Why ‘living within our means’ is a great con
The greatest lie ever sold is that the Australian Government can run out of Australian dollars.
This is exactly the lie Treasurer Scott Morrison wants you to believe as he rolls out the same old deception — deficit bad, surplus good — ahead of next year’s budget.
Social Services Minister Christian Porter is relying on this myth as he tries to sell more cuts to the dole and other welfare benefits: by giving voters the impression that welfare bludgers are sending the country broke and that they have to be made to suffer in the cause of “budget repair”.
If you feel like there is a disconnect between your bank balance and what you see and hear on television, you are not taking crazy pills.
“Smashed avo” commentators like Bernard Salt paint everyone from Generation X through to “The Millennials” as ingrates who are incapable of saving, while the Government takes a victory lap claiming 25 years of “unprecedented economic growth”.
In reality, Australia is experiencing its first quarter of negative economic growth in five years and the weakest wage growth since the last recession.
Official figures released yesterday by the ABS showed a 0.5 per cent contraction in seasonally-adjusted GDP growth for the September quarter, dragging the yearly growth number down to 1.8 per cent.
The figures fell well shy of market expectations, with Bloomberg having forecasted a 0.1 per cent contraction over the third quarter down from its previous forecast of 0.2 per cent growth.
For its part, the RBA has kept the official cash rate on hold again this week.
Meanwhile, homes are less affordable, jobs are less secure, a growing number of people are forced into part-time work, and more and more people are struggling to pay their bills and must therefore cope with a greater burden of debt.
“There are more than 15 per cent of willing labourers not working in one form or another,” economist Professor Bill Mitchell said.
“There has been a deliberate attack on workers’ capacity to gain wages — it is not an accident that real wages are flat.”
Saying things like “we have to live within our means” is telling voters the Government — which issues the dollar — can run out of its own money. But this is literally impossible.
Our means as a country we are limited to what we can produce using our effort, our skills and our technology.
The Government cannot spend without limit, or it will cause inflation.
But the Government cannot run out of money, and at times like this — when it saves instead of spending — the only thing that can make the economy grow is if we do the borrowing. And, unlike the Government, we as individuals can — and will — run out of cash.
Household debt keeps Australia afloat
For all the Government’s railing about boat people, it is the silent wave of immigration and a glut of private debt that has been keeping this country afloat.
Australia’s household debt to GDP ratio in the first quarter of 2016 was the second highest in the world, just behind Switzerland to the second decimal point. Due to a revision in household debt for the second quarter of 2016, our household debt to GDP ratio has fallen to 123 per cent.
And that private debt bubble that has kept apparent prosperity alive in Australia has given us the third highest household debt to GDP ratio in the world, roughly 206 per cent of GDP as of the second quarter of 2016, according to LF Economics. (The global average is 57 per cent).
Aggregate debt of the private non-financial sector worldwide is 140 per cent of GDP, according to the World Bank and IMF (this figure is an aggregate of all private non-financial debt divided by aggregate nominal GDP of all countries in the dataset). Australia is at 197 per cent.
Australian household debt has almost quadrupled since 1988, rising from $60,000 to $245,000 after inflation, according to the latest AMP.NATSEM Income and Wealth report. The ratio of household debt to disposable income has almost tripled, from 64 per cent to 185 per cent during the same time.
Economist Professor Steve Keen said every country that has got itself into this situation beforehand has had a credit crunch when the rate of growth of private debt slowed down.
“We are kidding ourselves to think it’ll be any different down under.”
The Reserve Bank has cut interest rates to almost to zero to encourage the private sector to take on more debt and to prop the system up, but it has almost run out of bullets.
They’ve got to spend money for you to save money
The only way for millennials to save, for households to pay down their debts, for all of us to have good job prospects and more security and to avoid that credit crunch, is for the Government to go back on everything they have been saying for years, and to increase its spending.
An increasing number of experts are now going against the mainstream, and making the point that for the rest of us to save, the Government has to borrow.
“Voters have been force-fed this neoliberal line that is without foundation in theory, history, experience or practice,” said Professor Mitchell.
“If the non-government sector wants to save dollars overall, then the Government has to be in deficit a dollar. It’s not an opinion. It’s national accounting.”
When the Government tells you that a social safety net for our most disadvantaged is a drain on the economy, it wants you to believe it can run out of the currency it creates.
It implies that the Government is just like a household, which can only spend what it earns, while in practice it is closer to the truth to say that households can only earn if the Government spends.
It is based on the myth that markets were once perfectly free until governments came along and interfered, and that as far as possible we should be getting back to that libertarian dream.
But such a world never existed. There is no such thing as a free market. All markets and all economies have rules and regulations. The important thing is who sets those rules, and in whose interests are they set.
In reality, historians tell us that money — like taxes — was almost certainly invented by the first governments, around 10,000 years ago probably in the Middle East, and that there were no real markets until there was money.
Even when money has been linked to gold, governments have always set the rate of exchange. It is a long time now since the gold standard. Governments have always set the rules where money is concerned. Those with their own currency still do today.
“We can run out of people, skills, equipment, knowledge, labour, we can destroy our ecosystem,” said economist Dr Steven Hail. “But we can’t run out of money.
“Why do people want the government to take more off them in tax than it spends? It is literally taking safe financial assets away from you when you do that.”
For you to be able to save money, you must be in surplus, and that means somebody else must be in deficit. Suggesting otherwise is one of the greatest deceptions Australian voters have ever been sold.
“The only way to permit the Australian private sector to improve its collective balance sheet is to run larger fiscal deficits,” said Dr Hail.
“And yet our politicians in both Labor and the Coalition talk about repairing the budget when there is no budget to repair — if anything, they are going in the wrong direction.”
A bigger fiscal deficit right now would mean there was more demand. It would create more jobs. It would make businesses more profitable. It need not create a debt which ever needs to be repaid. And at the moment, it need not be inflationary.
“The Government has the incorrect impression that more government investment today means we are stealing from future generations, but this is nonsense,” said Dr Mitchell.
“Investment in education, health, technology and infrastructure would provide real resources for future generations, and would provide secure jobs, business profits, and a more prosperous economy today.”
Originally published at www.abc.net.au on December 7, 2016.
