ERA’s concerns and reforms

John Hermann

The general thrust of reforms advocated by ERA during the past decade will be apparent to regular readers of ERA Review. Issues relating to the reform agenda of ERA have arisen in recent discussions, and I thought it desirable to give my perception of what ERA stands for and is committed to. I am happy for readers to comment on this material.

Philosophy

During the past twenty years, Economic Reform Australia has moved on from its past (and less well structured) insights and analyses of what is dysfunctional in our economy, and has broadened its understanding of economic issues and of macroeconomics. Underpinning our consideration of what needs to be done to reform and reconstruct our economy is the very important issue of what type of society we wish to live in.

In brief, our society will ideally operate on the basis of a number of mutually accepted values, and with an agreed minimal level of social and environmental infrastructure. These include (a) respect for human rights and human dignity, (b) compassion for those who are suffering, (c) respect for the law and justice for all citizens, (d) commitment to human welfare and security, including guaranteed income, employment, education and health care for all, (e) fairness and social justice, (f) a reason- able distribution of wealth and income, and (g) adequate support for what is needed to secure ecological sustainability and to address climate change.

ERA understands that the economics profession has for too long based its concepts and models on a narrow, flawed theoretical base. To its detriment mainstream economics has ignored the study of ecology, biology, history, sociology, anthropology, psychology and neuroscience. The models created from this narrow theoretical base are static, ahistorical, don’t reflect empirical evidence, and don’t adequately account for actual human behaviour. In addition, mainstream economics has, for far too long, ignored environmental damage done by economic activity. ERA recognises that the value of any economic activity depends upon sound ecological and environmental considerations for long term sustainability.

Schools of economic thought

ERA embraces and supports a multi- disciplinary, historical and pluralist approach to the study of economics. However it is also recognised that the original ideas of John Maynard Keynes along with postKeynesian and other heterodox economic traditions — including ecological economics — that have developed since Keynes’ time should take centre place in our thinking and policy settings. This range of economic thinking embraces the work of many

economists, including Marx, Veblen, Kalecki, Lerner, Knapp, Schumpeter, Robinson and Galbraith, and more recently Minsky, Godley, Daly, Hudson, Keen, Mitchell, Mosler, Wray, Kelton and many others.

ERA recognises and affirms Knapp’s state theory of money, which describes the central role of each monetary sovereign government in creating and distributing the supply of money used for the exchange transactions of its citizens, and for the payment of debts and taxes. Such a government can ensure that the currency it creates for its population remains stable and is accepted and used by the community at large. This it can do by insisting that the population’s tax liabilities can only be relinquished with payments made using the government’s issued currency. There are several purposes for imposing taxes, but the primary purpose is to have a mechanism for reducing consumer demand by taking buying power away from consumers to counteract any inflationary impact of government spending. With- out taxes there would be hyperinflation.

ERA also accepts the validity of the functional finance theory of Lerner, which posits that planned saving over planned investment causes unemployment, and that the problem of excess saving can be counteracted by maintaining national budget deficits. In other words, the national government should be concerned with balancing supply and demand at full employment rather than balancing the budget. If aggregate demand at full employment production falls short of aggregate output at that level, then the national government can take action to increase demand by such measures as reducing taxes, increasing government purchases and providing increased transfer payments. If the national government needs funding to increase government purchases or for transfer payments it can do so by the mechanisms of (a) selling government bonds in order to free up fiscal space or (b) directly creating money with the cooperation of the central bank. Fiscal policy and monetary policy should be used as twin tools within a Keynesian economic approach.

Monetary authority

It is understood that currencies created by private sector entities including community currencies, whether digital or non-digital, have their place within our society and perform useful functions. However, we also recognise that such currencies do not possess the level of stability and widespread acceptance required for operating the economy as a whole, and in particular for the essential tasks of adequately accommodating government spending programs and operating and maintaining a public sector. This reality has been recognised by governments and central banks around the world, without exception.

For these reasons, it is necessary to have a central monetary authority, working hand in glove with the central government, and responsible to the government for its policies and operations. That role is conventionally taken by central banks. It is ERA’s position that such monetary institutions should be mandated to always place their obligations to the government of the day – and also to the welfare of the nation’s citizens, including especially a target of full employment – ahead of any sympathies, inclinations or obligations they might entertain in regard to the welfare of the private financial sector.

Educational Mission

ERA also understands that a number of myths pertaining to the nature of modern money, the operation of banking practices, and the nature of government financing are prevalent within several sectors of our society, including the ranks of mainstream (neoclassical) economists. In our view, these myths must be thoroughly dispelled as a prerequisite to advocating and explaining the range of economic reforms that we would like to see implemented.

This is why we consider it important to inform and educate the population at large, and decision-makers in particular, about the fact that the economic main- stream have been clinging tenaciously to these myths despite abundant avail- able evidence that the myths bear no relationship to reality. Putting it bluntly, neoclassical economists frequently do not know what they are talking about, and by incorporating false myths in their announced set of beliefs, principles, economic models, published articles and advice to governments, they have been inflicting immense damage on both the human race and the natural environment.

A second part of ERA’s educational mission is to explain the economic reforms that it advocates in language that can be understood by the average citizen, making use of articles written on these subjects by those whose knowl- edge and expertise we respect.

Interests and Concerns

Listed below is a summary of subjects and issues that make up most of ERA’s primary interests and concerns. Investi- gating these topics lays the groundwork for ERA’s reform proposals.

1. Ecological Sustainability — consideration of the maintenance of life support systems, environmental pollution, bio- diversity loss, the climate system, geophysiological health, nutrient cycling, environmental impact of economic growth, environmental impact of population growth, the planetary boundaries, steady state economy. Economic analyses of, and the modelling of economic factors affecting, climate change and viral pandemics. Ecological economics.
2. Social Justice — concern for justice in terms of the distribution of wealth, and for opportunities and privileges within our society, including government welfare policy.
3. Employment — studies and statistics relating to full employment, unemployment, underemployment, participation rate, U1–U6, Job Guarantee, and the psychological and health effects of unemployment.
4. PostKeynesian Economics – subjects and issues such as effective demand, factors affecting employment, financial fragility, monetary circuit theory, endogeneity, chartalism, the state theory of money, functional finance, Modern Monetary Theory (MMT).
5. Macroeconomics — the study of large- scale or general economic factors, such as interest rates, national productivity, inflation, price levels, economic growth rate, taxation, Gross Domestic Product (GDP), Genuine Progress Indicator (GPI), Index of Sustainable Economic Welfare (ISEW).
6. International Trade/Finance — issues relating to trade wars and their impact, tariffs and other restrictive practices, international and regional investment agreements, the pros and cons of trade deficits and surpluses, globalisation, credit rating agencies..
7. Financial System — incorporating the central bank. deposit-taking financial institutions, commercial banks, primary bond dealers, Treasury securities, banking reserves (exchange settlement deposits), repos, state fiat money and commodity money, currencies.
8. Neoliberalism — understanding those approaches that favour free-market capitalism, characterised by deregulation, tax reductions for the wealthy and corporations, reductions in government spending, and growing inequality.
9. Neoclassical economics.
10. Technology — renewable energy systems and their comparison with non- renewable energy systems, automation and artificial intelligence, other technologies with an economic impact.
11. Health and Wellbeing — including health funding, national health systems, pharmaceutical industry, impact of neoliberalism on mental and physical health, homelessness, drug addiction, domestic violence and abuse, psycho- logical impacts of economic policies.