Bill Mitchell behin eta berriz:

(i) Baliabide errealak eta politika fiskala

Real resource constraints and fiscal policy design

“While the upgrades to our public transport systems and the re-engineering of our cities is highly desirable and decades overdue, as a policy preference I would prioritise the introduction of a Job Guarantee and ensure it was ccompanied by social wage spending to increase employment in education, health care and the like.

That would absorb idle labour without placing further strains on the construction resources.

A sole reliance on public sector investment in public infrastructure to achieve full employment, also creates considerable economic inflexibility. The ebb and flow of the private sector would not be readily accommodated and an increasing likelihood of inflation would result.

Further and crucially, public investment is unlikely to benefit the most disadvantaged workers in the economy. The Job Guarantee is designed to explicitly provide opportunities for them.

By way of example, during the golden age in Australia (1945-1975) when public capital formation and social wage expenditure was strong, full employment was only achieved because the public sector (implicitly) provided a Job Guarantee for low skilled workers.

This experience is shared across all advanced economies.

The Job Guarantee is thus designed to ensure that the lowest skilled and experienced workers are able to find employment. It does not presume that Job Guarantee jobs will suit all skills. For some skilled workers who become unemployed in a downturn the income loss implied would be significant.

The contention is that a fully employed economy with the Job Guarantee workers paid liveable minimum wages is a significant improvement, when compared to the current unemployment and underemployment bias.”

(ii) Neoliberalismoaren eragina

The ‘truth sandwich’ and the impacts of neoliberalis

“…, the trends that the OECD have highlighted are the facts.

The truth underlying the trends are fairly obvious.

The capacity of the government to alter those trends and restore processes that allow upward mobility, allow for more equal sharing of the productive returns of the economy, and largely eliminate poverty are also obvious and real.

Governments have allowed inequality to increase. They have stifled upward social mobility and undermined productivity growth.

There was nothing inevitable about it.

All these trends can be steered if the government chooses to introduce policies that benefit the many rather than the few.

The neoliberal era has seen governments choose the few over the many.

That has been aided by progressive politicians spouting macroeconomic nonsense like ‘taxing the rich to deliver services to the poor’ or ‘where is the money going to come from’.

It is about time these politicians showed leadership and challenged the lies. They need to order the “truth sandwich” every day.

Our construal processes indicate we will accept a different narrative if it is framed properly. At present, whenever some progressive politician claims they will increase the taxes on the rich to fund services for the poor all we hear is that ‘government will run out of money and cannot afford things’.

Start assembling the sandwich base – truth first.”

(iii) Neoliberalismoa eta gu: Alexandria Ocasio-Cortez

We can do something about neoliberalism

In today’s Democratic Primary he was up against a candidate who advocated (Alexandria Ocasio-Cortez’s Platform)

Medicare For All
Housing As a Human Right
A Federal Jobs Guarantee
Gun Control / Assault Weapons Ban
Criminal Justice Reform, End Private Prisons
Immigration Justice / Abolish ICE
Solidarity with Puerto Rico
Mobilizing Against Climate Change
Clean Campaign Finance
Higher Education for All
Women’s Rights
Support LGBTQIA+
Support Seniors
Curb Wall Street Gambling: Restore Glass Steagall

It was a no-contest on policy.

It was big money against grassroots democracy.

It was establishment corrupt Democratic machine against the progressive future of politics.

This was a true Reclaim the State moment.

The message for Social Democratic movements around the world is that there has to be a massive clean out of the neoliberal elements that have slowly taken over progressive political parties.

Any so-called progressive that mouths the neoliberal macroeconomics should be ignored and if they are desiring to stand for public office the grass roots party supporters should ensure they are not selected.

If they are incumbents, they should be deselected at the next available opportunity.

This is about major changes rather than tinkering around the edges.

For Jeremy Corbyn, there is a message.

Expunge all the Blairite/New Labour elements as soon as possible. Let the younger MMT-oriented activists take strategic positions in the British Labour Party.

Deselect Blairites before any upcoming election.

For the Australian Labor Party there is a message.

Trying to be cute with incremental changes while claiming economic credibility by mouthing of neoliberal terms such as ‘budget repair’, ‘fiscal consolidation’, ‘we will get back into surplus more quickly’, ‘AAA credit ratings’ and all the rest of it is not progressive.

You might gain office this way, given the appalling state of the conservative side of politics at present, but you won’t do anything progressive at all.

And then you will be relatively quickly dispatched to a long period in Opposition (again) having just paved the way for more pernicious anti-people policy shifts.

Start calling all this nonsense out.

Why say you will run fiscal surpluses when there is 15 per cent or more labour underutilisation (as in Australia at present)?

Why not step up as Alexandria Ocasio-Cortez did and call for a Federal Job Guarantee along MMT lines.

It is a small step, but perhaps her victory today is a sign that we can clean out the corruption that has infested the ‘progressive’ political parties and start winning the big contest.”

(iv) Gobernuak, zorra eta lege atzerritarra

Governments should not issue debt under foreign law

“I am currently working on a number of these issues to more fully educate myself in the murky world of sovereign debt law. The purpose of this self-education is to allow me to more carefully develop an Exit Blueprint for nations stuck in anti-democratic and destructive arrangements such as the Eurozone.

It is clear that a government reestablishing its sovereignty has the upper hand, especially if it has issued debt under its own legal system.

Which is why the likes of the IMF and the European Commission has been keen to increasingly pressure governments to issue debt under foreign laws under the ruse that this is a show of faith to the private bond markets.

Once again the increasing bias towards foreign-law debt is all about privileging private capital over the interests of citizens in national states.

What is absolutely clear is that a sovereign government should never issue debt instruments under any legal system other than their own.

What is even clearer – such a government has no need to issue any debt at all.”

(v) Ezkerrerako estrategia bat

Elements in a strategy for the Left

“… Alexandria Ocasio-Cortez is progressive. Most of the Democrat Party elite, many of which have openly criticises Alexandria Ocasio-Cortez’s policies as being naive, unrealistic, unaffordable, etc, are not.

And the likes of Madame Lagarde knows full well that the nation state has to be compromised if global corporate interests are to be served when she told a French audience last week that:

This centralised budget capacity does not need to become a payment facility … It can very well have disciplinary conditions attached.

That is exactly what the Stability and Growth Pact does at the national level. It compromises national fiscal capacities so that they cannot advance generalised well-being.

While Germany and France talk about a ‘centralised budget capacity’ the reality is that it will be small and so hamstrung with restrictions that it will be beyond a joke.

But the elites all know that national governments have to be tethered tightly or else the global capital domination can be effectively controlled.

As an aside but contextual, Jürgen Habermas was correct when he noted that the need for a European-level fiscal capacity was:

… not just about fiscal stabilization, but about convergence – the credible political intent of the economically and politically strongest member states to fulfill the common currency’s broken promise of convergent economic developments.

The neoliberal elites are constructing this aspect of the ‘reform’ debate exclusively in terms of “fiscal stabilisation” – to help out nations in trouble but not to engage in any permanent transfers.

And to put a line under that, they want the Member States to contribute to the ‘European Monetary Fund’ and pay it back, and, if that wasn’t enough, they want the Member States most likely to draw assistance from the ‘Fund’, to pay more into it in the advance than other nations.

In other words, the weakest nations will be slugged more in advance and compromise their capacity to build effective public services and infrastructure in good times and then have to endure withering austerity in bad times as it is forced to pay back the money it contributed in the first place.

Ever heard of currency sovereignty!

But Jürgen Habermas point about a central fiscal capacity being about convergence, which is the way effective federations operate is exactly why it will never be constructed in that manner in the European Union.

The reason being that it would require permanent and on-going transfers from the richer income states to the poorer states. Exactly how Australia works!

The influential Member States in Europe are never going to agree to that sort of system.

Please read my blog post – The Meseberg Declaration – don’t hold your breath waiting (June 26, 2018) – for more discussion on this point.

Which brings me to an interesting article I read on the Left Foot Forward site (July 7, 2018) – After decades of following a failed economic model, we need to reshape the state.

This is an example of a ‘nearly’ argument that ultimately fails because it keeps using neoliberal frames and language despite a very progressive agenda being outlined.

The author Prem Sikka (an accounting academic) in England writes that:

We have missed far too many opportunities to steer our economy in a positive direction. It’s time for the left to address the role of the state today … the government remains wedded to the dogma of privatisation. During the last forty years, successive governments have privatised key sectors at knockdown prices – often with disastrous outcomes for consumers and taxpayers.

The discomfort starts with the use of the term “taxpayers”.

And then the first neoliberal frame enters:

The revenues from the sale of publicly owned assets could have been used to fund investment in new industries or social infrastructure, but that did not happen.

Which means the reader is immediately channelled into believing that government spending (including public infrastructure) requires “revenues” and if “revenues” are used in one way they cannot be used in another.

The framing is typical of the problematic way the Left tries to engage in these debates.

The fact is that a currency-issuing government such as the British government can provide currency (pounds in this context) to fund any investment in new industries or social infrastructure that it chooses.

There is no “revenues” required.

The only reason why “revenues” might need to be associated with public spending is if the economy is already operating at full capacity and the government has to deprive the current users of some of the fully utilised real resources so they can be diverted into the infrastructure projects.

But the “revenues” are not ‘funding’ anything. They are the tool through which the government deprives the non-government sector of access to resources – they represent the diminution of non-government purchasing capacity.

That diminution would be necessary in that context to provide the real resource space for government to occupy (and build the infrastructure).

In times where the nation is operating below full capacity that diversion of real resources is not necessary.

The author continues in this vein however.

He correctly notes that the history of privatisation is one where governments have handed public resources “over to corporations on very favourable terms”.

They did that because they didn’t want the political flack that the privatisation failed to attract interest from the private bidders.

So to make sure there was a sale they discounted the ‘market value’ of the entity.

But to then claim that the government “squandered” the money and could have done more with the funds.

That is where the neoliberal frame dominates the logic and the argument that conservative governments and Blairite-type social democrat governments actively diverted what should be public space and public activity to private, profit-seeking space is lost.

It is also true that:

Neoliberals have redirected the state to serve their purposes. Under their policies, the state has become a guarantor of corporate profits. The Private Finance Initiative (PFI) has been a bonanza for banks and contractors. PFI schools cost 40% more to build and a hospital 70% more to construct compared to if they were financed by government borrowing.

The first sentence is core Reclaim the State Project logic.

The last sentence is along the lines of Paul Krugman’s ‘cost’ confusion.

The fact is that privatisation and public-private partnerships (PFIs) are disastrous because they allocate public funding guarantees to private operators in line with a profit motive rather than social benefit.

The motivation is the problem. Public infrastructure should be about advancing maximum public benefit not advancing private profit.

The profit motive has also distorted the pattern of public infrastructure development created under PPP or PFI projects. For example, we get toll roads instead of public transport developments.

The toll roads get clogged relatively quickly which then leads to further toll roads. The pattern of urban development deteriorates even further as the profit motive drives planning.

Prem Sikka is correct to conclude that the neoliberal “economic experiment” has failed and “is not conducive to social stability or possibilities of building a sustainable economy”.

He is right in concluding that:

The toxic consequences of neoliberalism are evident in its philosophy of light-touch regulation. The daily parade of tax avoidance, money laundering, bribery, corruption and misselling of products, especially in the financial sector, are a direct consequence of the light-touch philosophy.

But linking that to funding shortfalls for currency-issuing governments means that the path to ‘reclaiming the state’ is lost.

The Left then gets lost in a haze of arguments that sound more or less like ‘we will run surpluses but do it in a fairer way’.

Lost.

Conclusion

Prem Sikka should actually scrap most of his article and start with his final paragraph:

The left has long known that the state is a key institution – now we need to develop strategies to restructure and redirect it to build a more equitable society.

And then – remind the Left that the state is a key institution. Start with Jürgen Habermas is you like who thinks that global capital has bypassed the state and that pan-European movements are the only way forward.

And then, once we have jettisoned the myth that the state is powerless, the Left can build that ‘discovery’ into an MMT framework.

And that is more or less what we did in our latest book – Reclaiming the State: A Progressive Vision of Sovereignty for a Post-Neoliberal World (Pluto Books, 2017).”

(vi) Ezkerraren abdikazioa

Stuart Holland Not An Abdication By The Left

(a) The abdication of the Left – redux – Part 1

“… my response to the Social Europe article by Stuart Holland (July 11, 2018) – Not An Abdication By The Left – where he attempts to eviscerate various writers who have dared to suggest that the “social democratic Left in Europe … has run out of ideas” or that “there has been an intellectual abdication by the Left”. He uses his experience as an advisor to Harold Wilson in the 1960s and to Jacques Delors in the early 1990s as an ‘authority’ for his rejection of the claims that the Left has abandoned its social democratic remit. He holds the likes of Delors and António Guterres has shining Left lights. In Part 1, I showed that the view that Delors and Guterres are beacons of Left history and that the social democratic Left has not sold out to the neoliberal orthodoxy (particularly at the political level) is unsustainable. Holland distorts history to suit his argument and is in denial of the facts. (…)

In Part 2, we will discuss the 1993 Delors Paper on mass unemployment which Stuart Holland claims is further proof of the socialist Left credentials of Delors.

Black becomes white if that was so.”

(b) The abdication of the Left – redux – Part 2

“… In Part 2, I trace the argument further by examining the 1993 Delors White Paper, which was meant to be the European Commission’s response to the mass unemployment that was bedevilling the Continent at the time (and remains, by the way) and later propositions that Holland was associated with in relation to Greece during the GFC. They further demonstrate that Stuart Holland is attempting to maintain an indefensible position.

(...)

The Modest Proposal

Finally, Stuart Holland believes claims that the conduct of Syriza during the bailout crises and after is symptomatic of the abdication of the Left is unwarranted.

He argues that he and the then Finance Minister Yanis Varoufakis (later to be joined by James Galbraith) published several versions of what they called the “Modest Proposal” as a solution to Greece’s problems.

Holland writes:

A key claim of the Modest Proposal has been the case endorsed by Delors that a Eurobond-funded recovery in the EU on the model of the US New Deal is feasible without Treaty revisions, without fiscal transfers between member states and therefore also without ‘ever closer union’ …

A share of the national debt of all member states over the 60% Maastricht limit could be mutualised in the sense of a Eurozone equivalent of a deposit account, which could be serviced by the member states but not drawn on for credit, and therefore would not be liable to downgrading by credit agencies.

Note the reference to Delors again – as if he understood all along the folly that the Eurozone became even though he was overseeing and driving the process.

By way of background, the ‘Modest Proposal’ is a variant of another debt-mutualisation scheme that emerged in 2010 called the Blue Bond Proposal (BBP) under the guise of Jacques Delpla and Jakob von Weizsäcker.

At the time, as the crisis deepened in the Eurozone, these debt-mutualisation schemes started jumping out of the woodwork as if there was no tomorrow.

The essence of all these schemes is that a Member State’s public debt would be split into a “Blue Bond” component with “joint and several liability” (under the BBP up to 60 per cent of debt, that is, the allowable maximum under the Stability and Growth Pact, would be pooled in this way) and a “Red debt” remainder, which would be subordinated to the Blue Bonds.

In theory, this is meant to lower the funding costs of the Blue component and push up the borrowing costs in the Red component, which the authors claim would provide incentives for Member States to reduce their debt to conform with the Maastricht threshold.

Further rules were proposed to tie down governments participating in the scheme, all of which would reduce the options available to Member States and reinforce the austerity straitjacket.

For example, the proposal might allow nations such as Germany to add the full 60 per cent of its debt to the pool while nations such as Greece would be restricted to borrowing much lower proportions.

Given the immediate problem was (and is) mainly one of default risk, the proposal’s perverse incentives (punish those most at risk) would not seem to be part of any viable solution.

The underlying bias in the proposals is that the authors considered that all debt above the Maastricht threshold are due to the pursuit of unsustainable fiscal policies.

The BBP authors, for example, claimed that the financial markets failed Greece by “continuing to provide cheap funding while fiscal policy was reckless” (page 2).

It was difficult to square this view against the situations of Spain and Ireland, which were models of fiscal rectitude leading up the crisis?

Moreover, imagine that the current slowdown in China intensifies and the world is plunged into a further economic spending crisis or that Donald Trump’s trade war results in recession.

Under current arrangements, Eurozone public debt levels and fiscal deficits will rise sharply again, even though the governments are locked into the austerity mentality.

It is likely that many nations would go beyond the 60 per cent debt threshold given the elevated debt levels already in place following the GFC.

The proponents of the BBP stated that the 60 per cent threshold is the “debt level deemed sustainable for any EU member state according to the Maastricht Treaty” (p.6).

But in the event of a sequence of slowdowns, exacerbated by the austerity bias, the BBP proposal would punish many nations, even if they were following the mindless fiscal path specified by the Treaty.

It is hard to see how that could ever represent a viable solution.

All these schemes implicitly deny that the Eurozone is biased towards crisis.

And then we come to the so-called “Modest Proposal”, put out by economists Yanis Varoufakis and Stuart Holland, which is just a variant of the BBP scheme.

As I wrote in my 2015 book – Eurozone Dystopia: Groupthink and Denial on a Grand Scale – one recalls Jonathan Swift’s satire of the same name, published in 1729, where Irish parents were encouraged to ease their economic travails by selling their children as food to provide culinary pleasure to the rich.

The aim of the ‘Modest Proposal’ was to address four “interrelated” problems: a banking crisis, involving banks that are the responsibility of the national governments, who do not have the currency capacity to guarantee deposits; a debt crisis where nations cannot borrow from private bond markets; an investment crisis, where both the level of investment has fallen sharply and the imbalance between the trade surplus and deficit nations has widened; and a social crisis, with high unemployment, rising homelessness and poverty, and falling incomes.

Like all the ‘hybrid’ schemes, they are motivated by the assertion is that “a Eurozone breakup would destroy the European Union, except perhaps in name” which would pose a “global danger” (Varoufakis et. al., 2013: 2).

Dramatics aside, when assessing the proposal it was hard to see how a scheme that involves no fiscal transfers or changes to the Treaty can provide a lasting solution to the mess.

The proposal would never have solved the inherent problems within the Eurozone, which are defined by the very political constraints that the authors recognise force them to adopt these ‘modest’ proposals, in lieu of more effective and lasting solutions.

Their debt manipulation proposal was similar to the BBP, outlined above.

The obvious question is why bother? The ECB has through its QE programs demonstrated that they can deal the private bond investors out of the equation when it came to setting yields on government bonds.

The ECB can effectively set yields at any level it desires including zero, which means that a Member State can only run out of money if the ECB refuses to exercise its power to buy unlimited volumes of the government’s debt.

The SMP program kept the Eurozone together, but by imposing austerity as a pre-condition for participation, it failed to address the core problem that Southern Europe is in depression and the only way out is for fiscal deficits to expand.

The most direct way forward would have been for the ECB to invoke its OMT facility and facilitate increased government spending.

Varoufakis, Holland and Galbraith (2013: 5) acknowledged that the OMT program “has succeeded in taming interest rate spreads within the euro-zone” but conclude that the implicit threat against bond markets, described above, is “non-credible”.

Allegedly, bond dealers will eventually call the ECB’s bluff and expose the OMT program as a paper tiger. This criticism is without foundation.

How exactly can the private bond markets “test the ECB’s resolve”? (p.5).

The ECB has unlimited euro capacity to purchase all the secondary market bonds it desires.

To think otherwise is hardly progressive or Left. The belief that the bond markets have the power over the state is core neoliberal thinking.

It was also difficult to see the ‘Modest Proposal’ as being consistent with Article 104 of the Treaty if a Member State failed to make payments as agreed. In that case the ECB would have to fund the deficiency, which would be equivalent to offering the prohibited ‘overdraft facility’ to the state.

The ‘Modest Proposal’ would also probably promote perverse bond market behaviour and deliver massive corporate welfare to the investment banks.

The debt policy would see the ECB take bank reserves out of the system in return for ECB-bonds. It wouldn’t take long for the bond markets to work out that they could ask for a premium on the ECB-bonds and the ECB would be under pressure to concede. With interest rates low, the private banks could then borrow from the ECB to buy the bonds, which would pay a return higher than the short-term cash.

Conclusion

I felt the need to respond to the Stuart Holland article because it is a good example of how the progressive, social democratic Left has lost itself in the woods of denial, historical revisionism and plain stupidity.

I know the Europhile Left will be tweeting it and feeling good about it because it provides validation for their own cognitive dissonance.

But as a view of what has happened over the last 40 or so years within the political Left it definitive – completely losing track of reality.”

(vii) Gobernuaren gastua eta bono pribatuko merkatuak

Limits to government spending are not determined by private bond markets

“… My response – I certainly hope that Alexandria Ocasio-Cortez does not back that construction of the limits on spending for a currency-issuing government.

And I certainly hope that progressives do not embrace it either.

Why?

It is fundamentally incorrect and just reframes the way neoliberals think and uses their sort of language (…).

… the view, implicit yet fundamental, is the myth that the US government (or any currency-issuing government) has to issue debt in order to spend.

The corollary, which is the proposition that progressives are meant to “back”, is that as long as the private bond markets are receptive to that debt issuance, the government can spend.

The related (and final) proposition in this flawed logic stream is that under those circumstances, the problem government spending has to address is its inflationary consequences, which become the limits on the deficits.

It sounds – sort of intuitively reasonable – to a lay person.

But intuition and common sense is a dangerous guide to follow in these matters.

I discussed the perils in this blog post – When common sense fails

The reality is as follows:

1. A currency-issuing government is only limited in its nominal spending capacity by the real resources (goods and services) that are available for sale in that currency.

2. Such a government can always purchase anything that is for sale in that currency, including all idle labour, irrespective of whether the inflation rate is 1 per cent or 10 per cent and independent of its past fiscal balance outcomes.

3. The requirement that deficit spending be matched by debt-issuance to the private sector is purely voluntary.

4. The government spending, in fact, provides the net financial assets, which allows the non-government sector to purchase the debt.

5. It is true that accelerating inflation might emerge before all available resources are fully utilised as a result of sectoral bottlenecks.

6. That is why, the government should introduce a Job Guarantee, which allows the government to guarantee ‘loose’ full employment using automatic stabilisers by purchasing at fixed rather than market prices. In other words, it can bring all labour into productive use without accelerating inflation.

7. Hitting an inflationary wall does not mean the government is unable to spend further in nominal terms. Financially, the government could just keep putting out orders for goods and services and chase the market price upwards, with hyperinflation the ultimate result if this behaviour persisted.

8. Such a strategy would be futile though.

You can see in those eight points, I have broken the nexus between spending, debt-issuance and inflation.

It should be further recognised that all spending (government and non-government) carries an inflation risk.

The following blog post considers some of these issues (among many others) – Real resource constraints and fiscal policy design (June 21, 2018).”