Category Archives: Remix

A remix of other posts and articles [from others] so they cater for an Australian audience.

What’s the Best Way to Destroy the Economy?

I can think of nothing more fundamentally foolish, more unequivocally self-destructive to our economic well-being today than attempting to balance the federal budget or place it in surplus. It is totally unnecessary and every dollar we cut from government spending is a dollar taken from someone’s income. That we should be so enthusiastically pursuing such a policy when there are almost 3 million unemployed workers is mind-boggling. How is further lowering the effective demand for goods and services supposed to help? It cannot, of course, and will only serve to make things worse–much, much worse.

This is the most important issue facing our economy today and the terrible irony is that it is completely avoidable. There is no logical reason to be obsessing over the debt and the deficit.

Explaining why cutting government spending (or raising taxes, which is the functional equivalent) is such an idiotic idea in the midst of the worst stagnation since the Great Depression is actually relatively straightforward. The real challenge is dislodging the conventional wisdom that is already so deeply-seated in people’s minds (including those of both Chris Bowen and Josh Frydenberg).

How the Private Sector Creates Unemployment

This is probably the single most overlooked issue when it comes to discussing the debt and deficit. One cannot truly understand the role of the federal budget without explicit recognition of the following structural problem: the private sector does not generate sufficient demand to make it profitable to hire everyone who is willing to work. Consumers do not want more, more, more. They reach a point, as do firms, when they are satisfied, where they don’t want another big-screen TV, house, car, evening out, et cetera. This tends to happen at the end of economic expansions (the Roaring Twenties, for example), which is why they then become recessions. Once the recession is underway, not only do incomes fall, but households and firms will opt to spend an even smaller percentage of these smaller incomes. Downturns, therefore, can be very difficult to escape by relying on the private sector alone.

Note that meanwhile, there has been no change whatsoever in our ability to produce goods and services! There was no technological reason, for example, for the suffering during the Great Depression. We had the ability to continue to produce output at the 1920s level; what was missing was sufficient demand to hire everyone willing to work. As a consequence, living standards collapsed. That’s where the system breaks down, as it did in October 1929 and December 2007.

How the Government Can Supplement Employment (and private sector profits)

Situations like the 1930s and today benefit no one. Unemployed workers would like jobs, employed workers would like not to have to support (formally or informally) the unemployed, and entrepreneurs would like to sell more output. There is an obvious solution: the federal government can supplement demand. Start off with a simple example: just imagine that they pay people $30,000/year to stand on a street corner and make nice comments about passers-by to raise national morale: “My, don’t you look handsome today!” “Go get ‘em, tiger!” “You’re important and people like you!” While this may make the others feel uncomfortable and cause them to avoid these particular street corners, it is nevertheless a net addition to aggregate demand. This is so because when these public greeters go home from work, they spend money from their incomes. This takes nothing from the mouths of existing workers because we already had the ability to produce more (again, compare the Roaring Twenties with the Great Depression). On top of that, the formerly unemployed now have jobs plus the ability to purchase goods and services and entrepreneurs earn more income because their sales rise–everyone is better off.

Now let’s make the example a little more realistic and actually give the government employees something useful to do (but not necessarily profitable, since that’s what the private sector already does). Instead of street corner greeters, they could be soldiers, airmen, sailors, marines, librarians, teachers, police officers, firemen, social workers, national park rangers, et cetera. This adds even more to the nation’s wealth because now even the formerly employed enjoy more goods and services (for example, protection from domestic and foreign aggression and a place to go camping). Remember, the core economic problem is the private sector’s inability to generate sufficient demand to employ everyone. This solves it by supplementing demand. It creates more employment, higher wages, and greater profits.

How the Government can Finance its Spending

Whence comes the money the government uses to pay the soldiers, airmen, sailors, marines, librarians, teachers, police officers, firemen, social workers, and national park rangers? It could tax the private sector, but that’s not terribly effective since it raises demand in one place by lowering it in another. So, they should deficit spend. To keep it simple, let’s say the manner in which this is accomplished is direct borrowing from the Reserve Bank of Australia. This means the Treasury sells its debt to another branch of the government, in exchange for which it receives the cash it needs to pay those workers. When the debt becomes due, they sell more. Because all Australian debt is owed in a currency we are legally permitted to produce, it is impossible to face debt default. We can choose to default, but we are never forced to.

This is not inflationary. This is true for a variety of reasons, the most critical of which being that it does not represent more money chasing fewer goods since the quantity of the latter rose–that was the whole point of the exercise. We wanted to lower unemployment and produce more output


That’s the essential story in as few words as I can tell it.

The bottom line is that the private sector does not generate sufficient demand to hire all those who are willing to work. The real irony is that we have plenty of capacity to produce output for them; they just can’t afford to buy it. But, if we supplement this with public sector deficit spending–something we can finance forever since the debt is owed in our own currency–then this absolutely unnecessary problem can be solved.

To do the opposite, to lower government spending (or raise taxes) in the midst of a period of high unemployment, is not only counterproductive, but it’s also cruel. The federal government does not borrow in order to be able to afford something it could not otherwise buy. Rather, the goal of deficit spending (at least when we are at less than full employment) is to stimulate demand. This is not analogous to how a household budget works.

There are, of course, complications (some real, some imagined), but these pale in significance to the benefits. First off, for those who are worried about the size of Australian government debt, not only is that a red herring, but it is actually more likely to get worse by cutting government spending. The biggest factor driving the deficit right now is the fact that during periods of high unemployment, tax revenues fall and government payments for unemployment and income assistance rise.

We don’t turn this around by creating more unemployed people!!!

Second, it does not cause government corruption. That’s a separate issue–the government can be plenty corrupt with surpluses! Furthermore, don’t forget when looking for abuses to cast an eye on the private sector, too (something about which Adam Smith, the father of capitalism, was terribly concerned). Markets are about as effective at controlling corruption among workers and firms as democracy is in preventing abuses in government. That is to say, they help, but they are not panaceas. We should remain ever vigilant.

Third, government spending is not crowding-out the private sector. The idea that entrepreneurs are just dying to employ more workers and raise production if only Queensland would lay off a couple more teachers is downright silly. In fact, I strongly suspect that those making such arguments don’t truly believe them.

I don’t think Chris Bowen and Josh Frydenberg are bad people, they are just ignorant. That would be their business except that their decisions affect millions. In their rush to be “fiscally responsible,” they are being economically irresponsible.

This has been a remix of John Harvey’s article at Forbes magazine for an Australian audience!

Language is Power!

Language is powerful. We have come to believe certain things about our government because we have been fed a steady diet of metaphors that embed scary images in our minds. These analogies are all based around the image of an irresponsible person or business that gets into financial trouble, spending more than they earn.

Look at these common phrases and think about how they make you feel:

  • Exploding budget deficit
  • Mountain of debt
  • Mortgaging our future
  • Living beyond our means
  • Spending is unsustainable

It all just sounds bad, right? These word images make us fearful or angry. But what if the underlying metaphor is actually wrong? Do you or I issue the nation’s currency? Do other nations save and trade in currency that I’ve issued? Of course not!

Our government issues the nation’s currency and is, therefore, nothing like a household or business. When there is a single supplier of something that serves the general public, what does that remind you of?

Think about a public monopoly like a water utility, an analogy first suggested by Warren Mosler and Matthew Forstater.

Picture a water utility that limited the supply of water only to what it measures coming out our drain pipes, keeping the amount flowing in and out of the city’s pipes exactly the same. Would we be happy that it was being responsible, or would we be upset that we didn’t have enough to drink or shower? What if we were saving water by filling up a swimming pool, or we were a beverage business that uses gallons of water every day to brew beer for export? It is completely normal for this city to need more water flowing in that what flows out the drains.

A failure to meet this demand for water that exceeds the amounts flowing out in the drain would cause massive problems for our city. Surely we would hold our public water utility accountable to make sure it is meeting the full demand for its water. It exists to serve all people, businesses and organizations that rely on it. Anything less is a breach of its public duty to service.

As the sole issuer of the Australian Dollar, our nation’s currency, the Australian government is like a public water utility that should always meet the demand for its product.

Now, let’s look at some new word images based on this metaphor and see how they make us feel. Nothing about the actual facts on the ground has changed, but our new perspective leads to a different understanding of the underlying issues at play.

  • The government invested more currency into our economy than it taxed out this year (formerly “deficits”)
  • Due to higher domestic savings levels and imports, the government increased its flow of currency into the domestic economy to maintain full employment (formerly “higher deficits”)
  • Savings of Australian Dollars are at an all-time high – our currency remains in high demand (formerly “national debt reaches $XX trillion”)
  • Parliament is studying the real resources needed and the impact on the domestic economy for a planned federal interstate high speed rail investment (formerly “where will the money come from?”)

Any metaphor has its limitations, but I trust you can see the stark comparison between the household budget and the public utility analogies. For those still struggling with the mental leap, let me paint a bit more of the picture.

  • The government has a monopoly on the issuance of Australian Dollars – we’d go to jail trying to counterfeit them! In this analogy, they are the public water utility monopoly with an unlimited source of clean water.
  • The water is, of course, the currency. Our government can never run out of money since it creates money on-demand, under the authority of Parliament. Money is not scarce!
  • We can think of the utility’s pipes and pumping stations as the financial and regulatory systems that provide for the distribution of currency from the government to the households and businesses that need it.
  • Drains and sewage pipes are like taxes – they remove currency that has previously been spent into the economy. Note the sequence – spending precedes taxing just like water additions precede drainage!
  • Let’s say our water utility gave away free water to households and businesses that stored excess water – maybe to make up for evaporation or just as an incentive to store water for unknown reasons! That’s akin to our government paying interest on government bonds, which are just savings of its currency that has, again, already been spent into the economy.

We could extend this metaphor into other areas.  There is a reason, we refer to the supply of currency as liquidity.

By now I hope you can see that this metaphor provides a very different way to describe the responsibility of our government’s fiscal policy. Should the water utility balance its water flows like a household or does it have a responsibility to provide for the needs of the whole city or state, factoring in the demand for water storage and the amount of water leaving in product sales? Does it make any sense to put a “water limit” on how much water the utility provides over and above what flows out the drains?

Yes, this presents a new challenge to government. It is easier to claim “fiscal responsibility” under the household budget metaphor simply by limiting the use of the currency to what we now see are arbitrary and harmful levels. But real fiscal responsibility for the currency issuer involves much more than this. They have a duty to account for imports and savings when determining how much currency the economy needs to maintain full employment and growth. Parliament clearly needs a different method to debate how best to use the currency. Just look at the results of our current model – sluggish growth and frequent periods of high unemployment. What we’ve been doing is simply not working.

We live in an age where our government’s fiscal activity disproportionately harms the weak. Imposing unnecessary austerity has become the norm under the pretence of market discipline, and the suffering that results is very real.

Government should seize this opportunity for reform, ending the harmful artificial budget limitations, and begin using its fiscal power to serve the people’s interest and invest in Australia again.

This has been a remix of Geoff Coventry’s article at Patriotic Millionaires for an Australian audience!


Mosler’s Modern Money White Paper Remixed

Ahead of the Sustainable Prosperity Conference in Adelaide (Jan 10-12), it is worth looking at what Modern Money is again.

This is a remix of the Modern Money White Paper by Warren Mosler. The original can be found here.

Modern Money White Paper

The purpose of this white paper is to publicly present the fundamentals of MMT.

What is MMT?

MMT began largely a description of monetary operations, which are best thought of as debits and credits to accounts kept by banks, businesses, and individuals.

Warren Mosler independently originated what has been popularized as MMT in 1992.  And while subsequent research has revealed writings of authors who had similar thoughts on some of MMT’s understanding and insights, including Abba Lerner, George Knapp, Mitchell Innes, Adam Smith, and former NY Fed Chief Beardsley Ruml, MMT is unique in its analysis of monetary economies, and therefore best considered as its own school of thought.

What’s different about MMT?

MMT Alone Recognizes that the Australian Government and its Agents are the Only Supplier of That Which it Demands for Payment of Taxes

That is, the currency itself is a simple public monopoly.

The Australian government levies taxes, payable in Australian dollars.

The Australian dollars to pay those taxes can only originate from the Australian government and its agents.

The Australian dollars to purchase Australian Treasury securities can only originate from the Australian government and its agents.

The economy has to sell goods and services to the Australian government or borrow from the Australian government, or it will not be able to pay its taxes or purchase Australian Treasury securities.


  1. The Australian government and its agents, from inception, necessarily spend or lend first; only after that can taxes be paid or state securities purchased.

This is in direct contrast to the rhetoric that states the Australian government must tax to get Australian dollars to spend, and what it doesn’t tax it must borrow from the likes of China, and leaves the debt to our grandchildren.

MMT thus recognizes that it’s not the Australian government that needs to get dollars to spend.  Instead, the driving force is that taxpayers need the Australian government’s dollars to be able to pay taxes and purchase Australian Treasury securities.

  1. Crowding out private spending or private borrowing, driving up interest rates, federal funding requirements and solvency issues are not applicable for a government that spends first and then borrows.

How Are You Going to Pay for It?

The Australian government, for all practical purposes, spends as follows:

After spending is authorized by Parliament, the Treasury instructs the RBA to credit the recipient’s account (change the number to a higher number) on the RBA’s books.  

For MMT, the Money Story Begins with a State that Desires to Provision Itself: 

  1. The state imposes tax requirements in the form of financial obligations.
  2. Consequently, goods and services are offered for sale to get the funds required to pay the taxes.

MMT recognizes that taxation, by design, is the cause of unemployment, defined as people seeking paid work. 

  1. The state can then buy those goods and services.
  2. Taxes can then be paid.
  3. If people, on average, want to earn more than just enough to pay taxes, goods and services will be offered for sale in sufficient quantity to obtain those extra dollars.
  4. State spending in excess of taxes — deficit spending — provides those dollars to be saved.
  5. The public debt equals the dollars spent by the state that haven’t yet been used to pay taxes.
  6. After the state has spent those extra dollars, Treasury bills, notes, and bonds can then be purchased, which deplete the accounts containing the dollars the state has already spent.
  7. Payments by the Australian government are added to exchange settlement accounts of member banks.
  8. When securities are purchased, the RBA debits exchange settlement accounts and credits securities accounts.
  9. When interest on the public debt is paid, the RBA credits reserve accounts.

How is the Public Debt Repaid?

When Australian Government Securities mature, the RBA debits the securities accounts and credits the appropriate exchange settlement (reserve) accounts. Interest on the public debt accrues to the securities accounts and the RBA credits exchange settlement (reserve) accounts to pay that interest.

There are no taxpayers or grandchildren in sight when that happens.

 What is the Relevance of MMT Today?  

The MMT understandings put policy options on the table that were not previously considered viable.

Interest Rates

MMT recognizes that a positive policy rate results in a payment of interest that can be understood as “basic income for those who already have money.”

MMT recognizes that with the government a net payer of interest, higher interest rates can impart an expansionary, inflationary (and regressive) bias through two types of channels — interest income channels and forward pricing channels.  This means that what’s called “tightening” by increasing rates may increase total spending and foster price increases, contrary to the advertised intended effects of reducing demand and bringing down inflation.  Likewise, lowering rates removes interest income from the economy which works to reduce demand and bring down inflation, again contrary to advertised intended effects.

MMT understands that a permanent 0% policy rate is the base case for analysis for a floating exchange rate policy.

MMT understands that with a permanent 0% policy rate asset prices reflect risk-adjusted valuations, and do not “continuously accelerate” as presumed by the term “asset price inflation.”

The MMT understanding of interest rates is at times in direct conflict with the understandings of central banks and the large majority of academics.  We see those “mainstream” views as at best applicable to fixed exchange rate regimes, but in any case not applicable to today’s floating exchange rate regimes.


Only MMT recognizes the source of the price level.  The currency itself is a public monopoly.  Monopolists are necessarily “price setters”.


The price level is necessarily a function of prices paid by the government’s agents when it spends, or collateral demanded when it lends.

In a market economy, the government need only set one price, letting market forces continuously determine all other prices as expressions of relative value, as further influenced by institutional structure.

The Job Guarantee

Residual unemployment is caused by the government not hiring all of those that its tax liabilities have caused to become unemployed.  That is, it’s a case of a monopolist — the government – restricting ‘supply’ which in this case refers to net government spending.

Current policy is to utilize unemployment as a counter-cyclical buffer stock to promote price stability.  Another policy option is for the government to use an employed buffer stock, rather than an unemployed buffer stock, to promote price stability.

The Job Guarantee is a proposal for the Australian Government to use an employed buffer stock policy by funding a full-time job for anyone willing and able to work at a fixed rate of pay.  This wage becomes the numeraire for the currency – the price set by the monopolist that defines the value of the currency while allowing other prices to express relative value as further influenced by the institutional structure.

The Job Guarantee works to fight inflation more effectively than the current policy of using unemployment to fight inflation, as it better facilitates the transition from unemployment to private sector employment, as private employers don’t like to hire the unemployed.

It also provides for a form of full employment, and at the same time is a means to introduce minimum compensation and benefits “from the bottom up,” as private sector employers compete for Job Guarantee workers.

“The 7 Deadly Innocent Frauds of Economic Policy”

If all this looks familiar, you may remember them from 20 Simple Points to Understand MMT.

Remix: Treasurer Frydenberg Confesses Australia lacks Government Investment

Australian Treasurer Josh Frydenberg has an opinion piece in the Australian Financial Review today, the complete article can be read on the Treasurer’s website.

What I have written below is a re-write of the Treasurer’s article from a Modern Money and Australian Real Progressive frame.  Let’s see what the Treasurer really has to say.

Continue reading Remix: Treasurer Frydenberg Confesses Australia lacks Government Investment

Does Money Really Grow on Rich People?

In my previous post I outlined why jobs don’t come from rich people: capitalism runs on spending (sales), not savings. Job opportunities appear naturally when businesses forecast sales growth and expand output accordingly (and similarly disappear under reverse conditions). When viewing the economy as a whole, we can observe that private sector investment responds to rising incomes and spending as entrepreneurs expand output to match market demand and banks have confidence lending. In the absence of spending growth, accumulated savings do nothing.

So when tax policy provides powerful incentives for all households with surplus earnings to not spend their income (e.g. incentives like salary-sacrifice and other investment tax advantages), another source of spending must compensate for such savings and buy the output that workers are being paid to produce. If there is no other source of spending to replace what is being saved then sales decline, inventories build up, the economy slows, and people lose jobs.

To state the problem in simple terms, incomes are a cost to businesses. So if some portion of incomes in the economy are saved and not spent, then some portion of the economy is not able to sell all its output. Spending equals business income. Economic growth necessitates that incomes are spent, or some other source of spending must make up the difference.

This begs the question: how do we get more spending, especially when the economy is in decline? Are we left helplessly waiting for the “natural forces” of the “free market” to auto-correct or is there an alternative?

Oddly, the dominant view held by both sides of our political divide is that money grows on rich people and we have to rely on them to get the economy moving. We may not think about it in these terms, but it is evident in our approach to economic policy.

On the political right, this mostly takes the form of further cutting taxes on corporations and high income earners in the hopes that they will invest in job creating endeavours. Despite the fact that the rich already hold large amounts of cash and other assets, the stubborn belief persists that if we enable the wealthy to retain even more money finally they will spend it on the good things we need. Here, we don’t get money from rich people, but instead have to help them keep more of their income since the rich are the primary providers of good things like investments and jobs. (I’ve explained already why this fails, and instead drives up asset prices which is what rich people do with their excess when the economy isn’t growing).

On the political left, we have a different problem: the Robin Hood complex. In this view, the wealthy apparently have all the money available to spend and so we have to take it from them in order to give to the needy, fix a bridge, or give teachers a raise. Unfortunately, this kind of thinking serves only to elevate the power and importance of the wealth-class over our political process while creating direct conflict with money-interests over every aspect of public finance.

Yielding to this belief forces our elected officials to justify every government spending initiative and tax policy, not by the merits of the project to serve the public good and the economy, but by how much can be taken and by what means from bankers, corporations or the wealthy.

There’s a real alternative (TIARA).

We’ve forgotten that money doesn’t grow on rich people. We make our own money via the institution of government and it’s time we remembered how to use it properly. Sorry billionaires, you’re actually not so important after all.

As a sovereign nation, we legislated for ourselves the ability to issue our own currency for the express purpose of ensuring our nation could provide for its defence, establish self-governance, maintain the rule of law, invest in public projects of common benefit, develop our country’s human and capital capacities, and otherwise provide for the general welfare of all who come to and reside in this great land. We issue our own currency, the Australian Dollar, and while there are limits to how we can use it, there’s a lot more room to manoeuvre than we’ve been led to believe.

We have no obligation to convert our currency to gold or at a fixed rate to another currency (we left the gold standard in 1933 and the Bretton Woods gold exchange system in 1971-73 and floated the dollar in 1983). We can’t be forced into insolvency or have bond markets demand higher interest rates. We have no significant national debt denominated in any foreign currency. Our bonds are all Australian Dollar bonds.

We have the monopoly on making Australian Dollars, and that’s a really good thing – it’s why we aren’t and never will be like Greece. We have designed for ourselves the maximum possible fiscal space and we shouldn’t be so afraid to use it. We have “room” to use our currency to maintain a robust economy at full employment and address any challenges that can be tackled by the use of our currency (see below for how we understood this during World War II).

Nations that issue their own currency and have a monetary system like ours operate fundamentally differently that those nations (like Greece) that use a currency or (like Argentina) have foreign-denominated debt. Unfortunately, our economic thinking got stuck decades ago on an obsolete gold standard, fixed exchange rate paradigm. We need a completely different approach to thinking about federal tax policy and federal spending decisions: both should be made on the basis of their public purpose and their economic effects, not on the basis of how much one raises funds for the other.

Beardsley Ruml, the former Chairman of the Federal Reserve Bank of New York (USA), explained back in 1946 that taxes for revenues are obsolete. In other words, we don’t need to first get money from the wealthy to help the less fortunate (for our friends on the Left) or to have a robust economy (for our friends on the Right). That’s simply not the purpose of federal taxation. Note the 1946 date: Ruml was at the NY Fed when we used the national currency to fully employ our nation for war while keeping inflation in check. We didn’t fund the war by asking rich people for money. (Just as we did in Australia with the Full Employment White Paper). We issued our currency to pay businesses to make products for waging war, and then used taxation, aggressive promotion of savings (government bonds are purchased with the currency that was spent into the economy), and some rationing to manage inflation. That’s still how we fund war (and everything else, in fact). The point being that money doesn’t grow on rich people. If it ends up accumulating excessively in their bank accounts, it’s our fault for having bad tax policies. We need to relearn how to use our government’s fiscal contribution to have a more broadly shared prosperity during peacetime.

Now this may surprise many readers since we are not used to thinking about it in these terms, but we already have a system that provides significant injections of new government money during economic downturns. We should make it work better. When the economy slows, tax receipts fall (that means the government takes less of its currency out of the economy) and federal payments such as unemployment insurance rise (which means the government is also adding more of its currency into the economy). I know that many of us have been taught that such “deficits” are bad, but that’s that old gold standard thinking. This is exactly why we have a currency.

So now we have the answer to the question posed above. When we need more spending in the economy because the private sector is saving and businesses are losing sales, the government can always increase its monetary contribution to the economy. It’s called good fiscal policy! It already works this way – we just need to make it work better and stop operating our currency under meaningless constraints such as “pay for” rules and “balanced or surplus budget” approaches. A well-designed tax and fiscal policy can do the heavy lifting automatically so we can avoid political deadlock during recessions (The Henry Tax Review outlined a plan). As a compliment to existing safety net policies, the Job Guarantee is designed specifically for this purpose.

Our government has been given the power of the purse. More specifically, parliament has the responsibility for managing our nation’s currency monopoly. This entails balancing the needs of the whole economy and maintaining full employment for all who seek work to earn a living.

Let’s remind Canberra and parliament of how we can get our economy back to its full potential and rise up to the challenges of our time. As we seek to change our tax policies to become more equitable and our political process more transparent and democratic, we must also remember that we don’t have to wait for rich people’s money before the government of the day (parliament) can authorise spending for public purpose and tax cuts for workers. We absolutely need to change how we tax the rich, but not because we need their money.

This has been a remix of Geoff Coventry’s article at Patriotic Millionaires for an Australian audience!