You do know money is an illusion, don't you?

I recently said to a young work colleague 'you do know that money is an illusion, don't you?' In retrospect it may have been a bit unkind - she had just graduated with an economics degree - but at the time she was taking our budget way too seriously. Not long after that I was vindicated when I heard economics professor Alan Kohler talking on the ABC. And here's why.

How would Australia look if our political leaders could afford to spend a lot more on public health and education, social housing, scientific research and green energy schemes than they claim they can? What if they could eliminate unemployment? Well apparently they can do all of this – they just don’t want to. ‘When you hear a politician saying the government must "live within its means," what they're really saying is the government mustn't spend more than it collects in taxes or borrowings’. MMT economists like Alan Kohler are crying ‘bullshit’ – they say ‘"full employment" is not only possible, it's a moral imperative. Anyone who wants a job should have one’. These ideas form the basis of Modern Monetary Theory and they are gaining momentum.

From 1945 to 1971 the US dollar was supposed to be backed by reserves so it could be exchanged on demand for a fixed amount of gold held by the US government. Certain currencies were ‘pegged at agreed fixed rates against the US dollar’. But in 1971 Richard Nixon decoupled America’s currency from gold – which basically meant that money no longer had an intrinsic or ‘real’ value. Countries like Australia followed suit and adopted this system of ‘fiat’ currencies which now had floating exchange rates.

Since the decoupling of currencies from any real value in gold, money has become more of a political construct than an economic one. According to Alan Kohler deficits are now simply a weapon our 2 major political parties use to whack each other over the head with. Modern Monetary Theorists say there is ‘no limit to the amount of money a government with its own currency can create, as long as inflation remains under control’. (ABC News: Alistair Kroie)

MM theorists maintain the deficit ‘problem’ has no substantive basis in reality – at least within that country’s own borders. Critics of MMT warn it is ‘naive, simplistic and potentially dangerous’, but supporters believe ‘many of the world's problems today (extreme wealth inequality, poorly funded public hospitals and schools, chronic underemployment, stagnant wages) are a consequence of misunderstanding government financing’. I think they are being too kind - neo-liberals understand government financing perfectly.

The neo-liberalist right want to maintain a certain level of unemployment because they use it to control inflation and wage growth. They don’t want full employment because if people have to compete for jobs, they’ll put up with more shit and won’t ask for a pay rise. Wage increases will increase costs and reduce profits, which of course these self-entitled greedy bastards want to maintain so they can look after company CEOs and shareholders at the expense of workers.

Once we get past basic human greed, the main barrier to a more equitable situation is the global economy. I’ve never supported global trade – simply because it isn’t a level playing field. Cost of living in Australia is high – we can’t afford to work for $3 a day because we pay a lot for food, rent and everything else. ‘High’ labour costs in Australia mean businesses move production overseas where the poor are exploited. But, if we stayed within your own borders, and manufactured most of what we needed (not wanted), and paid the real cost of production - we could create more jobs. Any remaining jobless – those who are incapable of working for some reason and are never going to get a job - could be provided with an appropriate unemployment benefit by simply printing more money if necessary. 

Before my fellow socialists and I get too excited it’s interesting (and disappointing) to discover that MMT proponents don’t support a Universal Basic Income because they believe we should all have a job if possible. I guess there are merits in that if we are talking about ‘dignity’. However, the idea that we should all have a job is another ideological capitalist construct - the ‘dignity of work’ is only relevant in a society that values it. 

The other snag I can see is that MMT only applies to federal governments because they can print their own money. Local governments are able to use that money but can’t create their own, so they still need to budget. This is fine if there is a co-operative relationship between the states and the feds, which there often isn’t in Australia. During COVID this relationship has deteriorated quite significantly – some commentators are saying the federation is under threat like no other time in its history.

After decades of capitalism and the obvious failure of ‘trickle down economics’ – which stupidly rely on the goodwill of the wealthy and powerful – it’s encouraging that MMT is putting forward a model for a brave new economic world. Unfortunately - and unrealistically - it relies on the wealthy relinquishing power. I just can’t see that happening. Even so I’m glad to see MMT economists calling out the bullshit.

Image: https://science.sciencemag.org/content/317/5841/1042

'Modern Monetary Theory: How MMT is Challenging the Economic Establishment', Gareth Hutchens, 17 July 2020
https://www.abc.net.au/news/2020-07-17/what-is-modern-monetary-theory/12455806