MMT and the scope for seigniorage

John Quiggin88 Comments

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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Coal, cronyism and corruption

John Quiggin41 Comments

The latest issue of Coalwire, a weekly newsletter covering the transition away from coal list three separate corruption cases involving coal: in Indonesia, South Africa and Bangladesh. These aren’t isolated instances: in just about every jurisdiction that isn’t moving away from coal at a rapid rate, the industry is associated with cronyism at best, and outright corruption at worst.

In Australia, for example, the push to develop the Galilee Basin is being driven by a set of politically connected billionaires (or pseudo-billionaires on the Trump model). In China, the move away from coal is being obstructed by provincial governments eager to keep the construction gravy train rolling. In India, there’s Coalgate. Crony capitalist governments like those of Trump in the US, Erdogan in Turkey and Law and Justice in Poland are among the leaders in resisting decarbonization.

The explanation is simple. Coal can’t survive in an open market environment, particularly one with a carbon price, nor under a coherently planned system. It’s only under the toxic mixture of markets and intervention represented by ‘business friendly’ government that money can still be made from destroying the global environment.

Queensland: A service economy

John Quiggin20 Comments

Lots of people, notably including political commentators, imagine Queensland as a state dominated by mining and agriculture, and presumed to think and vote accordingly. I’ve just collected some statistics in response to a query made to the university, and I thought they might be of more general interest.

Like Australia as a whole, the Queensland economy is dominated by services. As this table shows, agriculture and mining each account for about 2.5 per cent of total employment. This is marginally, but not significantly, more than for Australia as a whole (2.4 and 2.0 per cent)

Agriculture and mining together account for less jobs than service industries you might think of as relatively minor, such as Professional, Scientific and Technical Services or Administrative and Support Services.

Even adding in manufacturing, which, in Queensland, largely consists of processing primary products into outputs like food products and refined metals, the “old economy” only accounts for about 12 per cent of all employment. Health care and social assistance alone is larger

The primary production share of employment has declined over time, with fluctuations between mining and agriculture.  Development of new mines also accounted for significant employment in construction until about 2015, but this has now dropped off (hard to extract from the data, but easy to see by looking at the pace of new development)

Mining is a significant, but not critical source of revenue to the state government, yielding $5 billion out of a total of $58 billion. However, the Grants Commission takes access to royalty income into account in allocating GST revenue, so the actual benefit to Queensland is smaller than the $5 billion figure would suggest.


The Future of Work: Keith Hancock Lecture at ANU

John Quiggin3 Comments

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

John Quiggin11 Comments

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 Lower Darling: a government-made disaster

John Quiggin50 Comments

Federal Government last night released an independent interim assessment of the recent fish deaths. The report is damning, but you wouldn’t know that reading the press release from the relevant minister, David Littleproud.

Here’s my response, which I provided to the Australian Science Media Centre

The Report clearly describes the “antecedent conditions” which made the Lower Darling so vulnerable to large-scale fish deaths, all of which reflect policy failures of the current government: These include increased upstream extractive use of water, the decision to release water from Menindie Lakes in 2016 and the extreme climatic conditions which are the “new normal” as a result of climate change. The Minister’s statement ignores all of these factors, and focuses only on the immediate causes of the disaster.


The government has rejected water buybacks as a means of increasing flow, ignored environmental concerns in the management of the Menindie Lakes and rejected any action to mitigate climate change. This was a human-made disaster, for which the present government bears substantial responsibility.