In a previous article I explained the rudiments of modern monetary theory (MMT).
Before I explain why it is important, I need to correct and clarify two essential points which came to my attention from some respondents. The first is that, provided the sovereign currency criteria are met, federal government debt is not bad, but necessary, so that people are able to pay the taxes governments impose, since the government’s debt is everyone else’s credit.
The second is that MMT should be thought of as having essentially two parts: a purely factual, descriptive part, which is what the previous article was about, and a second normative, value-based part, where judgements and policy prescriptions are made based on the former.
It is like comparing: ‘capitalism is destroying the Earth’, versus: ‘capitalism should destroy the Earth’. Clearly describing the first is in no way equivalent to supporting the second. Now to the important implications of MMT.
No government limit on spending
Since the federal government has no nominal limitations on spending, it means that it can always afford to buy anything for sale in its own currency, including labour. As such, unemployment is a political choice, not an economic imperative.
Yet one of the defining characteristics of the neoliberal period has been high and growing un- and underemployment, which has hit young people especially hard. According to the ABS, about one in three young Australians (those 15–24) either has no job or they have a job and want more work but cannot find it (ie. they are underemployed).
Increase in unemployment a political choice
This trend has increased since the 1970s and is not a COVID-related artefact. Furthermore, this says nothing about people’s wages and working conditions, which have been stagnating or declining for decades. This political choice follows from government combatting inflation and the inverse relationship (called the Phillips curve) between inflation and unemployment.
The explanation for this relationship is that when the economy is operating at full employment, workers can demand higher wages, confident that they will not be fired, or if they are, they can simply find work elsewhere. This demand for greater wages causes businesses to raise their prices, creating a wage-price spiral leading to inflation. The solution to this problem is to keep a large and growing number of people un- and underemployed, which is just what has occurred. Former Federal Reserve Chairman Alan Greenspan infamously cited ‘worker insecurity’ for low inflation in the US in 1997.
Greater happiness for the employed
For those who have always been able to find enough decent work, such a diatribe may seem abstract and irrelevant, but the evidence of the day-to-day experience of the ever-growing pool of people shut out from paid work is clear.
The World Happiness Reports demonstrate that people who are employed report greater happiness and life satisfaction than those who are unemployed. What this means is what many of us already understand: the neoliberal era is a politics of immiseration, and un- and underemployment is being used as a weapon against working people.
The job guarantee
A viable solution to this issue is to do what every western government did following World War II, until the onset of neoliberalism in the 1970s and ’80s: use their unlimited spending power to achieve full employment.
The job guarantee (JG) is now one way to do it by creating a JG program, administered democratically at the local level, rather than fixating on growth, which is ecologically unsustainable.
The JG is supported by many MMT people, including Pavlina Tcherneva. Her webpage provides answers for all aspects of the JG’s characteristics, viability, and real-world examples. Here I focus on two implications.
The first is education. Under neoliberalism, education has been increasingly geared toward preparation for employment in a competitive labour market at both high school and university levels.
There is nothing ‘normal’ or ‘natural’ about this. With the JG in place, this would liberate learning from the assault on students that induces them to study for a job, much as teachers often need to teach to the test.
Instead, with every graduate guaranteed a job with wages and benefits sufficient for a decent and dignified life, education can fulfil its role much more easily of developing the unique capacities of each student.
Your vote counts
The second is about democracy and politics more generally. What makes MMT so dangerous to the ‘masters of mankind,’ to borrow Adam Smith’s phrase, is that it lays bare what is politically possible.
While austerity programs are working effectively to enrich the few and to foreshorten and immiserate everyone else’s lives, none of this is necessary.
A federal election is approaching. Those running for office should know, much as we should know, that government cannot claim it does not have the finances for anything for sale in Australian dollars.
What sort of society would you like to live in? Interested and respectful readers are invited to participate in a discussion of these and related matters. Please email [email protected] for time and venue.