Two problems with Modern Monetary Theory

I spend quite a bit of time (more than I should) engaged in Twitter debates with advocates of Modern Monetary Theory (MMT). Some are generally sensible, while others are convinced they have learned a deep secret which enables us to have whatever we want without paying for it. Unfortunately, the sensible ones (Meaningful Monetary Theory) don’t do the hard work of correcting the others (Magical Monetary Theory)

A couple of tweets referring to the latter group (followed by the usual long and confused set of responses)

A striking feature of #MMT discussion is that it starts from a presumption of failure. Always supposed to be lots of unemployed resources that can be mobilised by fiscal policy .

When MMT advocates (or anyone else) start suggesting rationing and forced saving are preferable/sensible alternatives to taxation, I don’t think it’s unfair to call them anti-tax. These are really bad ideas, and should be repudiated.

Feel free to add your thoughts

The simple, but unpleasant, arithmetic of a simple UBI

In discussions about Universal Basic Income, lots of people are attracted by the idea of making things as simple as possible. Sadly, that doesn’t work well once you take a closer look.

The simplest UBI would pay every Australian an amount equal to the single age pension, which is just above the poverty line. That’s $20000/yr per person or $500 billion for a population of 25 million, about equal to total Federal government expenditure. That would replace about $180 billion in existing social welfare spending. That leaves $320 billion, approximately equal to total revenue from personal and income taxes.

To fill the gap, we would need either to double income tax revenue, scrap all other public spending, or some mixture of the two. Assuming that’s not feasible, we need to start complicating things. The most obvious step is to treat children differently, for example by giving them half the benefits of adults. But a fixed payment per child isn’t going to be work well, bearing in mind that it would replace existing forms of support which are based on assessments of need.

The key problem is that while tax is mostly calculated on an individual basis, welfare payments are made to households. To get things right, we need to accept that a complex world doesn’t allow for simple solutions.

How can we reduce inequality in Australia

Late last year, along with Emma Dawson, John Hewson and Angela Jackson, I took part in a discussion for the ABC’s Big Ideas program, hosted by Paul Barclay. It went to air recently. Here’s a link to the podcast[1]

Unfortunately, I don’t have the time/ patience to listen to audio. I also don’t like the sound of my voice on radio – this is true for many people I think. It would be great to have a program that took an audio file and generated text output. A very quick search mostly turned up paid transcription services. Does anyone have any experience with this.

fn1. Is a recording of a radio program a podcast? Can anyone clarify this.

Paying for what we used to own: The strange case of CSL

That’s the headline for my latest piece in Independent Australia. Opening paras

AS WE WAIT anxiously for the arrival of a COVID-19 vaccine, which will be made overseas, most Australians will welcome the news that a new vaccine manufacturing plant will be built in Melbourne to produce vaccines for influenza and Q fever (and possibly for future pandemics), as well as antivenenes for snake and spider bites.

The plant is the result of a deal between the Commonwealth Government and Seqirus, a subsidiary of global biopharmaceutical firm CSL. Under the deal, the Commonwealth commits to pay $1 billion over ten years for a variety of products including antivenenes.

At this point, those with long memories might recall that the “C” in CSL once stood for “Commonwealth” and that the Commonwealth Serum Laboratories began producing vaccines and antivenenes more than 100 years ago. Under public ownership, CSL developed both polyvalent antivenene against all the major Australian land snakes and the first Q fever vaccine. Why then, are we paying nearly $1 billion to a company we once owned to provide pharmaceutical products that were developed when we owned it?

Concluding para

In 30 years of privatisation in Australia, there has not been a single case where the public would not have been at least as well off if the asset had remained in public ownership. Turning this around, there is now a strong case for renationalisation of a wide range of private assets, including roads, electricity transmission and distribution network and airports. It is time to call the failed experiment of privatisation to a halt.

RCEP

For some reason, I’ve been asked to do an interview with a Korean radio station about the Regional Comprehensive Economic Partnership, frequently described as “the world’s largest trade deal”, on the basis that the countries involved have a combined population of 2.2 billion, more than any previous deal.

The most interesting thing about the deal is what’s not in it (also, who’s not in it, notably India and the United States). Early drafts followed the classic pattern, with strong Intellectual Property and Investor State Dispute Settlement, while excluding environmental and labour protections (which never had a chance in this deal) . In the final agreement, the IP content, which previously included things like a binding commitment to Plant Variety Rights has been watered down to a generic agreement that IP is a good thing, while ISDS is gone altogether.

ISDS was always an appalling way of institutionalizing[1] corporate power. But the attempt by Philip Morris to use ISDS to overturn Australia’s plain packaging laws, using a spurious corporate base in Hong Kong, seems finally to have tipped the balance against it.

Much the same can be said about strong IP. The remorseless extension of copyright, calibrated to the lifetime of Mickey Mouse, seems finally to have come to an end in the US, and any attempt to extend the scope of IP now encounters vigorous resistance.

fn1. I’m sure there is a better word to express what I mean here, that corporate power is locked in more or less irrevocably by this kind of deal. But I can’t find it in the memory bank, or the Thesaurus. Any suggestions?

It’s not about the watches …

… is Australia Post a commercial operation or a public service?

That’s the headline for a piece I wrote for The Guardian (my first there in quite a while). A key point is that the deal that allegedly justified the expensive gifts was, in essence, the continuation of an arrangement established a hundred years ago between what was then the Post Office and the publicly owned Commonwealth Bank. Whoever put that arrangement together deserves commendation, but I doubt that they were rewarded by anything more than a promotion adding a few shillings a week to their salary.

The conclusion:

The Australian public has long since seen through the claims made for privatisation, even if the financial and corporate sectors (the real “inner city elites”) continue to push the ideas of competition and choice. Australians want basic services to be delivered cheaply and reliably, by organisations set up to serve the public, rather than to maximise profits.

The statutory authority model, under which most of the infrastructure on which we now rely was built, is the best way to achieve this.

UBI: For individuals or households?

This post is about a point which has come up here and there in the discussion about Universal Basic Income, but which I’ve never worked through properly.  


A preliminary observation is that it’s necessary to consider tax and welfare together as an integrated system. What matters most is the effective marginal tax rates (the sum of marginal income tax and benefit reduction rates). 


Then, starting with the current Australian tax-welfare system, and considering possible paths towards UBI, the key problem is that the tax system is organised (mostly) on an individual basis while the welfare system is organised (almost entirely) on a household or family basis. 

Read More »

Outsourcing: what we pay for is what we get

Ross Gittins makes some obvious, but important, points about what is lsot when vital public services are contracted out. As he says, economists have known this since the work of Oliver Hart, last century, but it’s only now penetrating the policy establishment. In the UK, which led the charge for outsourcing under Thatcher, insourcing is the New Big Thing.

Unlike Hart, I’m not in the running for the Economics Nobel, but I’ve spent much of the last thirty years supplying empirical support for his theoretical analysis.

To get the economy going, we’ll need more than hard hats

That’s the headline for my latest article in Independent Australia. Opening paras

WITH THE economy in recession as a result of the COVID-19 pandemic and depressed conditions likely to continue for a year or more to come, attention has turned to strategies to promote recovery.

Unsurprisingly, most participants in the policy process have turned to the kinds of strategies they have always favoured.

High on the list for many is increased investment in physical infrastructure projects and particularly transport infrastructure. Such projects, always announced with an impressive-sounding number of associated jobs, lend themselves to images of legions of workers toiling with picks and shovels (the term “shovel-ready” is commonly used for projects ready to be implemented rapidly). And the announcement of such projects gives rise to media-friendly images, mercilessly satirised by the ABC program Utopia, of politicians in hard hats and hi-vis vests, busily engaged in building the nation.

Conclusion

the biggest investments we need to make are in people, not concrete. The pandemic has exposed huge weaknesses in our social infrastructure, from aged care and public health to university education. These are the areas that desperately need more investment if we are to make the economic transformation we need.