All posts by iaindooleyrp

The trouble with “Howard’s Battlers” and “Tony’s Tradies”

The progressive movement has painted itself into a corner.

The “class struggle” between labour and capital at the start of the 20th century was pretty clearly delineated between “workers” and “bosses”, and the union movement reflected that.

That delineation has become less clear, though, as “capital” has become democratised. The number of people that are either self employed, run a company, own some financial or real assets that produce revenue or have some sort of passive income has sky rocketed.

Particularly in Australia where the contribution of small business to total employment is nearly half of all jobs, the line between “worker” and “boss” is becoming blurry.

I think that the problem the labour movement generally and the Labor party in particular face is that their messaging is all based around industrial relations, rather than the underlying struggle between labour and capital.

As more people are either a “worker/boss hybrid” or are close to someone who is (for example a worker in a very small business with an owner they are close to or respect, or have a small business owner in the family) the rhetoric about how regulation around the worker/boss dynamic is required to fix the rise in inequality is counter to the experience of an increasing fraction of the labour force.

I believe that this is the cause of the “Howard’s Battlers/Tony’s Tradies” phenomenon: these are working class people who should definitely be voting for a progressive government, but who in no small number wind up voting for the coalition because they’re more aligned with the needs of “small business” (at least in their messaging!)

Additionally to this we still have people talking about “Socialism” vs “Capitalism“. When progressives say “Socialist” they really mean social democracy, and when conservatives and libertarians say “Socialist” they mean dictatorship.

What we have, therefore, is a continuing struggle between labour and capital underpinning an increasingly semantically confused landscape of people talking furiously at cross purposes.

I would like to suggest some clarifying terminology:

The Struggle Between Labour and Capital is Inescapable

We should recognise that the struggle between Labour and Capital is mathematical, and not social. It is the very nature of capital, as a component of an economic system that amplifies the value of labour, to have compounding returns while labour’s returns are linear UNLESS the gains in productivity afforded by capital are socially distributed.

Our libertarian friends would say that such a distribution is an immoral violation of property rights, but that’s only because their sense of history only goes back as far as their own maturity and they neglect to realise that “We can view all commodity production as social, beginning with commodities that were already socially produced in order to combine them in some manner to produce a (usually) different set of commodities.” (source: http://www.levyinstitute.org/pubs/wp_647.pdf).



As such this is not inherently a class struggle. The fact that this used to be a class struggle was a coincidence, it is simply a struggle between the lucky who find themselves in possession of compounding returns, and the unlucky. 

Forget “Workers” vs “Bosses

We should therefore think not about “Workers” vs “Bosses” but “returns to labour” vs “returns to capital”. It is not bad that some people find themselves in possession of compounding returns. It encourages innovation that someone can apply their labour to the design of a machine, and then pay others to run it for them. However it would discourage innovation if the first person to do so were allowed to monopolise all resources to the extent that they could prevent any additional innovation that might threaten their position (100% returns to capital) — this can also be seen in the corruption of the political process to *GRANT* rights to compounding assets to those who already own them (such as tax breaks for capital gains, negative gearing, financial deregulation, subsidies for mining and so on).

Likewise it encourages innovation to distribute productivity gains throughout the labour force, because more people can make use of their creativity to design new forms of capital to further improve productivity, but it would discourage innovation if everyone had to agree on what those projects would be and have a stake in ownership and decision making around those activities (100% returns to labour).

Thus it is clear that in order to have an innovative society, we must allow some accelerating returns to capital such that people may be able to withdraw their labour as a result of their previous contribution to productivity and innovation (and with an expectation of legal protection of that property), while still ensuring that everyone applying their labour in a linear fashion still has the ability to make a contribution and be rewarded for doing so. If we allow 100% returns to *EITHER* labour or capital, then we stifle innovation.

Forget “Socialism” vs “Capitalism

Likewise we should not be thinking about “Socialism” vs “Capitalism” but about public purpose vs private purpose. The rise of public/private partnerships for infrastructure projects such as main arterial roads, or private monopolies such as airports, has been a gift to big finance. The rise of state owned enterprises such as the post office and the NBN has seen public money being paid in outrageous amounts to CEOs who should really be on high level public sector wages.

The fact is that you can’t simply install a “profit motive” and expect it to produce an increase in productivity in the absence of competition. The charade of public tenders is supposed to convince us that, for example, 3 consortiums bidding for the construction rights to a toll road are engaged in a “competitive process” that will produce a superior result to public spending, but it’s a complete fallacy. Unless we can decide in 10 years that we want to *SWITCH* providers, then there is no actual competition involved. These projects are public goods, that should be undertaken as public purpose projects with public money.

As we have seen the size of corporations over the past 40 years approach the size of some governments, we have seen that it was not the fact that organisations were public that made them bureaucratic, merely that they were so large and complicated. Anyone having to deal with Telstra now, for example, who used to complain about dealing with Telecom in the 80s, wouldn’t notice a dramatic difference between the state run bureaucracy versus the privately run one.

Anyone who has had to deal with the administrative side of Google or Facebook, would find it eerily similar to dealing with the ATO. If we attempt to abolish public purpose spending through privatisation, ie. 100% private purpose, all we do is create private bureaucracies that are just as problematic as public bureaucracies but without any capacity to vote them out!

Likewise, we can’t eliminate private purpose. If people see that something is not ideal, they need the freedom to experiment with solutions to those problems without the need to get permission from a central government. Where those activities have implications for others in the community (such as medical treatments) governments must of course step in to regulate the production and distribution of those goods, but we must have a thriving private sector. Eliminating either the public purpose OR the private purpose necessarily entails totalitarianism (as such I think that true Socialism/Communism at the “statist” end of the spectrum is no better than Anarcho-Fascism at the libertarian end of the spectrum).

The Humble 4 Quarter Matrix of Political Economy!

If we start thinking about balance along these 2 axes: Returns to Labour vs Returns to Capital and Public Purpose vs Private Purpose, we can start to have real discussions and make real political decisions about how we would like our society to function instead of condescending each other in Facebook comments.

Frydenberg “Having a Lend” when he Tells You to be Worried about “Borrowing”

When the treasury instructs the AOFM to get $X to fund government spending, the AOFM conducts a bond auction on the primary market. This means that they create new bonds and people buy them, and the money they buy them with goes into treasury’s account at the RBA and is then spent by the government, neoliberal economists call that borrowing. If the RBA were to simply buy treasury’s bonds or the treasury just directly issued funds into accounts at the RBA then neoliberal economists would call that printing.

The standard argument from neoliberal economists is that all printing is bad and will inevitably result in hyperinflation.

There are 2 obvious and provable flaws in this view though:

1) The reserve balances used to purchase the bonds were already on account at the RBA. They already existed and were already listed as a liability on the RBA balance sheet (this is public information on the RBA website). Since the RBA is just a branch of government, this means that when people buy bonds it is not like borrowing at all, it is like having a term deposit at your private bank. When you deposit $1000 at ING the balance sheet changes: their $1000 liability is your $1000 asset. If you move that $1000 into a term deposit, did they borrow $1000 from you? No, the balance sheet doesn’t show an increase in bank liability by $1000, their balance sheet liability increases by the amount of Interest they will pay you at maturity.

2) Almost all transactions in our economy occur in the private banking system. The only constraint on private banking are what’s called liquidity ratios: how much in government financial assets do banks need to hold in order to issue a certain amount in loans. In this context, reserve balances and government bonds are identical. Both can be used to satisfy bank liquidity ratios. So from the perspective of total spending in the economy, there is literally no difference between issuing bonds “out of thin air” and issuing reserve balances “out of thin air”, that is to say, the economic effects of what neoliberal economists call printing and what they call borrowing are identical…

Well, almost, ironically because the government typically pays higher interest on bonds than on reserves what neoliberal economists refer to as borrowing is actually slightly more inflationary than what they call printing.

The belief is that by having this absurd system the private bond market exerts discipline over government spending which, if it were a purely political process would result in pork-barreling. In other words, private citizens who have the most money already should be the ones to dictate how a democratically elected government should allocate resources for the social good.

As well as being utterly repulsive ideologically this is also completely false because the bid to cover ratios for every single bond auction (also public on the AOFM website ) show that demand for bonds exceeds supply by 2.5-4x.

The truth is that spending constraint is already legislated by the charter of budget honesty. So legal and political processes are perfectly capable of disciplining spending and do so already.

Toilet Paper, CoronaVirus and Housing Affordability

Image Credit: Starecat.com

An Analogy by Iain Dooley

The Toilet Paper crisis provides an excellent example of why unregulated free markets are inadequate to deal with the complexity of human life.

The *only* thing markets can do in order to resolve problems is allow prices to fluctuate. That’s it. There is only one response.

So when you have a relatively inexpensive item that is non-perishable that everyone needs, and allow a very small number of people to buy it all simultaneously the only thing a free market can do in order to resolve the problem of supply is to increase the price.

This will encourage the hoarders to sell some of their stock back into the market at a higher price than what they originally paid, rewarding their idiotic behaviour.

Substitute in toilet paper for housing and you have the basis for the housing affordability crisis worldwide.

The funny thing is that everyone clearly points to the TP crisis and says “See how dumb everyone is” and “I’d never pay above market for a roll of toilet paper I’d rather use a leaf”, but when it comes to housing, people seem to have championed the exact same behaviour as a savvy investment strategy.

During the TP crisis it seems obvious to everyone that “The government won’t just let the situation get worse, everyone needs toilet paper”, it seems obvious that it’s okay for Woolies to impose restrictions on transactions to ensure everyone gets their fair share.

Hell, I’d hazard a guess that people would even gladly accept “social toilet paper”, that is, the federal government having 12 rolls delivered to your house weekly in exchange for a TP tax.

Why is it such a giant leap for everyone to realise that the same is true for any market failure, most obviously housing?

(Just imagine how messed up  we’d all be if you could rent toilet paper!!)