By Edward Eastwood
Parts of this blog were originally posted on the Australian Independent Media Network site in July 2014.
If you lived around the time of Galileo, the argument that the Sun went around the Earth would make perfect sense.
After all, it appeared in the East in the morning, passed overhead in an arc during the day, and finally disappeared in the West in the evening, much like that of a wheel going around the axis of a hub.
The Moon also did this at night and why shouldn’t it?
God had created the Earth, and in the absence of Martians or Moon-tians coming forward to claim there was life anywhere else in the universe, it simply stood to reason that that the Earth was the center of the Universe and everything else moved around it.
To argue otherwise was either lunacy or heresy – or both, and as the accusation of being either carried dire consequences at the time it was best to keep your mouth shut, even if like Galileo you could prove your argument.
Galileo’s experience in challenging long established beliefs and the Roman Inquisition’s reaction, serves as a good example of what is these days termed cognitive dissonance – stress at being confronted with new facts or ideas which contradict long held beliefs, but more of this later.
In economics, Milton Friedman’s Chicago School of economic theory with its focus on ‘supply side’ theory has held sway over most of the developed world for more than three decades.
Put simply, the base of which all economic theory rests is that of supply and demand and the best way to manage both in order to promote economic growth and the well-being of the populace.
Friedman argued that supply created demand and that the demand should be governed by market forces driven through the private sector with only light (if any) regulation through government.
Intrinsic to Friedman’s theories is the NAIRU or Non Accelerating Inflation Rate of Unemployment.
The operative word is ‘Non-Accelarating.’
The NAIRU dictates the level of unemployment necessary to counter inflation.
In Friedman’s theory, this is pegged at between 5.1 to 5.8% of the available workforce and constantly maintained as a permanent ‘floating pool’ of unemployed labour – skilled or unskilled.
This idea of a permanent pool of unemployed immediately found favour among employers who could then pick and choose from a far more compliant work force who were far less likely to insist on pay increases or award conditions.
The NAIRU has both directly and indirectly enabled the perpetration and propagation of the myth of the need for ‘surplus’ in government budgets, and of ‘workplace reform’ in policy formulation.
The fact is however, that this is simply an excuse to give the upper hand to employers who have the ‘flexibility’ to tell employees; ‘that if you don’t want the job, there are plenty who do.’
When wed to the Phillips Curve or ‘trickle down effect’, the NAIRU serves as one column of the twin pillars of the economic support for the ‘market forces’ policies so beloved by Neo-liberal economists.
So here in a sense we have the world at the time of Galileo.
Over the past three and a half decades, the electorate has been steadily pressured into believing that the Sun moves around the Earth.
In this case, the Sun is represented by society and the environment, and the Earth is represented by the economy.
Enter Galileo in the form of Modern Monetary Theory.
M.M.T. contends that not only does the Earth move around the Sun ( that the economy is subservient to both society and the environment) – in direct contradiction to the prevailing beliefs but also insists that it is demand which creates supply and governments need to constantly run deficits to do this.
Needless to say, the cognitive dissonance from the adherents to ‘supply side’ economics has been stonier than the Great Wall of China, and accusations of ‘heresy!, lunacy!’ shrieked from every bastion of Neo-liberalism.
Like Galileo however, M.M.T. can prove its theory through the argument that governments which have sovereignty over their currency and floating exchange rates and therefore are not fiscally constrained, can easily utilize the nation’s most productive resources – its people.
Especially the underemployed and unemployed who currently languish either in poverty or hover on its brink due to the the imposition of the NAIRU and its cold dead hand on 5.1 to 5.8% of the work force.
Modern Monetary Theory refutes the NAIRU through its counter argument of ‘the Job Guarantee’.
The Job Guarantee entails creating useful work through schemes that are aimed at social or environmental needs which are unmet by the public or private sectors.
Rather than create a permanent pool of unemployed to control inflation, the Job Guarantee insists on the payment of the minimum wage ($606.40 pw)
This allows the recipient to maintain a modest existence while acting as an incentive to enter the conventional job market when the opportunity arises.
As Victor Quirk from the University of Newcastle’s Center of full Employment and Equity argues;
‘Through a well-designed system, that integrated a flexible pool of public sector minimum wage jobs with vocational training and rehabilitation institutions, and regional labour market analysis and strategic planning, the productive capacity of the workforce could be constantly developed, maximizing national competitive advantage in a race to the top, not the bottom.
By thus enhancing the efficiency of the labour market, the enhanced economic security of workers (that would tend to empower them to make greater demands in the lower levels of the labour market) would be offset from the employers’ point of view by an increased supply both quantitatively and qualitatively of available productive workers.”
The Job Guarantee is in direct contrast to the ‘work for the dole’ schemes advanced by the LNP, which offer the hapless participant little or nothing in the way of either training or vocational guidance and merely serve as a sop to middle class disapproval of ‘those bludgers who are living off our taxes.’
The Job Guarantee also serves to stimulate the economy by placing greater spending power in the hands of those who participate thereby creating a greater demand for goods and services.
It also encompasses targeted employment schemes directed at those with disabilities in order to enable them to join the work force should they wish to do so.
‘But what of inflation?’ scream the Neo-libs.
Inflation is checked in part by the payment of the minimum wage, and in part through the normal methods; adjustment to taxation and interest rates.
Tony Abbott and Joe Hockey argue that there are ‘budget emergencies’, ‘welfare emergencies’, the need for ‘structural reform’ in order to prevent ‘the burden of debt being passed on to our children’ and most importantly, that society and the environment must serve the economy in order to conform to the Neo-liberal philosophy of the ‘the invisible and guiding hand of market forces’.
‘There is no other God save for ‘The Market’ and ‘Surplus’ is its Prophet!’
Or in other words, the Sun goes around the Earth.
Modern Monetary Theory and the Job Guarantee argue that demand creates supply.
Nations which have sovereignty over their own currency are never revenue constrained and able to create full employment through the Job Guarantee which offers economic stimulus, training that is geared toward genuine skills advancement or further education, and the payment of a minimum wage.
MMT insists that the economy is able to, and must serve both the environment and society.
Who are you going to believe?