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And then there were three – Australia’s dwindling oil exports

Published by Anonymous (not verified) on Thu, 28/01/2021 - 5:52am in

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Economy

With a growing dependence on imports, Australia will become more vulnerable to disruptions to supply. It will not be easy to quantify the disadvantages. And it will be extremely difficult for governments to decide what level of insurance against disruption would be appropriate.


Credit – Unsplash

Australia’s largest oil refinery, BPs Kwinana Refinery in Western Australia, is closing. This will leave Australia with just three oil refineries, down from seven in 2010. According to Angus Taylor, the Minister for Energy, ‘the closure will not impact upon Australian fuel supplies.’

Should we be concerned? From an economic rationalist perspective, you could argue that there is no need for concern. Australia is a net oil importer; we are already highly dependent and increasingly so on imported oil whether as crude oil or refined product.

Australia already exports most of its domestic crude oil and Australian refineries are largely dependent (approximately 80%) upon imported crude oil as a feedstock. The Kwinana site is not closing but is rather being transformed into an oil import facility. Oil is a highly fungible commodity traded globally in a mature market; a major reason the Australian Government has never needed to declare a national liquid fuels emergency. Given these factors, it could be argued that the closure will not affect Australia’s fuel supplies.

The largest-ever fall in global demand for oil as a result of COVID-19 has however been tough on oil refiners. Nearly two per cent of global oil refinery capacity was mothballed in 2020. It is predicted that a similar level of capacity will be closed in 2021.

Most of the refineries that have been closed are old, relatively small and inefficient compared to their modern equivalents. These refineries are being replaced by large mega-refineries in the Middle East, India and China. China is on track to become the largest refiner of oil in the next year or two, eclipsing the US and producing about one-fifth of the world’s petrol, diesel, jet fuel and petrochemicals.

More than half of our crude oil and refined product imports come from just four countries; Malaysia (21%), China (15%), Singapore (12%) and South Korea (10%). Nearly a quarter of our refined product comes from just one country – China. This percentage is likely to increase as China’s new refineries come online and refineries in Singapore, Europe, the US and here in Australia close.

Despite the Minister’s statement, the implications of Australia’s increasing import dependence and where these imports come from are, to put it mildly, significant. While liquid fuel supply risks have always existed, as we enter the second half of the oil age there are many reasons to suggest that the likelihood of a liquid fuel emergency has and will continue to increase. These include:

  • Australia’s already high dependence on liquid fuels could reach 100 per cent in the years ahead. A 2014 NRMA Report predicted that by 2030 all of Australia’s oil refineries would be closed. Even with the Government’s recently implemented Fuel Security Package, given the dynamics of the global oil refinery industry, this prediction looks remarkably prescient.
  • The volume of oil imports originating from China is increasing, which is problematic given our deteriorating relationship.
  • The majority of our imports (either directly or indirectly) pass through sea lanes that are at risk in the event of military conflicts, such as between the US and China or the US and Iran.
  • The number of oil-exporting nations continues to fall as oil production declines and/or domestic consumption increases. Only 19 countries export more than 500,000 barrels of oil per day. None of these countries is near to Australia, some are potentially unstable (Saudi Arabia), many are located in unstable regions (the Middle East) and Australia has poor relationships with some (Russia, Iran).
  • Of the oil available for export, increasing amounts will be unavailable on the market as oil-importing countries establish long-term contracts with oil exporters. China, for example, has established large long-term contracts with several countries including Iran and Iraq to secure future oil imports.
  • Options for diversifying imports are limited as the refinery industry consolidates globally. Diversification also implies an increased length of Australia’s oil supply chain.
  • Oil infrastructure has proven vulnerable to attack or disruption.

All of these factors are taking place in the context of a global oil industry that will increasingly struggle to maintain existing levels of production. Recent research indicates that global conventional oil production has been on a resource-constrained plateau since 2005 and will soon decline without major rises in the price of oil.

Another study concluded that oil production will soon decline because the price required for producers to remain economically viable is much higher than the oil price the economy can afford. An increasing number of forecasters are expecting an oil shortage as soon as 2022/2023 as demand recovers post-COVID.

The quote at the top of this article is from the 1986 Energy 2000 Policy Review. Despite the long-recognised implications of Australia’s vulnerability to oil supply disruptions, identified in numerous reports over the years, the approach of Australian governments over decades to providing a ‘level of insurance’ could be described as doing the bare minimum and relying upon market mechanisms to resolve a potential liquid fuel emergency. The rising probability of a liquid fuel emergency indicates that this approach is no longer tenable.

Australia has mechanisms in place to manage a liquid fuel emergency. The limited publicly available information on the National Liquid Fuel Emergency Response Plan indicates that a limited range of ‘essential users,’ predominantly emergency services and public transport, would be excluded from rationing.

Retail consumers would be rationed by a maximum limit per vehicle per day. Price would be dictated by market forces. For a relatively minor emergency, this plan may be effective. It is far from clear that this would be the case for a longer-term or more severe disruption, where it would become very clear quite quickly that large swathes of the economy are essential if the basic functioning of society is to continue.

While it is a small step in the right direction, the Government’s recent fuel security initiatives fall far short of what is necessary to mitigate the foreseeable liquid fuel security risk. Under these initiatives, it won’t be until 2026 that Australia meets its International Energy Agency obligation to hold 90 days of fuel stocks. There does not appear to have been a liquid fuel emergency simulation since 2008, the last liquid fuel vulnerability assessment was completed in 2011 and we are still awaiting the latest National Energy Security Assessment (NESA) which was due in 2019.

While tackling these shortfalls is important, other actions should be considered. The Government has recommended that users have a liquid fuel Business Continuity Plan; a survey of major liquid fuel users to assess the level of preparedness would provide useful insight and an informed starting point for an updated liquid fuel vulnerability assessment. An updated assessment should be based upon a liquid fuel emergency of greater magnitude and duration than the 30-day disruption to exports from Singapore in the 2011 assessment.

A more insightful scenario could be based upon a conflict between the US and China which, according to a RAND report, could last for years and threaten a large proportion of Australia’s imports. Based on recent COVID-19 experiences with supply chain fragility, the modelling should be based upon a network approach rather than the simplistic economic modelling used in the 2011 assessment. This would be extremely useful in identifying critical thresholds and interdependencies as well as the most vulnerable regions and sectors of the economy. Such a robust approach would greatly assist governments at all levels and businesses on the ‘level of insurance’ that is required, a stark comparison to the current approach.

Ultimately, however, the most appropriate, and inevitable, response is to wean our economy off oil. This would simultaneously address the risks of declining oil production, heightened likelihood of liquid fuel emergencies as well as the climate imperative. While alternatives fuels and propulsion systems will replace oil to an extent, redesigning our society and economy to require far less oil-derived products, i.e. conservation, will have to be a significant, if not the major, part of this transition.

Fundamental purpose of superannuation is to provide adequate retirement incomes, not finance bequests

Published by Anonymous (not verified) on Tue, 26/01/2021 - 5:58am in

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Economy, Politics

The priority for retirement incomes policy is to ensure that retirement savings are used efficiently to generate an adequate income. Until this occurs, there should be no change in the legislated increases in the compulsory superannuation guarantee contribution rate.


Credit – Unsplash


Why superannuation contributions are compulsory

The purpose of superannuation is to generate an adequate income for families in their retirement. Adequacy means the income should be sufficient to allow each family to enjoy the same standard of living as they experienced immediately prior to their retirement. Furthermore, because living costs are normally lower in retirement, the evidence suggests that for most people their retirement income stream should be about 65-75% of their pre-retirement income.

Where Australia differs from other countries is that since 1992, under the superannuation guarantee (SG), all employees have been required to help support their retirement incomes by making compulsory contributions into their own personal superannuation accounts.

The current SG contribution rate is 9.5%, but it is legislated to increase over the next five years to 12% by 2025, starting with a 0.5% increase in July. The target of 12% was chosen because this was believed at the time to represent the contribution rate consistent with ensuring an adequate retirement income.

SG contributions were made compulsory because, as the Government’s recent Review of Retirement Incomes makes clear, ‘many people would not save enough voluntarily for their retirement on their own’.

Opposition to a further increase in the compulsory SG rate

Another key finding of the Review of Retirement Incomes was that most retirees could have an adequate income with an SG contribution rate of only 9.5%, defined as 65-75% of their pre-retirement income. This finding is, however, subject to an important qualification – it depends upon retirees fully drawing down their retirement savings and using them efficiently (see more below).

Not surprisingly, perhaps, several members of the Government parties have ignored the critical qualification about the efficient use of savings and have used the Review’s finding about potential adequacy to argue against any further increase in the rate of compulsory SG contributions.

Originally these opponents of an increase in the SG contribution rate called for the legislation to be changed so as to abandon any further increase in the 9.5% contribution rate.

In addition, those opposing further increases in the contribution rate argued that the evidence suggests that as much as 80% of the superannuation contribution comes out of the employee’s wages. They argued that the economy could ill-afford a lower rate of wage increase.

But supporters of compulsory superannuation never accepted that superannuation comes at a cost to employees’ current earnings; notwithstanding that this was a requirement initially. Instead, supporters of an increase in the SG rate have argued that foregoing future increases would amount to an unwarranted saving to employers and would not come at a cost to the current income of employees.

Now most recently, in response to this assertion, the Government members opposing further superannuation contribution rate increases have amended their proposal. They think that a more viable way to achieve their objective would be to allow workers to voluntarily opt-out and instead receive an extra 0.5% as direct income.

That way there would be no possibility of a saving to employers. It also has the apparent attraction of allowing workers to decide what is the best way to use their own money, now or later, and not leave that decision to an outside regulator.

Ensuring an adequate retirement income

The decision of whether or not to increase the SG contribution rate should be based on an assessment of what is needed to ensure an adequate retirement income, which is, after all, the fundamental purpose of superannuation.

Understandably, the Government members opposing a further increase have interpreted the Review’s finding about the adequacy of retirement savings as justification for their proposal that any increases in superannuation contributions should only be voluntary. After all, there is no point in making people sacrifice their present living standard to finance a higher living standard in retirement.

As already noted, however, the Review’s finding that the present SG contribution rate is adequate depends critically upon the assumption that people will efficiently draw down all their savings in retirement. More specifically, the modelling by the Review assumes that “retirees will run down their superannuation assets by age 92”. “It is also assumed that they will not leave bequests and will purchase a longevity product at retirement that provides them with an income from age 92.”

One can debate whether this is an optimal way for retirees to use their savings, but in any event, these assumptions are not valid at present. Instead, as the Review found: “Most retirees die with the bulk of their wealth intact.”

Necessary reforms to ensure an adequate retirement income

Given that retirees’ savings are not fully drawn down and used efficiently, it equally follows that unless this situation changes, the present SG contribution rate of 9.5% will not be sufficient to guarantee an adequate retirement income for most retirees.

Accordingly, any move to freeze the compulsory rate at 9.5% should be dependent on first addressing the reasons retirees typically do not use their savings efficiently to support their income. These reasons include:

  • The complexity of the system, which discourages running down capital in retirement and makes it difficult for retirees to plan ahead
  • The risks of unforeseen health and aged care costs, and of possibly outliving savings
  • The lack of suitable investments that would generate an assured income stream akin to a pension

In brief, the required reforms that would respond to these problems include:

  • Requiring superannuation funds to provide regular estimates of an individual’s retirement savings expressed in terms of an income stream rather than a balance at retirement. This should help people make better decisions about the use of those retirement savings.
  • Amending and possibly increasing minimum drawdown rates so that income is delivered earlier in retirement when people are more likely to consume it. Current drawdown rates are higher at ages 85-91.
  • Ensuring the availability of products that deliver an adequate income stream and provide protection against market fluctuations and outliving savings. Following the 2014 Financial Systems Inquiry, the Government did support the recommendation that superannuation funds be required to offer ‘Comprehensive Income Products for Retirement (CIPRs), which would help meet this need. But little has happened since. The Government needs to clarify what CIPRs should look like and, if necessary, be prepared to make available indexed annuities itself.
  • Given that half a typical retiree’s wealth is represented by their home, increasing the availability of reverse mortgages would allow retirees to tap that source of potential income and/or help meet their aged care needs.

Conclusion

The fundamental purpose of superannuation is to provide adequate retirement incomes, not to finance bequests.

The debate about superannuation policy has focused almost exclusively on the accumulation of retirement savings. This was understandable when those savings were very small. But now that they are much larger, the policy focus should switch to ways to ensure those retirement savings are used effectively.

Furthermore, the Retirement Incomes Review found that these reforms “Assisting retirees to use existing assets more efficiently, and draw down their assets in retirement, can have a bigger impact on improving retirement incomes than changes to the SG rate”.

Reforms to promote the efficient use of retirement savings should clearly be the priority and not fiddling with the SG rate. Indeed, these reforms are so important that no change should be made to the legislation governing the SG rate in advance of clear and substantial progress in improving the use of superannuation and other retirement savings.

Let the JobKeeper rorts roll

Published by Anonymous (not verified) on Mon, 25/01/2021 - 5:57am in

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Economy, Politics

Where do we start when considering the $100 billion JobKeeper scheme? Should we focus on the opaque nature of the scheme in which less than 3% of JobKeeper payments have been disclosed in public company accounts and there is no way of finding out who got what and how much?


Credit – Unsplash

Or is it the fact that JobKeeper has enabled Solly Lew and others to boost profits and pay massive bonuses to senior staff? As Solly also stiffed his landlords, should we be surprised?

Is it the standard operating practice of Morrison rewarding friends – the Catholic Church and Hillsong which both got JobKeeper – while punishing enemies such as universities and the arts which both missed out?

Or is just that rorts – like JobKeeper and corporate welfare generally – are intrinsic parts of the Morrison approach to economics.

Robodebt victims were harassed and victimised and compensation to some of the victims is still being withheld. As usual the Morrison Government has claimed it was all Labor’s fault despite the fact that the system which caused the problems was implemented while Morrison was the responsible Minister.

But then – unlike the Rutte Dutch Government Netherlands which accepted responsibility for a similar debt collection failure and both PM and all Ministers resigned – ‘responsible Minister’ in Morrison’s Australia is an oxymoron.

The inimitable Stephen Mayne ( crikey 19 January 2021) exposed the problems with the JobKeeper scheme and contrasted the actions of Super Retail Group and Toyota Australia who repaid the money given their profit performance with other recipients.

Mayne said:

“The auditor-general should also conduct a full review of the JobKeeper program independent of whatever work parliamentary committees do, and these committees should be able to call witnesses — such as Qantas chief executive Alan Joyce, Crown Resorts chief executive Ken Barton, Premier Investments chairman Solomon Lew, and Seven West Media chairman Kerry Stokes — to explain why their public companies received so much more in JobKeeper payments than other participants from their respective industries.

“If it was good enough for Westfield’s parent company Scentre Group to decide at the outset it would not accept $1 in public subsidies, how did Seven West Media come to receive $40 million when it is controlled by a bloke worth $5 billion and didn’t seem to get anywhere near the qualification of a 50% drop in revenue for a one-month period, which is what those companies turning over more than $1 billion a year were required to show.

“Why has there been so little disclosure on who tapped into the biggest grants program in history.”

In contrast New Zealand has introduce an online system which allows any New Zealander to see who got what under their COVID-19 job protection scheme.

Of course, given the funding cutbacks Morrison has imposed on the Auditor-General and the sheer number and scale of this government’s rorts, corruption and incompetence it already needs to investigate adding JobKeeper might be impossible.

The bigger problem though is the neo-liberal one personified by Morrison – whenever there is a problem throw money at the private sector and claim that will fix it and flow through to workers and the public.

The end results are massive amounts of corporate and middle class welfare which dwarf spending on welfare for ordinary Australians.

Taxpayer subsidies to fossil fuel producers and companies total around $12 billion a year. Negative gearing costs us $13 billion annually and capital gains tax concessions another $11.7 billion.

A 2000 Australia Institute report on subsidies, loans, tax breaks and incentives offered by state and territory governments cost $116 billion and in the past two decades the total has probably multiplied many times over.

In 2018 Anglicare, the peak body for a range of Anglican community services organisations, commissioned Per Capita to analyse how much tax concessions cost the budget relative to welfare.

Anglicare said: “Using Treasury data, as well as various ABS figures and the University of Melbourne’s HILDA survey, Per Capita calculated that major tax concessions totalling $135 billion per year were costing the budget more than the four main welfare payments combined — the aged pension, family assistance payments, disability benefits and Newstart (now JobSeeker).

“In fact, these tax concessions are costing the budget about six times as much as Newstart, a payment even business groups say is too low for job seekers to live on.”

Three years later the same situation applies with JobSeeker – ostensibly because being too generous discourages the unemployed from looking for work although research outlined at the recent virtual annual meeting of the American Economics Association suggest the assumption is highly doubtful and probably ideological rather than evidence-based.

In contrast to the miserly approach to the unemployed The Anglicare research found more than half of the benefit from Australian tax concessions goes to the wealthiest fifth of households. The cost of foregone tax revenue from the richest 20 per cent of Australians was more than $68 billion a year compared with just $6.1 billion in concessions for the bottom 20 per cent. As Anglicare Australia executive director Kasy Chambers said when the report was released:

“A staggering $68 billion in taxpayer dollars is spent keeping the wealthiest households wealthy. That is greater than the cost of Newstart, disability support, or any other benefit.”

So let’s hear it for a crackdown on all the corporate welfare bludgers. Let’s show some concern for the unemployed and the insecurely and poorly employed. And let’s have full scrutiny of, and accountability for, the Morrison Government’s rorts, corruption and failures.

Australia can phase out coal power while maintaining energy security

Published by Anonymous (not verified) on Sun, 24/01/2021 - 5:48am in

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Economy

The end of coal-fired generation in Australia is inevitable. The key is for an orderly transition to spread the costs fairly.

Zero marginal cost, zero emissions energy is now a reality. In most case, wind and solar are cheaper sources of new electricity than coal, putting significant pressure on the profitability of the inflexible, ageing coal generators.

The only questions are when coal-fired power stations will close and how well Australia will manage that phasedown.

That’s why we need to talk about the role governments can play to ensure the transition is orderly, maintains energy security, avoids price spikes that have followed past closures, looks after affected workers and communities, and ensures Australia meets its commitment to reduce greenhouse gas emissions by 2030 to 26-28% below 2005 levels.

At least halving emissions from coal-fired power stations (which account for about 90% of electricity sector emissions) by 2030 is an obvious route to achieve Australia’s international commitments.

Given that most state governments are already committed to forcing renewables into the grid at record pace, that could happen even without federal action.

But continuing down the current path will be unnecessarily costly, and poses significant risks to supply and prices as coal-fired generators exit on sporadic timelines based on their viability. These risks are part of the reason Australia’s Energy Security Board is considering mechanisms that facilitate an orderly transition from coal-fired generation to renewables as one of four priority reform areas.

National leadership and careful policy design are needed to enable coal plant operators to bow out of the market gracefully, and in a manner that secures certainty for investors, consumers, workers and communities.

Learning from past closures
The closures of South Australia’s Northern and Playford B power stations in Port Augusta (in 2016) and Victoria’s Hazelwood power station in the Latrobe Valley (in 2017) illustrate this point.

Price spikes followed their closure. In the case of Hazelwood, majority owner Engie gave barely five months’ notice of its closure in March 2017. With Hazelwood, a brown-coal-fired generator accounting for 20% of Victoria’s electricity supply and 5% of national output, the supply ramifications were significant. Victoria’s average electricity prices increased from A$60 to A$100 per megawatt hour (MWh).

These offer a stark warning to policy makers. The market requires adequate notice of exits of coal-fired generator. Greater certainty provides investors with the assurance they need to build enough capacity to replace retiring coal plants, and the infrastructure to connect them to the grid. A haphazard transformation is in no one’s interests.

A new Coal-Generation Phasedown Mechanism
We outline a market-based mechanism to achieve just that in a report published by the Blueprint Institute, an Australian think tank established last year to promote rational, pragmatic policy proposals.

The Coalition has generally claimed to oppose market-based mechanisms — such as emissions trading schemes or carbon taxes — to reduce greenhouse gas emissions. But the Abbott government in 2014 introduced an emissions trading scheme alongside its $2.5 billion Emissions Reduction Fund, a mechanism the Morrison government rebadged in 2019 as the Climate Solutions Fund. A “Safeguard Mechanism” sets emissions caps for the country’s highest-emitting businesses, with emissions permits tradeable on the open market.

To facilitate the orderly phasedown of coal-fired electricity generation, we propose a “Coal-Generation Phasedown Mechanism” (CPM), leveraging the Safeguard Mechanism to establish sector emissions targets — for 2026, 2028 and beyond 2030.

A key component of the CPM is the use of auctions to achieve withdrawals of coal generation from the electricity market. Auctions are commonplace in commercial and government contexts. The federal government has long used auctions to allocate telecommunications spectrum, for example, and the Emissions Reduction Fund uses reverse auctions to buy the most cost-effective emissions abatement.

The CPM would set emissions targets to phase down coal-fired generation to halve current emissions by 2030. Under a well-designed auction system, the least profitable coal generators would withdraw from the market first, ensuring emissions reductions occur at minimum cost.

The CPM should also be designed to ensure financial support for affected workers. This could be in the form of redeployment, retraining opportunities or generous remuneration in the case of retrenchment.

Who should pay?
A phasedown of coal-fired generation will come at a cost — either to taxpayers or investors in coal-fired generation. This cost can be made larger or smaller; it can be hidden from view. But it cannot be avoided. The proper role for government is to minimise and fairly distribute those costs.

We can’t predict exactly how much the phasedown will cost, because that depends on information known only to the generators. But a market-based mechanism is sure to minimise those costs.

The CPM can be designed to ensure the least viable plants close first. How much money generators receive to close or pay to stay open is an entirely separate question. The CPM can be designed to accommodate any financial commitment by taxpayers.

At one extreme, the federal government could pay generators to close by fully compensating auction participants for the loss of future profits, as has been adopted in Germany. But this would likely require a federal funding commitment significantly larger than under the existing Emissions Reduction Fund, which might make it politically unpalatable.

At the other extreme, the government could charge operators for the right to stay open. One significant advantage of this option is it would raise revenue that could be used to support directly affected communities. This could be modelled on Western Australia’s “Royalties for Regions” program, which allocates a quarter of the state’s mining and petroleum royalties to programs benefiting regional and rural areas.

A funding allocation between these two extremes is also possible, decided through government negotiation with the industry.

Ultimately, the question of who pays is a political decision. But political difficulties shouldn’t be used as an excuse for delay. The economic rationale for the CPM stacks up either way.

We must avoid another Hazelwood or Port Augusta, and coordinate an orderly grid transformation that provides certainty to communities, workers, investors, and consumers alike.

Written by Daniel D’Hotman and Steven Hamilton, this article has been republished from The Conversation; 7 January 2021.

The need is to fix the system, not just to provide ‘sticking plasters’

Food Bank Cupboard stocked with tinned and packet foodImage by Staffs Live (CC BY-NC 2.0)

“The test of our progress is not whether we add more to the abundance of those who have much; it is whether we provide enough for those who have too little.”

Franklin D. Roosevelt

 

It feels lately that we, like Lewis Carrol’s Alice, have fallen down a rabbit hole into an immensely troubling surreal situation with seemingly no idea how we are going to extricate ourselves.

Whether it is the distressing daily reports of Covid-19 deaths, the disturbing video accounts of the huge pressures on our NHS or care services, the political upheavals taking place across the Atlantic and elsewhere or the most serious challenge of all, climate change, it seems ever clearer that we are in Antonio Gramsci’s ‘time of monsters’ in which ‘the old world is dying and the new world struggles to be born’.

What that world will look like remains to be seen, but recent political events would seem to suggest that we still have some way to go before the ‘old world’ breathes its last. The pandemic, combined with the consequences of forty and more years of Neoliberalism Central which has infected every aspect of our lives and dominates political decision making, has created not only public disillusionment, but also petrification as our institutions sit in their blinkered bunkers holding on for dear life to all they knew.

Whether it’s the existing and growing union between government and global corporations, policy decisions which have increased inequality and poverty and encouraged charity, volunteering and philanthropy to take up the reins of public provision, or the promotion of sound finance as a vital component of good governance, the old structures are embedded in our consciousness.

It wasn’t always like this.

During the second world war, William Beveridge was appointed to investigate social security in Britain and his report, published in 1942, identified five major problems which prevented people from improving their lives. These were:

Want (caused by poverty)

Ignorance (caused by a lack of education)

Squalor (caused by poor housing

Idleness (caused by the lack of jobs or the ability to gain employment)

Disease (caused by inadequate health care provision)

It was recognised that government had a role to play in addressing those five ‘evils’ and as a result of the Beveridge report, the post-war government set up the social security system and pursued policies which aimed to address them including full employment. It may not have been perfect, but it changed people’s lives for the better.

Over recent decades, that connection between the state and publicly paid-for provision, management and delivery of services has been broken. Responsibility for such provision is increasingly being shifted into the charitable/voluntary sector, whilst at the same time, the dominant orthodoxy of individual responsibility has led to shaming and blaming people for their situation as the government takes a back-seat role.

Food banks have become a normalised feature of Britain, as Therese Coffey, the Tory minister for the Department for Work and Pensions, indicated last year when she referred to people using food banks as ‘customers’ and suggested they were a ‘perfect way to help the poor’. It implies that government has no role at all in ensuring the economic well-being of its citizens, and worse, that the 14 million Britons who do not have enough to live on are there through their own lack of moral fibre!

When charities buy into this picture and act as mitigators for a rotten economic system (which drives the poverty and inequality, that drive, in turn, the consequences including hunger, homelessness, and illness), they are not aiming to fix the system, but to provide sticking plasters. As such, it demonstrates how they, too, have been captured by an ideology and accept it without question.

This was made shockingly clear in a paid-for content article in this week’s Guardian. The CEO of the Bethany Christian Trust, when talking about tackling the problem of food insecurity said: ‘if by giving someone a meal we’re sitting them down with people they can talk to about debt counselling, mental health issues, addiction, domestic abuse, or whatever help they might need, then that plate of food can work so much harder’.

Rather than starting with the political roots of these problems, charities increasingly view them as issues to be solved through improving the capacity of the individuals themselves to manage the challenges they face.

Quite simply, this facilitates the shifting of blame onto people, rather than highlighting the failure of the government to make provision for its citizens and is classic neoliberal text. As Neil Valley suggests in his article in the New Internationalist ‘The Self-Help Myth’.

‘The pervasive rhetoric of personal responsibility has transformed the role of government and society in the neoliberal era. Where once the role of government was to safeguard the general happiness of the majority of citizens, albeit to varying degrees, its primary role now is to facilitate the conditions where each citizen can take on more and more individual responsibility, absolving the state from its responsibility towards its citizens.’

Then step in charities to fill the gap in service provision and provide the mitigating support for the rotten toxic system which has created the need in the first place and designates those in receipt of such support as customers rather than victims.

The increasingly pervasive narrative, which is being driven further by the pandemic crisis, is that charities and the voluntary sector should be at the heart of our local communities to ensure that vulnerable people don’t fall between the cracks, rather than publicly paid for, managed and delivered state provision.

It was, therefore, all the more disconcerting this week to read the proposal in the left-wing publication The Tribune that a National Food Service should be set up. Whilst its aims to serve the public good rather than private profit are indeed laudable, one has to question the logic.

Of course, one could not object to the removal of private companies delivering public services, given that the tentacles of private profit are growing exponentially as government distributes contracts to its friends and large corporations with few strings attached, whilst at the same time the coffers remain largely bare to serve the needs of those who have for decades been at the sharp end of government policies. The resulting poverty and inequality have been highlighted during this crisis.

The proposal, however, seems to suggest that we mitigate for the crisis of capitalism being played out in the growth of hunger through mutual on the ground action, rather than dealing with its root causes – government policy driven by ideology. We don’t need a plan to ‘respond’ to this fundamental crisis of capitalism, we need a plan to change it; to put public purpose and the interests of citizens, not to mention the planet, at the heart of all government policy.

Over the last few decades, working people have borne the consequences of a toxic economic ideology underpinned by the notion of monetary scarcity, which has led to the reduction in their share of their productivity, which has translated into lower wages, insecure employment and underemployment and a decline in living standards. Poverty is the direct result. The constant repetition of these ideas via politicians, think tanks, economists and the media has led us to believe that this is the inescapable default.

Government, far from serving its citizens, has overseen through its employment and other policies, huge disparities in wealth and access to resources, allowing, for example, chief executives of big corporations to earn many more times that of their employees, not to mention garner political influence as a result.

To add to this picture is the decimation of our post-war public and social security infrastructure, which existed to provide health and social care through various publicly paid for institutions, to ensure that those in need had access to shelter, food and warmth, in times of personal tragedy, sickness, unemployment or economic collapse. When this infrastructure was built, the profiteers had no place in this model and nor should they today.

Whilst the human suffering continues to play out across the nation, the government cynically continues with its U-turns on policy in the vain attempt to keep its MPs and the public on side. Last week, as noted in the MMT Lens, Boris Johnson told MPs that ‘most people would rather see a focus on jobs and growth in wages than…welfare.’ This week, with his signature tune U-Turn, he has indicated a potential rethink of ending the £20 a week Universal Credit uplift, saying he wanted to ensure that ‘people don’t suffer as a result of the economic consequences of the pandemic’. You couldn’t make it up.

Yes, indeed, to more jobs through the implementation of a Job Guarantee, to drive better wages overall and restore the government’s role as the price setter and rebuilding public service provision. But in the meantime, let’s ensure while the consequences of the pandemic continue to cause economic and social pain, that all people have enough to pay their bills and keep food on the table without worry, stress or having to get into debt to keep their heads above water. We have witnessed the power of the public purse, let us not allow that knowledge to be polluted by the restoration of household budget politics.

It is regrettable that politicians, journalists, institutions and think tanks, in their weekly forecasts of doom and gloom, continue to build up the narrative of money scarcity and a future price to pay for this massive round of government monetary intervention. A narrative that will be used to justify eventual hard decisions or another round of austerity in some form or another.

Whilst the livelihoods of many people lie in the balance, not just for now but in a rapidly changing world, we still have to endure the false notions of tax rises to pay for government spending and the penchant for sound finance. Such narratives suggest, not only that people must suffer, but also that the cost of saving our planet from climactic destruction will be too high.

The fact that the government continues to find huge sums of money to support businesses and yet quibbles over a few pounds to working people, suggesting that it is unaffordable should surely be a public conversation starter!

As the chancellor opines that there are some hard choices ahead, one of his treasury ministers clearly of the deficit dove variety, softens the blow by suggesting that the need for tax rises to tackle the record levels of government borrowing could be delayed at least until the economy ‘bounces back’. As if somehow increased tax revenues equate to the capacity to spend or pay down the national debt.

The experts at the Institute of Fiscal Studies and other think tanks then put the fear of God into the public that £40bn in tax rises might be necessary to put the public finances back onto a sustainable footing. Thus, making that public even more cautious about the government’s future spending plans. Self-fulfilling prophecies come to mind.

And then, just this week, when people thought that the vast round of government spending signified a change of approach to managing the economy, Rishi Sunak told Conservative MPs that he will be using his March budget to begin the process of restoring ‘order’ to the public finances through implementing higher taxes.

To those Tories who would like to see the Universal Credit uplift continue beyond April, he gave a reminder of its high cost which represents, according to his calculations, an equivalent of 1p on income tax plus 5p per litre on fuel duty. Thus, further reinforcing the idea that the provision of higher welfare benefits means collecting tax from elsewhere to cover it.

The ‘someone, somewhere will have to pay for it’ model of the state finances will no doubt be used cynically to drive further wedges between the haves and the have nots and justify the further decimation of the already inadequate social security safety net.

According to this narrative, the magic porridge pot is running on empty and needs replenishing in order to pay down debt and avoid a giant burden for future generations.

This tale of supposed coming woe serves to keep people in their place while reinforcing the old myths about how governments spend. It displays both economic illiteracy and a disregard for the lives of those who will lose out as a result, not to mention addressing the biggest challenge of all – climate change.

And then at the ‘left’ end of the household budget scale, we have economists, opposition politicians, unions and other so-called experts, urging the Chancellor to take advantage of low borrowing rates of interest to avoid tax rises until the economy gets back on its feet and restores tax revenues, or reinforcing the false narratives about taxing the rich to pay for the pandemic. The household budget model is endemic and those on the political left keep shooting themselves in the foot repeatedly.

A paper published by the LSE’s International Inequalities Institute last December, using data from 18 OECD countries over the last five decades, concluded unsurprisingly enough that tax cuts for the rich didn’t trickle down; that they contributed to inequality and did little to stimulate business investment.

The authors then went on to suggest that it was time to tax the rich more to repair the public finances. This was backed up in the same month when the Wealth Tax Commission, founded in April of last year, concluded that a one-off wealth tax would raise significant revenue and be fairer and more efficient than other alternatives. To be exact, it suggested that a ‘one-off wealth tax on millionaire couples would raise £260 billion’ The implication being yet again that such a tax could be used to repair the public finances.

Whilst we can’t avoid these false tropes, which lead the public astray and reinforce the messages that government spends like a household, we can challenge them. When Matt Hancock, the Secretary of State for Health and Social Care, bleats on as he did this week about the NHS Pay review body taking ‘account of the extremely challenging fiscal and economic context’ in its decision about future pay rises, we can show the public that such decisions have no connection, either with the current state of the public finances or the future monetary affordability of those pay rises.

We can reinforce the message that curtailing public sector pay won’t increase the ability of the government to ‘set the public finances straight’, any more than the decade of austerity did. It could actually have a negative, indeed disastrous, effect on the economy at a time when it will, without doubt, need continuing government support.

Aside from the fact that public sector and, indeed, other key workers have seen their pay dwindle in real terms as a result of a decade of pay freezes or inadequate employment legislation, and that the pandemic has revealed the vital nature of their contribution to society, all increasing taxation will do is leave less money for working people to spend into both the national and local economies. Also, should that increased taxation fall on corporations, (as is being suggested) who will likely pass that additional cost on through higher prices to working people anyway, it will create a double whammy effect.

Whilst a pay rise will increase tax revenues, it will not increase the government’s capacity to spend. But we see the false narrative again in a study published this week by the London Economic Consultancy. The report claimed that the government would recover 81% of the cost of any pay rise in additional taxes, which would, in turn, have significant ‘knock-on’ benefits for the Treasury. Clearly suggesting that tax funds its spending.

Whether from the left or right of the political spectrum, the public is treated daily to a mishmash of false information dictated by the dominant economic paradigm which masquerades as truth. It’s no wonder that people are confused and feel disempowered or turned off by politics and economics, which they feel do not relate to their lives at all, even though, in reality, these things have everything to do with them.

While politicians, journalists and economists argue about monetary affordability and who should pay for government spending, people are dying and will continue to die for the want of a government that puts their interests first.

What happens next will depend on a successful challenge through raising public awareness that there is indeed an alternative to the vast disparities in wealth, the rise of poverty and inequality, the whittling down of democracy and increased corporate dominance in our lives. And it starts with understanding how government really spends.

 

Upcoming Event

Phil Armstrong in Conversation with Pavlina Tcherneva – Online

January 24th 2021 @ 4:00 pm – 5:30 pm GMT

GIMMS is delighted to present another in its series ‘In Conversation’.

Phil Armstrong, author of ‘Can Heterodox Economics Make a Difference’ published in November 2020, will be talking to Pavlina Tcherneva.

Pavlina is program director and associate professor of economics at Bard College and a research associate at the Levy Economics Institute. She conducts research in the fields of modern monetary theory and public policy and has collaborated with policymakers from around the world on developing and evaluating various job-creation programmes. Her work on the Job Guarantee spans over 20 years.

Author of the recently published book ‘The Case for a Job Guarantee’, she challenges us to imagine a world where the phantom of unemployment is banished and anyone who seeks decent living-wage work can find it – guaranteed. It will be of particular relevance as we begin to grapple with the economic fall-out of the Covid-19 pandemic but for anyone passionate about social justice and building a fairer economy it should be essential reading.

We invite you to join us for this informal event which we are sure will be both stimulating and insightful.

Tickets via Eventbrite

 

Past Event

Phil Armstrong in Conversation with Fadhel Kaboub – Online

Author and MMT Scholar Phil Armstrong talks to professor of economics and president of the Global Institute for Sustainable Prosperity Fadhel Kaboub about how MMT insights apply to the global south, colonial reparations, the MMT Job Guarantee contrasted with Universal Basic Income, and much more.

 

 

Audio via the MMT Podcast here

 

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The post The need is to fix the system, not just to provide ‘sticking plasters’ appeared first on The Gower Initiative for Modern Money Studies.

Saturday’s good reading and listening for the weekend 

Published by Anonymous (not verified) on Sat, 23/01/2021 - 6:20am in

Tags 

Economy, Politics

What people in other forums are saying about public policy

America’s long road back to sanity

Biden’s inaugural address

You might care to invest 22 minutes listening to Biden’s inaugural address – maybe watching it because the Americans excel in the theatrics of state occasions.

Much of his speech comes across as a cut-and-paste of previous inaugurals, supplemented with quotes from Lincoln and the bible. That’s to be expected. There are plenty of phrases such as “all of us” and “we the people” – about as close as a Democrat dare hint at any notion of collectivism. Unsurprisingly he refers to the virus and to climate change.

There are also many words and phrases that go beyond the obligatory content, giving insight into Biden’s values, passions and priorities. He reminds us that “democracy is fragile”, he draws frequent attention to racism, and he makes specific references to “political extremism”, “white supremacy”, and “domestic terrorism”. He doesn’t mention Trump, but he does say “we must reject the culture in which facts themselves are manipulated and even manufactured”. Towards the end he sneaks in a reference to the problem of “growing inequity” as a problem – we wouldn’t expect to hear that in a Morrison speech. And in what must be a first for any such address, he manages to draw on St Augustine for political inspiration.

Biden’s formal address carries his explicit message. On another level you can hear his message to the American people and the world in Amanda Gorman’s poem The hill we climb.  Americans may have built ugly cities, operate awful airlines and make bland coffee, but none can match them for oratory.

The rioters on January 6 behaved disgracefully, but not as badly as 139 well-dressed members of Congress

The assault on Congress on January 6 will leave a lasting impression. Thanks to the idiots who filmed and posted their own vandalism there is plenty of graphic content.

Zeynep Tufekci, a contributing writer to The Atlantic, points out that the riot was not the most dangerous thingthat happened on that day:

The most dangerous part of that day for the country as a whole, however, was not what happened when the insurrectionists fought their way into the Capitol in the afternoon, but what happened just a few hours later on the floor. After all that mayhem, the legislators were escorted back to the chamber under heavily armed escort, and a stunning 139 representatives—66 percent of the House GOP caucus—along with eight GOP senators, promptly voted to overturn the election, just as the mob and the president had demanded.

A hopeful sign for the future is that 17 newly-elected Republican members of the House of Representatives have sent a letter to Biden saying that they would work across the table.

Where to now for the US

Stan Grant has been moved to write several thoughtful articles on the storming of the White House, revealing his distress and a deep concern for the future of the United States. In his most recent contribution – Can Donald Trump’s impeachment revive America’s faded promise of democracy? – he draws on the ideas of historians W E B Du Bois and Greg Grandin (author of The end of the myth), both of whom were concerned with the enduring influence of slavery.

Grant acknowledges the part played by economic conditions in fomenting resentment – the terrible inequality that has developed in this re-run of the Gilded Age. But he wonders if there are more intractable maladies that have given rise to Trumpism.

Is Trumpism something out of the ordinary, or is it a manifestation of something deep-rooted in the American culture, he asks. Is that a culture rooted in “whiteness” as Du Bois suggested?

Rotten to the core?

The systems of checks and balances that protected Trump’s attempts to overturn the election also make it difficult for the US to reform its flawed electoral processes.

That’s one of the points Francis Fukuyama makes in his reflection on the election – Rotten to the core? –  how America’s political decay accelerated during the Trump era – published in Foreign Affairs. He reflects on partisan alignments that are no longer along traditional left-right divisions, but rather on the basis of identities: in fact the Republican Party has become more like a cult than a political party.

He wonders whether, in response to the election defeat, former mainstream Republicans will take back the Republican Party, or if Trump will retain his grip on the party. “At one extreme, one could imagine Trump and his hardcore supporters morphing into a terrorist underground, using violence to strike back at what they regard as an illegitimate Biden administration”.

America and the world had a narrow escape from Trump

Writing in The Atlantic, Adam Serwer takes us through a list of Trump’s assaults on good government, some of which succeeded and some of which failed: An incompetent authoritarian is still a catastrophe. Had the Trump administration not been so administratively incompetent it probably could have rigged the electoral system to ensure his hold on office.

Serwer’s main point however is captured in the title of his piece. Even though Trump was incompetent, he was still able to inflict great damage on his country.

The rest of the world that isn’t the USA

The world after coronavirus

Yogi Berra warned “Never make predictions, particularly about the future”. So, rather than making his own predictions, Adil Najam of Boston University interviewed leading thinkers on 101 distinct topics – politics, economics, foreign relations, technology, literature, science, security – with the common question “How might Covid-19 impact on our future?”. He has recorded each response in a five-minute video.

His own summary of these views, published in The Conversation, is that there is “no going back to normal”: I spoke to 99 big thinkers about what our ‘world after coronavirus’ might look like – this is what I learned.  From that article you can link to the videos.

Kishore Mahbubani and Graham Allison are among the many who talk about China-US rivalry. Francis Fukuyama puts forward optimistic and pessimistic scenarios – no suggestion of the “end of history”. He sees the resentment and strife in the USA not so much in terms of inequities in material conditions but in the way so many people feel they are not accorded respect. Dani Rodrik sees a retreat from the hyperglobalised economy – a trend that started before Trump.

We have dipped into only a few of these contributions: wisely, the respondents don’t seem to be too categorical. To combine the most pessimistic, right-wing populism will continue to displace democracy and China-US tension will escalate. To combine the most optimistic, the pandemic is forcing countries together to confront common problems and has reminded us that our needs cannot be met by “small government” – a liberal era will emerge from the crisis.

How should the Biden administration deal with Russia

With Trump gone, Putin has lost a soulmate. That will make it a little easier for the Biden Administration to stand up to Russia. But there has to be much more on the US Government’s policy agenda towards Russia: the US must contain Russia’s expansionist tendencies while dealing with it on areas of shared interest. So writes Michael McFaul, former US ambassador to Russia in Foreign Affairs: How to contain Putin’s Russia.

The US has underestimated Russia’s power and influence – not only its still formidable military power, but also its economic power and its capacity to mount cyber warfare, and has tended to disregard Putin’s capacity to draw by his side anti-liberal authoritarians from western nations – Le Pen, Orbán, Farage, and until now Trump.  “Putin has deliberately tried to position himself as the leader of the illiberal, conservative world—a role he defines in opposition to U.S. liberal internationalism.”

The Biden administration must strengthen defences against cyber-warfare, and work with other countries to uncover the flow of Russian money. Abroad it must strengthen NATO and establish a constructive relationship with Ukraine (a relationship that Trump badly damaged) and with other states bordering Russia.

Much of the work begins at home: “Putin has declared liberalism obsolete; the Biden administration must prove him wrong—first and foremost by renewing American democracy at home.”

(Note that Foreign Affairs allows the occasional visitor a limited number of articles, and has provisions for more regular readers. An online subscription is not expensive.)

Alexei Navalny’s return to Russia – will it move the crowds?

Rather than staying in safety in Germany, Alexei Navalny returned to Russia, knowing he would almost certainly be immediately incarcerated on trumped-up charges. Could his unfair imprisonment galvanise his supporters; will international outrage lead Putin towards liberalisation?

Writing in The Conversation, Alexander Titov of Ireland’s Queens University fears his sacrifices and bravery will come to nought: Novichok didn’t stop Russian opposition leader – but a prison sentence might.  Navalny does not have a large following – after all the crowds didn’t come out in numbers when Putin tried to kill him with Novichok, and Putin has proven impervious to foreign criticism.

The United Kingdom’s peripheral forces

Last week we linked an article by Fintan O’Toole about a nascent movement in Northern Ireland to separate from Britain and re-join the Republic – a movement energised by Brexit.  This week O’Toole has another article in the Irish Times, about a more advanced movement for Scottish independence, also energised by Brexit – Nicola Sturgeon’s staunch ally in her push for independence – Boris Johnson.

O’Toole lists a constellation of reasons for a growing Scottish desire for independence. One factor that has pushed the movement along was the way Johnson based his campaign for Brexit on English nationalism, thus reinforcing Scottish nationalism – a nationalism already based in part on a “European” identity.

The Australian economy

There’s more to Keynesian economics than counter-cyclical spending

Mike Keating, writing in The Conversation, takes apart the notion that the Morrison Government, in response to our pandemic-induced recession, is following a Keynesian path of macroeconomic policy: Despite appearances, this government isn’t really Keynesian, as its budget update shows.

It is certainly engaged in counter-cyclical spending (remember when the Coalition used to prattle on about Labor’s deficits?). Keating reminds us, however, that effective Keynesian management also depends on boosting wages to stimulate demand. The Australian economy is suffering the related structural weaknesses of low wage growth and low productivity, but the Morrison Government’s economic policies are not directed to structural reform. “Over time the weakness in demand is likely to lead to lower investment, slowing the take-up of new technology and slowing growth in productivity” writes Keating.

Who’s holding the cash

It took a freedom of information request by the media for the Reserve Bank to release a short paper Impact of monetary policy on savers, depositors & self-funded retirees.  Its sensitivity lies in what it says about risk. To quote (after editing for style):

  • increasing asset prices can induce borrowers to take on too much credit if accompanied by looser lending standards and/or optimistic assessments of risk;
  • if price rises induce large amounts of new property construction, this can create an overhang of excess supply, causing prices to fall further.

That’s conventional Eco 1, advice the Morrison Government ignores in its lax attitude to housing price inflation.

The paper also has some graphical presentation of income and wealth distribution. The chart on household assets and liabilities sensitive to interest rate changes is scary – particularly as they relate to people aged 35 to 54 who are carrying high debt. Another chart shows the distribution of dividend income by wealth quintile: Labor has to find some way to tax this fairly rather than the dopey idea of disallowing imputation credits that it took to the 2019 election. Labor has dumped that policy, but it still has no proposal to tax so-called “self-funded” retirees – people who can enjoy investment income of $100 000 a year ($200 000 for a couple) without paying a brass razoo of tax.

Annual performance indicators on government services

Every year the Productivity Commission collates performance data from all states and territories on the efficiency, equity and effectiveness of a range of government services, and produces sets of indicators in its 2021 Report on Government Services.

This year sections are being released sequentially. The first two released on Wednesday cover community services (including aged care and services for people with disabilities) and housing and homelessness.  You might have read in your state’s press that its aged care facilities compared well or badly compared with other states and the national average for compliance with service standards, or that the unit cost for protective intervention for children perceived to be at risk ranged from $864 in the Northern Territory through to $6154 in Tasmania, to illustrate two of the many indicators that can be obtained from the Commission’s website.

Any comparisons based on these indicators alone are close to useless (so why does the media keep reporting them out of context?). They are simply indicators, not measures, and for many tables the Commission has a user warning: “Most recent data for this measure are not comparable but are complete, subject to caveats”. Like all performance indicators they serve the purpose of stimulating further investigation by experts involved in specific areas of service delivery.  On each topic the Commission has a large amount of interpretative material that give context to the raw numbers.

Australian politics

Albo re-commits Labor to the US Alliance; so what’s the fuss about?

In Anthony Albanese’s speech – US-Australia relations under a Biden administration – the media have focussed on his statements about Scott Morrison’s political affinity with Donald Trump.  He points out that Morrison went on a campaign rally stage with Trump, that on a week-long visit to the US he failed to meet with any senior Democrats, and that, unlike other world leaders, including many from centre-right parties, he refused to disavow Trump’s incitement of the mob to storm the Capitol. “Morrison went too far – partly out of his affinity with Donald Trump, partly because of the political constituency they share”.

All valid criticism.  Good diplomacy and personal affections are, or should be, entirely different matters, and our interests are not served if our relationship with the US is seen to rest on our prime minister’s endorsement of Trump’s indefensible behaviour or on their shared contempt for democratic institutions. Our prime minister should refrain from such political intimacy, no matter how closely their right-wing Weltanschauungen align.

The speech is actually a re-assertion of Labor’s commitment to the US Alliance – an alliance “underpinned by shared values and an alignment of interests”. Albanese summarises the diplomatic substance of his speech:

Australia should focus its engagement with the Biden administration on building an Indo-Pacific where the sovereignty of all regional states is upheld, international rules are respected, and open trade drives prosperity for all.

Some may agree, some may disagree, with Albanese’s stance on the US Alliance, but whatever view one takes on our relationship with the US, he is surely right to draw attention to the Morrison Government’s inept handling of foreign relations.

Trumpism in Australia

Even before he disgraced himself by stirring up an attack on Congress, Australians never had much time for Trump. But writing on Open ForumTrumpism down-under –  Mark Kenny points out that Trumpism has made its way into Australian politics. He summarises the Trumpian approach:

Notions of honour and tradition, long relied upon to protect probity and avoid conflicts of interest, can be ignored. Those seeking transparency or who uncover maladministration can be depicted as political opponents or extremists, motivated by hatred and prejudice.

Seven years ago New South Wales Premier Barry O’Farrell resigned over a bottle of Grange Hermitage; last year Premier Gladys Berejiklian held on through a close association with a disgraced MP who had been arranging property deals for commissions. At the Commonwealth level there has been a succession of scandals, including the sports rorts and the over-priced purchase of land at Badgery’s Creek – scandals that in earlier times and in other countries would have seen ministers out of office.

Kenny also draws our attention to the failure by senior Morrison Ministers to call out the behaviour of MPs Craig Kelly and George Christensen, who, in Trumpist style, have been spreading stories about election fraud and about left-wing agitators provoking the invasion of Washington’s Capitol.

Morrison Government Netherlands Government resigns over Robodebt wrongly accusing social security recipients of fraud

There are many media accounts about the resignation of the Netherlands Government over accusing people of welfare fraud. Deutsche Welle goes into a little more detail than the Australian press: Dutch government resigns over child benefits scandal. There were 10 000 families involved, who will be paid on average €30,000. That’s around €300 million, or $A480 million, in a country of 17 million. Scaling that up to Australia’s population would equate to around $A700 million here.

The Coalition’s Robodebt scandal has cost almost twice that amount – $A1.2 billion – but not a single minister, let alone a whole government, has resigned. In the Netherlands not only did the Government resign but so too did the leader of the opposition Labour Party, who had been social affairs minister when the government introduced its AI-driven debt collection system.

Quarantine exemptions

Over the last few months we have been struggling to reconcile the numbers of Australians stranded overseas with the number of quarantine places available. Our back-of-the-envelope calculations suggest that almost everyone should be home by now.  Perhaps the reason these numbers don’t reconcile is that there are still many Australians making short overseas trips – businesspeople and public servants – and that they are taking up places on their return.

Also it is clear that many people with political connections, Labor or Coalition, are afforded the privilege of making their own quarantine arrangements. On the ABC website Nadia Daly throws some light on the situation: Australia’s hotel quarantine exemptions explained: Who can get them, what are the reasons, and who is making the decisions?

The strength of our public health system relies on its being fair and being seen to be fair.  Secrecy, inconsistency, and instances of political privilege undermine trust, putting the entire community at risk.

The pandemic’s progress

Australia

We have now enjoyed a few days without any detected community transmission. Because the New South Wales Government (unlike the South Australian Government) failed to act promptly on the northern beaches outbreak when it was first detected on 17 December, that original outbreak spread to other clusters in Sydney and to a few cases over the border.

Cases for the four weeks up to Friday 22 January are shown below. All these cases, apart from one in Brisbane, are traceable to the New South Wales northern beaches outbreak.

On the ABC’s Coronacast Norman Swan interviews data journalist Catherine Hanrahan who has studied the behaviour of clusters in New South Wales. She finds that their contact-tracing process works effectively and it takes about three weeks to bring an end to a cluster (provided it hasn’t seeded any new clusters). On that basis, she estimates, the New South Wales outbreak should be ended by about now, three weeks after the clusters were discovered around New Year (see the graph), just before holidaymakers go back to work and school after Australia Day.

Even if there are no new cases from now on it won’t be until the end of the month that there has been a two-week period free of community transmission, and mid-February before there is a four-week period free of community transmission. These correspond to one and two cycles of the virus’s maximum reproduction periods, and are used for public decisions on border closures, and by people acting with caution in their private decisions on travelling and congregating.

The failure of the New South Wales Government to manage its quarantine system properly has imposed a high cost on the nation.

Our part of the world

The table below is an update of the one we ran in November, covering countries in our region, and the US and UK – countries with which we often compare performance on other matters.  For the most part we’re in a relatively safe part of the planet: even the worst-afflicted countries in our region are doing much better so far than the US and the UK.

Japan has recently had a growing number of cases, but its rate may have stabilised over the last few days. South Korea’s case rate is well on the way down after a recent spike.

Note that for some of the countries with less developed public health systems these figures probably understate the extent they have been affected with Covid-19.  Also note that we have not included some small Pacific island countries.

Countries further afield

The UK has been attracting a fair bit of media coverage recently for its high death rate.  There are still countries, such as Italy and Belgium which, since the pandemic broke out, have had more deaths per million population, but their death rates have fallen in recent times, while they are still rising in the UK. The graph below, an update on last week’s, shows the UK’s case rate turning around, which points to a falling death rate in a few weeks. In the rest of Europe most countries are enjoying some reduction in case rates, presumably reflecting the effectiveness of restrictions on movement and association.

We will be watching countries that have active immunisation programs, but we believe it will be quite a long time before results become evident in the data, particularly if countries ease restrictions or if people become less cautious as immunisation rates rise.

The vaccine’s progress  

The world is still not geared up to tackle Covid-19, and poor countries are being left out

Three articles, from different perspectives, draw our attention to global inequities in vaccination and misallocation of resources:

Producing a suite of vaccines in record time has been a marvellous achievement, but that’s about as far as the Independent Panel Progress Report to the WHO goes in congratulating those who are dealing with the pandemic (or who should be dealing with the pandemic). Shortcomings at each step of the global response to Covid-19 have worsened the situation. These include “a failure to measure preparedness in a way that predicted actual performance, and a failure of countries to prepare, despite years of warnings of the inevitability of a health threat with pandemic potential.”

There is a large amount of mitigation work to be done, not only in vaccine distribution, but in other public health measures, particularly as Covid-19 mutates into more infectious variants.

The Panel is most critical of the way rich countries are hoarding vaccines:

We cannot allow a principle to be established that it is acceptable for high-income countries to be able to vaccinate 100% of their populations while poorer countries must make do with only 20% coverage. COVID-19 did not start in the poorest countries, but they are suffering the greatest collateral damage, and they need enhanced solidarity and support from the international community.

A map on Page 6 of the report tells much of the story: at present rates, the vaccine won’t be available until 2022 or 2023 in most African countries, Indonesia, Papua New Guinea, and in some countries in central America and Asia.

(The Panel, co-chaired by former New Zealand Prime Minister Helen Clark and Ellen Johnson, former President of Liberia, has a mandate to review experience gained and lessons learned from the WHO-coordinated response to Covid 19.)

 

WHO’s Director-General Tedros Adhanom Ghebreyesus is frustrated by the way the first to get the vaccines are in wealthy countries, ahead of health care workers and other vulnerable people in poor countries:  WHO chief lambasts vaccine profits, demands elderly go first, published in Politico.

The article describes progress in the WHO’s COVAX program, which aims to distribute vaccines to all countries based on need. It has so far secured 2 billion doses (note that that’s enough to cover 1 billion people, in a world population of 8 billion – 6 billion people if China and other developed countries catering for themselves are excluded).

It also points out that the program does not include highly-effective mRNA vaccines – the “gold standard” for Covid protection.

 

 “As of January 20, many more people have been immunised in Israel (with a population less than 10 million) than in Africa and Latin America combined”.

That’s a quote from Ilan Noy of the Victoria University of Wellington and Ami Neuberger of the Israel Institute of Technology  –  The big barriers to global vaccination: patent rights, national self-interest and the wealth gap – published in The Conversation.

World-wide total population vaccination is in every country’s interest, particularly in light of the virus’s increasing infectiousness, but governments, under pressure from their citizens, are prioritising their own citizens, particularly in materially rich countries, and big pharma “keeps a tight lid on the intellectual property it is developing in the new vaccines”. Global eradication or effective suppression of Covid-19 requires a global approach, similar to that applied to polio and AIDS.

Deaths in Norway

In the comments on last Saturday’s roundup there was a lively discussion on the deaths in Norway that had occurred after elderly people had received the Pfizer vaccine.

At this stage all we can say is that the death rate appears to have been around 1.5 in 1000 vaccinations, all or most of which were given to frail elderly people. We don’t know if there was any causal link between the vaccination and these deaths.

There is an account of these deaths by Ingrid Torjesen, writing in the British Medical Journal on 15 January. At that stage there had been 23 deaths of “very frail elderly patients with very serious disease” shortly after receiving the Pfizer vaccine. At that stage “more than 20 000 doses of the vaccine had been administered over the past few weeks”. Norway has prioritized immunizing nursing home residents, “most of whom are very elderly with underlying medical conditions and some of whom are terminally ill”.

Since then, according to press reports there have been more deaths – the total is “up to 30 ‘frail patients’”, according to ABC’s medical journalist Sophie Scott.  We don’t know whether that higher number rests on the original 20 000 vaccinations or on a higher number including subsequent vaccinations.

Her article Why Norway’s reports of deaths in Pfizer vaccine recipients will help the TGA assess the drug suggests how our own Therapeutic Goods Administration is likely to use data from Norway and other nations.

On the same general issue the US Centers for Disease Control and Prevention report on incidences of people suffering anaphylaxis shortly after receiving the Pfizer vaccine (generally within 15 minutes). They have observed 21 cases in 1.9 million doses – 11 cases per million.

It is unfortunate that many journalists reported on the number of Norwegian deaths without also reporting on the numbers of vaccinations. This is irresponsible journalism.

Sources

Sources of generally reliable information and analysis about Covid-19 are on a separate web page. The Harvard Gazette reports that the emergence of more infectious strains from England and South Africa mean vaccination must be accelerated and that it is now unlikely that northern summer (June) will see a hoped-for return to normal.

Polls and surveys

Essential is back– not much has changed

The Essential poll starts with views on Morrison and Albanese. As the graphs below show, nothing much has changed since the virus came into our lives.

We seem to be enthusiastic about vaccination against Covid-19: only 11 per cent of respondents say that they would never get vaccinated, but among those whose political affiliation is “other” (other than Labor, Green or Coalition) the “nevers” constitute 25 per cent.  (This could cause some tensions in the Coalition when it comes to the prospect of doing preference deals with One Nation.)

There is a question whether we think “things got better or worse for Aboriginal and Torres Strait Islander people over the last ten years”. Most people think they have stayed the same or improved: Coalition supporters are particularly likely to respond that conditions are getting better.  It would be informative if, next time they ask this question, they could ask a representative sample of indigenous Australians.

There is a set of questions on Australia Day. To most, it’s “just a public holiday”.  Just half of us would like a separate day to recognise indigenous Australians. Most people who would like a separate day want to keep January 26 as a holiday. There are predictable partisan and age differences in the responses.

Just on half of us think “It is likely that the bushfires are linked to climate change and it is appropriate to publicly raise this issue”. That view has solidified since January last year when the fires were raging.  Unsurprisingly there are partisan differences: among Coalition supporters a quarter think “It is unlikely the bushfires are linked to climate change”; 43 per cent of Coalition supporters think “we are just witnessing a normal fluctuation in the earth’s climate; and 64 per cent think we are doing enough or too much to address climate change.

America’s 2021 Congress – Christians dominate

The Pew Research Center compares the composition of religious faith of members of Congress with the US population generally. While 65 per cent of Americans identify as Christian, 9 per cent as other religions, and 26 per cent as unaffiliated, in Congress 88 per cent identify as Christian and 12 per cent as other religions (6 per cent Jewish), while only one member identifies as unaffiliated – not enough to round up to one per cent. In relation to population Catholics, Anglicans (Episcopal) and Jews are significantly over-represented.

Only two members of Congress identify as “Pentecostal”.

Sport and unclassified ads

In praise of sporting diplomacy

Ramesh Thakur, a former Assistant Secretary-General of the UN and now of the Crawford School is a frequent contributor to Pearls and Irritations on foreign policy.

He writes on the Lowy Institute’s The interpreter about the latest developments in India-Australia relations:

Bliss it was to be a cricket aficionado in Australia at dusk yesterday as the shadows lengthened at the Gabba and the players were bathed in soft golden sunlight. To be an Indian fan was pure heaven. We are resigned to heartaches as a staple diet. But once in a while, the gods smile, all is good in heaven and the team delivers a sunbeam of a smile to every Indian cricket lover, all 1.3 billion of us. More prosaically, the series just concluded will do more to strengthen Australia–India bonds than any amount of public diplomacy by the two governments.

Situations vacant

The Centre for Policy Development, a body founded in 2007 by John Menadue and Miriam Lyons, has two vacancies – one for a policy adviser and the other for an economics adviser, both listed on the Ethical Jobs website and on the CPD website.  The CPD is a truly independent progressive think tank, which has made substantial progress in shaping policies in a number of areas, particularly climate change. They’re an energetic and stimulating mob to work with, always open to new ideas and always committed to rigour in their policy-related work.  You may be interested yourself, or you may know someone who is ready for a shift to more meaningful work.

Other aspects of the USA

A slideshow of 239 Whistler paintings (suggest you choose full screen)

Watch out tomorrow, Sunday, for Peter Sainsbury’s Sunday environment round up

 

 

Ideology triumphs over evidence: Morrison government drops the ball on banking reform

Published by Anonymous (not verified) on Fri, 22/01/2021 - 5:58am in

Tags 

Economy

Weakening responsible lending laws is a bad look for the federal government. It has the hallmarks of political opportunism, with Morrison and Frydenberg using the Covid crisis to be a friend of business at the expense of consumers.


Credit – Unsplash

Commissioner Kenneth Hayne delivered 76 recommendations to reform the industry in February 2019. Almost two years on, the government has yet to implement 44 of those and turned its back on five key reforms – including curbing irresponsible lending practices.

The Covid crisis can explain some part of its tardiness. It cannot explain the decision to weaken protections for the financial health and welfare of Australian consumers.

The axing of responsible lending obligations (RLOs) under the National Consumer Credit Protection Act 2009 is particularly egregious. The government has also rejected Hayne’s recommendations on commission payments for mortgage brokers.

Instead, it appears to be banking on market forces and voluntary codes of conduct to protect financially unsophisticated borrowers. This is the triumph of ideology and vested interests over logic and evidence.

Plenty of credit

The case for removing responsible lending obligations rests on a number of unsupported assertions.

First, Treasurer Josh Frydenberg has argued lending needs be made easier to “kickstart” economic growth in these troubled times. The responsible lending obligations, he has said, increase the cost and time involved in making lending decisions.

But it is difficult to discern evidence in public statistics that responsible lending obligations have adversely affected loan growth or the cost of household-sector borrowing.

It is true lending for investment properties has plummeted, but that reflects changes in banks’ risk assessment and pricing of such loans. Owner-occupied lending has remained relatively strong and appears poised for further growth, likely raising existing house prices as much as stimulating new construction.

Personal lending has been declining for some years. But alternative ways to access personal credit, such as mortgage offset and redraw accounts, have grown.

New forms of “personal credit” such as Buy Now Pay Later and payday lending also appear to be growing strongly. These have generally skirted responsible lending requirements and arguably call for strengthening, not winding back, consumer protection laws.

Confusing regulatory roles

The second invalid assertion is that oversight of bank lending by the Australian Prudential Regulation Authority can substitute for explicit responsible lending laws enforced by the Australian Securities and Investments Commission.

This misconstrues APRA’s mandate and expertise, which is focused on institutional safety, not on consumer protection. APRA should be interested in the specifics of a very large loan that may affect the lender’s financial strength. It cannot be expected to examine thousands of smaller loans.

Fears no longer relevant

The third assertion is that responsible lending regulations have made lenders “increasingly risk averse and overly conservative”, out of fear of incurring onerous penalties.

That might have had some relevance in the past. But not so much since ASIC’s failed “Wagyu and Shiraz” case against Westpac in the Federal Court in 2020. The regulator accused the bank of breaching its responsible lending obligations by approving home loans using an automated estimate of applicants’ annual living expenses (known as the Household Expenditure Measure) rather than examining actual expenditure.

The Federal Court rejected ASIC’s argument – with the case acquiring its name due to the colourful analogy Justice Nye Perram used in his judgment:

I may eat Wagyu beef everyday washed down with the finest Shiraz but, if I really want my new home, I can make do on much more modest fare.

ASIC issued revised lending regulations in December 2019. It would have been more seemly for the government to have allowed more time to see how these changed regulations were working before abolishing them.

Loan processing costs should be falling

A fourth assertion is the excessive cost of gathering and processing borrower information. But the development of “open banking” is enabling fintechs to harvest data of consenting borrowers and provide information at lower cost than ever before.

Relying on codes of conduct is an act of faith

Finally, it is claimed that reforming industry codes of conduct, incorporating responsible lending objectives and making them legally enforceable, removes the need for separate lending laws.

But past experience with “self-regulation” does not promote confidence this approach will work.

Review preferable to removal

A case might be made that the consumer protection regulatory regime has become unduly complex over time and warrants a full-scale review with simplification an objective.

But simplification is not the same as abandonment. There was a reason the government found itself under so much pressure to call the royal commission; and a reason Commissioner Hayne made those 76 recommendations.

This is a bad look for the federal government. It has the hallmarks of political opportunism, using the COVID crisis to be a friend of business at the expense of consumers.

This article was republished from The Conversation. Read the original here.

Despite appearances, this government isn’t really Keynesian, as its budget update shows

Published by Anonymous (not verified) on Thu, 21/01/2021 - 5:59am in

Tags 

Economy

It is tempting to think the Australian government’s decision to spend big – an unprecedented 33% of GDP this financial year according to the budget update – marks an embrace of Keynesian economics after decades in which authorities have looked the other way.


Credit – Unsplash

Keynesian economics – named after its founder, 20th-century economist John Maynard Keynes – holds that when private spending is too weak to keep people in jobs the government should ramp up its spending to fill the gap.

Conversely, when private spending is too strong, and pushing up inflation, the government should rein in its spending to rein in inflation.

Taxes are the other side of the coin. When private spending is weak the government should cut taxes; when private spending is too strong it should push up taxes.

This will mean budget deficits when the private sector isn’t keen to spend (low demand) and surpluses to restrain spending when the private sector is too keen.

Other things can help, such as ensuring wages grow quickly enough to boost private demand and ensuring incomes are distributed evenly enough to allow this to happen broadly.

That’s pretty much how Australian governments of all types acted from the end of the World War II up until the mid-1970s, when a surge in the price of oil produced a combination of inflation and unemployment (“stagflation”) that Keynesian economics couldn’t easily explain.

In its place came a new orthodoxy in which governments tried to rely mainly on so-called monetary authorities, such as the Reserve Bank, to stabilise the economy and keep budget deficits low.

The past year’s dramatic switch back – a projected budget deficit of 9.9% of GDP, the biggest since World War II – has led many, including commentator Ross Gittins, to conclude Keynesian economics is back in favour with authorities because (most of the time) it works.

It’s an idea summed up in the subtitle of a book released 12 years ago after the global financial crisis – Keynes: The Return of the Master.

I’m more sceptical. Here’s why.

Not Keynesian yet

With interest rates at rock bottom as we went into the coronavirus crisis, there was little the Reserve Bank could do to support the economy by cutting rates further.

It could, and did, buy government bonds. But that tends to support asset prices rather than employment. So authorities have had little choice but to spend to support jobs, notwithstanding their qualms.

 

They are, however, giving every sign of still being guided by the growth model they’ve been relying on since the mid-1970s.

That model assumes the medium-term growth path of the economy is determined by the rates of increase in the three Ps: population; participation in employment; and productivity.

MYEFO’s unkeynesian underpinning

This was exactly the model used to draw up the projections in December’s Mid-Year Financial and Economic Outlook. These have potential economic growth “gradually returning to 2.75% towards the end of the medium-term projection period” in 2023-24.

The projection is unchanged from the one published the previous year before the pandemic and recession.

The document assumes underlying productivity growth will “converge over a 10-year period to the average growth rate in labour productivity over the past 30 years of 1.5% per annum”. This takes no account of the more recent experience of the five years leading up to the recession, when productivity growth and real wage growth averaged only 0.7%.

That’s half the rate of productivity growth projected by the federal treasury. Yet there’s not a word of explanation in the document, despite Prime Minister Scott Morrison saying the official advice was “if we thought we could just grow the economy under the old settings then we need to think again”.

To Keynesians, the distribution of income matters

To Keynesians, the distribution of income matters and can change structurally as part of the process of economic development. On the other hand, the neo-classical growth model used by Treasury assumes that the distribution of income never changes structurally, and if there are changes in income distribution they must be cyclical and can be discounted as they will later be reversed.

Keynesian economists, and “post-Keynesian” economists carrying forward the mantle, don’t believe medium-term economic growth is determined solely by “three Ps” that specify what can be supplied to the economy.

They believe it is also determined by what is demanded of the economy, creating an important role for changes both in the distribution of wages and in the proportion of national income distributed to wages.

Australia experienced dramatic increases in wage income inequality in the 1980s, 1990s and 2000s.

For the past half decade, the proportion of national income devoted to profits has been climbing while the proportion devoted to wages has been falling.

If the people who drew up the mid-year statement had really become Keynesian they would have acknowledged the structural changes affecting income distribution and produced less encouraging growth forecasts.

Weak wage growth condemns us to weak economic growth

A government that had fully adopted Keynesian policies would recognise it needs to support reasonable wage increases, rather than push for wage freezes as it has been doing, noting the short-run alternative is continued budget deficits.

Over time the weakness in demand is likely to lead to lower investment, slowing the take-up of new technology and slowing growth in productivity.

In accordance with the models the government does use, this will cut Australia’s potential rate of economic growth, producing lower unemployment and lower living standards than we otherwise would have had.

Updated and republished with permission from The Conversation (19/1/ 2021)

The Covid-19 pandemic shows the need for change. For a real ‘Reset’.

Button with label "Push to reset the world"Photo by Jose Antonio Gallego Vázquez on Unsplash

‘We live in capitalism. Its power seems inescapable. So did the divine right of kings.’

Ursula K Le Guin

The year 2020 will be not be remembered with any great affection. So much suffering, loss of human life and economic uncertainty has left the nation in turmoil. Whilst in normal times we would be welcoming the new year with resolutions and hope for better days to come, the prospects for the future remain very uncertain.

Whilst the government’s handling of this pandemic crisis has been chaotic and indecisive with disastrous consequences, it has also revealed the dire state of our public and social infrastructure for which decades of ideologically driven government policies have been responsible. That, combined with the vast wealth and other inequalities that exist in both rich and poor countries across the planet and the climate tsunami following up frighteningly behind, should leave a bad taste in our collective mouth. It should start to make us question the very foundations of the economic model now turning to sand before our very eyes.

Covid-19 has exposed in the most distressing way the damaging consequences of the pursuit of balanced budget narratives which have allowed governments to justify public sector rationalisation or austerity on the grounds of unaffordability, and overseen a huge increase in poverty and inequality. Successive governments have abdicated their responsibility for the lives of citizens; their responsibility to create a fairer distribution of wealth and real resources and ensure that the public infrastructure meets their needs. Instead, they have plumped in favour of that elusive but all-seeing ‘god of the market’ which, in real terms, has meant ceding control to global corporations who direct the policy orchestra and pouring public money into the pockets of those same corporations with little transparency or accountability.

Whilst the government has found the power of the public purse to manage this crisis, there have been winners and losers throughout which reflect its ideological persuasion. It has only been with public pressure that it has been forced into political U-turns to help some of the poorest people in our communities, whilst leaving still others in distress and without adequate support. The road to Damascus moment still eludes a government which has chosen a path that so far has only led to economic hardship and inequity for many and yet great wealth for a few others.

It has also done so with the usual threats of a financial price to pay in the future to keep the household budget narratives of state spending alive and well. It would not do for the public to be disabused of the notion that taxes fund spending, that government has to borrow to cover its deficit and that public debt is real and will require difficult decisions at some unspecified time in the future. Such narratives are vital to government and will, without challenge, allow them to be able to finish off the job of destroying publicly paid for and managed public and social infrastructure and thus ensure the continuing dominance of global corporate power. We do indeed face a continuing hollowing out of democracy in favour of a growing alliance between the state and big business and the big political revolving door.

Whilst GIMMS and other educational organisations across the world have made huge strides in raising awareness of how money really works, the task ahead remains a daunting one. The weekly news is testament to the ongoing consequences of government policies and the spun narratives of how government spends but also encouragingly shows the power the public has to effect change, and not just through the ballot box. The on-going saga of free school meals continues to rumble on and elicit government U-turns. The latest, and most shameful, were the pictures on social media of the meagre ‘rations’ from a private company contracted and paid huge sums to provide substandard food packs which it turned out largely reflected government guidelines and did not meet the standards for the nutritious, balanced diet all children need to grow and thrive. It is to be regretted that the government, in the same week, went on to tell headteachers in England not to supply vouchers and food parcels to disadvantaged children during the February half-term, signalling it was already doing enough which is clearly not the case. There are no excuses for hungry children, or hungry adults for that matter.

The fiasco was yet another example of public money being poured into private profit and at the same time failing to address the reasons for children going hungry in the first place. Poverty and hunger are not new phenomena. Covid-19 has, without doubt, put a spotlight on the prevailing economic system and the economic decisions of successive governments which have not only been responsible for increasing poverty and inequality through employment, welfare and taxation policies but also shifted blame and created widening societal divisions which allow the real authors of economic distress to go scot-free.

It is therefore shameful that the Chancellor Rishi Sunak whilst facing opposition from campaigners is still considering cutting the meagre £20 per week universal credit uplift which has helped people struggling to get by during the pandemic. The consequences of the crisis will be with us for many months to come, possibly years, and therefore the government with its power of the public purse has no excuses when it comes to ensuring that its citizens can pay their bills and put food on the table while the disruption continues. Instead, its policy responses have proved not strategic but piecemeal and ill-thought-out with plenty of U-turns along the way.

Whilst we need the power of the public purse to mitigate the economic consequences of the current crisis, we also need a government with a long-term strategy for addressing the poverty and inequality that has arisen over decades and which has allowed top managers to reap excessive monetary rewards whilst depriving working people and their families, whose standards of living have declined substantially through low incomes and insecure employment.

Boris Johnson suggested earlier this week that he was still in favour of reducing Universal Credit saying:

‘what we want to see is jobs, we want people in employment, and we want to see the economy bouncing back. And I think most people in this country want to see a focus on jobs and growth in wages than on welfare’.

A change of heart? Given that the Tory government has presided over exactly the opposite over the last 10 years through austerity and economic policies which have increased economic instability whilst at the same time serving the corporate estate, instead, it is likely to be yet another in a long line of so far undelivered promises to level up. However, the sentiment is correct and is what should be driving government policy. We need a recognition of the power of the public purse to pursue full employment through a Job Guarantee and the vested power of government to legislate fair employment terms and conditions with the aim of shifting the balance of power back to working people instead of where it currently lies in corporate hands with government approval. We need a government prepared to address the key issues of our time using its currency-issuing powers, not just for the coming months but for always. Whilst Rishi Sunak calls upon the nation to spend the savings resulting from lockdown to get the economy going again (aside from the fact that he is turning a blind eye to the many millions of people as reported by the Resolution Think Thank this week who have lost out or got into further debt as a result of the pandemic adding to their already insecure lives) the looming crisis of climate change has been put on the back burner and time is running out. The god of growth must be worshipped anew to get the economy back into shape.

Aside from the fact that people are unlikely to spend their savings like drunken sailors in the near future, given the on-going uncertainty about the economy and jobs, exhorting the gods of growth and indiscriminate private consumption as a solution to economic slow-down would not only be folly but denies the clear power of government to spend to effect real and sustainable change.

We need a sea change in how we live our lives to address the already happening climate catastrophe and indeed, it will only be through large scale government action in spending policies and legislation that will enable this to happen. There is a pressing need for a national investment strategy that includes a massive and long-term investment in education and training in order to secure our future productive capacity. We much focus on high-skilled, low-carbon and well-paid jobs both for the private sector and in a much-expanded public sector to ensure high-quality basic services are provided to everyone, including our disabled and elderly citizens. Our nation must become more productive if we are to reduce our working week and support our retirees and support to those nations without the necessary real resources to support their communities.

The overarching need is to protect our environment for future generations which should also include acting to redress the vast wealth inequalities that exist. We need to restore our sense of the value of publicly paid for and provided public sector work to national well-being, implement a Job Guarantee to provide stability through an effective countercyclical response to the inevitable economic ups and downs all economies face, and a living income for anyone who is unable to work for health reasons or caring or other essential duties including higher education. Of course, these will not be magic bullets to bring about a perfect world, but provide a basis for a conversation that we need to have.

These are important decisions, not just concerning the big macroeconomic questions about creating an efficient functioning economy, but also relating to the sort of society we want to see. For left-wing progressives, this would suggest creating a fairer and more equitable society where people have sufficient wages to live comfortably with adequate nutrition and good living conditions as well as good public services such as health and education. Assuming that the future will bring forth a political party that has the express intention of addressing these issues, change is in our collective hands as an electorate and we should not forget the power we hold.

It is regrettable that currently there is no such party dedicated to the change we need and that all roads are still leading to an ever-distorted capitalism wherever you place the X on the ballot paper.

Whilst the very real human consequences of government decisions and its policies continue to play out in our communities and our families the government, opposition politicians, economists and journalists continue to pound out the messages of monetary scarcity; either talking about the need for ‘hard choices’ to deal with the deterioration of the public finances or delaying the ‘repayment pain’ until economic conditions will allow.

Whether it’s Rishi Sunak the Chancellor or his shadow opposition sidekick Labour’s Annaliese Dodds, they both adhere to a household budget narrative of the public accounts, in other words, the diktat of sound finance as if a government suffered from the same constraints as business. The operative question in either case being, at what point do you enact such fiscal tightening, not whether you actually need to. How the state really spends cannot have escaped their notice, and yet they stick to the orthodoxy like glue.

Whilst that is undeniably to be expected with the Conservatives, whose agenda is more about creating an alliance with big business under cover of stories about monetary scarcity and ‘hard choices’, Annaliese Dodds in this week’s Mais lecture indicated clearly her party’s on-going adherence to the false notion that government constraints are monetary. Whilst, to be fair, she gave a cutting analysis of the effects of government policies on people’s lives both before and after the arrival of Covid-19, she stuck to the orthodox economic mantras. Namely keeping the City sweet by maintaining the joke of supposed Central Bank independence and having a ‘responsible approach to government debt.

She summarised her approach to fiscal policy as requiring ‘a set of rules around both annual and the stock of debt, that simultaneously demonstrates a prudent approach to the public finances and leaves space for investment in the future and the ability to adapt to crises’. A sound approach to the public finances she said must ‘also include consideration of the quality and effectiveness of public spending.’ Whilst such evaluation should always be a part of government spending strategies (and clearly, we have seen in recent months and years the exact opposite) the concept of sound finance continues to be the guiding doctrine of politicians on both sides of the political spectrum. They might have different spending objectives, but both are couched within the clear limitations of household budget thinking.

As society implodes as a result of rising poverty, inequality and ill health which has arisen as a result of government policies and placed increasing pressures on public services such as our NHS which this last year has bravely served the nation in a deliberately created environment of insufficient staff, facilities and other resources, there is only one direction in which we can place the blame. Governments whose decisions have favoured market solutions through privatisation and legislative policies which favour them – with shocking consequences.

In similarity to nature’s web of life, which is defined by its interdependence, our economy does not exist as disparate parts. The economy represents the lives of working people and the businesses that employ them, and its health is reliant on the public and social infrastructure provided by the government to support it. Remove one vital link and you risk that eventually the whole will collapse.

This is the frightening consequence we already face, not just in the real but finite resources upon which our societies are built and owe their existence, but also our dependency on the goodwill and care we express for others. As reliance on charitable institutions to feed hungry people or deal with rising homelessness increases, or rich philanthropists replace public institutions with the equivalent of poor law boards dictating the pace and deciding who will be a beneficiary, our society will continue to break down on the basis of a ‘convenient lie’ that the state has no money of its own and there is no alternative course of action.

Instead of examining the public accounts and deducting from the financial position the health of a country, a future government should be turning that idea on its head to see the reality of the challenges we face. The reality of the real constraints which are not money but real resources and how they can be managed fairly in the interests of all citizens. The fast-approaching reality of climate change and its consequences threaten to engulf us if world governments fail to work together to create better, fairer and more sustainable solutions.

We need a ‘Reset’. Not the ‘Great Reset’ being promoted by the World Economic Forum which, whilst sounding just the thing to address rising inequality and climate disaster, will maintain the same power structures with the same corporations dictating the rules in the interests of accumulating more profit and wealth whilst still clinging to the sham economic model which seeks to keep power in the hands of the few.

We need quite a different ‘Reset’ as suggested by Associate Professor Fadhel Kaboub in a GIMMS ‘in conversation’ event last week. One where public purpose, not profit or greed, directs government spending and legislative actions for a sustainable and fairer future and without which the light at the end of the tunnel will recede, not get closer.

There is an alternative and history is still to be written on the choices we make. We once believed that the Earth was flat, that it was at the centre of the universe and the sun and planets revolved around it. Those notions were disproved by the observations of scientists like Copernicus and Galileo. We need now to disprove the notions that money is scarce – not because knowing it makes a difference in itself, but because knowing it will enable us to decide what history will eventually record about the decisions that were taken as a result.

We can be on the right side of history if we choose to be.

 

Upcoming Event

Phil Armstrong in Conversation with Pavlina Tcherneva – Online

January 24th 2021 @ 4:00 pm – 5:30 pm GMT

GIMMS is delighted to present another in its series ‘In Conversation’.

Phil Armstrong, author of ‘Can Heterodox Economics Make a Difference’ published in November 2020, will be talking to Pavlina Tcherneva.

Pavlina is program director and associate professor of economics at Bard College and a research associate at the Levy Economics Institute. She conducts research in the fields of modern monetary theory and public policy and has collaborated with policymakers from around the world on developing and evaluating various job-creation programmes. Her work on the Job Guarantee spans over 20 years.

Author of the recently published book ‘The Case for a Job Guarantee’, she challenges us to imagine a world where the phantom of unemployment is banished and anyone who seeks decent living-wage work can find it – guaranteed. It will be of particular relevance as we begin to grapple with the economic fall-out of the Covid-19 pandemic but for anyone passionate about social justice and building a fairer economy it should be essential reading.

We invite you to join us for this informal event which we are sure will be both stimulating and insightful.

Tickets via Eventbrite

 

Past Event

Phil Armstrong in Conversation with Fadhel Kaboub – Online

Author and MMT Scholar Phil Armstrong talks to professor of economics and president of the Global Institute for Sustainable Prosperity Fadhel Kaboub about how MMT insights apply to the global south, colonial reparations, the MMT Job Guarantee contrasted with Universal Basic Income, and much more.

Audio via the MMT Podcast here

Video will be available soon.

 

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The Gower Initiative for Money Studies is run by volunteers and relies on donations to continue its work. If you would like to donate, please see our donations page here

 

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The post The Covid-19 pandemic shows the need for change. For a real ‘Reset’. appeared first on The Gower Initiative for Modern Money Studies.

Chocolate: still tainted by child labour

Published by Anonymous (not verified) on Sun, 17/01/2021 - 5:55am in

Tags 

Economy

What is your New Year resolution? To get fitter and eat less sugar, including chocolate? There’s plenty of other reasons to re-think our love affair with chocolate.

It will come as a surprise to many that hazardous child labour persists in the mainstream production of cocoa.

For 20 years global brands that produce chocolate have promised to tackle what has been the biggest single human rights issue in the sector. A recent report from the University of Chicago shows they have a long way to go.

In 2001, popular brands including brands Nestlé, Mars and Hershey and cocoa industry representatives adopted the voluntary Harkin Engel Protocol and then the Framework of Action to Support Implementation of the protocol, signed with the governments of Ghana and Côte d’Ivoire where two-thirds of the world’s cocoa comes from.

Not only would child labour be eliminated but the sector would become 100% certified.

Disturbingly, hazardous child labour has increased and remains widespread in supply chains. Today there are more children, as young as five, working in the sector compared to 2008-09.

There are an estimated 3.83 million minors under 17 in hazardous cocoa production in West Africa. That number represents a 14% increase in the decade to 2018-19.

More children than ever before are exposed to toxic agrochemicals used to control weeds where the cocoa plants grow. This is probably caused by industry pressure to increase productivity, despite many of the chemicals banned in the European Union.

The Chicago University study, commissioned by the US Department of Labor, urges an immediate review of pesticide use to reduce exposure to workers of all ages.

The vast majority of minors working in cocoa are also still handling sharp tools such as machetes, carrying heavy loads, burning fields and using other herbicides without protective gear.

The 300-page report provides shocking details of the injuries children aged 5-17 suffer. They include wounds and cuts (most common), back pain, fatigue, broken bones and burns. Children told researchers they prefer working in any other area of agriculture over cocoa because they were not as physically intensive and dangerous.

There is some good news. The number of hours worked per child in historically high-producing farms has gone down and more children in cocoa-growing regions are today going to school thanks to all but two companies adopting a Child Labour Monitoring and Remediation System.

But the gains made have been undermined by the increased prevalence of child labour and hazardous child labour rates in medium and low cocoa producing regions.

The problems persist but are largely invisible because close to 90% of world cocoa comes from small-scale, family-run farms. Cocoa farmers, largely illiterate, are hidden from view as they live in remote rural areas where there is only basic infrastructure and opportunities. This fact contributes to poor traceability in the supply chain.

All of this sits in the context of an industry enjoying massive profits. Globally, we eat 700 million tonnes of chocolate a year. Australia is a growing market among traditional high-income countries. The countries producing cocoa, where it all starts, are not the ones consuming it.

The big six producers are Mondelez, Nestle, Mars, Ferrero, Hershey and Lindt. US multinational agribusiness Cargill collects much of the cocoa to supply to them. They account for most of the $100 billion profits made each year.

The root cause of child labour is, of course, extreme poverty. COVID-19 is likely to make things worse as the global economy goes into freefall and the price of cocoa drops.

Cocoa farmers currently earn less than A$2 a day. They have weak connections to the market and little bargaining power to influence farm-gate pricing. Not even current floor prices and premiums offered by certifiers get farmers close to affording basic needs.

Two decades ago, chocolate makers agreed to scale up farmers’ pay to an increase of 6% but still have no uniform approach to get there.

By earning just 3 per cent more, farmers could afford to hire adults to do the hazardous work such as handling chemicals and machetes.

The non-binding Cocoa Protocol did break ground by bringing state and not-for-profit actors together with an emphasis on business taking responsibility for child labour and trafficking on the farms from which they source.

But there’s too little accountability. Existing child labour monitoring and remediation systems are not responsive enough. They lack teeth.

A new binding regulatory agreement with penalties is needed that makes prevention mandatory.

It’s something Big Chocolate appears finally open to as the 20-year protocol is due to expire early next year.

In response to survey questions prepared by the human rights and environment not-for-profit sector, 75 per cent of responding companies backed mandatory due diligence for the industry as is being introduced by the European Union and discussed in the US.

For an industry that has insisted it can self-regulate, this represents a major shift; the first public acknowledgement that voluntary commitments are not enough to deliver its child labour guarantee.

Parties will need to agree on an incentive structure that includes a system of enforceable sanctions. Ultimately this is a moral question to take collective and rational action with consistent interventions and investments for sustained change. It’s a change consumers want.

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