“It’s time to kill the ‘zombie’ that equates government finances – surpluses and deficits – with ordinary household debt. In fact, they are as different as breathing air and seawater,” writes “The Gadfly” columnist ROBERT MACKLIN.
IT is time to kill a zombie. Unless we do, we will have endured the whole COVID-19 horror story for nought.
And it goes to the heart of an economic recovery that provides our only chance to avoid the threats of armed conflict – war – that are fizzing beneath the surface in our part of the world.
The “zombie” in question is no fabled beast but a deformed idea, named by US Nobel Laureate Paul Krugman. It’s repeatedly killed by reason but revived by the atavists who deny climate change, natural selection and empirical evidence. It equates government finances – surpluses and deficits – with ordinary household debt. In fact, they are as different as breathing air and seawater.
Recently, my friend and former editor Crispin Hull put the Australian case beautifully. What follows, with his permission, is a summary of his column edited only for space:
“There is no equivalent of a debt collector at the front door demanding that the Australian government repay its debt. Nor will there ever be. To the contrary, there is an orderly queue of businesses and individuals desperate to buy more Australian government bonds. Why? Because they know the government will never, cannot ever, default.
“Government finances are radically different from household finances. But politicians, especially on the conservative side, forever talk about the government as if it were a household with a bloated credit-card debt about to send it into bankruptcy. Nations, like Australia, which issue their own currency and whose debt is nominated in that currency, cannot default and cannot go bankrupt.
“Countries like Greece and Spain were silly enough to join the Euro zone in the belief that it gave them status. Instead they were throwing themselves upon the mercy of the European Central Bank with debt that had to be repaid in Euros. The European Bank, dominated by Germany, would only bail them out at a very heavy price.
“The Australian government’s covid stimulus package is a classic case of a government worrying about debt [and] dishing out money as if it were a charity when it should be ensuring it is getting value for money. The key to the best economic result is not elimination of debt but getting the most production from the economy.
“The government should just guarantee a job – 35 hours a week on the minimum wage ($560) – for everyone who wants to work. There is plenty of productive work to be done and on-the-job-training in Australia. Instantly, unemployment would vanish and all the dole money would go into the economy to be spent on goods and services largely produced by the private sector.
“The destructive effect of long-term unemployment would end; people would have long-term job security. That means less psychiatric illness and people staying at home with sick pay rather than spreading the infection.
“Once employed in the minimum-wage government scheme, all of the bureaucratically expensive and often fruitless effort to get find these people jobs in the private sector during a bust could be re-channelled to supervise them as public-sector employees to do any amount of work begging to be done for which they could be trained: land care, care of old and young, call centres and so on. [To say nothing of the major renewable energy and social home building projects crying out for government investment.]
“This stuff is called Modern Monetary Policy. Australia and other developed countries have to recognise that the neo-liberal economic model which minimised the role of the government, lauded the private sector and gave central banks control over interest rates so they could control inflation was effective up to a point. Covid or not, with interest rates hovering around zero and the private sector failing to provide enough secure, decently paying jobs or to give wage earners a reasonable share of rising productivity, we have arrived at that point.”
Thank you Crispin. It is a formula not just to cope with covid, but the great global economic revival to come, the best possible antidote to the cold winds of war.