Fiscal Sustainability Teach-In: Session 1, Bill Mitchell

[00:00:00] Good morning to all of you, and a good late evening to me. It's just gone 10 o'clock in the evening. I run a research Center at an Australian university called CofFEE and we collaborate closely with the assembled panel here, over many years now. Before I start, I'll just say thanks for you coming and some have traveled not quite as far as I but some distance; others have traveled locally. And I also want to thank Joe and his group, who seems to be a relatively amorphous group to me, but I think they're all very hard-working to put this together in such a short period of time.

[00:00:57] I think the relevant thing for me is that I run a conference every year, and others of us run conferences every year, and they're academic conferences, and they are discussions among ourselves to some extent, and they to some extent extend the discussions we have among ourselves in the professional literature, the journals that we publish in. But the differentiating feature of this exercise, for me, is that it's the first real grassroots endeavor that has come from the community. I'm just old enough to go back and identify the lineage of this event, the Vietnam protest teach-ins, that were the starting point, as I know, of the community resistance to something that they didn't feel they had a voice in opposing the government policy of the day, and my country had a foreign policy in that period which was summarized by "All the way with LBJ." And it took our boys, in those days mostly boys, into Vietnam with great loss as well. And it was the teach-ins here and the mass street marches in Australia that stopped our governments being involved in that endeavor.

[00:02:34] And what I learned from that historically was that it's community action that ultimately will stop things like... that the people will see they had no voice in, they eventually get a voice by banding together. Because the top end of town have got their voice: it's called the money. And I 'm sure if we go over to Peter Peterson's session, we would see it as a fairly sumptuous event. They've got the money, they've got the contacts, that's the nature of political lobbying. Alternative views, that we represent, don't have any of that, never have had, and they rely ultimately on groundswell of public opinion. And I see this event as a starting in that sense. So I was asked to give a general overview into the idea of what fiscal sustainability is, and I'll do that.

[00:03:42] If I think back a couple of years ago, we'd had, maybe, in different countries, different lengths of this, but say in Australia we'd had 25 years of growing neoliberal - what's now known as neoliberal - thinking, which I characterize by the abandonment of full employment by our governments. The introduction of a diminished social goal which I call "full employability," that is the supply-side... the OECD agenda of making people ready for jobs, just in case there was a job, but not actually providing jobs, whereas under the "full employment" agenda, governments provided the jobs, or made sure they were provided by using aggregate demand management in the post-war period up until about the mid-1970s.

[00:04:41] And we'd had 25-odd years of this sort of privatizations, deregulations, and what have you, and then this crisis comes along, and I thought at that stage that this was the sort of event that might generate a paradigm change in our thinking, a return of fiscal policy, because within a very short period of time, massive outlays relative to what had gone before - in fiscal outlays - were occurring all around the world without anybody saying "Boo!" It was very quiet, it was very sort of surreal, $80 billion dollars was announced as being injected into the economy, nobody said a word. And I thought this was interesting, because this may demonstrate that fiscal policy really is the main game in town, and this excessive reliance on monetary policy, that had been sort of refined into this inflation-targeting regime that central banks pursued, with fiscal policy being a passive partner, and what that meant was running budget surpluses, if you get away with it, in defiance of the ultimate automatic stabilizer, reaction against that, which I'll talk about, and I thought "Well, this is a chance..."

[00:05:57] Now, two years later, fiscal policy has saved the world from a Great Depression, no doubt about that. It's, in my view, demolished everything you'll read in modern mainstream macroeconomic textbooks about the efficacy of different types of macropolicy, monetary, fiscal policy. Yet, two years later, after the handouts have been gratefully received by the top end of town, after we've put some sort of floor into the downward spiral, not enough of a floor, because the fiscal reaction hasn't been sufficient. But two years later, we've now seen this mass hysteria, which almost defies logic, to me, this daily barrage of financial data, I call it "ratio fever." We've completely lost track of what's happened, and we're basically setting ourselves up again for the next crash.

[00:07:08] I don't need to remind you all, this sort of alarmist rhetoric that comes out everyday, and it's getting noted... Luckily in Australia we don't have Fox TV. The owner is an Australian, but he's rejected his Australian citizenship because he wanted to penetrate Corporate World here. But we don't have it, and it's sort of like a curiosity when I see it on TV here, and last night I observed... I was trying to find BBC actually, because that's about the most civilized thing you can find in America, with all due respect. But I stumbled on Fox News and they're running this theme, "Drowning in Debt" is their current news theme, and so I did a search on Google Earth and I realized the hotel was slightly downhill from the US Treasury, and I was really worried overnight that there might have been a tsunami of debt hitting me. And then I realized I was on the sixth floor, and I can swim, so I'm not too bad.

[00:08:12] We've become.. it's reached the level of irrationality. We're getting quotes from our economic leaders, whether you like it or not, Ben Bernanke is one of the world's economic leaders, and we get quotes that only talk about these ratios. And I could go into quotes every day from our political leaders about this, all just talking about financial ratios divorced from any context or what else is happening or what other goals you might have. And when you think about it, the whole discussion of fiscal sustainability in the mainstream media and in our governments, in our parliaments, are all applying the logic - and what’s taught students in our universities out of textbooks - are all applying the logic that related moralists to a monetary system that ended in 1971. And people say to me, "Well, economists know that." And I say, "Yeah I know they know that." And so the agenda... They know the constraints that apply to governments now are not the same constraints that applied - and I’ll talk about what they are - to governments under the Bretton Woods system of convertible currencies with the US effectively running a gold parity. They know that. And so then you dig further and realize that the whole rhetoric is ideological - that they run a conservative approach to government. They hate government intervention in the economy unless it’s helping themselves, through handouts to the corporate sector, and so they’ve blurred the history and they just blithely go on teaching economics as if it’s the gold standard economics.

[00:10:27] The other thing that’s becoming really central in the research literature - so if you read European Central Bank, Bank of International Settlements, if you read the IMF, if you read their research reports and I’ve spent far too much of my life reading that sort of stuff, I'm afraid, but I can’t help myself. If you read the economic literature from the academic institutions and the research think tanks, as they like to call themselves - I think it’s very generous of themselves to actually assert that they’re thinking [some laughter] - you see the way in which the so-called respectable literature - and I’m not... differentiating that from the popular media - are talking about fiscal sustainability is increasingly in terms of these fiscal rules and so fiscal sustainability is defined in the EMU as exemplified by the stability and growth pact: deficits under 3% of GDP, public debt under 60% of GDP.

[00:11:34] If you go back - and I’ve read that literature in absolute detail - here’s no rationale presented for why those particular ratios are. Someone did a back of the envelope calculation at the time and decided that was it. And you read the legislation relating to the fiscal responsibility act in UK, which was brought into law earlier this year, it’s absolute madness. You’ve got my government in Australia talking about as fast as possible getting back to 2% real growth in government spending and 2007 ratio of tax to GDP. That’s got to be their fiscal rule. Makes no sense. And in the textbooks and even in the progressive side of the debate - and those who read my blog know that I have a theme: with enemies like these, who needs friends - and that’s a regular theme. And the progressives even buy into this fiscal rule that you’ve got to balance budgets over the business cycle. And that’s meant to be a more reasonable version than the German constitutional fiscal rule that’s going to ban deficits in 2015. And this "balance the budget": well, that’s reasonable because we recognize you’ve got to have some deficits sometimes, but then you’ve got to pay them back by running surpluses at other times, and if you balance it out you have a neutral impact upon the economy, independent of the context of what’s happening in the economy, what the other sectors in the economy are doing, how they’re behaving. You just impose these fiscal rules out of context and with no comprehension of what it means. So you get statements from conservative commentators, and I read them almost every day, that are, "We’ve had too much leverage in the private sector, so they’ve got to de-lever," and "The public sector is about to explode, they’ve got to de-lever," and meanwhile you’re running a current account deficit. Well if you understood macroeconomics even at the most elemental level you’d know you couldn’t achieve all of that. And it’s this mindless sort of application of sector-by-sector rules that just don’t add up. And of course, meanwhile, the real game out there, the thing that relates people to the economy, is on the back burner again.

[00:14:14] And these [referring to slide] are just unemployment rates and you can see that they’ve been trending upwards over this neoliberal period but also very high now. This is how people are affected by the interaction of the economy. This is the real thing that’s going on out there.

[00:14:35] I could go on and I’ve got other slides but I’ll show you this one [Slide 10]. This is my country and this is not unrepresentative of what happened everywhere over this historical period, 1861 to now. This red period was the post-war period up to the mid-70’s, where the governments, through their white papers after the second World War ended, they realized they’d solved the Great Depression by the military spending, and they wanted to have full employment without prosecuting wars any longer, so they had to work out how to maintain full employment in peace times. And all the countries brought out major macroeconomic statements where they committed to full employment, and they realized that required fiscal policy to behave in certain ways to offset the saving intentions of the non-government sector.

[00:15:33] And that red period was when fiscal policy was very active and in Australia we had unemployment below 2%. Governments would lose electoral office if unemployment went above 2% in that time. There was zero underemployment and zero hidden unemployment. Once we abandoned that in the mid-70’s... we got the confused signals from the OPEC oil crisis, and that allowed some very opportunistic territory seizure by the mainstream economists, the monetarists, at that time that’s what they were called... we abandoned that concept of full employment, we started to worry about deficits for the first time. Australian government ran continuous deficits of different orders through that period, which bounced up and down depending upon the private savings intentions and what was going on with the external sector, and always maintained full employment. It was harder for them to do it in that period, because they were running a convertible currency and a fixed exchange rate. It’s much easier now to actually do that, but they still managed to do it.

[00:16:49] I also like people to see this graph [referring to slide 11], this is US. It puts today’s fiscal parameters in some perspective, I think, relative to where they’ve been in the past. Most people… I get a lot of emails, maybe I get about 1000 emails per day at the moment, but I get probably 20 a day that are incredibly hostile, and they’re all sourced to IP addresses in the US, with all due respect [laughter]. And they tell me that I haven’t got the slightest idea of US history, that the US government always ran surpluses until recently [laughter]. Well you always ran deficits until recently, with some notable periods where you didn’t - they were very short and they terminated because they put so much fiscal drag into the economy. And you can see a couple of periods where that happened.

[00:17:54] What’s fiscal sustainability? What isn’t it? You won’t find a definition of fiscal sustainability by making analogies between households and sovereign governments. If you go to mainstream economics textbooks, one of the myths that appears in those textbooks whether it's explicit, and in some textbooks it is explicit, in some textbooks it’s implicit and it becomes explicit by the delivery in the lectures, you will see there is always a parallel drawn between the household budget and the government budget.

And we had a prime minister in the mid-70’s, just after the OPEC crisis, who came out on national TV to give an address and he said, "What the Australian public has to understand is that the federal government budget," and by now Brettons Wood had been abandoned and we were running a floating exchange rate with non-convertible currency, he said, "What the Australian public has to understand is that just like your budgets, our budget has to- we have to have budget discipline just like you."

Totally outrageous and wrong statement, but it’s that intuition that makes the deficit terrorists, their message so powerful, because people, the public, don’t know how to argue against that and it feels intuitive. But you won’t find a definition of fiscal sustainability in that analogy, it’s flawed at the most elemental level. The household uses the currency and always has to finance their spending whether it’s through earning income, whether it’s through borrowing, whether it’s through using up past savings or running down/selling assets. A national government who issues its own currency and floats it never has to do that. My colleagues later in the day will expand on that theme.

[00:20:08] You won’t find a definition of fiscal sustainability by referring to these ratios that are now in everybody’s lounge rooms each night. These ratios are largely irrelevant. Largely. And you won’t find a definition of fiscal sustainability in the statement of a fiscal rule, a rigid fiscal rule whether it’s accepted by regulation or legislation or, in the German case, constitution. You won’t find a definition of fiscal sustainability in any invariant fiscal rule.

[00:20:54] So where should we start in trying to come up with a concept of fiscal sustainability? And I add that what I’m doing really is just introducing ideas which will be elaborated on in great detail by my colleagues here. So I’m not explaining everything in detail for that reason. But where I think that you should start, and I think we all agree on this up here, is ask yourself the question "Why do we bother to have a government in the first place?" They take our freedom away from us. They force me to wear a helmet on my push-bike. They force me to drive slowly. They force me to do certain things down the beach that I might not want to do. They take away my purchasing power by taxing me. Why would we want them? They’re a nuisance.

[00:21:48] The reason we want them is because they can advance the well-being of all of us, acting as our agents, in a way that we can’t do it individually. That’s why we’d want them. And we might call that the public purpose of government. And that might be a good place to start because fiscal policy is about governments, a government policy tool. So once we think about what we want governments to do for us, then that’s a good place to work out, Well, what does that mean in terms of the way they conduct fiscal policy?"

[00:22:28] So what are the dimensions of that? Well, the way I think about it, and my colleagues have different emphases here, I think about the state. The basic role of the state is to maximize the potential of all of us who live under its sovereignty. And I have this thing that the sustainable goal of the economy should be the zero waste of the people in the economy. That’s what my view of economic behavior is, that nobody should be wasted as a consequence of the way we structure our economy and the way that policy intervenes to manipulate the economy.

[00:23:08] And then from my point of view, that means, we - the state - should be responsible for maximizing employment: making sure everybody who wants to work can work, with decent working conditions and wage levels that provide them with a sustainable life in the cultural and social setting that we live in.

[00:23:32] Now, what that means in a macroeconomic sense is that once the private sector has made its spending decisions - and I’m talking about households and firms, and they make their spending decisions based upon different motivations, firms invest for different reasons and households consume for different reasons, - once they’ve made their spending decisions - which also mean they’ve effectively determined through the income generation process what their saving desires are - once they’ve done that, then the role of government advancing public purpose in this way is to ensure that its policy intervention is consistent with those private decisions such that you get full employment.

[00:24:22] That seems to me to be a basic element of what we mean by fiscal sustainability. Now non-governments, the non-government sector, typically in historical terms as long as we’ve had data, wants to save over the business cycle. This current period where we’ve had debt binges are atypical in history - private debt binges are atypical - and the accompanying budget surpluses that went with the private debt binges are also historically atypical in all of our countries.

And so if it’s typical that the non-government sector will want to save, then there will spending gaps. And what I mean by spending gap is that spending won’t be sufficient, the private spending won’t be sufficient, to generate output and employment, based upon current productivity levels, to fully employ all of the available workforce. All that to me means that the government then has a choice. It can either fill that spending gap with fiscal policy and ensure that advanced public purpose via full employment, or it can decline to do that and either run smaller deficits than are required or even try to run surpluses, which governments have been doing prior to the crisis, and accept the fact that in taking that decision you will have persistent and chronic underutilization of labor and ultimately that strategy will be self-defeating.

[00:25:57] And this is where I introduce this concept of bad and good deficits. You’ll end up with deficits anyway, under those circumstances, but a bad deficit is one that’s driven by the automatic stabilizers. So if you’ve got an external sector that’s in deficit and you’ve got a private sector, a domestic sector, that’s intent on saving - and that means not spending, by design, as much as they earn - then if the government doesn’t use their spending to maintain aggregate demand at sufficient levels, then you’ll get declining income, declining output, declining employment, declining tax revenue, rising welfare spending. They’re the automatic stabilizers that are built into fiscal policy and you’ll end up with a deficit anyway, but that’s a bad deficit, because at the end of it, you’ve just got a recessed economy with high unemployment, increased poverty levels and nobody’s happy about that at all. And then if you apply fiscal rule on top of that, you’re in the position we’re currently in now, moving into a worse outcome than we had a year ago.

[00:27:14] The alternative of course, if the government adopts what I think is a fiscally sustainable strategy, then it will run good deficits. And note I've got - IF the circumstances require, IF - and I’ll say what I meant by that. But it will create, it will still run deficits but with high employment, high income growth, falling poverty rates, and smiling faces. Now what do I mean by "if?" Well, with the private sector wanting to save a bit, budget deficits aren’t always appropriate. Take the Norwegian case. They’ve got such strong external sector that the government can oversee near full employment continuously, high levels of public service provision, first-class education, first-class health, very low inequality in income, great welfare benefits, and they still run surpluses. So it’s not always the case that fiscal sustainability requires the government to run a deficit. But mostly it will be the case, because by definition not every country can run external surpluses.

[00:28:35] And so what I want to come out of that brief message is that you can’t define fiscal sustainability independently of the real economy and what the other sectors in the economy are doing.

[00:28:51] The other important point is that you have to understand the monetary environment, that any notion of fiscal sustainability has to be related to the intrinsic nature of the monetary system that the government is operating. And so it makes no sense to apply logic that applies to say, a gold standard or a fixed exchange rate regime, to a fiat monetary system, which doesn’t have those constraints.

One of the most influential books in the current debate has been Reinhart & Rogoff, and everybody-- you read these commentators, "Ahhh the public debt ratios above 80%, we’re heading south quick." And then you read the table with Greece and America and Portugal and Germany and Japan all in the same table, and the logic is very confused. And most commentators haven’t quite read the book anyway, because it only applies to debt - public debt - that is denominated in foreign currencies anyway. And even Rogoff blurs that when he goes into the public arena and gives media broadcasts. And so it holds out that it’s all public debt, whether it’s in domestic currency or not, and it’s a fraud.

[00:30:26] The other point I would make is that a lot of people say to me, “Oh yeah, but you know these public debt ratios are rising, and the government is issuing debt.” And what’s happened is that governments have imposed, under political pressure, a series of voluntary constraints on their behavior that really mimic the actual constraints that they faced under the convertible currency system.

So my government in the mid-80’s, the Australian government, explicitly changed policy such that the Australian government has to place debt into the private markets, dollar for dollar, to match its net spending. And at the time, if you read the historical documents, you’ll see it’s all about the need for fiscal discipline, that we’re unhappy with the option that the central bank might buy some of the debt that the government issued, more than it needs for, at that time, for liquidity management purposes.

And what really needs to be exposed in this discussion are that all those constraints are voluntary. And in a fiat monetary system, the national government doesn’t have to issue any debt at all. And so fiscal sustainability can’t be caught - a pure concept of it - can’t be caught up and tied in with any of these voluntary constraints.

[LS copy edits]
[00:32:17] And most people don’t understand the notion of a sovereign government. I don’t know how many times - I do quite a lot of media interviews in Australia on national TV and radio - and the question always comes out, "Do the taxes have to increase? Where’s the government going to get the money from? The government’s going to run out of money. There’s no more money to spend. We’ve had such a fiscal intervention we’ve run out of options." All of this sort of rhetoric.

And that just tells me that we need to work harder in this debate to really educate the debate as to what we’re dealing with here. We’re dealing with governments, in the main, that issue their own currency, that issue it under monopoly conditions, and so the microeconomic rules of monopoly apply to that sort of government in terms of setting price or quantity, and that they can never be revenue-constrained even though it looks as though they are because of these voluntary constraints that they erect as edifices to hide the fact that they are actually sovereign. And we need to get the message across more vehemently that what that means is that our national governments can spend whatever they want. And it has no imperative, like a household, to facilitate funding of that spending. And what looks like to be funding operations, this debt issuance, nothing of the sort.

[00:34:09] And what then emerges in a discussion of fiscal sustainability should be to really articulate what the limits of government spending are. And we’re led to believe it’s all, "Well, once debt ratios go above 80%, that’s it." Or in Europe, "Once the deficits go above 3%, that’s it." They’re not limits at all. All of these financial ratios are not limits at all, for a sovereign government. The limits are clear that a sovereign government can only buy what’s available for sale. Their real limits, if there’s something out there available for sale, the government can always afford to buy it. And that’s a sovereign government.

And when I look around and see high unemployment, persistently high unemployment, everywhere, then I know that there’s at least one productive real resource that’s available to be purchased, and that’s the labor that has no bid for it in the private market. So that would be a good place to start.

And so when I see any unemployment, I know that the government has no real resource constraint here.

[00:35:28] And this then leads to another component of the journey to understand what fiscal sustainability is, and that’s understanding the nature of costs. When a government prints their budget statistics for the month or whatever the frequency is, and everyone goes, “Ooh-ahh, look at that big figure in the piece of paper, it’s getting bigger, it’s gone above Rogoff’s ratio,” that’s not a statement about costs at all.

Numbers on bits of paper aren’t costs. When governments... My government next month is going to announce its budget austerity plan - and it’ll be media attention about what the deficit ratio is and blah-blah - they’re not costs. When government spends a billion dollars, a million dollars, that’s not the costs of the government program. The costs of the government program are the extra real resources that are required to implement and sustain it. So if you’ve got a jobs program what’s the real costs of that? It’s not whether it’s a half million dollars or 10 billion dollars, whatever. It’s the extra food and the extra materials that the unemployed that you’re going to bring into productive use utilize and consume. That’s the cost. When we’re thinking about…when we juxtapose the concept of fiscal sustainability in the public arena to what I think it is, then the public arena debate’s all about financial costs - alleged financial costs - whereas I only think about it in terms of real costs.

[00:37:08] And then we have to understand the role of taxation, and my colleagues will talk about this in much more detail later. And you know, part of the hysteria is that very soon taxes are going to have to rise to pay the deficit down, and if they don’t rise in the next two years, our poor children and their grandchildren, the poor little bastards, [laughter] are going to be so burdened by our prolificacy that we should hang our heads in shame. That’s the debate.

Now it’s possible that taxes will rise in the future. It’s possible they’ll rise in the next 2 or 3 years. But if they do, it’s also possible they could fall. But if they rise, it will have nothing to do with the funding requirements of our sovereign governments. The role of taxation, in a counter-stabilizing macroeconomic policy framework, is to regulate aggregate demand growth. And so if aggregate demand, nominal demand, is growing too quickly for the real economy to absorb it, then there’s a case to be made, if the political settlement is such that you want to have that much public access command of real resources, then there’s a case to be made, that you want to increase taxes and reduce the purchasing power, and therefore aggregate demand, of your private sector. And so that’s to regulate demand to avoid inflation. It’s got nothing to do with funding.

[00:39:02] The other point, I think, that the public debate misses out on - and I play tricks when I give talks to business forums, because business forums in Australia, as they are here, are principal antagonists to any fiscal intervention - and I say to them, “Well how many people like the deficit at the moment?” And you know I can guarantee that almost all - and they’re all not shy to put their hands up - I can guarantee that the vast majority in the audience will say, “Yeah, we hate it.” And I say, “Well, you can do something about it.” And they sort of look at me stupid, and I say, “If you don’t like the size of the budget deficit to GDP, then if you go and invest some more, and create some more productive infrastructure, and employ a few more workers, then the deficit will go down as a percentage of GDP and you’ll have solved your problem.” And what it brings out is that in general, the fiscal outcome - which is just an ex-post statement anyway of what’s been going on - is really what economists call endogenous: that means it’s determined largely by the spending decisions of the non-government sector. And we don’t understand that in this debate. And we go on as if we’ll have these fiscal rules, as I said, which really undermine themselves if they’re creating compatible scenarios with respect to what the private sector actually wants to do.

[00:40:52] I won’t go into this, you can read this. I’ve spoken a lot about this on my blog and in my academic work, this sort of, the fraudulent, concept of structural budget balances. They always - in the way in which all our international agencies, the IMF, the OECD, our treasuries around the world construct them - they’re always biased toward being too expansionary. In other words, the summary of the structural balance is always more expansionary, as estimated, than it actually is in reality. And so it leads to an inbuilt bias towards contraction and therefore working against public purpose.

[00:41:33] So moving quickly, the intergenerational debate is the sort of long-term attack on fiscal policy. So even though we were quiet for a little while, while the governments were bailing the economy out and putting a floor into the collapse of spending, what’s emerging out of that - and this is sort of the way in which the mainstream work - they were so discredited by this crisis.

It’s absolutely amazing that for the first few months, right-wing colleagues that I know just wouldn’t talk, they just went and hid in their rooms, so discredited and embarrassed by it. But the reasonable ones come out now and say, “Oh yeah, we really did have to have a bit of fiscal intervention, we understand that now, but the problem’s worse than you think, because we’ve got these long-term structural pressures that are going to blow the budget out of the water and make it unsustainable.”

What are they talking about? Providing pensions to our elderly, providing a bit of health care to people who might need a few hip replacements. And what I tell them is, “Look, the only issue is whether there’s enough titanium available to put in our hips and our knees. And if there is, the government’s going to be able to buy it no matter what. And if the government wants people to have a pension, then all they need to do is type a few numbers into a computer and that’ll send some money to the bank. And the only issue is whether the pension check that the pensioners get will be able to buy anything.”

[00:43:08] And the irony of this whole debate about the - we call it the intergenerational debate in Australia, it’s more generally known as demographic debate - the irony of it is that everything that the mainstream wants us to do now about it will actually undermine our capacity to deal with it in the future. So the absolute irony is that the way in which fiscal austerity plans are implemented is - in our country and elsewhere - is to attack higher education and secondary schooling, and not realizing that investing in education is the way you get productivity growth and the way you deal with rising dependency ratios in real terms. It’s moronic. Others will talk about the - particularly you people in America - have been living on China’s goodwill. Last time I realized, it was the US government that issued the US dollar and I didn’t think that had been subcontracted out to China. [laughter]

[00:44:12] The other element, and I’m just giving headings now because the others will elaborate in more detail, the other side of it is the debt side, the sovereign debt crisis we’re all in now and - "Drowning in Debt," that Fox News theme of the week, I don’t know how long it’s been going on, I’m glad I’m leaving because I’m going to drown [laughter] - the other idea is this notion of public solvency.

For sovereign governments, unless they are totally perverse, they are totally solvent in their own currency. And the big governments - Australia (big to me), Japan, UK, US, these are the big governments - they don’t issue debt in foreign currency. So there is a sovereign debt problem in Greece. That’s because they voluntarily agreed to give up their sovereignty. There’s no sovereign debt problem in the other countries that I mentioned.

[00:45:14] So to bring that out, to finish up, the way forward, I think, to allow these ideas to expand and broaden in the community, is that what I think is required is a new macroeconomics narrative to emerge. And the challenge for us - I spend all my days in a little darkened room in front of a computer, I go surfing in the morning or riding my bike and then I spend 12 hours or something in front of, in a darkened little room and I hardly talk to anybody - the challenge for people like me is to interact with people like Joe, and others who I don’t know in the audience, to get this narrative out there in a way that’s packaged and understandable, comprehensible.

And we need some marketing people as well, to be able to have pithy ways to express these ideas, because I’m never going to be pithy. And I haven’t got a marketing bone in my body. And we need to get these operational features of the monetary system out to people. We need to teach people what the opportunities that a fiat currency system offers a sovereign government, to actually create full employment and make the lives of those who don’t have jobs eminently better than we’ve been offering in the past 30-odd years.

And we need to really emphasize that it is possible. I mean, I get emails from Americans, "Sorry, [laughter] you can’t possibly have 2% unemployment." Well, yes you can. Sorry, you can, it’s very easy, you all could do it. Take me down to the capitol building, I’ll get it organized. [laughter] It’s this idea that what the neoliberals have managed to do is to...

An example is I’ve been doing work in South Africa on the public works program. In the first 5 years a million people were employed. Their second-year plan we’ve just implemented is going to add three million people. Poverty rates fall for those people who are employed. Yet, I’m told by the treasury, which has the IMF regularly going in there, that this problem of unemployment and poverty in South Africa is manifestly complex. That’s the words they use. Manifestly complex. And I said, "What’s complex about giving them a bloody job?"

We’ve just given a million people a job under this program and they’ve been building water systems, roads, better housing for themselves, community infrastructure. Their children have got a chance to go to school because the families that are getting these jobs have, for the first time ever, some personal risk management capacity. What’s manifestly complex about that? There’s not a shortage of work, there’s just a shortage of funds to provide the work. But there’s no shortage if the national government realizes it’s sovereign.

[00:48:12] We have to get those messages out, that these things are not manifestly complex. There’s this capacity for people to eschew the simple solution, because it can’t be right, can it? Well, in this case, it is right. And we have to really abandon this focus on financial matters and re-orient the debate to the real economy. And I remember Milton Friedman said, and it was about the only thing that I think he ever said that was right - except probably that he loved his wife - but what he said was that we’ve got to get out of this balance of payments obsession and the best way to do it is not publish the data, because if you didn’t publish the data, nobody would know and you’d soon work out that the sky didn’t fall in.

What we’ve got to stop is news broadcasts having a barrage of these financial ratios in our face everyday. They're largely irrelevant and they abstract and re-orient the debate away from what really matters and that’s the real side of the economy and the capacity of our national governments to work on the real side to improve our lives and advance public purpose.

[00:49:40] Thanks very much.

[Applause]

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audio available here