Anyone who regularly reads blog-sites, the more moderate sections of the MSM, The Guardian, Fairfax, or uses social media such as Twitter and Facebook,
must have surely noticed the rising tide of dissatisfaction and anger with the policies of the Abbott government.
The two most asked questions are ‘how did we get here?’ and ‘what can we do about it?’ Underpinning these questions is the sub-text of ‘who will save us?’
The answer to the first question can be found in the introduction of ‘supply side economics’ by Paul Keating in the early 90s, in tandem with abandonment of the commitment to full employment (2 – 2.5% of the workforce unemployed) in favour of the ‘free market’ economic model which demanded a permanent pool of between 5 – 6% unemployed, and championed by exponents such as Milton Friedman and the ‘Chicago Boys’.
Keating’s policies kerbed, paved and channeled the road which Howard and Costello would broaden and so comfortably drive along for over a decade.
Successive governments both Labor and Liberal have followed suit, and in the case of the Abbott government – are determined to put the pedal to the metal in order to ‘let the market rule and find its own level!’
The answer to ‘what can we do about it?’ and ‘who will save us?’ lie in the debunking of the neo-liberal myth that ‘the market’ if left to its own devices and with a minimum of government interference will deliver blessings and bounty to all.
This is perhaps the greatest hoax ever perpetrated in the latter 20th century and shows no sign of abating in the 21st.
Central to this hoax, is the notion that government deficits equal ‘debt’ in the same manner as household or business debt.
This is the great lie!
The following facts apply to any and all economic theory be it ‘supply side’ or Keynesian, or any shade and hue in between.
Governments such as Australia have what is known in economic terms as ‘sovereignty’ over their own currency (which they can also ‘float’) and therefore literally can – and do – create money out of thin air!
This in effect means that a sovereign currency issuing government can never run out of money nor for that matter does the deficit need to be repaid in the same sense that household debt does.
In fact, the Australian government doesn’t have to collect taxes or borrow money in order to spend it!
All governments which have sovereignty over their own currency, and this includes the US, Canada, Japan, Britain, etc..(Europe doesn’t count as it has relinquished its sovereignty in favour of the Euro), have to first spend money in order to collect taxes!
Taxes in turn are used to control inflation – too much money chasing too few goods and services.
Nor are taxes stored in a huge Scrooge McDuck like ‘Money Bin’ waiting to be used for funding.
Government spending is a flow into the economy and taxes are a flow back out – not unlike the flow of water through the turbines of a hydro electric power station and the efforts produced by the water is not unlike the efforts of the citizenry as they go about earning their daily bread.*
Taxes serve to drain off excess government spending and send the revenue back where it came from – that is -nowhere.
In economic terms, the achievement of balance between inflow and outflow is called ‘zero sum’.
If inflation is low, then governments can spend more or cut taxes. If inflation is high, then governments cut spending and increase taxes.
This paradigm holds true whether the government is in deficit or surplus. It is inflation not debt which dictates government fiscal policy.
Central banks, such as the Reserve Bank in Australia and the Federal Reserve in the US, act as book keepers to tally what governments spend.
They do not and cannot control the money supply – they can only regulate interest rates!
The above are facts and are the basic premise on which all economic theories rest.
The difference in ‘supply side’ economics and Modern Monetary Theory lies in whether and where the government chooses to spend the money, and whether and where it chooses to cut or increase taxes.
Supply side economics argues that government should cut spending in the public sector and cut taxes in the private sector.
Resting on the premise that if government cuts taxes in the form of both income tax and capital gains tax in tandem with deregulation of the financial system and the labour market, consumers benefit from a greater supply of goods and services (hence the term ‘supply side economics’) which in turn stimulates economic growth.
According to ‘supply side’ economic theory, having been freed from government interference, the most efficient businesses thrive through competition and provide their customers with better produced goods and services at a lower cost to the consumer which in turn, keeps inflation under control.
In the 1930s, John Maynard Keynes turned the theories of ‘supply side’ economics on its head by arguing that it was demand that created supply and that government intervention was needed in order to counteract the ‘boom and bust’ cycles of neo-liberal economic policies.
Keynes argued that full employment driven by government services created a broader and more stable middle-class which taxed on a sliding scale according to their earnings, created a strong and stable economy.
It was the application of Keynes theories which created an unparalleled period of growth and prosperity on a broad scale for almost half a century.
In contrast, for over nearly three and a half decades of the application of ‘supply side’ economics, the exact opposite has occurred.
Corporations fuelled by tax breaks and de-regulated labour markets have become monopolies or duopolies and driven smaller competitors and suppliers out of business.
Real wages and working conditions have declined so that the average worker or small business owner is now working harder for longer hours and less pay, while in contrast CEO’s salaries have increased to a level that borders on the obscene.
Much of this has been enabled by governments both Liberal and Labor, who have been complicit in perpetrating and perpetuating the big lie – government debt is the same as household or business debt.
Despite being debunked in the 1930s by economists such as Keynes, and in more recent times by economic luminaries such as John Kenneth Galbraith, who called neo-liberalism ‘the horse and sparrow theory; if you feed the horse enough oats some of it will pass through to the sparrow’.
Others such as Nobel prize winner Paul Krugman, referred to it as ‘a crank doctrine that would have had little influence had it not appealed to editors and rich men’, and even conservatives such as George Bush snr termed the theory ‘voodoo economics’ – neo liberalism continues to be the dominant paradigm when applied to budgets and government spending.
Which brings us back to ‘what can we do about it?’ and ‘who will save us?’
The short answer is that no one will save us – we must save ourselves!
For the past two decades the Australian political landscape has been dominated by neo-liberal ideologues (Howard, Costello, Abbott), hacks (Beasley, Rudd, Gillard), time-servers (Ferguson, Macklin, Crean), and also – rans (Hewson, Downer, Turnbull and anyone you’d care to name from the Australian Democrats), under the guise of ‘professional politicians’ – those who have worked briefly in law, finance, think tanks, and unions before becoming career politicians.
In light of this trend, there is no point in waiting for a new political messiah whose breadth of vision and compassion will herald a new age.
So how do we save ourselves?
While joining or supporting activist organizations such as Get-up! offer a venue for voicing dissatisfaction or dissent and have been successful in winning small battles, what is needed is a large scale and ongoing campaign at grass roots level to debunk the neo-liberal myths of the free market and that government deficit equals ‘debt’.
You can do this by investigating Modern Monetary Theory, and due to the rapidly growing number of adherents world wide, there are plenty of web-sites which will give you this information in either text or video.
Once familiar with MMT’s basic premise- and this is easy to understand even if you have little or no interest in economics- write or -email your federal member, and ask if why when Australia has sovereignty over its own currency and is capable of creating more jobs and bolstering infrastructure through government funding, do they and their parliamentary colleges insist on perpetrating the myth that deficit is debt and that surplus equals solvency.
Written letters sent via ‘snail-mail’ are best, especially if they are marked ‘private and confidential’ and are sent by certified mail – this means that while they may not arrive directly on the pollie’s desk, they will certainly find their way to his or her private secretary.
Don’t give up if you get a standard reply which includes a polite dismissal of your inquiry.
Politicians are driven by the need for votes and always keep their noses in the wind for change and new bandwagons to ride in order to continue their political careers.
If a continued and steady flow of such letters builds and keeps building, it wont be too long before one or several of them decide to exploit it to further their own careers by championing the rising tide of ‘public opinion’.
There are always plenty of Cassius’ with ‘lean and hungry looks’ in politics, especially on the back benches – it’s the nature of the game.
Therefore, it is simply a matter of applying continued pressure in order to bring about change.
If this avenue doesn’t appeal, then start your own blog. In the age of the internet, everyone has a megaphone so pick up yours and add your voice.
Keep in mind that ‘supply side’ economics and its attendant philosophy of neo-liberalism has become so entrenched in the public conscience that even intelligent people believe it to be true in the same manner that people used to believe that the earth was flat or that Australia would be over-run by hordes of Chinese communists hell bent on enslavement.
The cold light of science dispelled the first myth, political activism the second!
In the face of the Abbott government’s policies which are determined to destroy any and all aspects of social justice and equality in order to further a warped and deeply flawed ideology over community and common sense – what do you have to lose?
Stop waiting for the new political messiah, they’re already here -and they are you!
* A dip of the lid to Mangrove Jack for the analogy.