Progressive economic policy and the Green New Deal – Steven Hail
Unrig the Game
Australia has never needed a genuinely progressive government more than it does now. However, as Hyman Minsky has written, ‘the game of policy making is rigged – the Prince is constrained by the theory of his intellectuals’. Another economist, Warren Mosler, said that a ‘lack of understanding of the monetary system has been the worst enemy of the progressive agenda’. I agree with both these statements. We should unrig the game. Before long, it will be obvious that we need to abandon the prevailing incrementalist approach and propose a policy agenda which for most people is very positive and even exciting but involves a fundamental transformation of our economy.
The neoclassical view
Broadly speaking, there have always been two views about how the economy works. According to the neoclassical view, the economy is centred on the typical person. He/she decides how many hours he/she wants to work, what he/she wants to buy and how much he/ she wants to save or borrow, based on the amount he/she can earn, which depends on his/her productivity.
Financial markets are viewed as efficient, and don’t need regulating. Money is seen as something which is limited in supply. Governments which borrow too much are supposed to drive up interest rates, or become insolvent, or maybe cause hyperinflation. Government debt is seen as a burden on future generations.
Apart from a few market failures and frictions, like pollution and monopoly power, where a limited form of government intervention might be justified, it is considered that this economy is best left to operate free of government red tape. All the government needs to do is to limit its spending, while maintaining law and order and property rights.
If you are a neoclassical, then climate change is regarded as a negative externality, which is easily fixed using a market-based approach.
And if the structure of the economy changes, people should be encouraged to change jobs, to retrain if necessary, or to move their residence, according to the neoclassical view of the world.
We should be relaxed about inequality, according to neoclassical economics, because it just reflects the market and how productive people are. We should be wary of the tall poppy syndrome.
The Other View
The other view, which might be called Post-Keynesian, is that a typical worker has very little power when confronted by big businesses. Capitalists will hire you, if they really need you and think you can help them make a bigger profit, but they make hiring decisions in a very uncertain economic environment. They seek more market power to be able to control that environment, as well as to make more money.
Whether you have a secure job is not something you can usually control.
What you get paid depends on your bargaining power, which is not necessarily anything to do with how productive you are.
Financial markets are naturally unstable, and prone to booms and busts.
The economy needs managing, to limit inequality, maintain full employment, regulate monopolists and financial markets, and to ensure we don’t go too far outside our ecological limits.
Climate change is too big and too uncertain an issue to be treated as a ‘market failure’. Instead, it is a matter of public infrastructure, and we are now at a crisis point. To deal with this threat, will require a rapid restructuring of our economy.
We need environmental sustainability and social stability, and these won’t come from a reliance on the market mechanisms.
They are wrong
During the 1945-75 period, there was an uneasy balance of power between neoclassical and Post-Keynesian economists in many countries, including Australia. But since the 1970s, and the triumphs of Friedmanism, which in an Australian context might be relabelled Costelloism, all of the governments in countries like Australia, almost without exception, have taken their advice from one variety or other of neoclassical economist.
In particular, they are wrong about the challenges which face us; the role of the government budget; and the nature of the monetary system itself.
MMT
A development from Post-Keynesian economics, called Modern Monetary Theory (MMT), has become prominent recently, after having been in relative obscurity for 20+ years. Its prominence is related to the fact that the main economic advisers of US politicians like Bernie Sanders and Alexandra Ocasio-Cortez are MMT economists.
MMT is an approach to thinking about macroeconomics and the role of the government budget, in countries with monetary systems similar to that of Australia, which is rooted in the work of a previous generation of economists, including Minsky and Wynne Godley, and in a detailed understanding of how modern monetary systems actually work. In a nutshell, it consists of three statements, albeit a caricature:
- All societies face real resource and ecological constraints;
- No monetary sovereign government faces a purely financial constraint;
- Government deficits are non-government surpluses, and the government’s net debt is the net money supply to everyone else.
A New Deal and a Green Deal
It’s fine to call the changes we need a Green New Deal. The New part is
- A Commonwealth Employment Service (CES), charged with anticipating and planning for changes in regional economies, providing input into an industrial policy aimed at maintaining similar jobs;
- A Federal Job Guarantee to act as a safety net – an end to underemployment and insecure employment. The FJG also serves as a superior stabilisation and counter-inflationary mechanism, if it is designed appropriately;
- Zero fee training and higher education;
- Cancellation of student debt;
- Major public housing investments and ending tax incentives driving speculative property investments;
- Increasing and extending the state pension and phasing out compulsory, tax advantaged super;
- An explicit target to reduce inequality;
- A public banking option, at the very least (if you don’t nationalise all major banks) and a re-regulated banking system;
- A rethinking of fiscal and monetary policy – zero official interest rates, and an explicit reliance on fiscal policy for stabilisation, supported by the FJG.
The Green part involves
- Nationalised electricity generation, distribution and retailing;
- Massive public investment in renewables;
- Phasing out of coal, but with a just transition for workers;
- Construction of fast rail between all eastern capital cities;
- Major investment in public transport;
- Rapid transition to electric vehicles;
- Review into long term viability of agricultural practices;
- Large, long-term financial commitment to relevant research;
- A regulation-based, and public- ownership based, approach to a much more rapid reduction in carbon emissions.
A progressive party offering this kind of Green New Deal to the public, support- ed by an MMT framework, would be worthy of the support of most of the population. And while the Shadow Treasurer makes remarks like ‘Debt is at a new record under the government’,
when this actually means that the net money supply in nominal terms is at a record level, and when in fact this level is nowhere near high enough to support the economy and private sector balance sheets at the moment, I am afraid we have quite a long way to go. But things can change very quickly, and I hope they do.
Dr Steven Hail is a Lecturer in Economics at Adelaide University and is an ERA member.
