Govt debt is not to be feared

There is no equivalent of a trench-coat-bedecked debt collector with rottweiler and baseball bat at the front door demanding that the Australian Government repay its debt. Nor will there ever be.

To the contrary, there is an orderly queue of businesses and individuals desperate to buy more Australian Government bonds which would put Australia into greater debt. Why? Because they know the Australian Government will never, cannot ever, default.

The investors will always get their Aussie dollars back with the nominated interest – an interest rate, moreover, that Australia sets.

Should we worry as citizens about our “share” of the debt and if it can ever be repaid? Should we worry about the Australian Government running up huge deficits during the Covid pandemic? Should we worry that the debt may get so large that it can never be repaid? The short answer is No, No, No, but only up to a point. 

That point, of course, is when inflation increases beyond around 2 per cent. Inflation goes out of control when too much money chases too few goods and services. Ultimately it corrodes faith in the currency.

Government finances are radically different from household finances. But politicians across the spectrum, especially on the conservative side, forever talk about the Government as if it were a household with a bloated credit-card debt about to send it into bankruptcy. Nations, like Australia, which issue their own currency and whose debt is nominated in that currency cannot default and cannot go bankrupt.

On the other hand, countries like Greece, Italy, Ireland and Spain were silly enough to join the Euro zone in the belief that it gave them status. Instead they were throwing themselves upon the mercy of the European Central Bank with debt nominated in Euros that had to be repaid in Euros. The European Bank, dominated by Germany, would only bail them out at a very heavy price.

The other surprising thing is that when the Government should be behaving like a household, it behaves like a charity. 

The Covid stimulus package, which was tinkered with this week, is a classic case of a Government, on one hand, unnecessarily worrying about debt, as if it were a household, and on the other hand, dishing out money as if it were a charity when it should be ensuring it is getting value for money, like a household.

The key to achieving the best economic result is not elimination of debt, but getting the most production from the economy

It short, the Government can do a lot better than the dole, which is the same thing by any other name – Unemployment Benefit, Newstart or JobSeeker (trendily, and illiterately, one word with a capital in the middle).

In very rough terms, the pre-Covid dole was $283 a week and then roughly doubled for Covid. Either way, why give people a demeaning amount of money (under Newstart) for doing nothing? Instead, the Government should just guarantee everyone who wants to work a job. The job would be 35 hours a week on the minimum wage ($16 an hour or $560 a week).

There is plenty of productive work to be done and on-the-job-training in Australia. Why reduce people to meaningless idleness when they want to work?

Instantly unemployment would vanish and all the dole money would go to boost the ever-beloved GDP and in to the economy where it would be spent on the goods and services largely produced by the private sector. 

When the private sector shrinks during economic slumps and crises, the public sector would pick up the slack. After a while, the private sector would get the benefit from the spending of the new government employees and gradually pick up and people who had been thrown out of private sector jobs and moved the government-provided minimum wage would move back to better-paying private sector jobs.

It is better than a work-for the-dole scheme. It is a work-at-a-job scheme. It is better than a guaranteed-minimum-income scheme, because the Government, or more pertinently, the people of Australia would get value for money, and people would avoid the indignity of unemployment.

It would be more effective that tax cuts for the rich which would just go to savings and more high-wealth generation rather than spending into the economy.

Further, the destructive effect of long-term unemployment on employability would end. Employers are often reluctant to take on someone who has been out of work for a long time, probably on the mistaken belief that they have lost the work ethic. 

Perhaps of equal importance, people would have job security. That has two major health benefits: less psychiatric illness and infectious people staying at home with sick pay rather than spreading their infection to the community. 

The spread of Covid by people feeling too financially insecure to stay at home has cost Australia billions. Covid aside, the spread of flu by contractors who cannot miss a shift would also no doubt cost a bit.

It seems bizarre that the Government would pay someone the dole to essentially do nothing, but with a bureaucratically expensive and largely fruitless sets of work tests searching for jobs that are simply not there.

Contrary to conservative myth only a minuscule number of people want to bludge and be out of work. People become unemployed not because they are lazy, but because of the boom-and-bust cycle in the private sector.

Once employed in the minimum-wage government scheme, all of the bureaucratically expensive and often fruitless effort to get find these people jobs in the private sector during a bust could be re-channelled to supervise them as public-sector employees to do any amount of work begging to be done for which they could be trained: land care, care of old and young, call centres and so on.

This stuff is called Modern Monetary Policy, but much of it has been around for some time. President Franklin Roosevelt wanted his New Deal to be something like it in the 1930s. He got some of the way, but was stymied by Congress and even his own party.

Australia and other developed countries have to recognise that the neo-liberal economic model which minimised the role of the government, lauded the private sector and gave central banks control over interest rates so they could control inflation was effective up to a point. Covid or not, with interest rates hovering around zero and the private sector failing to provide enough secure, decently paying jobs or to give wage earners a reasonable share of rising productivity, we have arrived at that point.

Crispin Hull

This article first appeared in The Canberra Times and other Australian media on 25 July 2020.

5 thoughts on “Govt debt is not to be feared”

  1. I support this idea, working for the dole becomes work for the government. John Simmons wonders whether there would be enough base level gov’t jobs. Of course there would be. We can always use more people planting new trees or otherwise managing forests and more people building gov’t housing. The basis is that gov’t creates as many jobs as required to employ the otherwise unemployed people. And when those people leave for better jobs, the created jobs can stop being filled.
    It might reduce the respect for the non-base level gov’t jobs. Holders of those jobs might not be happy about that.

  2. I think the idea of government bodies being the employers of last resort instead of dishing out the dole could work. But those proposing and supporting the idea would have to also propose solutions to the obvious problems.

    First, would there be enough base grade public service jobs? Perhaps not in the Federal government but probably yes if the State/Territory and Local governments are included. That creates the problem of how to distribute the Commonwealth money as the lower levels of government could not fund the extra labour. I have some thoughts but no concrete suggestions for that one.

    Second, how to stop the bureaucracy from becoming bloated. I suggest promotion from base grade be prohibited within the agency in which the base grader is working and promotion to other government agencies be strictly competitive

    Third, I started observing aged care home problems, as mentioned above by Jack Frisch, some thirty years ago and I hope the current Royal Commission results in some prompt improvement but I don’t think governments being employers of last resort would make any difference.

    Finally there will be the residual problem of how to look after those who for whatever reason are are unemployable. Perhaps they will just have to be paid a livable pension or be taken into care.

    I suspect people will come up with many reasons to not progress this good idea but what is really needed Is the political will to ‘give it a go’ Jack Davey would have!

  3. Neo-liberalist economics is like medieval Christianity: endorsed by kings and emperors, the only thing allowed to be taught in universities, heretics severely punished, impressed upon the brains of laypeople by endless sermons delivered by priests who communicate in an ancient unintelligible language. I thought the GFC might start to slacken its stranglehold but no and I fear the fallout of Covid-19 will barely dent it.

  4. Yes to a Works Progress Administration, not COVID Commission. One huge detachment to eliminate brumbies and decommission Snowy 2.0.

  5. This is good in theory but what do we in the following case? We put people to work in “land care, care for old and young (and people with disabilities), call centres” during the bust at minimum wage and then the economy improves. Do we then stop caring for the land, the old, the young and people with disabilities?

    I suspect that most people would say, “No, of course not”.

    But let’s be realistic – we won’t pay higher wages and neither the unemployed university graduate nor the unemployed chef will want to continue “caring” for the land, old, young or person with disability because they don’t really care. We are not a “caring” culture! We are a materialistic individualistic culture.

    I have experience with the care of people with disability. There is an enormous shortage of people who “care”, an enormous surplus of people who pretend to “care” and a labour turnover rate that is shameful.

    For evidence, check out all the Royal Commissions that involve caring.

    I’m not unsympathetic to what you suggest, but I just want to point out that it ain’t that simple.

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