain at all costs, however distasteful and unjust they may be in themselves, because they are tremendously useful in promoting the accumulation of capital’.

    “As long as market liberalism rules, there is no reason to expect progress towards a less money-driven society. The global financial crisis and the subsequent long recession have fatally discredited its ideas. Nevertheless, the reflexes and assumptions developed under market liberalism continue to dominate the thinking of politicians and opinion leaders. 

    “Key elements of the social democratic agenda include a guaranteed minimum income, more generous parental leave, and expanded provision of health, education and other social services. The gradual implementation of this agenda would not bring us to the utopia envisaged by Keynes — among other things, those services would require the labour of teachers, doctors, nurses, and other workers. But it would produce a society in which even those who did not work, whether by choice or incapacity, could enjoy a decent, if modest, lifestyle, and where the benefits of technological progress were devoted to improving the quality of life rather than providing more material goods and services. A society with these priorities would allocate most investment according to judgments of social need rather than market signals of price and profit. That in turn would reduce the need for a large and highly rewarded financial sector, even in relation to private investment.

    “An Australian example might help to illustrate the point. Under our current economic structures, someone who makes and sells surfboards can earn a good income, as can someone good enough to join the professional surfing circuit. But a person who just wants to surf is condemned, rightly enough under our current social relations, as a parasitic drain on society. With less need for anyone to work long hours at unpleasant jobs, we might be more willing to support surfers in return for non-market contributions to society such as membership of a surf life-saving club. Ultimately, people would be free to choose how best to contribute ‘according to their abilities’ and receive from society enough to meet at least their basic needs.

    “We do have the technological capacity to start down that path and to approach the goal within the lives of our grandchildren. That’s a couple of generations behind Keynes’s optimistic projection, but still a hope that could counter the current tides of cynicism and despair.

    “This brings us to the final, really big question. Supposing a Keynesian utopia is feasible, will we want it? Or will we prefer to keep chasing after money to buy more and better things?

    “An escape from what Keynes called ‘the tunnel of economic necessity’ is still open to us. Yet it will require radical changes in the economic structures that drive the chase for money and in the attitudes shaped by a culture of consumption. After decades of finance-driven capitalism, it takes an effort to recall that such changes ever seemed possible.

    “… progressive politics cannot, in the end, rely on anger. It must offer the hope of a better life. That means reclaiming utopian visions such as that of Keynes.”

  9. As a thought experiment, we can note that if people were not greedy, selfish and thoughtless or not educated and enculturated to be that way, then money would be unnecessary. If we look at social and eusocial species, we see that homo sapiens is the only species which often, but not always, uses money in interactions larger than interactions within a tribe. In theory, humans could always produce according to ability and requirements and consume according to need but not greed. Of course, this would require much more of a gift economy or gift culture.

    Under gifting, a much different society would arise and it is reasonable to question whether civilization, or our current form of civilization, could have arisen at all under gifting conditions. Notwithstanding that, we could in all likelihood evolve our system beyond money and markets in their current forms. We need to note that gifting (sometimes involuntary or unawares gifting) continues anyway and all the time in our money culture. Welfare is gifting. Charity is gifting. Subsidies (for anything) are gifting. Excessive CEO pay is gifting, usually as self-gifting. Unearned income, as rentier and capitalist income, is income gifted by the productive workers to the non-productive owners. This takes the form of involuntary and often unawares gifting if the worker is unaware of or does not understand well the “machinations” of capitalism. The worker these days is usually unaware of how the surplus is extracted, the extent of it and how it accumulates in the hands of the capitalist.

    We are guilty of an enormous lack of imagination if we continue with the unexamined assumption that money itself must continue on in perpetuity in modern and future modern (hyper-modern?) human civilization, if civilization survives at all. I mean money with its attendant financial and market calculation rituals. We cannot view money evolution via and through the forms of crude commodity money, nominal money, barter money, debt money, fiat money, electronic money, bit coin money and so on, without noting the evolution to ever more attenuated and ephemeral forms. The money itself becomes ever more attenuated, nominal, ephemeral and “multiplies in a wilderness of mirrors” of ever more rarefied, notional and complex financial instruments. This perhaps is the final, virtualized vision of the “Unreal City” which T.S. Eliot discerned at the edge of his poetic vision.

    At the same time, the ever “more nominal” and “more immaterial” manner in which money comes to exist is accompanied by, and must be accompanied by, under the late stage capitalist system, ever more accretions of hard material power to hold up the empire of immaterial money which in and of itself is flimsy and ephemeral in nature. There has, throughout history, been an arms race between authorities and thieves but also between rulers and subjects, exploiters and exploited, colonizers and the colonized, masters and slaves, bosses and workers. This arms race proceeds and is fought with two forms of power, hard power and moral power. We may term these coercion and suasion. Coercion begins with threats of physical force and ends with the use of physical force. Suasion begins as logical, philosophical, religious or ideological argument and ends… with what? Precisely and extensively? That issue requires further examination. Suffice it to say at this stage that “moral suasion” ends with being convinced or unconvinced and with assent, abstention or dissent in votes or actions.

    The representation of wealth is now moving ever more into the virtual sphere. In the times of commodity money, especially gold and silver, the representation of wealth was as “hard physical” as the receptacles and violent force used to extort and defend it, and the system it was embedded in; strongholds, treasure chests, soldiers, swords and shields. The “gate-keepers” were the king’s guard.
    Now, we see a different situation. Coercive force remains “hard physical” as it must because humans remain ineluctably physically based (corporeal) themselves. Therefore coercion remains finally and fully physical. However, the representation of wealth moves from physical strongholds and physical purses to virtual strongholds and virtual wallets. Distributed data banks, server installations and the cable networks become the new strongholds and stronghold system for the store of the representation of wealth. In turn, attacks on represented wealth also can become virtual themselves (cyber attacks) as well as of the traditional forms (force and suasion).

    The “gate-keepers” are now programmers backed up by security guards and security forces, private and public. However, with drones and robots, the access to command of security and force potentially moves from Presidents and Generals to programming nerds who in turn may operate in a centralized, hierarchical or distributed anarchical manner. The potential to subvert or revolutionize the system now arises in a third way, the virtual way, in addition to hard power and moral suasion power. Thus we now have three potentials; those for hard power, and moral suasion power and cyber / AI power. A “two-body problem” system is now becoming a “three-body problem” system. The potential for destabilization is greater and the potential to move to new states, beneficial or inimical to “the people”, is also greater.

    The desperation with which conservative governments and many frightened people of almost all classes, albeit in differing proportions, want to return to the previous system (BAU) when this crisis is over, indicates their very realistic fear that things, all things, have somehow changed fundamentally and irreversibly. Their deepest fears are correct. The world has changed fundamentally and irreversibly. Relations in class, national, civilizational, global and ecological system terms, upended by the COVID-19 crisis, will never return to their pre-crisis form. There is a new wave of events to be caught and harnessed . Democratic socialists must paddle hard on boards (platforms of their own making in both the political and virtual platform sense) to catch this new wave and angle civilization itself in a new direction. Civilizational and human survival are themselves are at stake.

    It is now theoretically possible to supersede money, finance and all markets with the possible exceptions of the finished consumer goods and the personal service markets AND to finish (wind down and retire) these markets through a sequence of transitional arrangements even if those transitions take decades. It would take another post to outline the broad possibilities. If we keep thinking in the same old paradigm as is extant now, we will remain stuck in this same paradigm… well, until we go extinct This paradigm is the one which ineluctably creates rampant inequality, climate change, the sixth mass extinction and soon human extinction. The message from nature itself is “Get radical or get ready to die by the hand of nature!” Imagination (the recombination of existing elements in new, emergent forms) is our greatest ability. FFS, let’s start using it!

  10. From your article on “participation income”, the last paragraph:
    “If we truly want reform, we should not trawl through the remains of the neoliberal agenda of the late twentieth century. Rather, we should aim to achieve a positive transformation of our society and economy, and end this crisis better than we started it. ”
    I simply ask: “better” in whose terms?
    You sound as if everyone has the same objectives. That is just so untrue. But you know that, don’t you?

  11. Today Morrison said ” our ultimate goal is to have a covid safe economy “. What about society or community ? At least they have stopped degrading ,punishing ,and humiliating the unemployed for a while. I’ve got a nasty feeling that this emergency will push us further to the right in the long run- and there isnt much room left to go in that direction. Its the same old dilemma – when forced to choose between redistribution and fascist politics the jackboots get dusted off and polished up.

  12. Yes the rich wouldl not suffer one iota from redistribution. In fact the rich would be happier if they had their money taken from them. What rich have so much money that they spend on really really stupid things like jewelry and gold. The only reason that items such as diamonds and opels and rubies have a high value is because rich people have so much more money than they need they become desperate for a way to get rid of it. So they start wasting it on frivolous jewelry. This frivolous behavior causes a terrible environmental and economic distortion.
    When people have what they need and perhaps just a bit more than that they will use their extra income on more modest pastimes such as painting, or buying paintings. Or playing cricket or going to a cricket match. Or paying someone to prepare their food for them because they are unfamiliar with foriegn culinary techinques. These pastimes are sustainable. Moving mountains of rocks to gain a few grains of a sparkly stone is actually a mortal sin.

  13. Curt,

    That’s correct but there is a little more to it as Thorstein Veblen pointed out. The rich engage in acts of conspicuous consumption not to get rid of money but to use it for one of its major purposes beyond the necessities and a few amenities. It’s for social signalling. They signal to others and themselves that they have such an abundance they are able to be completely idle and yet consume endlessly and needlessly. It’s a sign of pure superiority in their own eyes and in the eyes of the sycophants who admire them. The royal family of Great Britain is a perfect example of this nonsense. Capitalist billionaires likewise.

  14. As a footnote to my last long post, May 8, 2020 at 10:46 am, I would dearly love to re-write the second sentence of my first paragraph. It comes out as particularly absurd. The concept I was trying to convey (and failed utterly to do so) was that as a species both eusocial and intelligent, one would think we could, at this supposedly advanced stage of civilization and technology, come up with something better than money and markets for the purposes of social coordination and cooperation.

  15. Ikonoclast,
    Yes the foolish behavior of the rich, and the response of so many not rich people to that behavior is a scab that should be picked at with every opportunity.

  16. JQ said “Rather, we should aim to achieve a positive transformation of our society and economy, and end this crisis better than we started it.”

    totaram says: “I simply ask: “better” in whose terms?”

    Whose terms??? You need to tell us why you picked out that one sentence of hundreds totaram. Please explain.

    Better for the people who are involved with; (phrases from article)
    – commitment to full employment
    –  education and  health
    – anyone with no market income
    – benefit sufficient to meet basic needs over an extended period. 
    – pricing
    – working conditions 
    – control over their own lives.
    – cooperation with the union movement
    – capacity to withstand shocks.

    And JQ, thanks for saying the statement in totrams pick ““If we truly want reform, we should not trawl through the remains of the neoliberal agenda of the late twentieth century. Rather, we should aim to achieve a positive transformation of our society and economy, and end this crisis better than we started it.” 

    And it needs repeating “Rather, we should aim to achieve a positive transformation of our society and economy, and end this crisis better than we started it.”

    And this needs repeating ““If we truly want reform, we should not trawl through the remains of the neoliberal agenda of the late twentieth century.”

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