The case for higher wages

I’m a signatory of a public letter on the benefits of stronger wage growth this morning, organized by the Centre for Future Work. In support of the letter, I said

For decades, government policy has been designed to weaken unions and push wages down. It’s time to put that process into reverse.

A list of all the signers is at this web site: https://www.futurework.org.au/wages_open_letter. That site also contains a media release that was distributed to reporters this morning, and additional quotations in support

Media coverage of the letter includes:

An article by Stephen Long at ABC: and

An article by Amy Remeikis in the Guardian:

The editors of the AFR mentioned the letter in the course of an editorial reaffirming the virtues of trickledown economics:

And AFR columnist Richard Denniss also mentioned the letter in his column.

You can also look at the Twitter feed for @CntrFutureWork (eg.https://twitter.com/CntrFutureWork/status/1107776026367520769),

MMT and the scope for seigniorage

The central idea of Modern Monetary Theory (MMT), as I understand it, is that, rather than worrying about budget balances, governments and monetary authority should set taxation levels, for a given level of public expenditure, so that the amount of money issued is consistent with low and stable inflation. In this context, the value of the net increase in money issue is referred to as seigniorage. To the extent that seigniorage is consistent with stable inflation, it is achieved by mobilising previously unemployed resources.

A crucial question is: what is the scope for seigniorage? In particular (expressing things in MMT terms), is the scope for seigniorage sufficient to permit the introduction of ambitious programs like a Green New Deal without the need for higher taxes to prevent inflation.

The recent episode of Quantitative Expansion in the US provides some evidence here. Contrary to the dire predictions of some critics, QE did not lead to runaway inflation. This is consistent with the view, shared by MMT advocates and mainstream Keynesians, that, in the context of a liquidity trap and zero interest rates, there is substantial scope for monetary expansion.

How much is “substantial”?

According to the St Louis Fed, the monetary base grew from around $800 billion to just over $4 trillion between 2008 and 2016. That’s an increase of $3.2 trillion, which is a lot of money. Expressed in terms of GDP, though, it doesn’t seem quite as large. Over eight years, $3.2 trillion is $400 billion a year or around 2 per cent of US GDP ($20 trillion).

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The Future of Work: Keith Hancock Lecture at ANU

I’ll be giving a public lecture on The Future of Work at ANU on 6 March. It’s the Keith Hancock* lecture, sponsored by the Academy of the Social Sciences in Australia, in honour of one our great labour economists. Details are here . An outline

The outcomes of technological change are affected by the interaction of changes in the regulation of labour markets and the stance of public policy. For the last 40 years, changes in labour market regulation have been almost uniformly anti-union and anti-worker, while public policy has been premised on the desirability of reducing wages. Until and unless the stance of public policy changes, technological change will be experienced by workers as harmful disruption. Used in a socially desirable way, however, technological change offers the potential for a radical improvement in work-life balance.

I’ll be giving the same talk at UQ in April (details TBA).


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Ten Year Plans

The Morrison government has just announced what it calls a climate policy, promising expenditure of $2 billion. I’ll have more to say about this later, but I want first to point out that the promised expenditure is to be allocated over ten years, at an average rate of $200 million a year. That’s only marginally more than the government spent on advertising in 2017-18, which is appropriate, I suppose, for what is basically a PR exercise.

The big problem here is the new practice of announcing expenditure amounts over 10 years. There was a time when promises of this kind were made in terms of annual expenditure. Sometime in the 80s or 90s, the norm shifted to four-year programs, on the basis that this was the period covered by Budget estimates. The fact that it made promises look bigger was a handy side benefit.

If four-year spending figures were problematic, announcing programs for ten years is simply ludicrous. The likelihood that anyone in the current ministry will still be holding office, or even in Parliament in ten years time is very small, as is the probability that any expenditure program will continue unchanged. If we can budget 10 years ahead, why not 100 or 1000?

What makes the joke even worse in this case is that the policy is obviously designed to last, not for ten years, but for three months, until the election in May. If Morrison ekes out an undeserved victory, the denialists on the backbench will almost certainly want to kill off this piece of gesture politics. If he loses, the LNP will certainly dump the policy and may even offer something serious.

In the meantime, it’s a mistake to treat this as a policy – it’s an announcement you make when you don’t have a policy.

The end of the PFI

The long-running Brexit fiasco has overshadowed most news coming out of the United Kingdom these days. It’s not surprising, therefore, that hardly any attention was paid to news that may be of more long-term economic significance to Australia, and to the current crisis of neoliberalism, than a rearrangement of relations between the UK and the European Union.

In the Budget brought down in late October, UK Chancellor of the Exchequer, Phillip Hammond announced the end of the Public Finance Initiative (PFI). The PFI was introduced by the Conservative government of John Major in 1992, and greatly expanded under Tony Blair’s New Labour government. The PFI provides a financial framework for Public-Private Partnerships, which have their own acronym, PPPs.
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Most favoured customer status

One of the things that annoys about the neoliberal era is the constant advice to “shop around” for the best deal for services we could once assume were fairly priced, like electricity or banking services. A crucial feature of this is that you can’t do this once and for all.  Loyal customers are routinely punished by being left on unfavourable deals while new customers are offered better terms.

It struck me that we could get substantially better outcomes from markets if all firms were required to extend to existing customers any offer made to new ones.* That would greatly reduce churn and wasteful sales efforts, hopefully leading to a reversal of the increase in retail margins we’ve seen in areas like electricity.

This would be the equivalent of Most Favoured Nation status in trade policy, which ensures that all members of the World Trade Organization receive the same treatment. Interestingly, the Wikipedia article on Most Favoured Nation status refers only to an anti-competitive version of Most Favoured Customer status, where MFC status is extended only to selected customers.

I’m a bit ambivalent about suggesting ways to make neoliberalism work better, especially as it is now in retreat, but I think it will be around for a while yet, so reforming obvious failures seems like a worthwhile idea.

 

 

* I can imagine a case for some limited exemptions, for example, for “try before you buy” deals.