The Left, Elections and Macroeconomics

I don’t often discuss Australia at heteconomist, but it occurs to me that the political situation here, as it relates to the macroeconomy, may highlight a connection of relevance for the left in general. There was a federal election on the weekend in which the electorate replaced one center-right candidate, Kevin Rudd of Labor, with another, Tony Abbott of the Liberal/National Coalition. In considering the election outcome, one aspect in particular struck me. As racist as the nation’s history, both recently in its enthusiasm for the persecution of boat people and unpardonable treatment of indigenous Australians, and before that in its embrace of the White Australia policy; as rabid as its blood lust, eager to participate in any US imperialist invasion currently in the offing; and as insatiable as its appetite for bile and hatred served up daily by Murdoch’s News Ltd, reactionary talkback radio, and the news and current affairs programs of the major television networks, this small ray of hope appears to remain: most Australians are not so right wing on economic matters as their voting patterns might suggest. Or, at least, this appears to be the case assuming that a sea change has not occurred in the last year or so.

 
Typical Australian Voters are Not Neoliberal in Economic Perspective, Yet Politicians of the Center and Left Speak and Behave as if They Are

In June of last year, Crikey.com published an article discussing various survey results concerning Australian attitudes on the economy and economic policy. (H/t to Godfrey of Godfrey’s Blog of Claims). To sum up the findings, the typical Australian’s preferred approach to economic matters appears to be very far removed from the neoliberal platform of privatization, deregulation and austerity that has been thrust upon us by governments of both major parties since the election of the Hawke Labor government in 1983. Strong majorities want more government, not less, in the areas of health care, education, public transport, infrastructure, and banking and financial regulation. Actually, a majority are in favor of the establishment of a government-owned bank, with only 23 percent opposing such a move. Majorities continue to oppose earlier privatizations of Telstra, Qantas and the Commonwealth Bank. Majorities want more, not less, worker and consumer protections. Further details can be found in the linked article.

When asked about the government’s misguided commitment to return the federal budget to surplus, 63% indicated that rather than returning it to surplus, they would prefer the budget to be left in deficit for longer. Considering the propaganda onslaught of the mainstream media, it is possible that respondents believed (incorrectly) that a return to surpluses should be delivered at some point soon, but this was not clear from the survey’s question and response. On the assumption that the budget was to be returned to surplus, majorities were in favor of doing it by increasing taxes on corporations (67%) and removing tax breaks for high-income recipients (57%). Minorities approved of postponing major infrastructure such as the national broadband network (41%), cutting defense spending (38%), eliminating “middle-class welfare” (36%) or cutting unemployment and disability benefits (23%). It is heartening that less than a quarter of respondents wanted to take an axe to the necks of welfare recipients, although lumping unemployment and disability benefits together in the one category may have moderated the response.

In sharp contrast to the media’s portrayal of the public policy debate, these survey results suggest considerable voter dissatisfaction with the bipartisan neoliberal economic policy agenda of the past three decades. By adopting the shared neoliberal economic platform, Labor, the notionally more “left” of the two major parties, has relinquished an electoral advantage it would otherwise have had if it instead catered to the basically social-democratic disposition of the electorate. By neutering its advantage on economic issues, Labor plays into the hands of the Liberal/National Coalition, which appears to hold its advantage in catering to the bigotry of voters in other areas. Labor, having barred itself from gaining advantage on the economic front, seeks to match the Coalition’s electoral appeal with hostility to refugees and indigenous Australians, engagement in the “war on terror”, “war on crime” and “war on drugs”, and by making conservative pronouncements on sundry “personal morality” issues. It did not work this time round.

Labor’s strategy obviously alienates those of us on the left, but the party is unconcerned by that. It knows that with the system of compulsory preferential voting, it will secure a left voter’s preference eventually except in the tiny number of seats (only one presently) where a Green (not much better than Labor on economic policy) or left independent happens to win. This works for Labor unless the voter deliberately casts an informal (and hence disqualified) vote in protest or arbitrarily ranks the Coalition above Labor in an otherwise obviously left-wing vote to send a message. On the whole, it appears that most of us on the left ultimately succumb, even if ranking Labor second last above only the Coalition.

Now, maybe Labor politicians care much less about winning elections than orchestrating, in combination with the Coalition, the neoliberal annihilation of social democracy, the welfare state and organized labor? Or maybe they are more concerned with entrenching a media monopoly that manipulates and manages public opinion while erecting a police-state apparatus to quash any remaining dissent? Or maybe they care little one way or the other for these developments except for the personal financial rewards (corporate payoffs) that pursuing such actions promise to bring their way. If so, they would view what follows as irrelevant.

But let’s suppose Labor, who attracted about a third of the primary vote nationally, or the Greens (< 10%), or Socialist Alliance and the Socialist Equality Party (< 1%), do wish to attract stronger electoral support. The obvious way forward would be to reclaim an advantage on the economic policy front.  
 
Progressives Should Challenge Misconceptions of Fiscal Responsibility

Here is a suggestion for politicians and political parties of the center and left:

Rather than accepting uncritically the neoliberal lie that the electorate’s preference for social democracy is “unaffordable” and helping to sustain this deception through your own statements and actions, recognize and then communicate to the public the possibilities open to a currency sovereign. Rather than repeating the line that the government is revenue constrained, balanced budgets are fiscally responsible, public debt is a burden on future generations and the rest of the folksy idiotic twaddle, understand, tell and act upon the truth, which in most respects is the opposite of what you currently profess to believe.

The fact is, under most circumstances there is no need for budget surpluses. To the contrary, surpluses are normally counterproductive and socially destructive. Deficits – not balanced budgets, even on average over the business cycle – are the normal requirement. A handful of nations that happen to run external surpluses large in relation to their domestic economies are the only ones that should countenance ongoing budget surpluses. For other nations, ongoing budget surpluses can only occur alongside growing private indebtedness, which reaches its limits when significant numbers find they can’t make their loan repayments, as we have seen in Australia, where the crisis directly followed a period of ten budget surpluses in eleven years, and as has occurred seven times in the history of the US, including most recently in the aftermath of the budget surpluses of Clinton and the early years of Bush II. (On the US experience, see Randall Wray’s The Federal Budget Is Not Like a Household Budget: Here’s Why.)

The desirability of running ongoing deficits poses no funding difficulty for a currency sovereign, by which is meant any government that issues its own flex-rate currency. This definition applies, of course, to the Australian federal government. There is no revenue constraint on such a government’s spending. Resources are the constraint, not money.

In a flex-rate currency system, taxes and government borrowing do not fund expenditure. It is the other way round. Government expenditure and government lending enable tax payments and the purchase of government debt. This should be obvious. As a matter of logic, dollars must exist before taxes can be paid. (For an academic treatment, see Stephanie Kelton’s (Bell’s) Can Taxes and Bonds Finance Government Spending?)

Although public borrowing is unnecessary as finance for government spending, the government currently requires itself to issue debt whenever it deficit spends. The actual functional role of this debt issuance is interest-rate management, not financing. The issuance of debt creates no burden other than the confusion it causes the electorate over what is going on. The government, after all, repays the debt with money it alone can issue. Furthermore, the government sets the terms on which the debt is issued. The interest rate is a matter of policy and not subject to market pressures. (The academically inclined might like to consult Scott Fullwiler’s Interest Rates and Fiscal Sustainability.)

 
The Basics of Currency Sovereignty are Easy to Understand, and Explaining them to the Public is in the Interests of Parties of the Center and Left

The basic implications of currency sovereignty are easy to understand and potentially liberating for people of all political persuasions. It makes clear that anything from small-government capitalism to social democracy to socialism are “affordable” irrespective of any opposition from capitalists. In particular, so-called bond vigilantes have no capacity to dictate the terms on which the government deficit spends. See Bill Mitchell’s:

Who is in charge?

See also some previous heteconomist posts:

Paul Krugman Synthesizes a Little More MMT
Interest Rate as Policy Choice, Exchange Rate as Degree of Freedom
MMT is NOT a Theory of State Capitalism (!)

Although potentially liberating for people of all political persuasions, the understanding of currency sovereignty is probably most critical for the left. The prevailing neoliberal framing, with its misleading depiction of a sovereign government as a financially constrained household, plays into conservative hands, yet much of the left, including Labor and the Greens, appears to have accepted the patent falsehood uncritically. This gives credence to the lie that education, health care, welfare, the public sector and infrastructure projects must be stripped back for “affordability” reasons, as if a lack of money – rather than a lack of real resources – could ever constrain the choices of an informed electorate. It enables the lie that common wealth must be privatized to “replenish” government finances (a nonsense considering that a currency issuer can neither have more nor less capacity to issue its own currency, irrespective of revenue flows). It legitimizes the lie that organized labor must be quashed and wages and working conditions decimated to appease supposedly all-powerful corporate interests and bond vigilantes. And it facilitates the lie that capitalists can essentially veto through investment strikes and capital flight environmental measures intended to put us on a more sustainable path. Once the implications of currency sovereignty are understood, it becomes clear that the profit system can be overturned (or not overturned) to the extent we desire, and considerations of environmental sustainability and social justice can be placed front and center.

Even if, as the surveys suggest, the typical Australian is not enthused by the neoliberal policy agenda, and remains unconvinced of its merits despite several decades of propaganda from the mainstream media and politicians trumpeting its supposed virtues, the propaganda may still have succeeded in deceiving many when it comes to the “affordability” of social-democratic or more left-wing conceptions of the economy. As a result, many in the electorate may currently believe, reluctantly, that what they prefer is “unaffordable” due to acceptance of neoliberal framing.

But even if this is the case, the majority’s preference for social democracy rather than neoliberalism would seem to leave it receptive to learning the implications of currency sovereignty. After all, such an understanding makes clear that what the majority prefers is certainly affordable. For this reason, it would not require particular courage for left politicians to challenge the prevailing neoliberal framing. Doing so would open the way to an electoral advantage on economic matters. Elections might then be contested effectively without resorting to the abhorrent, lowest-common-denominator positions on social and foreign policy that have become standard fare from Labor in its attempt to outdo the Coalition in contemptibleness.

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9 thoughts on “The Left, Elections and Macroeconomics

  1. “The non-government will find it convenient and safe to use government money or other monies that are guaranteed to be converted at par to government money (e.g. private bank deposits).

    From an operational point of view, bank money, created by loan issuance, appears as indistinguishable from government money to the non-government, non-bank sector. One can ask for a loan to pay taxes.

    Perhaps, this was the meaning of the often quoted H. Ford utterance. In the absence of an economic policy geared to satisfy the interests of the majority, using the charter to issue (“bank”) money is… (insert here your judgment).

    Recognizing this makes the case for a social-democratic, MMT informed policy, even more compelling.

  2. Yes, it’s true. And the footy team I barrack for got knocked out first week of the finals, so I had nothing better to do than put up a heteconomist post. 🙁

    Notice the spare seats in the following video. Many of us must have been saving our money for week 2 and beyond. A forlorn hope as it turned out. Either that, or people were depressed on election night.

    Video

    There was a better turn out the next day:

    Slightly Less Relevant Video

  3. I’d like to know how it’s possible to NOT score a goal.

    And what’s with all this free-range prose going on around here? Now get back to Twitter where you have to “play dead” because of a 140-character limit. For me, it’s like an unlimited amount of free-throws.

    #Swish <3

  4. Cheers, Magpie. Nice one. And thanks, PG. Thank goodness at least two of us are making heroic attempts to keep the discussion on economics. 🙂

    I’m afraid I can’t join you just yet as Trixie has got me sidetracked on football. My only defense is that this is a rare off-topic thread here at heteconomist, so I feel justified in my antics.

    I’d like to know how it’s possible to NOT score a goal.

    This comment made me laugh, but now I choose to respond seriously. We were always taught in creative writing classes that “showing” is better than “telling”, preferably with a YouTube link.

    Spare a thought for the fans in the last few minutes of this game from a few years ago. That woman’s expression with 24 seconds left on the stop clock pretty much sums up how I felt, watching on TV.

    Yes, Another Gratuitous Video

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