I’ve been working for some time on a review of the first full-length text based on Modern Monetary Policy, Macroeconomics by William Mitchell, Randall Wray and Martin Watts. A near-final draft is over the foldRead More »
I forgot to link to this piece in The Conversation when it came out a week ago. Unlike much of what I’ve written lately, it hasn’t been overtaken by events.
The New Daily asked me to write a bit on the question “What should/will the post-coronavirus economy look like?
Here’s what I sent
The Covid crisis has demonstrated the inadequacy of crucial aspects of our social and economic system, particularly relating to employment and unemployment. Before the resurgence of neoliberalism in the 1970s, Australian governments accepted responsibility for maintaining full employment, and provided support for all those unable to engage in paid work, whether through age, disability or unemployment on an equal basis. The full employment goal was not always achieved, but it remained central to public policy.
Over the period since the 1970s, government has passed the responsibility for economic management to the Reserve Bank and required a primary focus on low inflation. The treatment of benefit recipients, except the old, has been steadily less generous and more punitive. Meanwhile governments have focused obsessively on largely meaningless measures of budget balance.
The failures of this approach have been evident for years, but it has taken the Covid crisis to lead to any change. Within a matter of weeks, dogmas that have been in place for decades have been abandoned.
The most important requirement for the post-coronavirus is that we should not attempt to return to a pre-crisis ’normality’ that was unsustainable in almost every respect: social, economic and environmental. Rather, the income support measures adopted in response to the crisis should be maintained, and the government should accept the maintenance of full employment as its core economic responsibility.
ABC Fact Check has a piece looking at a claim by the Young Greens that “making lattes provides more Australian jobs than the entire coal industry.” The detail of the tweet included the claim that there were 86000 barista jobs compared to 52000 in the coal mining industry
The Fact Check Unit observed that the quoted firgure is for total employment in the cafe industry, not just barista. By comparing an estimate of the number of baristas to total employment in coal mining, the Fact Check Unit concludes that the claim is Incorrect.
There is an apples and oranges problem here. There are two reasonable ways to do this comparison
(a) Treat “barista” as shorthand for “someone who works in a coffee shop”. Then compare employment in the coffee shop sector, including “permanent, part-time, temporary and casual employees, working proprietors, partners, managers and executives within the industry” with employment in the coal mining sector, including managerial, professional and clerical staff, general trades workers and others.
(b) Define “baristas” to refer to the occupation of making coffee, and “coal miners” to refer to the occupation of “Drillers, Miners and Shot Firers”, that is, people whose occupation is extracting coal from the ground. Based on the proportion for mining as a whole, the latter is about 20 per cent of total employment in the mining industry.
Either approach, applied consistently, would imply that there are more baristas than coal miners. The fact check uses the first, broader definition for miners and the second narrower one for baristas. This is an apples and oranges comparison, and should be corrected.
Blackrock, the world’s largest asset manager has announced some big steps towards divestment from thermal coal. As I observe in this article in The Conversation, Blackrock’s shift marks the point at which divestment has become the norm for financial institutions, and continued involvement with coal a choice that must be justified in the face of the evidence.
As has already happened with Adani’s Carmichael project, thermal coal miners and power station developers will soon find it impossible to get external finance except from government and government-backed sources, such as China’s Belt and Road initiative. The Australian government is already pushing in this direction.
That brings us to the next step in divestment: government bonds. The Swedish central bank has already dumped Australian government bonds in protest against our climate vandalism. As with earlier rounds of divestment, this is a small start that is likely to accelerate quickly. A large-scale divestment from Australian government bonds would lead to the loss of our AAA rating, and an increase in interest rates across the board, including home mortgage rates. That might finally shock the quiet Australians into realising how disastrous the choices they’ve made have been.
That;s the headline for my latest piece for Independent Australia Obviously, costs like ecosystem destruction and the deaths of millions of native animals can’t easily be put into the framework of the National Accounts. But, even if we stick to the National Accounts, Gross Domestic Product is a terrible measure of economic welfare. As I always say, there are three reasons for that; it’s Gross, it’s Domestic and it’s a Product.
There’s generally not a lot of common ground between fans of Robert Mundell (the intellectually respectable face of supply side economics) and those of Modern Monetary Theory. Yet in one very important respect, their ideas are two sides of the same coin.
Mundell got his Nobel Memorial Prize, in large measure, for what’s been called the ‘impossible trinity’, namely that a country can’t have all three of a fixed exchange rate, an independent monetary policy and free capital movement.
Turn that round and it says that, if you are willing to give up one of the three, you can have the other two. If we ignore the idea of controlling capital movements completely (limited controls don’t do the job) the trinity becomes a simple two-way choice: fixed exchange rate or independent monetary policy.
If you are on the gold standard, or part of a monetary union, then you are stuck with a fixed exchange rate, and Mundell’s point is that you can’t have an independent monetary policy. Conversely, if you are a sovereign nation, issuing your own fiat money, and you choose not to defend a fixed exchange rate, you can choose your own monetary policy.
That observation is what gives Modern Monetary Theory its name. Under modern (post-gold standard) conditions, any country with its own currency can choose its own monetary policy.
I’m working on a revision of a chapter on unemployment (its with Stephen Bell, and the book is the 4th edition of a text called Social Policy in Australia. One of the issues we’ve stressed in previous editions is hidden unemployment, particularly including underemployment.
I haven’t paid much attention to this issue in the last few years, focusing mainly on the set of issues usually tagged as “the future of work”. When I came back to it, I was surprised to find that, even though unemployment has been more or less stable for the last decade, underemployment has risen sharply, and is now at an all-time high of 8 per cent.
The increase is concentrated among 15-24 year olds. I have a few ideas about what might be going on here, but I thought I’d see if readers can point to any serious studies or, failing that, anecdotal evidence on the question.
In the Guardian yesterday, I wrote about why the Grattan Institute’s latest report on wealth differences between generations is really about class conflict and the rise of the patrimonial society.
That’s the provisional title I used for my latest piece in Inside Story. Peter Browne, the editor, gave it the longer and clearer title “Want to reduce the power of the finance sector? Start by looking at climate change”.
The central idea is a comparison between the process of decarbonizing the world economy and that of definancialising it, by reducing the power and influence of the financial sector. Both seemed almomst impossible only a decade ago, but the first is now well under way.
There’s also an analogy between the favored economists’ approach in both cases: reliance on price based measures such as carbon taxes and Tobin taxes. Despite the theoretical appeal of such measures, it looks as if regulation will end up doing much of the heavy work.