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.

Clawback of welfare debt is bad policy and bad economics

In Helen Hodgson’s article for The Conversation (reprinted by The Guardian), she writes:

The tax and social security systems can be seen as two sides of the same process – income support payments are a safety net funded through taxation.

Except they’re not, and so much of this “budget repair” bollocks we are forced to endure is predicated on this falsehood.

Tax dollars are not recycled. There’s no warehouse full of dollars that the government needs to keep stocked to support social security. Tax dollars go to the same place that Frequent Flyer points go when you redeem them: they simply cease to exist. Money issued into the bank accounts of welfare recipients comes from the same place that Frequent Flyers come from: they’re issued into existence, from nothing.

So why tax at all? Because unchecked, that new money creation will reach a point where it becomes inflationary, so some money has to be drained away to make room for more spending. (It’s done for other reasons as well.) And wherever possible, you take it from the top, because money naturally rises. Those with very little spend it all, and that spending is someone else’s income, and so it goes around until those dollars come to rest in the bank account of someone who doesn’t need to spend them.

Once you appreciate the fundamental truth of all that, the idea of clawing back money from people who no longer have it anyway as some form of economic repair is clearly preposterous. By all means have a targeted welfare scheme, but fining the poorest in the community as a revenue-raising gesture has the exact opposite effect of what’s required: it limits their purchasing power which hurts the economy.

Instead of worrying about balancing the budget to address non-existent inflation, the government would be far better served focusing on policies to address the causes of the need for welfare. Solve unemployment, and most of the other problems just solve themselves.

What’s in it for the Neoliberals?

This post came from a question asked of me on a below-the-line thread on The Guardian:

I am not an expert in monetary theory (I have a PhD in something else), so my question might sound a bit simplistic, but I hope it’s not.
If government surplus = private deficit, and higher private deficit impacts populations hard, why are the neoliberals running the economy this way? Is it done to further impoverish the poorer actors in society (because the wealthy can obviously deal with debt a lot better than the poor)? Who benefits, if not the rich?
IMHO, I think they are too conniving to be doing this by accident, ie because it’s what the IMF tells them. I think it is to punish people according to some law-of-the-jungle doctrine. For evidence of nastiness, just look at what they are doing with welfare overpayments and refugees.
Don’t they owe us a duty to run government for the benefit of the mostest? And surely they are the trustees of our country and institutions? – Mary

Mary, as I said in another comment, yes exactly. The purpose of government is to maximise the prosperity of the society, by providing the common public goods we require to reach the standard of living we expect, and arrange use of resources in a manner that achieves this public purpose sustainably. In these days of individualism, user-pays and privatisation, that probably sounds like socialism. It isn’t, of course.

The rot set in with the abandonment of full employment as a core government policy goal in the mid-70s. George Monbiot wrote a good piece here on the history of neoliberalism a couple of months ago that’s worth a read. Monetarist Trickle-down theory is an utter failure, it’s just taken a long time for this to really manifest itself, so long that no other school of economic is considered “mainstream” any more. Like the Ministry of Truth, anything else is heresy. All three major parties today ascribe to neoliberal theory, only the depth varies.

Money’s mobility is inexorably upwards: those with very little spend all they have, and each person’s spending is another’s income, until that money comes to rest somewhere in the hands of someone who has no need to spend it, or returns to the government through tax. You certainly don’t need a PhD in economics to see the irrefutability of that. In fact you’re almost certainly better off without one.

You need only look at the relative size of the FIRE (Finance, Insurance, Real Estate) sector today compared to 30 years ago to appreciate the power they wield, which is completely untethered from any production of real output: derivatives, speculative financial gambling and real estate bubbles, rather than investment in capital in the classic sense. They are the sworn enemy of deficit spending, since their profits come from private debt, and their ability to parlay debts into ownership of real resources.

We’ve been hoodwinked into accepting that “the market” is perfect and omnipotent, yet simultaneously so fragile that anything a government might want to do will damage it. It’s bullshit, of course. The market exists because the government allows it to, and has the means to set the rules under which it operates. The neoliberals would have those roles reversed.

Sorry, this answer has meandered a bit, hope it’s helpful.

Christian Porter is a Numpty

In this rather depressing story, a 21 year old kid on the autism spectrum was chased by debt collectors from Dun & Bradstreet, having been caught in the dragnet of Centrelink’s controversial Tax Office data mining process.

Luckily for him, he (a) mentioned it to his mum, who (b) just happens to be the head of Autism Awareness Australia. So his folks could intervene. But this post is not about the story of Jack Roberson’s treatment, appalling as it is.

No, I’m worked up about this:

The government continues to defend the system. The social services minister, Christian Porter, said on Tuesday it was working “incredibly well” and gave individuals a fair chance to respond when discrepancies were detected.

‘What you’re saying to me is that if people over-respond, or if people find it inconvenient, then the response to that from a government should be to not do it,’ Porter said.

‘Now, if we don’t do it, that is $4bn worth of taxpayers’ money that got wrongfully paid that can never be recouped.’

Wow. That’s some industrial-strength stupid. Where does Mr Porter think the money goes? After the welfare recipient gets it, what happens next? Think!, Mr Porter.

Here’s a tip: the recipients spend it, so most of it becomes someone else’s income, and the rest returns to the government as GST. And then that person spends it (again, GST), saves it or pays their taxes with it. And so it goes around and around, until it’s all drained away either as GST or payment of taxes.

The idea that it must be clawed back from the most vulnerable – who don’t have it any more anyway – shows such paucity of vision and lack of understanding of the economy you really have to wonder where the coalition get these numpties from.