GDP is a clumsy measure of economic activity, not economic welfare
The Gross domestic product (GDP) of Australia is the total market value of goods and services produced in Australia after deducting the cost of goods and services used up (intermediate consumption) in the process of production, but before deducting allowances for the consumption of fixed capital depreciation.
What’s not Included in the GDP
- Sales of goods that were produced outside our domestic borders
- Sales of used goods
- Illegal sales of goods and services ( e.g. the GST aided cash economy for services in particular}
- Transfer payments made by the government, including, particularly, unemployment benefits and social security payments
- Intermediate goods that are used to produce other final goods
Effective macroeconomic management means that what matters most is how the resources of the economy are to be fully utilised – not whether they are producing anything with just a dollar value. The media and our politicians rabbit-on about GDP as a single measure about success in the economy, despite its widely acknowledged limits and distortions.
Is GDP a useful measure in a modern economy or society, particularly when there is a Coronavirus emergency or any other catastrophe? See Speech 1968 Robert F. Kennedy
“… we seemed to have surrendered personal excellence and community values in the mere accumulation of material things. …counts air pollution and cigarette advertising…. counts napalm and counts nuclear warheads… does not allow for the health of our children, the quality of their education or the joy of their play. It does not include …the intelligence of our public debate or the integrity of our public officials. “
Budget Surpluses, Government Borrowings and Debt and muddled thinking
Mr Frydenberg’s statement, to be released jointly with Finance Minister Mathias Cormann. See ABC 12th May 2020
“Rebuilding consumer and business confidence will be key as the nation’s finances can only be sustained by a strong and growing market-led economy. Australians know there is no money tree. What we borrow today, we must pay back in the future… that national debt, which had risen more than $50bn to $618bn, would take “many years to repay”.
These statements of intent are totally at odds with the reality for a Sovereign Currency Nation’s public purpose. Australia’s Sovereign Currency Government issues the currency and it must first spend it by crediting private bank accounts before it can tax – by debiting bank accounts.
Claims that governments must tax or borrow to ‘finance’ its spending are not factual nor sensible. The only constraint that a currency-issuing government, such as the Australian government faces, are how many real goods and services are available for sale in $A. See – https://www.investopedia.com › Economy ›
Australia issues its own currency, $A. It can run a pure deficit, without borrowings.
A budget surplus drains savings from the private sector and that leads to loss of jobs and less work done.
Governments world-wide have been using Quantitative Easing (QE) for decades. QE involves a Government or its Reserve Bank buying Bonds that it has itself issued at an earlier date. See RBA
One wonders how any government could seriously think that it was necessary to borrow its own currency from the private sector when it issues that currency in the first place. If you were running a sausage sizzle and ran out of cooked sausages and decided to borrow some from those who had not yet eaten them rather than cooking more, why should you not be deemed to be a ratbag?
A Sovereign Currency Nation’s government like Australia’s primary purpose is to improve the well-being of its population. Balancing budgets is an irrelevant and destructive blind alley. The real economy is what is relevant to well-being.
Dealing with emergencies such as the Coronavirus epidemic, bushfires and flood, unemployment, climate change, droughts, defence, innovation and research, education, aged-care and employment (and so much more) is what is really relevant.
A currency-issuing government can, for example, mitigate the economic and social disaster caused by unemployment by spending enough. Aboriginal and Islander Communities could see a Job Guarantee based around care-for-country and the public good rather than destructive handouts and associated misguided measures.
An on-going Job Guarantee program would see GDP improve!
Although GDP is a clumsy measure of economic activity, a Job Guarantee program would see GDP improve very substantially as the payments made would be included in the total market value of goods and services produced in Australia.
The transfer payments made by the government for unemployment benefits and social security payments and temporary transfer payments like the jobseeker supplement or the jobkeeper payment would NOT enhance GST numbers!!
A job guarantee (JG) is an economic policy proposal aimed at providing a sustainable solution to the dual problems of inflation and unemployment. Its aim is to create full employment and price stability, by having the state hire unemployed workers as an employer of last resort
The government should introduce a Job Guarantee that offers a job at a living (minimum) wage to anyone who wants to work but cannot find employment.
An on-going Job Guarantee program would permit quick and effective dealing with emergencies
Australia’s Sovereign Currency Government would be able to deal more effectively and quickly to deal with all kinds of emergencies from a pandemic such as Coronavirus as well as bushfires, floods and cyclones.
“Under the Job Guarantee policy, the government continuously absorbs workers displaced. from private sector employment. The Job Guarantee employees would be paid the minimum wage, which defines a wage floor for the economy. Government employment and spending automatically increases (decreases) as jobs are lost (gained) in the private sector. The approach generates full employment and price stability. The Job Guarantee wage provides a floor that prevents serious deflation from occurring and defines the private sector wage structure.”
Reference: W.F. Mitchell (1998). “The Buffer Stock Employment Model – Full Employment without a NAIRU”, Journal of Economic Issues, 32(2), pp.547-5. http://www.billmitchell.org/Job_Guarantee.php
Training must be included, to ensure that the unemployed are equipped with skills that will be needed when the private economy starts again to employ more people.
Not a “work for the dole” proposal. This is voluntary, full time employment, guaranteed and managed by the government. It is not intended to be compulsory: it’s there for people who want to work. How to deal sensibly and humanely with those who are able to work and refuse to do so should be examined and addressed – it is beyond the ambit of this Blog Post.
Those who cannot work because of drug or alcohol dependencies should be offered health care, training counselling and more to equip them for meaningful work.
Australia’s Local Governments and Community Councils should manage delivery of JG programs
Job Guarantee Programs should be managed and supervised by appropriately qualified people at local area level or even neighbourhood levels – a well paid, sought-after job. (Including perhaps some Centrelink staff, fewer of whom would be needed).
A Job Guarantee’s management and some of its day to day work allocation and supervision would require additional staffing at Local levels with staff engaged by the Local or Community Council or perhaps also by a Statutory Authority on an on-going basis.
The funding for these permanent or long-term jobs should be funded by the Australian Government as an essential element of a JG program.
Climate action solution – a perfect match – tree planting and job creation
Most workers would already have most of the skills necessary to undertake re-afforestation projects. See a UK Guardian article (July 4, 2019) – from its environmental editor – Tree planting ‘has mind-blowing potential’ to tackle climate crisis
Examples of other ongoing Job Guarantee projects and jobs
- Noxious Weed eradication – pests: graffiti – rubbish removal on beaches and in waterways
- Road Maintenance at low levels – small truck/4 or so workers- potholes, rubbish. Bike paths – many rural roads see cyclists at risk from traffic. Path enhancement is useful and ‘pick and shovel’
- Enhanced care of National Parks, recreation areas, sporting facilities, school premises and streets and neighbourhoods generally. ( On-going management permanent – JGs supplement and augment)
- Indigenous health, nutrition, social and other problem areas: Gardens for fresh produce in remote areas, particularly Aboriginal and Islander Communities. ( On-going management permanent – JGs supplement and augment}
- Care for Country and Indigenous Fire Management practices – ( On-going management permanent – JGs supplement and augment)
Essential works and programs should not rely on Job Guarantee workers or initiatives
Aged Care and Disability (NDIS}, on-going Fire Management, Aboriginal “Care for Country”, Transmission Line and Road Maintenance, Education etc must be provided at all times by a responsible Government. JG provides ‘extras’ and for the unexpected e.g. Epidemics, Fire, Flood – but not the primary delivery of day to day essentials.