This week I attended an arts show, I Hide in Bathrooms, as part of the Adelaide Festival. The show was an interesting one-woman performance which traversed difficult issues of death, sorrow, fear and the contradictory feelings of the loss of a loved one. I was not completely engaged, partly for personal reasons, and partly because I thought the big questions raised by the performance focused on a “love of my life” relationship politics that I do not share. But it was a great performance and a show worthy of one of Australia’s major arts festivals.
To be clear, this was not high art – rather, it was independent and experimental theatre from people and organisations that work on shoestring. And despite that, the performance and production values were high, and the content was provocative and important. So what has this got to do with political economy?
The performance I attended was an opening night – so it came with speeches! The Chair of the host organisation, Vitalstatistix, thanked and congratulated the artists and the production team, and then thanked the backers – Brink Theatre, Vitalstatistix, and Arts SA.
All very ordinary – but can we rewind on that? The show was made possible by the collaboration of the publicly-funded Brink Theatre, the publicly-funded Vitalstatistix, the state government’s arts body, Arts SA, and was part of the publicly-funded Adelaide Festival. This is typical of the funding cocktail required to produce modern arts (or other community projects), but what was absent from the acknowledgements was a thank you to the Australian and South Australian taxpayers who backed the project via 4 four different paths.
Alongside the formal acknowledgement of production partners, would it be such a big step to acknowledge that the whole show was made possible by taxpayers’ funding? To acknowledge that it is a privilege and a responsibility to be funded by the community to produce thought-provoking art (a similar privilege/acknowledgement that should sit with the millions of other people who also rely on the public purse in government employment, defence industries, community services or even the big 4 accounting firms!)?
[And yes, my wage is also indirectly funded by the public purse]
But in an arts context, would it be useful to acknowledge the support of the community of taxpayers and ask the audience to bring other people to see the show and appreciate the importance of public arts funding in raising difficult social issues?
But in reality, if we want to continue to support collective activity we need a bigger picture at all the micro-events that owe their existence to taxpayers’ funding. We need to stop treating government bodies as external funders and start acknowledging the web of links (including taxes) to the broader community.
Our taxes pay for so much more than politicians, or even public schools and hospitals. We need people to understand the social and economic poverty of a world with low taxes. We can’t afford taxation to hide in bathrooms!
This may jar with my friends in the Modern Monetary Theory community who view government expenditure as a precursor to and independent of taxes, but as I have argued before, I suspect this is partly economic pedantry. The bigger issue is to agree that a private market will never deliver the breath of human supports and experience we need. Government is essential – not simply as an economic regulator or authoritarian legislature, but as a facilitator of collective goods and services which are essential to a modern social life.
I was at a meeting last week discussing prices for public transport. One of the government representatives there noted that we needed to be careful about providing concessions on ticket prices because if discounts were too widely available that would limit their revenue and ability to provide services.
At one level this was reasonable response from a departmental officer responsible for service delivery within budget parameters over which they had no control. But at another level, it struck me that it was a statement of a particular political economy and a service delivery model within that political economy. My first thought was that we don’t talk about roads like that: “oh, we can’t reduce motor vehicle registration because we won’t be able to build or maintain roads”.
Of course, vehicle registration fees don’t really pay for roads – no matter how many times motorists yell this at me as they scream past me on my bicycle. Large roads are least partly federally funded (and thus largely funded by income taxes), and most small roads are the work of local councils paid for by rates on property. Even the state government money from vehicle registration does not go directly to roads, it goes into general revenue and is not hypothecated (specifically allocated) to road building and maintenance.
Then again, train and bus tickets do not cover the cost of public transport either. Those services “run at a loss” and are subsidised by taxpayers – although again, (perhaps with the exception of some privately-built expressways) we never talk about roads running at a loss or being “subsidised” by the taxpayer. Yet in theory, we could set vehicle registration to pay the costs of roads. The fact that we don’t do that means that roads and public transport are quite similar in that they are a mix of user-pays charges and tax-payer funded public goods.
The reality is that for both public and private transport, and indeed the provision of any good or service, there are a range of possibilities for how it is provided and paid for. In a sense there is a spectrum with total user pays at one end: the private market is the most obvious example, but public ownership at this end is also possible (think SA Water which returns a dividend to government). At the other end of the spectrum is the total taxpayer-funded provision of services provided basically for free (think public hospitals or schools). And in between there are all manner of shared-cost options from gap payments and below-cost service charges, to direct grants and subsidies to third-party providers.
Where on this spectrum any particular good or service fits is a political-economic choice. We could provide free public transport to everyone as we provide free roads, or even, as I suggested in a previous post, provide electricity in the way we provide public education. Alternatively, we could construct artificial markets to enable user-pays models for the provision of public services – as we actually have done for electricity. There are reasons why such choices might be made in terms of the characteristics of the good or service (e.g. the relative difficulty/cost of capturing payment and excluding non-payers [very difficult on roads, but easier on public transport], or where monopoly provision is preferable to having multiple competing networks [electricity, water]). However, it is not just a technical issue – because we choose to have free public hospitals and schools as well as private user-pays institutions providing the same or similar services.
There is a significant ideological element in the choice of where on the spectrum we locate a particular service provision. It was social democracy that built the public electricity system, and it was neoliberalism that justified its privatisation. And to return to our original example, it is a neoliberal application of business language to public services that sees public transport as “running at a loss” or its provision being governed by the prices charged (rather than the amount of government funding).
The point here is not how public transport should be funded, but rather that not seeing the bigger picture constrains the policy options available. Rather than a suite of possibilities on the spectrum of public and consumer funding, we see prices for public services being set by a business logic which is arguably foreign, and at least only partially relevant to the provision of those services.
And suddenly, we can’t afford to offer concession tickets on half-empty public transport!
The federal and state budgets are key moments in the Australian political calendar and can have significant impacts on the lives of many people. After all, budgets are the definitive statements of government priorities, not just what they say they are interested in, but what they are actually spending money on – or not. However, trying to get a grip on what is in a budget, especially in the mania of budget day, is difficult or almost impossible – even for economically literate and experienced stakeholders. My experience is largely with the South Australian state budget, but I don’t know that it is very different in other states or for the federal budget.
For many who are playing the game, budget day starts in the “budget lock-up”. In the hours before the Treasurer formally introduces the budget to parliament, the media and selected stakeholders are locked in a room and given access to the budget papers so that they can make better informed commentary on the budget. It is daunting to go in to the lock up and be confronted by the stack of budget papers – literally thousands of pages to navigate in just a few hours – without the aid of phones, computers or the usual tools of analysis.
In my work at SACOSS, I have done at least 10 state budgets and a few budget lock-ups. In the lead up, I run workshops for first-timers to help them find their way around the papers, or least to give them a pointer to where to start and where to find things. But this knowledge does not help me much with the budget day analysis.
Budget Day
My political economy approach wants to focus on the macro-economic underpinnings of the budget and what is happening at the aggregate level, but the reality is that the lock-up and the budget day is dominated by “budget measures” – the new initiatives announced and costed in the budget. There is of course a media and political focus on the macro-economic bottom line – surplus or deficit, but there is little analysis of revenue or expenditure trends, or changing expenditure patterns within the budget. Faced with a mountain of government media releases and budget documents spruiking new spending, the media races to summarise these for their audience, while stakeholders in the lock-up cram to find out if there are new measures relevant to them before they walk out to give their two -minute summary to a media scrum.
Realistically, this focus on budget measures is probably all that is possible on the day, but the commentary model is fundamentally flawed. This is not just because there is little time for a proper analysis beyond the headline new measures, but also because it inevitably makes the budget discussion about “what’s in it for me/us”. This is self-interest hard-wired into the budget commentary, when broader perspectives are required.
Further, the focus on budget measures can be misleading.
Measures in the SA State Budget
Take for instance the most recent South Australian state budget. The government media releases and budget papers trumpeted an additional $1.8bn in health spending over five years from 2022-23, and there were 18 new health initiatives announced in the Budget Measures Statement. Similarly, there were 9 new measures in human services costing $110m in 2023-24 (net of the Commonwealth government contribution to the Energy Bill Relief Plan).
These sound like significant investments in health and human services and were highlighted as such in media reporting. But after the media had gone and all the expenditure data could be analysed, in particular adjusting the dollar values in the budget papers for inflation, a different picture emerged.
Despite the new initiatives, both health and human services departments saw their funding decrease from the current (2022-23) year to the 2023-24 budget year – and in real terms the expenditure declined over the forward estimates. This was partly because the expenditure in those departments (and a range of others) increased markedly in 2022-23 with inflation providing extra revenues and costs. So the 2023-24 decrease was a readjustment from an inflated highpoint, but the decline over the forward estimates is also a function of indexation of departmental funding not keeping pace with inflation, plus the hangover of older “operational savings” targets which reduce departments’ base level expenditure.
These long-term expenditure cuts stand in stark contrast to the impression of massively increased expenditure created by the budget day highlighting of new measures.
Agency Statements
Four of nine volumes of the SA Budget Papers are agency statements – detailed statements of expenditure, targets and performance of each government department. These should be a wealth of knowledge and interest to stakeholders, but they are not consistent across departments or through time, or even have a long enough financial time frame to enable a decent analysis after a couple of days – let alone in the couple of hours of the media cycle.
For instance, in the detail of Budget Paper 4, Volume 1, there was a projected rise in the number of children in out-of-home care in the coming year, which could be seen as a failure of the family support system. In Volume 3 there was a transfer of a sub-program out of Wellbeing SA that left the flagship preventive health unit as a small blip with less than 1% of the department’s funding. Later in the same volume, we find that the spending on Youth Justice in Human Services will decrease despite a projected increase in the number of kids in the system. These are just a few items captured in SACOSS’ extended Budget Analysis. However, this analysis takes days, and even then, the document is dominated by new budget measures. It is actually hard to find this analysis amid summaries of government programs and verbage.
A week is not enough time to properly analyse the budget, yet the window for public commentary is only hours. But it is not simply about time – it is also about who/what defines the terrain of the political debate (and how we cooperate/resist).
Tricky Measures
And all the above, is without even considering the politically difficulty of explaining in a short sound byte that, while the government’s signature energy bill relief plan is really important and welcome, they are wasting around one-quarter of the massive expenditure on households who probably don’t have problems with their energy bills, while failing to assist renters on a minimum wage who, unless they have kids, get no relief – no matter how big their energy bills are. Simply saying “some people are missing out” plays into populist politics of middle-class interest, but it is very hard to put the full analysis while also ensuring that the importance of the scheme overall is not lost in the midst of a budget scrum. And in this instance, we had the details in advance – it is even more impossible if confronted with a similar initiative for the first time in the budget lock-up).
Reflections
This post is not about the South Australian state budget, or the merits or otherwise of the budget measures referred to above. It is about how we approach political economic commentary – and how the structures of information provision and media cycles shape and limit the discourse around what is a fundamental process for the distribution of income and wealth in our society.
At the big picture level, the budget debate and our response raise longstanding issues around political power – from Gramsci’s 1920s analysis of political/cultural hegemonic power to Lakoff’s 21st century focus on the importance of framing (and elephants). The power to define the debate is fundamental, but contestable – though in this instance I suspect we are more entrapped than contesting.
But the issues go way beyond a government budget. They are replicated in the big challenges of whether and how we can talk about the wholesale changes necessary to address climate change or the massive, systemic inequalities which have arisen over the past 20-30 years. Such change will be almost impossible if our key political debates are conducted one measure at a time within a narrative of how each measure impacts me or my group (with a subtext that nobody can ever be worse off).
At the more local level, it is about how we make best use of a window of couple of hours a year when a large number of people are paying attention to public policy? How can we get beyond the spin, hold governments to account, and make arguments for progressive change. I confess, after 10 state budget cycles, I am not sure I am close to working this out – but I suspect it is less about the content analysis and more about changing the way we engage in the budget process.
Today, Adelaide’s online newspaper, InDaily published an opinion piece from my boss, (SACOSS CEO) Ross Womersley. The piece is titled ‘Business as usual’ state budget won’t cut it, and is an analysis that basically says that SA’s economy is in trouble, and that we are becoming poorer as a community.
The article walks through the data that shows the state’s relative economic decline, and concludes that we need a 2023-24 state budget with a bold and interventionist approach, a budget that “provides a vision, strategy and, most importantly, investment on a new scale in industry and regional development, skills development (including raising levels of digital competency and inclusion), and population retention and attraction.” The alternative, as the conclusion makes clear, is decline and inequality.
It does not take a close reading of the InDaily piece to see echoes of my previous post on “Inequality Alarm Bells for South Australia“. It is ok. It is not plagiarism, or theft of intellectual property. More a ghostly presence at my workplace.
I find the need to pen this open letter in (hopefully) supportive criticism after attending one-too-many workshops on economics-related topics where a supporter of Modern Monetary Theory (MMT) takes the floor to “explain” (at length and often out of context) that all the social goods we want can be afforded because the government can print/create money.
In writing this, I am not addressing the MMT academics and thought-leaders whose political values I probably share and whose knowledge of economics exceeds mine. Indeed, in part, I write because I think this work is being undermined by some MMT followers.
As I listened at the most recent workshop to the MTT-for-beginners lines I was reminded of my early days of politics where Trotskyists would intervene at every meeting to tell us that the problem was capitalism and could only be solved by revolution (oh, and “do you want to buy our newspaper?”). They appeared not really interested in the issue or immediate problem being discussed. Their main intent appeared to be getting converts to the cause (and selling newspapers).
The content and values of MMT are very different, but at times the behaviour – or at least the vibe – appears eerily familiar. My concern here is heightened by my long frustration with “panacea economics” – which I defined previously as proposing a particular idea as a simple and singular answer to fundamental structural issues. I hate to see MMT, with its detailed analysis and rich post-Keynesian background, presented in this way. Moreover, as I have found in conversations with workshop/audience members after several of these occasions, the MMT intervention is a turn-off which alienates other activists.
Getting Better Informed
The reality is that political economy is complex. I could read Stephen Hawking’s A Brief History of Time, but would not feel confident in publicly arguing astrophysics. Similarly, reading Stephanie Kelton’s The Deficit Myth is not enough to make me an expert on MMT or economics. Both books are great, with much bigger theories simplified for public consumption, but that is also a limitation. For instance, Kelton’s book does not explain or justify many of the macroeconomic relations and assumptions behind the theory – because that is not its point. Similarly, (in my reading) Kelton’s book has no theory of class, power or social change – although I am less clear whether that is because it was just beyond scope, or because MMT has no such theory. Anyway, Kelton’s intro book made me want to dig deeper – not just more MMT, but also critiques from the left and right.
I read a range of critiques from both the right and the left.[1] Some criticisms were lame caricatures of MMT or simply name-calling rather than analysis. However, what emerged in the more serious arguments were pretty grave doubts about the MMT/Chartalist history of money (the state preceding and creating money), some complex theoretical differences around the nature of money, the scope of aggregate demand in stimulating the economy, the role of the state in economic management, and (as I argued in my previous post) what constitutes full employment and whether it is possible.
I am not sure how much the followers of MMT understand these arguments or accept the MMT position on these issues. And maybe a knowledge of academic nuances doesn’t matter, although I am always wary of unexamined political/theoretical assumptions. More broadly, it is always a difficult balance between crediting expert over amateur knowledge (think climate change or vaccines) and not wanting to bar people from public debate because they are not academic experts in a field.
What is Wrong with the MMT Presentation?
Beyond the theoretical differences above, what was of particular interest in my reading was that many of the critiques on both the left and right agree with MMT’s description of how money is made, and the ability of currency-issuing governments to create money. MMT’s big trick is neither new nor unrecognised – but the use and implications of that trick are disputed. And that makes the issues complicated.
The table below is an attempt to summarise a few of the key simplistic MMT claims put forward at the various meetings I am referring to, and why I think they are problematic.
MMT – Simplistic Claim
What it sounds like at a community meeting
Why it is more complicated
When governments can issue currency, they can never run out of money.
I know this thing about the economy that most economists, central bankers and governments all around the world don’t!
The government can issue money, but can it control its value – or other economic variables which make that meaningful? And the MMT argument does not apply to Australian state governments.
Since the government creates money, and taxes it back later, we don’t need taxes to pay for services.
We don’t need to pay taxes – hooray!
If you need taxes to stop the inflationary impact of issuing money, then you really do need taxes if you are going to pay for services. It is just done in a different order. And as Kelton (and others) note, taxes are needed for other reasons – like redistribution of wealth.
Since we don’t need taxes to pay for services and governments can never run out of money, we can always afford to fund cultural, environmental and social programs.
Problems of power and prioritising expenditure don’t matter because there is no scarcity problem and there is money for everything.
(As MMT argues) there is a constraint in the full employment threshold, so the extra MMT money we are talking about is only the amount of government expenditure that would take us to full employment (if possible). After that, it is inflation or not funding services.
The government’s debt is simply the community’s surplus – no problem!
Instead of taxing the rich, we are going to borrow money from them and create a revenue stream for them.
Following Piketty: government debt (bonds) are owned by one sector of the community – the rich – while the interest paid constrains government expenditure on the services to the community more broadly.
Governments usually issue money as debt through the central bank, but they don’t have to. They can change the current institutional arrangements of how we issue money.
MMT is right, the system can be changed (so the critique that MMT does not describe how the system works misses the point) . But issuing money as bonds and debt rather than as cash is seen (in theory) as a safeguard because, as Shaikh notes, many governments with the power to issue fiat money have ended up with hyperinflation. So change is possible, but is not without risk.
A Jobs Guarantee is a way to enact social programs, and it acts as an automatic stabiliser for the economy.
A Job Guarantee is: 1. A brilliant panacea OR 2. Just another doomed employment program OR 3. A contradiction.
There are practical challenges in implementation, and a problematic history of political capture and mixed results. But in theory, is the JG primarily an economic stabiliser (which expands/contracts with economic changes) or a social program which provides jobs and services which would not otherwise be provided? If the former, the social programs disappear in the boom times, and if the later, the JG may not fulfill its stabilising function.
Conclusion
The point here is not what is right and wrong. There are certainly MMT arguments to address some of the complexities here, but there are also strong well-informed critiques from people who share similar values. In the end, much depends on the macroeconomic/philosophical framework and assumptions used. And this is why the simple assertion of MMT “facts” often does not carry much weight. Indeed, such assertions are likely to alienate rather than convince or encourage the audience – especially when people in the room have interrogated their own frameworks and/or have an understanding of heterodox economics.
My final plea to MMT followers is to keep advocating for state economic intervention, for investment in the things that make for a better society, and especially in support of unemployed and disadvantaged people. But don’t make the mistakes of Marxists of the past who tied all political change to a particular theory.
[1] From the far right, there is this from the Centre for Independent Studies, and this from the Mises Institute. From the left there was a mix of lame and serious political economy critique from Booth, a broad consideration of assumptions and outcomes from Shaikh, plus an ill-tempered but interesting “debate” between MMT guru Bill Mitchell (blogs 1 and 2)and Marxist economist Michael Roberts (blog, reply to Mitchell).
