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Sinister

I wrote this just over four years ago, when I was blogging somewhere else. With the postal survey currently running and all the raging unpleasantness that’s come along with it, this seems like a really good time to revisit it.

They had a name for it, once upon a time. Sinister. People who wrote with their left hand. In every way, it was not right.

For ages, the majority of right-handed people tried to force the left-handers to be like them. Young people who showed a preference for writing with their left hand were forced to try and write with the “right” hand, to be like the rest. This was no more effective than it sounds.

Although it took a very long time, eventually most of the right-handers came to recognise that left handed people were just born that way, and there was no good to come from trying to make them be something they weren’t. It just made the left-handers miserable, and really did no good to anyone right or left-handed.

So left-handed people were allowed to write with their left hand, and most people went on with their lives and hardly thought about it again.

The hard-line right-handers continued to resist, and gritted their teeth and tried to ignore the left-handers and their writing in public left-handedly. But you have to draw the line somewhere. They sure as hell weren’t going to allow these left-handed freaks to paint left-handed. No way. Painting was the province of the good, right-handed folk. To let left-handed people paint would be the end of the world as we know it.

And many of the left-handed people didn’t care. They looked at the majority of the painting they saw that the right-handers had done, and said we don’t need to paint. We’re happy with our writing.

But some of the left-handed people did care. They had a strong desire to paint, to express themselves through painting. They wondered why their painting was forbidden. And when they asked, they were told “because it was decreed many years ago”. But many other things decreed then are no longer rules we live by, why is painting so important? “You might paint things that good right-handed people won’t like, and good right-handed people’s children might see your paintings. Your paintings might tempt right-handed children to be left-handed!”

And the left-handed people felt this was deeply unsatisfactory reasoning. Many right-handed people’s paintings were awful, just as many were good. And each painting was unique. The value of a painting was intrinsic to itself, the left-handed people said. The quality of our paintings doesn’t change the value of your paintings. They’re just our paintings. “No, only right-handed people can paint!”

Why? Will the left-handed people use up all the paint? “Well, no…”

Will letting left-handed people paint devalue your painting? “Yes it will.” Why? “Just, just because! Only right-handed people can paint.” Even if their paintings aren’t always good? Even if their paintings don’t stand the test of time? “Yes.” You realise that is very discriminatory? “Yes, but there are people who don’t want you to be allowed to paint. Important people who tell other people what to think and how to vote.”

But in more and more places, the right-handed majority began to realise that what they were espousing wasn’t fair. And the left-handed people who wanted to paint had a point. So in some places, they changed the rules and let the left-handed people paint.

Some of the left-handed people’s paintings were beautiful. Some of the left-handed people’s paintings were awful. But most of the left-handed people’s paintings were just average. Just like the right-handed people’s paintings.

And in those places, most people went on with their lives and hardly thought about it again.

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Couch Potato

There’s a reason people say “ignorance is bliss”. Ignorance would stop one from getting riled up when one reads utter rubbish like “Scott Morrison finds $4 billion down the back of the couch“. According to The New Daily’s Money Editor, James Fernyhough,

The federal government has stumbled over an extra $4.4 billion, thanks to an unexpected boost in tax revenue and a drop in expenditure. The news, announced by Treasurer Scott Morrison and Finance Minister Mathias Cormann on Tuesday, reflected an unforeseen boost in economic activity in Australia.
The multi-billion dollar bonus does not mean that the government is out of the red – far from it. The budget for 2016-17 was still a massive $33.2 billion in deficit, meaning the government had to borrow that amount in order to fund its spending commitments.
But it means it had to borrow $4.4 billion less than it expected to back in May. As a result, the overall government debt expanded at a slower rate than expected. In total, the government now owes its lenders around the world $322.3 billion.

To suggest that the government “stumbled over” some money and has had to borrow less as a result is just factually wrong. The federal government does not borrow money. The federal government is the currency issuer. It is the only player in the economy who has that ability. If anyone else attempts to issue $A they will get a visit from the constabulary and a charge of forgery. So the idea that the federal government has to go out to “lenders around the world” to borrow the currency it – and only it – can issue is akin to saying that Qantas has to buy or borrow Frequent Flyer points from some market before it can issue them to its customers. Of course it doesn’t. Qantas can issue as many Frequent Flyers as it pleases, and it doesn’t need to get them from anywhere. They exist because Qantas issued them to someone. When that someone trades them back to Qantas in return for a service, they cease to exist again. So too every dollar exists because the federal government issued it into existence.

The back of that couch goes a long, long way. There is an infinite number of dollars down there. They are not a finite resource like gold. The only limit on their issuance is real resources and production: more dollars in the economy than idle productive capacity to absorb them and you get inflation.

Fernyhough goes on to say:

Where the money came from

In 2016-17, the government coffers took in a total of $409.9 billion, compared to the expected $405.7 billion. The lion’s share of that – $379.3 billion – came through taxation. The outperforming taxpayers were companies, consumers (via the GST) and importers (via customs and excise).
High income taxpayers contributed more than expected, while lower income taxpayers contributed less, bringing the overall income tax intake to sit around what was expected.
Non-tax receipts, which came from the sale of goods and services and interest on investments, stood at just over $30 million for the year.

Again, utter tosh.

There are no “government coffers” – the federal government does not run a bank account in a conventional sense, any more than Qantas have stocks of Frequent Flyers for a rainy day. The government does not recycle dollars – there’s no warehouse of them that must be stocked up before they can be issued on pension day. Every dollar the federal government spends is a new dollar that exists because it was spent by the federal government. So what stops all this money issuance causing inflation?

That’s where taxation comes in. It’s not the source of government funds, but the release valve that counteracts inflationary pressure. It’s the drain at the bottom that stops the flow from the tap at the top from overflowing the bath.

I have no idea what Mr Fernyhough thinks an “outperforming taxpayer” is. It’s not a term I’ve heard before, and I am hoping I don’t hear it again.

Where the money went

Over the 2016-17 year, the government spent a total of $438.9 billion, which was $1.3 billion less than it expected.

The savings came from slow take-up of the National Disability Insurance Scheme, lower-than-expected payments to states for infrastructure projects, and lower-than-expected spending on wage subsidies, among others.

These are not savings. There is no bank account to store such savings in. A more accurate way of stating this sentence would be:

the government reduced the size of the economy by $1.3 billion by withholding money from the disabled that they could have otherwise re-spent in the economy, by failing to invest in infrastructure projects and the employment that they would create, and by deliberately suppressing the spending capacity of wage-earners.

The article finishes with some quotes from Morrison about how he’s “keeping expenditure under control”. Nothing new there, our Treasurer has absolutely no idea what he’s doing. But Jim Chalmers (ALP) manages to keep the idiocy bipartisan, by blathering about “budget repair” and the size of the deficit.

The size of the deficit is not important. It is what it is. What matters is the level of unemployment and the level of inflation. To extend the earlier metaphor: do you care how many Frequent Flyer points Qantas have issued? Of course not. What matters is that there are not so many of them that Qantas could not provide the services to which holders of them are entitled when they want to claim them. That’s the employment/production equivalent in this metaphor, and if it’s not there when demanded, the value of those Frequent Flyers declines. You would need more of them to obtain the same service than you used to. That is the literal definition of inflation. It’s not the number of dollars in the economy that matters, but their stable purchasing power.

If the government allocated their resources and efforts in getting both unemployment and inflation below 2%, the economy would be in rude health. Focussing on the fiscal deficit or surplus is like a footy coach obsessing about the number of inside-50s their team takes, and not the scoreboard. It’s losing sight of the main game.

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UBI gets the city press, but the bush wants a JG scheme

UBI continues to capture the imagination of people searching for ways that the status quo could be improved. As I’ve argued before, UBI is superficially a good idea, but ultimately will fail to produce the outcome its proponents suggest.

A perfect example is Tim Dunlop’s ‘Something big has to change’: could Australia afford a universal basic income? that appeared in yesterday’s Guardian. In arguing the pros and cons, he hits the problem on the head:

Although at first blush, UBI sounds like some idealistic, leftwing idea, the reality is it has long had support in rightwing politics and economics. Richard Nixon nearly introduced a type of basic income when he was the US president, while Milton Friedman – one of the most influential champions of “free” markets and small government – promoted a basic income scheme known as a negative income tax. Even today, right-of-centre organisations such as the Adam Smith Institute argue for the introduction of such a scheme.

This rightwing pedigree makes many on the left suspicious of UBI, and former union head Tim Lyons speaks for many when he says he is “deeply unconvinced by the push for a universal basic income”.

What the left fear, not without some justification, is that instead of UBI being used as a supplement to other forms of service provision, it would be used to replace them. Citizens would then be forced to use their UBI to buy health, education and pension services from private providers. This sort of rightwing UBI would simply be a transfer of public wealth to private businesses, a further marketisation of democratic society.

Of course, a UBI needn’t work that way, but such concerns mean the design and implementation of a scheme – the politics – are as important as the economics.

It needn’t work that way, but you know that’s what will happen. The demonisation of the unemployed as the architects of their own penury, refusing to work and just bludging off the taxpayer are neoliberal mythology that has become very hard to shake.

The problem with the UBI is that it does not directly solve the problem of unemployment. Yes, additional spending power at the lowest echelons will lead to increased sales and therefore might result in more workers being hired. But it can just as easily lead to price increases for the more inelastic products and services, as demand increases but supply cannot meet it. A good example of this is dental services, something that the poor are known to skimp on due to cost. There aren’t too many unemployed dentists that can be brought into “production” to meet an increased demand for their services if there is suddenly more disposable income that could buy it. The natural outcome will be a rise in price for dentistry.

And it strikes me as fanciful that giving everyone a living wage is going to somehow lead to some nirvana where we all just do charitable works and produce creative output, as people allegedly have their basic needs met by the UBI and can spend their time doing other worthwhile things. This argument is often linked to the rise of the machines – that robots are going to do all the work anyway, and there won’t be any need for jobs.

Well, for a very narrow definition of the word ‘job’, maybe. Automation has been happening since the industrial revolution, and there are always new jobs to replace old ones. I’m not sure why we simultaneously panic about automation and the ageing population issue: the idea that there won’t be enough workers to support the retired. Surely one offsets the other to some extent?

The Job Guarantee Concept.

If you’re going for radical change, a Job Guarantee scheme is a far better solution than UBI. Most advocates of a JG recommend that it be federally funded and locally administered. So that the local community can make the determinations on what services they require.

Put it this way. If you said to your local council: “here’s a standing army of people that the federal government will pay the wages for as long as you can put them to doing meaningful work, what services could they perform to improve your area?” Look around – what could be done to improve the amenities, functions and services in your area if there were people available to do them? Pretty much anything that would be considered socially “good” but won’t ever be done by the private sector because there’s not a quid in it would be a candidate for JG programme.

A JG scheme sets a minimum price for labour, and effectively buys all excess labour off the bottom. It is not competing with the private sector for labour, it is just mopping up the excess labour that the private sector cannot employ. As a result it’s not inherently inflationary (beyond some adjustment to its initial implementation – the likes of 7-11 might get a rude shock when no-one is prepared to work for less than the minimum wage offered by the JG scheme). Like the Wool Board, it buys excess when it exists so it can be released when demand returns, to smooth out the effects of the business cycle.

And of course there’s no coercion here. If you really are a bludger, you’re likely to stay in your current circumstances. On the other hand, if you don’t have a job but you do want to work, JG employment will be given to you. In the best possible scheme, a job that makes use of your existing skills, or trains you in new skills. Ultimately it keeps you job-ready, and employable, for when a better paid private sector opportunity comes along.

None of this is my idea, far brighter minds than I have been developing the JG scheme for years. The Centre of Full Employment and Equity and the work of Dr Bill Mitchell is largely the home of this concept, and there’s no shortage of research material available. Including costing, which shows such a scheme could be implemented for less than what a UBI would cost.

But it was very interesting to hear ABC PM yesterday, and in particular the segment Aboriginal groups call for alternative employment model. Unfortunately the ABC has cut their transcription of news stories, so the piece is only available as audio. (Another example of a socially good job that someone could be doing!) There is also a related article here.

The crux of the story is that rather than penalising or “breaching” the unemployed in aboriginal communities who are expected to travel vast distances to work for the dole, the local community has no end of useful things those people could be doing in their own area, and are calling on the federal government to allow them to find work for their unemployed community members. Breaching them (denying them welfare) is leading to greater hardship, and increased property crime. What this community is asking for is the Job Guarantee Programme!