Bill Mitchell wrote a long critique of Australian Green economic policy which looks pretty familiar to us us here in terms of our home-grown Greens. The Irish Green Party are meeting tomorrow in self examination to try to understand their banishment by the electorate. I will be there to suggest they develop an economic policy based on Modern Money Theory. Their clear lack of economic understanding led them inevitably and justly to their current sorry condition. Will they listen now.? As Bill Mitchell states in his article our first recommendation is that they promote the Job Guarantee – a Green Job Guarantee.
…So my first recommendation to The Australian Greens is that they endorse as national policy the Job Guarantee.
But back to their macroeconomic understanding. In their Policy G1: Economics you soon realise that The Greens are as ignorant about macroeconomics as they are enlightened on cultural and environmental matters. Moreover, if they were more advanced in their macroeconomics understanding the rest of the policy positioning would resonate more strongly and have greater credibility.
Their statement of economics principles begins well by acknowledging the symbiosis that human economies have with the natural world. They also emphasise equity principles which I support and eschew a fundamental reliance on the “free market economy” which “by externalising the environmental and social costs of greenhouse gas emissions is creating the greatest market failure of all time, namely climate change.”
While I agree that climate change is a fundamental problem that will be exacerbated by maintaining a reliance on the private market to allocate economic resources I think the greatest market failure of all time is the failure of the economy to generate enough sustainable jobs to match the preferences of the available workforce.
After agreeing with their Principles covering the urgency of policies to address climate change; the renewal of collective will or solidaristic sentiment; and the need to ensure natural monopolies (for example Telstra – my example not the Greens) stay in public ownership and management, I got to Principles 8 and 9 which relate to budgets and debt.
The Greens say (quote):
8. government finances must be sustainable over the long run; budget deficits and surpluses must balance each other over the business cycle.
9. long term government borrowing is the preferred mechanism for funding long term infrastructure investments.
So where do you start with these fundamental principles? Are these political statements or a reflection of how The Greens (whoever wrote and endorsed and stood for office under this document) understand the system to work? It doesn’t really matter what the statements represent (politics or comprehension) when you consider they are totally inapplicable depictions of the way a modern monetary economy such as Australia works.
They are also dangerously naive statements because they erode the capacity of the Government to achieve much of what The Greens aspire to.
First, what does government finances must be sustainable in the long run mean? What is the long run and what is the definition of sustainable. Well I guess you infer meaning from the next phrase – the old neo-liberal con job – budget deficits and surpluses must balance each other over the business cycle.
So the business cycle – peak to trough and back to peak – defines the temporal perspective that will define the sustainability span – this presumably is the “long run”, which is a different conception of the long run than economists might consider.
So on average The Greens believe that the federal budget balance must be zero over the business cycle. What they mean is the structural balance (or full employment balance) should be zero on average over the cycle.
Hmm. What are their aspirations for non-government saving? They clearly want to reduce our reliance on coal exports and other mining products that may boost our net exports. So they are not hoping for a Norway-type situation where the net exports are so strong that the government sector has to run surpluses to avoid having too much nominal demand in the economy. Even for Norway, this is a temporary situation while their oil reserves last.
The Greens clearly do not understand that the government balance is a mirror image of the non-government balance – $-for-$. The only way you can run a budget on balance equal to zero over the cycle is if you do not want the non-government sector to net save in the currency of issue on average over the cycle.
This would be an atypical situation. The more normal circumstance would be for the private sector to desire to net save in the currency of issue. Given that current account deficits are also typical then this requires the government sector to be in deficit on average over the cycle.
Trying to run surpluses to balance on average over the cycle under these circumstances will damage the economy and deliver deficits anyway as output and income levels contract and the automatic stabilisers kick in. It is just economic vandalism to advocate policies that will be self-defeating but cause damage (rising unemployment and lost income) along the way.
Why would The Greens want to lock into this neo-liberal orthodoxy? Do they think it sounds responsible? The reality is that we need to re-condition the public debate about these concepts and options and educate all of us to realise that these flaky statements about plotting a path back into surplus is in some way sustainable but also responsible.
It is neither sustainable nor responsible.
Further, it will never sustain a fully employed economy. So this economic principle undermines its economic goals of full employment. It also undermines a lot of other initiatives that The Greens claim they would implement.
It gets worse though when we consider Principle 9. The Greens think that debt-issuance by the Federal Government is required to fund government spending. It is not because the federal government is not revenue-constrained. The federal government issues the currency – it is a monopolist in this regard. It never needs to finance its spending unlike a household which uses the currency of issue.
Why hang onto these neo-liberal myths which are designed to put the Government into a straitjacket and impose “fiscal discipline” on it? The straitjacket is what prevents the Government from achieving high levels of employment and maintaining high standards in public goods and infrastructure.
Reading on The Greens also want “a national carbon trading scheme” – which is odd given they do not like free markets! But my approach to carbon reduction will have to wait for another blog. I don’t support market-based schemes though and I am surprised The Greens do. The natural environment cannot be the subject to “trade-offs” which is at the heart of market-based allocations.
My conclusion is that The Greens are in need of some solid economics education. As it stands, their macroeconomics statements are neo-liberal gobblygook. In accepting the mainstream view on debt and deficits they reduce the room they have to credibly say anything about the other elements of their political agenda.
I also heard the other day that one Green State level MP is on the public record as saying that “no other economist thinks like Bill Mitchell so he must be wrong” (or words to that effect). When I was told this it reminded me of those advertisements that appeared daily in Melbourne newspapers in times gone by that said “X million Christians cannot be wrong” – you know appealing to numbers to evince credibility. My response: Lemmings all run over the cliff together!
But I also would remind everyone that we are currently in a serious global economic crisis that has been driven by the policy positions that are mainstream in my own profession. So X million economists can be wrong! (worth reading the full article)
