Superannuation swindle. Yeah, but not for the reasons you say.

Rob Burgess seems a decent sort of bloke. Affable enough in those videos he did tooling around Melbourne in his old Ford*, pontificating on economics and whatnot.

But once again we’ve got the same old tripe being trotted out in The Great Superannuation Swindle Must Be Stopped.

Yes, allowing people to access their super to invest in housing is only going to drive real estate prices up further, you’ll get no argument from  me on that score. That’s a colossally stupid idea if your aim is to help first home buyers.

But the rest of the article is just Neoliberal Groupthink 101. For example:

State and federal governments raise taxes to fund infrastructure, education, health, administration and so on – goods and services which on balance make the economy work more efficiently and increase the ‘common wealth’.

State governments do, but the federal government does not. This is a lie, and Burgess knows it to be a lie. Yet it blithely gets repeated here.

If Australia had not amassed a pool of $2 trillion in superannuation assets so far, with more to come, we’d have had no hope of providing for the ageing population in retirement. So no, it’s not true that money in your super account is your and yours alone.

It has not only been topped up by your fellow taxpayers, but it is a comprehensive plan to prevent older Australians living in cars and dining on tinned dog food.

This is where I start to shout at the screen as I read the article. The ageing retired population cannot eat their superannuation, no matter how large it is.

The New Daily is supported by Industry Super, so these comments would be deeply unpopular on their site, but the simple fact is that superannuation is a complete con. It just does not do what its proponents (such as Mr Burgess above) claim. In fact, as Dr Steven Hail wrote recently, you can argue that it could actually have the opposite effect of what it was intended for, and is in fact – to use the terminology in Warren Mosler’s work – an “innocent fraud”.**

Superannuation is a forced savings plan. Legislated garnisheeing of your wages into a savings account, deferring your spending until you turn 60/65/whatever. It cuts your spending capacity today with the promise of increased spending capacity in the future. As Dr Hail says, releasing that spending capacity later on could conceivably trigger inflationary effects, driving up the cost of the goods and services that pensioners require at the very time they require them, what with the ageing population crisis we keep hearing about.

Superannuation is bullshit. There’s nothing wrong with saving for your retirement, but it’s simply false to assert super is the only way the nation can afford to keep our senior citizens. The federal government can afford to pay pensions and public service retirement scheme costs every fortnight forever. They issue the currency and can never run out. What’s important is that there are the real goods and services available in the economy to be purchased with those dollars. It’s the lack of things to buy with your money that causes inflation, not money itself.

Look, I’m a fan of Keating, but he sold us a pup with superannuation. The moment we floated the dollar, the rationale for superannuation disappeared. Perhaps he didn’t realise that at the time, but it should have become obvious since.

 

* Call that thing old? Pfft. Perhaps I should do some videos on macroeconomics whilst driving around in my 1956 Holden?

** I cannot recommend Dr Hail’s article highly enough. If you didn’t click the link before, do it now. Here it is again.

Monbiot on Neoliberalism

We* try to post original content on this blog, but occasionally something turns up and that just needs to be shared. This interview with George Monbiot is well worth 16 minutes of your time. He explains succinctly what neoliberalism is, what its impact on society has been, and ultimately the thread that has brought us from Hayek to Trump.

I’m looking forward to reading this new book, although I suspect it will profoundly depress me.

* That seems to be a royal “we”, since none of the other rogues have quite brought themselves to start blogging…

Define Employment, if you would

Before the Garage Death Match that was the contretemps between SA Premier Jay Weatherill and Federal Energy Minister Josh Frydenberg (as it might have well have been given the way it consumed all available journalists  for days), something else noteworthy happened in Adelaide.

Former Treasurer Wayne Swan gave a very thought-provoking speech at Flinders University where he argued that full employment needs to be an active strategy for governments, not a passive one.

As usual, this was met with howls of “government interference in the markets”, make-work schemes, communism, end-of-the-world-as-we-know-it and so on. This particular example is fairly typical:

What a ridiculous idea, you may as well employ people to dig up holes and then fill them in again, employment for the sake of employment, similar to countries like the USSR and other command economies. The problem is that this involves siphoning money away from the private sector which could be used to create new products and services that improve living standards.

I never cease to be amazed by the lack of imagination on display in comments like this. Why must government provided employment be make-work?

Just take a walk around your community, and ask yourself what could be done to improve the place if there was a standing army of people willing and able to do them? If your local council had the human resources (paid for by the federal government) to call on to provide services to the community, what would they be able to achieve?

Virtually anything that the private sector wouldn’t touch because there’s not a quid in it is a candidate for a Job Guarantee Programme. Think big.

Because the fact is every single unemployed person is already on the government’s payroll. It would make so much more sense to pay them a living wage to do something useful than pay them a miserable pittance to do nothing.

On Penalty Rates

The economy runs on sales. That may sound trite, but it is a fundamental truth. When you cut wages, you cut aggregate spending power. At the macro level, the outcome will be reduced sales, which leads to reduced production, which leads to greater unemployment, which cuts aggregate spending power, and so the vicious cycle continues.

What the businesses championing this reduction in wages fail to appreciate is that their wage costs are also the source of their profits. Clearly they expect to cut their own wage costs and rely on every other business not doing the same so that spending power remains constant or growing and profits continue. That’s some pretty magical thinking.

Koukoulas’ latest is just more of the same garbage

Stephen Koukoulas’ latest missive in The Guardian entitled “Balanced budget needs higher tax take, but which taxes should be hiked?” inconveniences an unknown number of electrons pulling together 700 words of very little worth whatsoever.

Morrison is talking about the need to raise taxes to ensure these government services are provided while simultaneously moving the budget towards surplus, which is an essential element to avoiding the credit rating downgrade that appears to be just around the corner.

The prognostications of the credit rating agencies for a sovereign currency issuing government have about as much impact on that government’s ability to manage the economy as your footy tips do on the weekend’s results. They’re completely irrelevant, and should be paid no notice whatsoever. Morrison would, of course, because he’s an economic illiterate. The Kouk and his readers don’t need to buy into this neoliberal nonsense.

If the federal government is in surplus, then everyone else (i.e. us, the private sector, in aggregate) must be in deficit. Over whatever period of time we’re discussing, the net flow of money can only be into, or out of, the economy. There’s no other option. And money that isn’t in the economy no longer exists. There’s no warehouse of dollars the government must keep stocked for next week’s spending.

So the question is why the draining of money from the economy is treated as some unalloyed “good thing”. The whole notion of “budget repair” is wrong-headed. The government is not a household, but the currency issuer. It’s not the budget that needs to be repaired, it’s the economy. The ratio between government spending and GDP is of no great significance. The focus should be on attaining full employment with price stability. In other words, getting both unemployment and inflation into that goldilocks zone of between 1 and 2%. Achieve that and most other problems solve themselves.

As usual, his article triggers a thousand comments, arguing over what should be taxed, what programmes axed, the usual crap. Tax the rich! Cayman Islands! Apple, Google! The NDIS is unaffordable! You get the picture.

All the comments recommending who or what should be taxed are well meaning but misguided. The federal government does not need tax money in order to invest in public services, social security and infrastructure.

As I said earlier, the federal government is the issuer of the currency, and they literally have a bottomless pit of dollars they can issue. Dollars are the one thing the government has an endless supply of. What constrains them are real, physical things: the amount of labour and resources available in the economy. When dollars are issued past the point of what the economy can absorb in increased production, then you get inflation.

So taxation is the inflation control mechanism – draining money out of the economy to make room for additional spending. Hypothecating new spending against taxation such as Morrison’s suggestion about the NDIS is a furphy and economically illiterate.

The government can always afford to do whatever it wants. It can buy anything offered for sale in $A. Asking where the money comes from is the wrong question. The only right question is whether the real resources being consumed are being put to their best use for our common wealth.

Future Funds, Superannuation, and Related Examples of Macroeconomic Misunderstanding

The subject of the Future Fund came up in a conversation about superannuation the other day. There’s a perception that the Australian Future Fund is like the Norwegian Sovereign Wealth Fund, but nothing could be further from the truth.

The reasoning behind the Future Fund when it was set up in 2006 was that it was necessary to ensure that the nation could afford the bill for federal public service superannuation as it fell due.  Peter Costello – who was Treasurer at the time – was nothing if not rat-cunning in this. It allowed an argument to develop that the federal public service itself was getting too large, and needed to be given a savage haircut, and at the same time provided cover for the coalition government to sell off publicly owned assets, allowing them to claim bigger and bigger fiscal surpluses as testimony of their superior economic management.

 From the macroeconomic perspective, we have been completely taken for fools. The Future Fund is an example of a perfect shitstorm of crony capitalism.

The Future Fund itself is a total boondoggle, the handiwork of a Treasurer who either had no idea how the macroeconomy worked, or who did and deliberately chose to lie to the public, loot national assets and flog them off to mates. I’m not sure which is worse.

The idea that federal public servant superannuation is unfunded is complete horseshit. The federal government can never be forced to default on payments in $A, since it is the only entity allowed to issue them, and has a bottomless pit from which to draw them.

 If Alan Joyce came out and said that Qantas couldn’t issue any more frequent flyer points or they might run out and not have any for next year’s customers, you’d rightly think he had gone mad. The relationship between Qantas and the Frequent Flyer point is identical to that between the federal government and the dollar. They issue them as they please, from nothing, to whomever they choose. Every dollar the government spends is issued into existence by the act of spending it. Flogging Telstra and putting the money raised into the Future Fund is the equivalent of Qantas selling an Airbus 380 to Tiger Airways for Frequent Flyer points. Madness or embezzlement: you be the judge.

 It doesn’t matter a tinker’s cuss how many dollars are issued on superannuation, pensions or any other form of social security. What matters is that the economy has the means to produce all the real goods and services that the population requires at the time it needs them.

 

Further reading I recommend: Bill Mitchell’s excellent piece “The Future Fund Scandal“, and Michael Hudson’s “Norway’s Sovereign Wealth Vortex“.

Autocracy – Rules for survival

Sorry, been a bit slack this week and haven’t written anything here. Had other writing commitments, and been on holidays.

In the absence of anything from any rogues to read, I highly recommend this excellent piece by Masha Gessen, “Autocracy – Rules for Survival“. It was written a day or so after the US election, but given the executive orders issued in the first week or Trump’s presidency, its message is even more prescient, if such a thing is possible.

Some links for The Day of The Donald

So, the twentieth of January has arrived, and with it the inauguration of Donald Trump, something that many people both within and beyond the USA watch with a sense of foreboding.

Fellow Rogue Louie commented to me recently that given we’re only on this earth for a short period, we should appreciate living through what will surely be a tumultuous era. Indeed, may we live in interesting times, as the old Chinese curse would have it.

So in light of the inauguration, here are a few interesting links regarding Donald and the election for you to ponder.

  1. How a 23-year-old made $1300-per-hour for a fake news masterpiece
  2. I voted for Donald Trump, and I already regret it
  3. Donald Trump has assembled the worst Cabinet in American history
  4. this tweet

Relax. There’s only four years of Trumpocracy to endure.

No, taxing the rich is not the first step

There have been a blizzard of articles in the last few days following the release of the Oxfam report that 8 individuals have equal wealth to the combined wealth of the poorest 50% of the world’s population. Last year, it took the combined wealth of the top 62 individuals to equate to the wealth of the poorest 50%. If ever there was a statistic that shows what a lie the neoliberal concept of “trickle-down” is, you need only look at the ever widening gulf between the haves and the have-nots.

In this well meaning but misguided article (“It’s time to target the top end of town and the obscene profits of the super-rich“), Helen Szoke makes the error of predicating our ability to improve equity on taxing the rich. Yes, the richest should pay tax and it’s fairest that they pay the most, but the nation is not dependent on that occurring before money can be injected into the economy at the bottom.

The idea that we cannot do anything until we tax the rich is one of the more pernicious myths that keeps the national economy from reaching its potential.

You do not automatically improve the wellbeing of the poor by taxing the rich: that “revenue” does not magically find its way into the hands of the least well off. The federal government is not Robin Hood, redistributing the tax dollars it gets from the mega-rich to the poor and needy. This is all part of the great hoax that the federal government’s budget process is like a household’s, and like us, they should be “saving for a rainy day”. It’s rubbish. The federal government is the issuer of the currency. Every dollar that exists does so because the federal government spent it into existence by putting it into someone’s bank account at some point.

You improve the wellbeing of the poor by directly improving the wellbeing of the poor! You do it by injecting money into the economy where it will be the fastest moving (i.e. into the hands of those that will spend virtually all of it), thus increasing aggregate demand for goods and services, which creates jobs. At the point where this additional government spending starts to create inflationary pressures, then and only then do you need to have a conversation about where to apply the taxation that will relieve that pressure. But that point occurs when we can’t find any more unemployed workers to make more things, and we’ve reached the limit of our productive capacity.

Whilst there’s unemployment and idle means of production, government spending is not inflationary.

UBI and Inflation

In this article, there’s a “debate” on the pros and cons of UBI, or Universal Basic Income. I don’t find either side of the argument compelling, but there’s been some spirited discussion in the comments. Here’s an exchange that I thought worth keeping:

From “MrMustard Magoo”:

Would it necessarily be inflationary if we just printed it so to speak? Wouldn’t businesses just sell more stuff? It seems to me they struggle somewhat to sell what they have now.

Another participant “Balthazars” responds (incorrectly in my opinion):

Err, yes it will be inflationary if the government just printed the money (or credited bank accounts, as the article notes some had suggested).

When you ‘create something out of nothing’ and make it available to the market, you have increased the supply of something. More supply, means the individual value of each ‘unit’ of the item decreases in value because.

Business’ won’t just sell more stuff, they’ll tend to increase their prices, either because in bidding for scarce resources, buyers will bid higher (due to having more cash), or because the seller knows the buyers have more cash and can try to squeeze more out of them.

Printing it isn’t going to be viable, especially not given the printing would have to happen every year. Creating $200-$400 billion every year and sending it directly to households would have huge inflationary impacts.

So here’s my reply:

Hang on a minute. The term ‘printing money’ should be avoided: it refers to fiscal operations that applied under a gold standard, where the size of the economy was constrained by the amount of gold the government held (or the currency your currency was pegged to). These days all money is printed.

The laws of supply and demand suggest that prices increase if demand is greater than supply, and vice versa. But defining the demand for money itself is not that straightforward, is it? It’s not easy to conceive a situation where the demand for money is less than the available supply.

Furthermore, assuming businesses can adopt a monopolist position and just charge more for the same thing is not valid. Unmet demand leads to greater supply, as new businesses enter the market, and existing ones ramp up production to take advantage. If widgets are profitable, selling more widgets = more profit. Indeed, increased production can lead to lower per-unit cost of production.

Increasing the amount of money increases the aggregate spending capacity. That will increase aggregate demand, and increased production will follow. That leads to more employment, as firms need more workers to make more stuff.

It’s a virtuous cycle, until you run out of the fixed resources, be they raw materials or labour. That’s when you get inflation: when there’s no more idle labour and production to be put into service, and any further injection of cash into the economy will lead to too many dollars chasing too few goods. So whilst adding $200-$400BN to the net financial assets of the economy is not endlessly sustainable, the progressive nature of income taxes will attenuate that spending and drain a significant portion away again.

All that said, I don’t agree with the UBI concept. But for entirely different reasons, and this post is long enough already.

 

Ellis Winningham neatly encapsulates the issues with UBI in this Facebook post. I highly recommend it. Like Ellis and other proponents of Modern Monetary Theory, I believe the answer lies in a Job Guarantee Programme.