From an MMT Point of View — What Ails (Not Only) Australia

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I suspect, adepts of the Modern Money Theory (MMT) are right in challenging the widely held view according to which the same kind of budgetary discipline that is prudent for a private household is also desirable for governments.

However, while they offer good grounds to expand government spending, the line of argument as typically paraded by MMTers does not persuade me that enhanced government spending, while technically possible and if expertly conducted generally advantageous, is unencumbered by huge risks of misdirected spending—like getting rid of healthy and vital industries in order to pursue "ecological" or other ideological pipe dreams.

Underutilising the spending power of government holds risks that—in principle—are not smaller but also not larger than the risks attending Byzantine and megalomaniac misspending. Thus in turning on the spigots of government spending, we may be able to solve one big problem (a severely restrained economy), but only if another big problem (government misspending) is dealt with successfully, as well.

There are no nostrums.

Our means as a country 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.

Beware:

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 125 per cent of GDP and 180 per cent of household disposable income during the second quarter of 2016, according to LF Economics. (The global average is 57 per cent).

What is more:

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. [...] 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. [...] 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. [...]

Also:

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.

[...]

"If the non-government sector wants to save dollars overall, then the Government has to be in deficit ... It's not an opinion. It's national accounting."

The belief that Government can run out of money

... 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.

[...]

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.

[...]

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."

The source.