A recording of my speech at Talking Justice has been uploaded to the Loddon Campaspe Community Legal Centre YouTube channel.
The speech is like a 22 minute summary of my writing over the last year.
Talking justice – Lifters and leaners: is it that simple?
By Warwick Smith
Before I begin I’d like to acknowledge the traditional owners of this land, the dja dja warung and pay my respects to their elders, both past and present. We can’t talk justice in this country without acknowledging the profound injustice experienced by Aboriginal Australians from the moment Europeans arrived here. In many important respects those injustices continue today.
The most difficult thing about giving a talk like this as an economist is deciding how far down the economics rabbit hole to go. The truth is often so far the opposite of the public discourse on economic topics that it can be impossible to turn your head far enough around to see it. The result is that people speaking the truth can appear unhinged. If I appear unhinged to you today, I invite you to come and talk to me after the session. Perhaps you’ll be able to straighten me out.
Richest country in the world at the richest time in human history
There’s one overarching thing I’d like you to keep in mind during this discussion about lifters and leaners: Australia, by many measures, is the richest country in the world at the richest time in human history. Just take a moment to let that sink in. The richest country in the world at the richest time in human history. Keep that in mind when you hear politicians telling you we can’t afford things. Keep that in mind when you hear about cuts to foreign aid, cuts to indigenous programs, cuts to dental care for kids and the absence of funding to help tackle domestic violence. The richest country in the world at the richest time in human history.
Why don’t we feel as wealthy as we are? I think there are several explanations for that. Increasing inequality is one reason. We’re very wealthy on average but we’re increasingly becoming a country of haves and have nots. We know from great pieces of work like “The Spirit Level” book by Wilkinson and Pickett that inequality has serious consequences for a vast array of health and social wellbeing indicators and these negative impacts fall on both the wealthy and the poor.
Another reason we don’t feel as wealthy as we are is because the adversarial political climate means that we have slightly more than half the politicians trying to run the country and slightly less than half trying to stop them. Part of the job of an opposition in this system is to talk about how terrible everything is – and, of course, how much better it would be if they were in power.
The ever increasing cost of housing is also vacuuming up much of our wealth, particularly in the capital cities, but the impact also flows through to regional centres like Bendigo. It’s becoming increasingly difficult to purchase your own home in Melbourne and Sydney on a normal income and increasingly difficult for parents to choose to stay at home with their young children rather than work. There is a lot that our governments could be doing to reduce the cost of housing but instead they take action to help us work more to meet the increasing costs.
We need to see this for what it is. The biggest beneficiaries of high land prices are the banks. By helping us to work more, by providing extra childcare assistance, the government is helping to prop up house prices so that an ever increasing proportion of national economic output can be absorbed by the banks and other lenders. This is not about helping us. If people can’t afford the astronomical house prices then the prices will fall. That would help us but it would be terrible for the banks’ bottom line. Why do the banks’ profits increase every year? Because people who are buying houses have to borrow more every year. This is not some inevitable law of economics, this is a policy choice. Current government policies, like negative gearing and the concessional treatment of capital gains, artificially prop up land prices and make real-estate investment artificially attractive.
For the sin of being an economist I found myself in the federal budget lockup in Parliament House on Tuesday. Possibly the most striking thing about this year’s budget is that the debt and deficit crisis has disappeared. In opposition and in the first year of government the Coalition never stopped talking about this crisis that needed their urgent attention. The projected deficits have gotten bigger since last year but the crisis has evaporated, replaced with the need for “a credible path to surplus”.
As many of you will know, there never was a debt or deficit crisis in this country. It was just a scare campaign carefully targeted at the Labor party’s perceived weakness in economic management.
The entire narrative suggesting that governments, like households and businesses, must live within their means is fundamentally flawed. There are two main reasons why the finances of the federal government bear absolutely no resemblance to the finances of a household or business:
The first is that government revenue collection is enforceable. How many businesses and households can decide how much income they will make in a given year and imprison people if they don’t pay up? The Mafia might be the closest equivalent outside government.
The second reason is that the federal government is the issuer of our currency. This has profound implications for solvency and macro-economic management.
Let’s focus on this second one for a while. Presumably most of you have heard the term “quantitative easing”. Many have heard it, few understand what it is. The Federal Reserve Bank in the US and the European Central Bank have been creating money in order to increase liquidity in the banking system. What this means in practice is that they are buying risky assets and bonds from commercial banks in order to prop them up and, hopefully, encourage them to do more lending.
When I say they have been creating money I mean just that. Not with printing presses but with keyboards. The US Federal Reserve has created around $10 trillion dollars for the purpose of purchasing financial assets from commercial banks since the 2008 financial crisis. They do this by simply typing numbers into the database of accounts that banks hold with the Federal Reserve. OK, let’s see, $10 billion for Citibank, that’s 10 000 000 000 – enter. Now Citibank has $10 billion dollars more than it had a moment ago. That money didn’t come from anywhere. It wasn’t transferred from another account, it was simply typed into existence.
We’re told that governments can’t just create money to meet spending needs because it will cause out of control inflation. It’s funny how these rules suddenly become flexible when it’s the financial elite who will be the beneficiaries of money creation. US inflation stayed low right through this creation of $10 trillion.
This shows how blinkered we are to the fiscal policy options of a government that is sovereign with respect to its own currency – such as the Australian Government.
It would be possible to declare homelessness an emergency and simply create the money necessary to provide shelter to every homeless person in the country.
We could go to remote aboriginal communities and, instead of closing them down, hold community meetings where the community decides what their priorities are and then we could give them jobs to do it. Imagine that, we ask them what they want for their communities and then we provide them with jobs to do it – and we create the money out of thin air.
Now, I’m not saying that the government can just create and spend as much money as it wants on whatever it wants. That would cause out of control inflation. All I’m doing is pointing out that the entire conversation around government finances has been turned on its head. Quantitative easing shows us that it is inflation that limits government spending, not taxation or borrowing. When inflation risk is low, as it is in Australia right now, governments can spend more, regardless of whether they’ve got the tax revenue or have taken on extra debt.
This is a big conversation that can’t be fully had in the short time that we have here but I think raising it is still valuable. Those who are interested and have some economics knowledge should look up the work of Professor Bill Mitchell from the University of Newcastle. If you want more plain language explanations then look up my own writing in The Guardian and The Conversation.
I have indeed taken you quite a long way down the economics rabbit hole and, for the uninitiated, it’s disorienting down there. So much of our public discourse has been hijacked by ideology that we have become blinded to many policy options.
I hope that I have demonstrated, or at least hinted at the possibility, that affording to do things differently is not an issue. We are the wealthiest country in the world at the wealthiest time in human history. In addition to that we have fiscal policy options that free us from the artificially defined boundaries that our politicians currently operate within.
What could change look like?
So, we can afford change but what would this change look like? I believe there are some very good role models to help us create a more socially just society. The Nordic countries of northern Europe have strong economies, well-educated and healthy populations, low crime rates (Norway is closing down many of its prisons), relatively low levels of inequality, low levels of poverty and high scores on various measures of happiness and wellbeing.
They have high intergenerational economic mobility (meaning high equality of opportunity) and are generous in their foreign aid and commitments to global problems like climate change and refugees. Compared to us they have also made great strides in addressing the historical injustice experienced by their indigenous populations. They’re not perfect by any means but they show that there is a path to prosperity that does not require a persistent underclass or a subservience of the population to business interests.
Generous welfare systems in the Nordic countries do not lead to masses of welfare bludgers. The simple reality is that well educated and healthy people who have not grown up in conditions of poverty do not want to sit around for their whole lives taking handouts from the government. Only disconnected people with low self-esteem or those who have lost hope will opt out of making contributions to their society. People want to feel useful and to be part of something greater than themselves. Meaningful employment plays a big role in that.
There was a terrific program on Radio National’s Big Ideas a few weeks back called “The Stigma of Poverty”. I recommend listening to it if you haven’t already. It discussed the experience of poverty and described the impact on self-esteem and life prospects of living in poverty. These negative impacts were much more a product of stigma than they were of material deprivation. Politicians and others, including some business interests, are keen to paint the poor as “the other”. Labels like “leaners” create the impression that poor people are doing us hardworking Australians harm. How many people can lean on me before they drag me down too?
Once we create the poor as “the other” it becomes easy to justify poverty and justify punitive measures against them. If we can fool ourselves into believing that we live in the land of the fair go then the poor and the marginalised have only themselves to blame for their poverty and hardship.
Nationalism serves the same role with respect to foreigners who dare to try to come here and share in our opulence.
Equality of opportunity
One policy goal that is, at least in theory, shared across the political divide, is equality of opportunity. The simple reality is that equality of opportunity requires some degree of equality of outcome. Kids born to parents living in poverty will never have the same opportunities as kids born to wealthy parents, no matter how bright they are or how dedicated their parents are.
Breaking intergenerational poverty and disadvantage requires multi-faceted programs that begin at birth. Nurse-family partnership programs have demonstrated fantastic success in trials in aboriginal communities. They should be rolled out across the country, not only for indigenous Australians but for all Australians who would benefit from them. The cost of such a program would pay for itself many times, over the next generation. Next on the list of must-haves are world-class universal health and education systems. It doesn’t matter how smart a kid is; if they go to a crappy school or have poor health the odds will still be stacked against them.
Finally, we need an adequate social safety net so that nobody lives in abject poverty and, perhaps most importantly, no children grow up in poverty. The evidence shows us that when people are healthy and well educated they use generous social safety nets just to prop them up temporarily in difficult times and this helps them get back on their feet much faster. As I said earlier, people with any vestige of self-respect don’t want to sit around doing nothing. It’s only those who have been marginalised and stigmatised by their society who opt out.
Meritocracy cannot coexist with poverty
I wonder if it’s possible to believe in equality of opportunity and to also deny that the things I’ve just listed are necessary to achieve it. Those who argue that government needs to get out of the way and let business create prosperity are also those who generally advocate for a meritocracy. If we can believe that our society is meritocratic then we can both excuse our own opulence and dismiss the poverty and suffering of others. That meritocracy cannot coexist with poverty undermines much of the conservative small-government political project.
It’s become unfashionable to talk about power but this is ultimately what my entire talk boils down to. We know that a more just society is possible. We know we can afford to create a nation where almost everybody has the chance to flourish. We’re not doing the things I listed above and, short of some kind of radical transformation or revolution, we’re not going to. The reason we’re not sharing our country’s vast wealth more equitably is because the people at the top don’t want to. It’s as simple as that. They create a social system that makes out they earned what they have and if you want some you have to earn it too.
Power operates like a ratchet because most individuals and organisations will use what power they have to defend and expand their power. Historically, power structures have only been reset through war and revolution. Democracy was supposed to change that. Theoretically we get the chance to reset power structures at every election. It worked for a while but eventually individuals and institutions built enough power to place themselves beyond the reach of democratic control.
When it comes to economic policy, both major parties share a lot more than they differ. Both make mindless promises about reaching surplus in such and such a year when most of the things that influence government budget balances are beyond their control. Both run scared at a whiff of disapproval from rating agencies that are run by the world’s financial elite and that played a major role in bringing about the global financial crisis. Neither party will touch policies that prop up property prices and through them the banks. Why? In part because the financial sector donates generously to both sides of politics. Such donations are not about helping one party or another win but are about removing issues from democratic scrutiny. If both major parties have the same policy on a subject then that subject is effectively silenced, even if the policy position is against the interests of the Australian public. So called free-trade agreements are a classic case.
This capture of both major parties represents an enormous challenge to any progressive political agenda. The structures of democracy still give people the power to change the system and reset power structures but doing so requires critical appraisal of the economic narrative we are bombarded with. Such critical appraisal in turn requires individuals to be well-informed and well educated in critical thinking. As it stands, a large proportion of the people don’t even understand how preferential voting works, let alone the intricacies of monetary economics. This is a catch 22 of enormous significance. In order to challenge those with power we need to strengthen democracy. However, those with power have no interest in strengthening democracy because it is the ultimate threat to them.
One of the greatest attempts to methodically describe a fair society was presented by John Rawls in A Theory of Justice published in 1971. He proposed a thought experiment known as ‘the original position’ and the general gist of it was that you imagine that you are designing a society from the ground up but you don’t know your place in the society that you are creating. You could end up in any role, any gender, any race or be born to any parents within that system. It’s a fantastic thought experiment and it can lead to many different ends but tends to inexorably promote equality of opportunity and equality before the law.
If people were to be dropped into an existing society without knowing what place they would take in that society I reckon almost everyone, if well informed, would opt for a Nordic country (unless perhaps you take into account the weather). I believe that tells us a great deal about justice in Australia and where we are headed. Our current trajectory is taking us slowly towards a more American social system with massive inequality and low intergenerational social and economic mobility. That’s why they call the United States the land of opportunity – because it’s the very opposite of the truth.
Alright, that’s enough. Let’s come out of the rabbit hole and back into reality – how about that budget eh? Back to surplus in 2019. Good old Joe Hockey.