Functional finance and modern monetary theory – Bill Mitchell – Herald's Ross Gittins – No infrastructure unless you borrow (published October 31, 2009).☆
機能的財政と現代貨幣理論–ビルミッチェル–ヘラルドのロスギッティンズ–借りない限りインフラストラクチャはありません（2009年10月31日公開）。
http://bilbo.economicoutlook.net/blog/?p=5762
機能的財政と現代貨幣理論
今日、私は新自由主義に対する標準的な進歩的攻撃の欠陥を検討するという私の最近のテーマを続けています。いつか製造業について書きますが、日曜日でとても美しい日であり、製造業が重要だとはっきりと考えている火炎放射器を立ち上げる気にはなれません。そうかもしれませんが、標準的な議論は、とにかく何年も持っていなかったセクターの垂直統合された概念に基づいています。でもその後。今日、私は、私の職業の主流によって提唱された躁病の「公的債務は常に悪い」議論に対抗するための進歩的な使用という「公的債務は良い」アプローチを検討します。
私がこの問題を調査するために使用する手段は、シドニーモーニングヘラルドのロスギッティンズによる昨日の経済解説です。借りない限りインフラストラクチャはありません（2009年10月31日公開）。
Gittinsが始まります：
これを正直に言ってください。私たちが経済インフラにもっと多くを費やすべきだと思うなら、政府債務について気を悪くすることはできません。同様に、無借金が政府にとって唯一受け入れられる方法であると考える場合は、港のボトルネック、不十分な鉄道と道路システム、都市道路の混雑の高まり、不十分な公共交通機関、および次の脅威を特徴とする経済での生活に身を任せてください。都市の水不足。
文学的な装置として、彼はしばしば「これをまっすぐにする」または「これを得る」などのステートメントで記事または段落を開きます。それは権威を捕らえ、彼が書いているトピックについて何か知っていることを読者に描写しようとする方法です。私はただ…貧弱な愚か者の読者だと思います–再び愚痴をこぼしました。
とにかく、彼の最初の並置は、保守的な道徳と公共投資が有用であるという否定に直面して合理的であると考える「自称」進歩主義者による標準的な策略です。
しかしもちろん、議論はそれ自体が保守的であり、現代の金融システムがどのように機能するか、そしてフラットな金融システムが政府に提供する機会についての理解を反映していません。
Gittinsは続けます：
大企業がインフラストラクチャへの大幅な増加を要求する一方で、その連合の仲間が政府の赤字と借金をめぐってパンターに恐怖を与えるために全力を尽くしているので、逆の見方をするのは十分ではありません。それは、インフラストラクチャのバックログの作成に大いに役立った、PeterCostelloの単純で近視眼的で自己奉仕的なラインでした。彼の後継者が簡単に怖がるラッド政府に対してそれを使用することに成功すればするほど、そのインフラストラクチャの取り組みは不十分になります。
簡単な点は、大部分、資本工事への支出は借り入れによって賄われなければならないということです。それは民間部門が常に行う方法であり、政府もそれを行わなければなりません。
さて、私は最初の点に同意します–政治の保守的な側面の純粋な偽善と、大企業が自分たちのためにできるだけ多くの企業福祉を引き出し、不利な立場にある人々への社会福祉を否定するためにプレイするゲーム。とにかく（私の見解では）大企業が何か価値のあることをたくさんしているわけではありません。私は、入手可能な私物よりも公共財をはるかに重視しています。
私はまた、過去の保守政権（コステッロは会計係だった-彼については後で参照）と弱腰の現政権の批判にも同意する。北西部での現在の難民危機に対する連邦政府の対応については何も書いていませんが、ハワードと彼の政府が問題を処理した勇敢な方法よりも少し注意が必要です（卑劣な読み方）。恥ずかしくない。これに関する別のブログかもしれませんが、それは（私の通常のブログのように）専門家レベルの理解ではなく、個人的な意識の流れであり、私はこの種の執筆を避ける傾向があります-それが土曜日の朝のお茶です！
しかし、最後の段落はまっすぐな無知であり、赤字の道をどこにも戻らない、つまりどこにも進歩的ではありません。
第一に、資本業務への支出は、1セントの負債を発行することなく簡単に実現できます。ソブリン政府が商品やサービスの販売を条件として好きなものを使うことを許可するのに1セントは必要ありません。これは、政府が経済全体の他の側面を気にせずにいつでもインフラストラクチャを構築できると言っているのと同じではありません。
たとえば、経済がフル稼働していて、政府が大規模な国造りの演習を行おうとすると、インフレ問題にぶつかる可能性があります。市場価格で資源を奪い合い、既存の用途から遠ざける必要があります。
そのような状況では、政府は、インフラストラクチャを構築することが政治的に合理的であると考えた場合、他の場所でそれらのリソースの需要を鎮める、つまり、いくらかの失業を生み出す可能性があります。どうやって？増税によって。また、負債を発行する可能性もあります。これについては後で詳しく説明します。しかし、これらの行動（税率の引き上げや債務の発行）はどちらも、支出のための資金調達に関するものではありません。彼らはそれについて遠く離れていません。
すぐにわかるように、これらの政策措置は、民間部門の支出能力の量を減らすことに関するものです。
第二に、企業部門が投資して利益を得るために借りることが問題ない場合、たとえ利益が社会的利益の形であっても、政府が同じ戦略に従うことは問題ないはずであるというアナロジーは、最も基本的なレベル。それはしばしば進歩主義者によって彼らが保守派を串刺しにするように考える方法で使用されます。それから、議論は、借金を介してそれを「融資」する行為ではなく、「投資」の利益にシフトしなければならないと彼らは考えています。
問題は、企業部門がその支出（消費であろうと投資であろうと）をさまざまな資金源から賄わなければならないということです。その1つが借金です。それは通貨のユーザーであるため、常に収益に制約があります。
逆に、ソブリン政府は通貨の独占発行者であり、収入に制約を受けることはありません。したがって、民間部門が常に従わなければならない制約に「従う」必要はありません。
家計/企業/政府のアナロジーは、前後関係がありません。これは、主流派経済学者が教科書に登場するすべてのナンセンスを考え出すために使用する基本的な戦術であり、最終的には赤字に反対し、道徳的な財政ルールを正当化するために使用されます。
Mankiwによる影響力のある教科書「ThePrinciplesof Economics」（初版）では、767ページの「マクロ経済政策に関する5つの議論」の章を読んでいます。
政府債務の最も直接的な影響は、将来の世代の納税者に負担をかけることです。これらの借金と累積された利息が期日を迎えると、将来の納税者は難しい選択に直面するでしょう。彼らは、借金と累積利子を返済するためのリソースを利用できるようにするために、より高い税金を支払うか、より少ない政府支出を享受するか、またはその両方を行うことができます。あるいは、古い借金と利子を返済するためにもう一度借りることによって、計算の日を遅らせ、政府をさらに深い借金に陥らせることができます。本質的に、政府が財政赤字を実行するとき、それは現在の納税者が彼らの政府支出のいくらかの法案を将来の納税者に渡すことを可能にします。このような多額の借金を相続することは、将来の世代の生活水準を低下させざるを得ません。
この直接的な影響に加えて、財政赤字にはさまざまなマクロ経済的影響もあります。財政赤字は負の公的貯蓄を表すため、国の貯蓄（私的貯蓄と公的貯蓄の合計）を低下させます。国の貯蓄が減少すると、実質金利が上昇し、投資が減少します。投資が減少すると、時間の経過とともに資本のストックが少なくなります。資本ストックが低くなると、労働生産性、実質賃金、そして経済の財とサービスの生産が低下します。したがって、政府が借金を増やすと、将来の世代は、所得が低く、税金が高い経済に生まれます。
現在、金融システムの運用方法に関するこの無意味な見方は、上記のGittinの見解と同じ基本的な構成要素に基づいています。2つの間の（そして赤字鳩とより極端な主流派の間の）唯一の違いは、前者は将来の世代に移転し、結果として彼らが負担しなければならないより高い税負担を正当化する公共投資にいくらかの利益があると考えていることです公的債務の蓄積。
これらの議論はいずれも、フラットな金融システムではリモートで正しくありません。
Gittinsは続けます：
…適切なインフラストラクチャが必要な場合は、かなりの借金を抱えて生活する準備をする必要があります。そして、今後40年間で人口が60％増加することに対処するために必要な、追加の経済的および社会的インフラストラクチャをすべて構築したい場合は、巨額の借金を抱えて生活する準備をする必要があります。すべてのエコノミストが理解しているように、インフラストラクチャが真のニーズを効率的に満たす限り、インフラストラクチャのコストの大部分を借りることに問題はありません。つまり、適切な「社会的」収益率（必ずしも実際の手持ちの収益率である必要はありません）を獲得している場合に限ります。
重要なのは、新しい警察署から新しい港までの資本業務は、20年、30年、または40年にわたるサービスの流れを提供するということです。たとえば、仕事のコストの半分をカバーするために借りることは、そのサービスから利益を得る現在の世代と将来の世代の間でそのコストを共有する方法です。
もちろん、この共有と、現金で購入できる十分なお金を節約する前に施設のサービスを利用するために支払うべき代償があります。それが利息です。それは何も悪いことではありません…
野党が私たちが子供たちに残しているこのすべての借金と利子の負担を引き継ぐとき、それは借金に伴う利益について言及するのを忘れます。私たちが子供たちに借金のない政府を残したほうがよいかどうかは明らかではありませんが、インフラが不十分な世界でもあります。
したがって、2つの見方の違いは、公共投資が将来の世代に課せられるコストを（ある程度）相殺する将来の利益をもたらすかどうかにかかっていることがわかります。
しかし、ソブリン政府が言うところまで到達する必要がないという理解はありません。今日、私たちは借金を返済しなければなりません…したがって、他のものへの支出を削減するか、増税しなければなりません。それはそれらの決定をしなければならないかもしれませんが、そもそも債務を発行したからではないことがわかります。
しかし、Gittinsはかわいくしようとして、穴をさらに掘り下げます。
…理想的な世界では、現金を支払うのに十分な額が貯まるまで、あなたと私は物を買うのを延期し、それによってすべての借金と利子の支払いを回避するでしょう。
問題は、私たちの多くは、十分な量になるまで貯蓄を続けるのに十分な自制心がないことです。安い軽薄なものに必要以上にお金をかけ、私たちの生活の快適さに大きな違いをもたらす可能性のある耐久消費財に十分ではないことになります。
したがって、借り入れは、私たちの自制心の問題を克服するための「コミットメントデバイス」の一形態であることがわかります。それはあなたがそれを買う余裕ができる前に何かを使うようになる方法であるだけでなく、あなた自身に節約せざるを得ない方法でもあります。
あなたが何かを買うために借りるとき、あなたは節約しなければならないことを避けません。あなたは、見通しではなく、（毎月の返済を行うときに）振り返って貯蓄を行うだけです。あなたが支払う利子は、あなたが購入する前に貯蓄するための自己管理を欠いているので、あなたの貯蓄を逆に行うコストです。
個人に当てはまることが政府レベルである程度類似している可能性があります。政府が借金を回避する場合、おそらく他の方法よりも節約額が少なくなり、インフラストラクチャが不十分になり、途中で有益性の低い断片に多くを費やすことになります。
個人（明らかに歳入に制約がある）と政府の間に類似点がある可能性はありません。これは、フラットな金融システムでソブリン政府が直面している選択肢を説明しようとする場合、最悪の最悪です。
2つの選択肢（および制約）セットは、販売されていないものを購入できないことを除いて、まったく同じではありません。その時点以降、悪用できる類似性や類似性はありません。
もちろん、いわゆる政府予算制約（GBC）に関する1960年代の文献の進化は、個人が直面しているミクロ経済学的制約が国の政府にも適用されると主張する意図的な戦略の一部でした。したがって、個人が政府を行うために費やしたときに、個人はパイパーに支払う必要がありました。これは、公的活動を嫌い、小さな政府を擁護していた保守派に、必要な弾薬を提供した。
それはこの概念（GBC）を執拗に使用して、マンキュー（上記）が大学教育中にだまされたとして彼を訴えるべき彼の印象の悪い学生にドラムを叩くような声明を正当化しました。
そして、ギッティンズは彼の影響力のあるコラムを使用して、彼が合理的に見え、躁病の赤字テロリストから距離を置いているにもかかわらず、同じ神話を永続させています。問題は彼がその一人であるということです。
これはすべて、アバ・ラーナーと彼の機能的財政の概念を思い出させました。これがLernerの便利なBioです。
ラーナーの目的は、彼が「健全な金融」と呼んだもの（現代の主流（新自由主義）思考の先駆けである）を超えて経済政策の議論を進めることでした。それで彼は彼の「支配の経済学」政策思考を大恐慌の間に普及した支配的な自由放任主義のアプローチと並置しました。
ラーナーの1951年の著書「雇用の経済学」の第1章は、実際には、1941年の記事「経済ステアリングホイール」を書き直したものであり、ケインズ経済学の彼のバージョンを詳しく説明しています。彼はそのように本を始めました（1951：3-5）：
私たちの経済システムは、奇妙な惑星からの架空の訪問者の前に表示されることでしばしば恥をかかされます。手順を逆にする時が来ました。代わりに、バックロジャーズの惑星間アドベンチャーで、明日の都市の高速道路を見ていると想像してみてください。高速道路は広く真っ直ぐで、端が曲がっているため、車が道路から走り出すことはほとんど不可能です。暴走した車のように見えるのは、道路に沿ってスピードを出し、片側に向きを変えています。高速道路の立ち上がりエッジに近づくと、前輪が回転して道路に戻り、斜めに外れ、反対側で車輪が再び回転します。これは何度も起こり、車はジグザグに動きますが、見えなくなるまで高速道路を走り続けます。同じように動作する別の車が現れたときに、クラッシュするのにどれくらいの時間がかかるのか疑問に思っています。それがあなたの近くに来るとき、それはグッと止まります。ドアが開かれ、乗員がエレベーターを希望するかどうか尋ねます。あなたは車をのぞき込み、自分をコントロールする前に、「なぜ！ハンドルがない！」と叫びます。
「もちろんハンドルはありません！」居住者の一人はかなり交差して言います。「前部座席がどうなるか考えてみてください。昔ながらのギアシフトレバーよりもひどくて危険です。縁石に達したときにハンドルを握っていて、誰かがハンドルを握っていたとしましょう。彼はハンドルを自動的に回すと、車は確実に転倒します！さらに、私たちは民主主義を信じており、ケアのすべての居住者に生と死の極端な権限を与えることはできません。それは独裁です。」
「独裁政権でダウン！」車の他の乗員を合唱します。
「車が左右に移動する方法が心配な場合は、忘れてください。10回に9回の衝突を防ぐために、素晴らしいブレーキがあります。より良い道路では、縁石は非常に効果的です。一度道路を離れることなく何百マイルも移動できるということです。残骸の生存者を近くの病院に運び、道路から残骸をすばやく一掃して近くの畑に預けるという非常に効率的なシステムがあります。必然性」
車の中で男が続けている間、あなたは残骸の山と燃え尽きた自動車を見るために周りを見回します。「印象的ですね。しかし、状況は改善するでしょう。私たちの前の車のトラックに印を付けて写真を撮っている男性を見てください。彼らはそれらの写真を研究所に持ち込み、私たちのトラックの写真も分析します。曲線の周期的特性、規則性の程度、ターンからターンまでの平均距離、スイングの振幅など。それらが真の性質について合意に達したとき、私たちは何かができるかどうかを知ることができます。現在、彼らは、この周期的な動きが路面のタイプによるものなのか、その形状によるものなのか、それとも車の長さによるものなのか、タイヤのゴムの種類によるものなのか、天候によるものなのかを争っています。彼らは、馬とバギーに戻らなければサイクルを避けることは不可能だと考えていますが、プログレスを信じているのでそれはできません。
言い換えれば、マクロ経済学はすべて、経済の変動を「操る」ことでした。財政政策はハンドルであり、機能的な目的のために適用されるべきです。レッセフェール（自由市場）は、車を道路全体でジグザグにするようなものでした。経済を安定して発展させたい場合は、その動きを制御する必要がありました。
これは機能的財政の概念と彼が健全な財政と呼んだもの（自由市場ロビーによって提案されたもの）からの差別化につながりました。健全な財政はすべて財政規則に関するものでした-あなたが最近でも毎日読んでいるタイプ。したがって、ビジネスサイクル全体で予算のバランスを取ります。実質産出成長率に沿ってマネーサプライを増やすだけです。等
ラーナーは、これらの規則は、完全雇用と物価の安定という経済行動の目標を達成するための十分に確立された方法ではなく、保守的な道徳に基づいていると考えました。
彼は、金融システムを理解すると、常に機能的財政を採用する、つまり財政および金融政策の決定は機能的でなければならないことを理解すると、公的目的を前進させ、公的赤字は多額で危険であるという道徳的概念を避けます。
ラーナーは、政府は完全雇用と物価の安定を達成するために常にその能力を使うべきだと考えました。現代貨幣理論（MMT）では、この責任を「公的目的の推進」と表現しています。彼の1943年の記事（39ページ）では、次のように読んでいます。
中心的な考え方は、政府の財政政策、その支出と課税、ローンの借り入れと返済、新しいお金の発行とお金の引き出しはすべて、経済に対するこれらの行動の結果のみに目を向けて行われるべきであるということです。何が健全で何が不健全であるかについての確立された伝統的な教義にではありません。効果だけで判断するというこの原則は、スコラ学に対抗する科学的方法として知られている人間の活動の他の多くの分野に適用されています。財政措置を経済におけるその働き方や機能によって判断する原則は、機能的財政と呼ばれるかもしれません…
政府は、経済における総支出が現在の価格で完全雇用レベルの生産物を購入するのに十分なものよりも多くも少なくもないように、支出と課税の率を調整する必要があります。これが赤字、多額の借り入れ、「お金の印刷」などがあることを意味する場合、これらのこと自体は良いことでも悪いことでもありません。完全雇用と物価安定の望ましい目的を達成するための手段にすぎません…
これが、私が常に財政ルールの主流の使用を機能的な文脈から切り離されていると批判する理由です。たとえば、純輸出が非常に強く、財政政策がインフレ圧力を経済から取り除くために支出を縮小しなければならない場合など、ある時点で財政黒字が必要になる可能性があります。これはまれな状況ですが、そのような場合、私はMMTの支持者として財政黒字を提唱します。
しかし、常に適用される財政規則を提案するマンキューで読んだようなナンセンスを無意識にリハーサルすることは、まったく無責任です。
ラーナーは1941年（およびその後の1951年）の作品で機能的財政の3つの基本的なルールを概説しました。
1.政府は、常に合理的なレベルの需要を維持するものとします。支出が少なすぎて失業が多すぎる場合、政府は減税または自国の支出を増やすものとします。支出が多すぎる場合、政府は自らの支出を減らすか、増税することによってインフレを防ぐものとします。
2.政府は、金利を上げたいときに借り入れ、金利を下げたいときに借金や借金を返済することで、最適な投資額を生み出す金利を維持しなければならない。
3.最初の2つの規則のいずれかが「健全な財政」の原則、予算の均衡、または国の債務の制限と矛盾する場合、これらの原則にとっては非常に悪いことです。政府の報道機関は、規則1および2を実行するために必要となる可能性のあるお金を印刷するものとします。
このラーナーの伝記では、以下を読んでいます（218-19ページ）：
1943年、ラーナーは「機能的財政と連邦債務」という記事を発表し、財政政策への新しいアプローチを発表しました。（主題は彼の管理の経済学と雇用の経済学でさらに発展しました。）彼は従来の財政の知恵は良い家計管理の原則と道徳に基づいていたと述べました：あなたが持っていないものを使わないでください-暗黙のリマインダー「経済学」と「経済学」という言葉は、ギリシャ語で家庭を意味するオイコスに語源的に由来していること。
しかし、ラーナーは、赤字支出に関するケインズ派の処方箋の要約を取り上げ、政府は従来の道徳に関心を持つべきではなく、むしろ彼らの行動の結果のみを考慮すべきであると主張した。政府支出と課税の目的は、経済の総支出を現在の価格での完全雇用と両立し、助長するレベルに維持すること、つまり失業やインフレがないことであると彼は述べた。これを行う際に、政府は赤字や借金を心配するべきではありません。第二に、政府は、国民が有価証券やお金を保有する割合を変更したい場合に限り、借り入れや返済を行うべきです。この比率を変更すると、金利が上下するため、投資やクレジット購入を思いとどまらせるか、促進します。それで、唯一の質問が赤字をどのように賄うかであるならば、ラーナーはお金を印刷することを提唱しました。第三に、政府は、最初の2つの原則によって要求される結果を達成するために、必要に応じてお金を流通させるか、撤回（および破壊）する必要があります。
したがって、政府が債務を発行する必要がある唯一の理由は、「国民が有価証券またはお金を保有する割合」を変更したい場合です。政府が歳入を増やす必要がないことは明確に認識されています。借金と課税は「ハンドル」の次元であり、経済を軌道に乗せるのに役立ちます。
ラーナーは1943年の記事（355ページ）で、政府は「そうでなければ金利が低すぎる場合」にのみ債務を発行すると述べています。したがって、「借り入れ」は金銭的な操作であり、資金調達の必要性ではないことを理解し始めます。彼は1951年の本でこのテーマについてさらに詳しく次のように述べています（10〜11ページ）。
…お金の支出…赤字から、お金のストック（そして銀行の準備金）を増やし続け、これは金利を押し下げ続けます。どういうわけか、政府は、政府自身の支出から来るマネーサプライへの追加によって金利が押し下げられるのを防ぐ必要があります…これを行うための明白な方法があります。政府はそれが費やしているお金を借り戻すことができます（元の強調）。
これは、MMTの基本的な洞察の1つです。つまり、債務の発行により、そもそも純支出（赤字）によって生み出された過剰な銀行準備金が排出されるということです。政府はただ1つの支出を借り戻します。それが行われず、中央銀行が翌日物準備金の返済を支払わなかった場合、金利はゼロ（または中央銀行が支払ったサポートレート）に低下します。
したがって、ここでは2つのことを学びます。（a）純公共支出は、次に借りられる金融資産を生成します。したがって、債務発行は、政府の純支出を「融資」することはできません。（b）赤字は、上記のマンキューでリハーサルされたクラウディングアウトの話とは反対に、金利に上向きの圧力をかけない。
そして、それらの進歩主義者（赤字鳩）-「組織化された繁栄の支持者」のために、ラーナーは彼の1951年の本（15ページ）でこれを言っていました。
ある種の臆病さは、伝統的な教義の立派な支持者に衝撃を与えるかもしれないことを言うことから彼らを縮小させ、古い教義と簡単に間違えられるように新しい教義を偽装するように誘惑します。彼らはすぐに発見されるので、これはあまり役に立ちません、そしてそれは彼らを妨げます。なぜなら、新しい教義を伝統の支持者の目に無害に見せようと努力するとき、彼らはしばしば彼らの事件を傷つけるからです。したがって、国債の規模は大きな問題ではないと言う代わりに…[そして]…予算は不均衡でなければならず、繁栄の達成と比較した場合、これは重要ではないということではなく、不均衡な予算を偽装することが提案されます（したがって、国の債務の規模）年間、循環、資本、およびその他の特別予算の精巧なシステムを持つことによって。
次のページ（p.16）で、ラーナーは、国民が機能的財政の基本を理解していない可能性があるため、保守的な方法で議論を提示する進歩主義者の問題に取り組んだ。彼は言う：
それを理解している学者たちは、人々が理解できないことを恐れて大胆に発言することをためらっています。それを非常に簡単に理解している人々はまた、学者が最初に発言するのを待つ間、発言することを恐れます。私たちの現在の状況と物語の状況との違いは、それは皇帝ではなく、定期的に裸になり、空腹になり、不安になり、不満を抱く人々です。文明の破壊に対する不満の臆病でない主催者の餌食になります（オリジナルの強調）。
ですから、当時、ラーナーは今日どこにでもあるのと同じ討論とチャーラタンを扱っていました。
これらのアイデアを理解すると、MMTのポリシー設計の基礎を理解することができます。これにより、国民経済計算のアイデンティティに基づいた非常に厳格なストックフローの一貫したフレームワークが機能的財政の原則に追加されます。
また、Gittinsのように主張する進歩主義者が本当に保守的である理由を理解するのにも役立ちます。
次の参考資料をお読みください。
Lerner、A。（1941）「TheEconomic Steering Wheel」、カンザス大学レビュー、6月。
Lerner、A。（1943）「機能的財政と連邦債務」、社会調査、10、38-51。
Lerner、A。（1944）The Economics of Control、ニューヨーク、マクミラン。
Lerner、A。（1951）雇用の経済学、ニューヨーク、マグロウヒル。
余談：一体何？
連邦政府は本日、オーストラリアの公共インフラへの投資と完全雇用を否定することによってコステロ自身が創設した基金である未来基金の理事会に、元（失敗した）保守的な会計係ピーター・コステロを任命すると発表した。保守的な在職期間の終わりに向けて、彼らは財政黒字を塩漬けにしていると主張して金融資産を購入し始めました。
実際、それは単なる支出でしたが、雇用を創出したり、学校や医療制度を改善したりするのではなく、彼らは金融資産で推測しました。彼らは民営化されたテルストラの残りの「公的株式」を購入しましたが、その後価値が低下しました。彼らは、テルストラ株の第2トランシェがそのような損失をもたらした後、株式を個人的に売却する必要を回避するためにそれを行いました。
保守派の11年間の在職期間の終わりまでに（そのうち10年間は財政黒字）、オーストラリアの世帯は記録的なレベルの借金を抱え、高等教育システムを含む公共インフラはボロボロになり、自発的な労働力の8.5％がまだ残っていました。十分に活用されていない（失業者または不完全雇用）。
そして今、労働党政府は、この財政的嫌悪の建築家を彼の失敗のまさにトーテムに任命する大胆さを持っています。
元労働会計、そして首相（保守党の11年前）のコメントをここで読んでください。彼もそれを理解しませんでしたが、少なくともこの決定に対する彼の怒りは本物で支持できます。
Herald's Ross Gittins – No infrastructure unless you borrow(published October 31, 2009). http://bilbo.economicoutlook.net/blog/?p=5762 Functional finance and modern monetary theory billSunday, November 1, 2009 Today I am continuing my recent theme of considering the flaws in the standard progressive attack on neo-liberalism. I will write sometime about manufacturing but it is Sunday and it has been a beautiful day here and I don't feel like setting off the flamethrowers out there that clearly think manufacturing is important. It might be, but the standard arguments are based on a vertically integrated conception of the sector that we haven't had for years anyway. But later. Today, I consider the "public debt is good" approach that progressive use to counter the manic "public debt is always bad" arguments proferred by the mainstream of my profession. The vehicle I use to explore this issue is yesterday's economic commentary by the Sydney Morning Herald's Ross Gittins – No infrastructure unless you borrow (published October 31, 2009). Gittins begins: Get this straight: if you think we should be spending a lot more on economic infrastructure, you can't be chicken-hearted about government debt. Similarly, if you think debt-free is the only acceptable way for governments to be, resign yourself to living in an economy characterised by bottlenecks at ports, inadequate rail and road systems, rising congestion on urban roads, inadequate public transport and the threat of urban water shortages. As a literary device he often opens articles or paragraphs with statements such as "get this straight" or "get this" and similar. It is a way of trying to capture authority and to portray to the reader that he knows something about the topic he is writing about. I just think … poor fool reader – hoodwinked again. Anyway, his opening juxtaposition is a standard ploy by "self-styled" progressives who think they are being reasonable in the face of the conservative morality and denial that public investment is useful. But of-course, the argument is, in itself conservative and fails to reflect an understand of the way the modern monetary system operates and the opportunities that fiat monetary system offers to governments. Gittins continues: It's not good enough for big business to be demanding hugely increased spending on infrastructure while looking the other way as its Coalition mates do all in their power to put the frighteners on the punters over government deficits and debt. That was the simplistic, short-sighted and self-serving line of Peter Costello that did so much to help create our infrastructure backlog. The more success his successors have in using it against the easily frightened Rudd Government, the more inadequate its infrastructure efforts will be. The simple point is that, to a large extent, spending on capital works has to be financed by borrowing. That's the way the private sector always does it and governments have to do it, too. Well I agree with the first point – the sheer hypocrisy of the conservative side of politics and the games big business play to extract as much corporate welfare for themselves and deny as much social welfare to the disadvantaged. It is not as if big business does much that is worth anything anyway (in my view). I value public goods well above the private goods that are available. I also agree with the criticisms of the past conservative government (Costello was Treasurer – see later on him) and the weak-kneed current government. I haven't written anything about the federal government's handling of the current refugee crisis in the north west – but suffice to say is is a bit more tricky (read sneaky) than the brazen way Howard and his government handled the matter – but none the less shameful. Maybe a separate blog on this but it would just be a stream of personal consciousness rather than any professional level understanding (as is my usual blogs) and I tend to avoid this sort of writing – that is what Saturday morning cups of tea are about! But the final paragraph is straight ignorance – and just takes us back down the deficit-dove road back to nowhere – that is, nowhere progressive. First, spending on capital works could easily be realised without a cent of debt being issued. Not a cent is required to allow a sovereign government to spend whatever it likes subject to goods and services being available for sale. This is not the same thing as saying the government can always build infrastructure without concern for other dimensions in the aggregate economy. For example, if the economy was at full capacity and the government tried to undertake a major nation building exercise then it might hit inflationary problems – it would have to compete at market prices for resources and bid them away from their existing uses. In those circumstances, the government may – if it thought it was politically reasonable to build the infrastructure – quell demand for those resources elsewhere – that is, create some unemployment. How? By increasing taxes. It might also issue debt – more about which later. But neither of these actions (tax rate rises or debt-issuance) would be about raising funds for the spending. They would not even be remotely about that. As we will see in a moment – these policy actions are about reducing the amount of spending capacity in the private sector. Second, the analogy that if it is okay for the the corporate sector to borrow to invest and earn profits, then it must be okay for government to follow the same strategy, even if the profits are in the form of social returns, is flawed at the most elemental level. It is often used by progressives in a way that they think skewers the conservatives. Then the debate, they think, has to shift to the returns on the "investment" rather than the act of "financing" it via debt. The problem is that the corporate sector has to finance its spending (whether it be consumption or investment) from a variety of sources, one of which is debt. It is the user of the currency and so it is always revenue-constrained. Conversely, the sovereign government is the monopoly issuer of the currency and is never revenue-constrained. So it never has to "obey" the constraints that the private sector always has to obey. The household/corporate/government analogy is a non-sequiter. It is a basic tactic used by mainstream economists to come up with all the nonsense that appears in the text books which ultimately is used to argue against deficits and to justify moralistic fiscal rules. In the influential textbook by Mankiw "The Principles of Economics" (First edition) we read on page 767 in the chapter "Five Debates over Macroeconomic Policy" that: The most direct effect of the government debt is to place a burden on future generations of taxpayers. When these debts and accumulated interst come due, future taxpayers will face a difficult choice. They can pay higher taxes, enjoy less government spending, or both, in order to make resources available to pay off the debt and accumulated interest. Or they can delay the day of reckoning and put the government into even deeper debt by borrowing once again to pay off the old debt and interest. In essence, when the government runs a budget deficit, it allows current taxpayers to pass the bill for some of their government spending on to future taxpayers. Inheriting such a large debt cannot help but lower the living standard of future generations. In addition to this direct effect, budget deficits also have various macroeconomic effects. Because budget deficits represent negative public saving, they lower national saving (the sum of private and public saving). Reduced national saving causes real interest rates to rise and investment to fall. Reduced investment leads over time to a smaller stock of capital. A lower capital stock reduces labor productivity, real wages, and the economy's production of goods and services. Thus, when the government increases its debt, future generations are born into an economty with lower incomes as well as higher taxes. Now this nonsensical view of the way the monetary system operates is based on the same fundamental building blocks as Gittin's view expressed above. The only difference between the two (and between deficit-doves and the more extreme mainstreamers) is that the former think there is some return on the public investment which transfers to future generations and justifies the higher tax burden they have to bear as a consequence of the public debt accumulation. None of these arguments are remotely correct in a fiat monetary system. Gittins continues: … if you want adequate infrastructure you have to be prepared to live with a fair bit of debt. And if you want to build all the additional economic – and social – infrastructure needed to cope with a 60 per cent increase in the population over the next 40 years, you have to be prepared to live with a huge whack of debt. As every economist understands, there's nothing wrong with borrowing a high proportion of the cost of infrastructure, provided that infrastructure efficiently fulfils a genuine need. That is, provided it earns an adequate "social" rate of return (not necessarily an actual, money-in-the-hand rate of return). The point is that capital works – from a new police station to a new port – deliver a flow of services stretching over 20, 30 or 40 years. Borrowing to cover, say, half the cost of the work is a way of sharing its cost between the present and future generations who will benefit from its services. There's a price to be paid for this sharing – and for gaining the services of the facility before we've saved sufficient money to be able to buy it for cash – of course, and that's the interest bill. Nothing wrong with that … When the Opposition carries on about all this debt and interest burden we're leaving for our children, it forgets to mention the benefits that go with the debt. It's not clear our children would be better off if we left them a debt-free government, but also a world with inadequate infrastructure. So you see that the difference between the two views turns on whether the public investment delivers future returns that offset (to some extent) the costs that are imposed on future generations. However, there is no understanding that a sovereign government does not have to reach a point where it says – today, we have to pay the debt back … therefore we have to cut spending on other things or increase taxes. It might have to make those decisions but as we will see not because it issued the debt in the first place. But Gittins digs himself further in a hole by trying to be cute: … Maybe in an ideal world you and I would hold off buying things until we'd saved enough to pay cash, thereby avoiding all debt and interest payments. Trouble is, many of us don't have sufficient self-control to keep saving until we've got enough. We'd end up spending more than we should on cheap frivolities and not enough on durable items that could make a big difference to the amenity of our lives. Thus borrowing turns out to be a form of "commitment device" to overcome our self-control problem. It's not just a way of getting to use something before you can afford it, it's also a way of leaving yourself no choice but to save. When you borrow to buy something, you don't avoid having to save. You just do your saving in retrospect (as you make your monthly repayments), rather than in prospect. The interest you pay is the cost of doing your saving in reverse because you lack the self-control to save before you buy. It's possible that what's true for individuals has some parallel at government level. Where governments eschew debt, they probably save less than they otherwise would, end up with less adequate infrastructure and spend more on less-beneficial bits and pieces on the way through. It is not possible that there is any parallel between the individal person (clearly revenue-constrained) and the national government. This is the worst of the worst when it comes to trying to explain the options facing a sovereign government in a fiat monetary system. The two choice (and constraint) sets are not alike in any way, except that neither can buy what is not available for sale. After that point, there is no similarity or analogy that can be exploited. Of-course, the evolution in the 1960s of the literature on the so-called government budget constraint (GBC), was part of a deliberate strategy to argue that the microeconomic constraint facing the individual applied to a national government as well. So therefore while the individual had to pay the piper when he/she spent so to did the government. This provided the conservatives who hated public activity and were advocating small government, with the ammunition it needed. It used this concept (GBC) relentlessly to justify the sort of statements that Mankiw (above) drums into his poor impressionable students, who should sue him for being deceived during their university education. And Gittins uses his influential column to perpetuate the same myths even though he is trying to appear reasonable and distance himself from the manic deficit terrorists. The problem is that he is one of them. This all reminded me of Abba Lerner and his notions of functional finance. Here is a useful Bio of Lerner. Lerner's objective was to advance economic policy debate beyond what he called "sound finance" (which is the precursor of modern mainstream (neo-liberal) thinking). So he juxtaposed the his "economics of control" policy thinking with the dominant laissez-faire approach that prevailed during the Great Depression. Chapter 1 of Lerner's 1951 book The Economics of Employment, was really a rewritten version of the 1941 article The Economic Steering Wheel where he elaborated his version of Keynesian thinking. He began the book as such (1951: 3-5): Our economic system is frequently put to shame in being displayed before an imaginary visitor from a strange planet. It is time to reverse the procedure. Imagine yourself instead in a Buck Rogers interplanetary adventure, looking at a highway in a City of Tomorrow. The highway is wide and straight, and its edges are turned up so that it is almost impossible for a car to run off the road. What appears to be a runaway car is speeding along the road and veering off to one side. As it approaches the rising edge of the highway, its front wheels are turned so that it gets back onto the road and goes off at an angle, making for the other side, where the wheels are turned again. This happens many times, the car zigzagging but keeping on the highway until it is out of sight. You are wondering how long it will take for it to crash, when another car appears which behaves in the same fashion. When it comes near you it stops with a jerk. A door is opened, and an occupant asks whether you would like a lift. You look into the car and before you can control yourself you cry out, "Why! There's no steering wheel!" "Of course we have no steering wheel!" says one of the occupants rather crossly. "Just think how it would cramp the front seat. It is worse than an old-fashioned gear-shift lever and it is dangerous. Suppose we had a steering wheel and somebody held on to it when we reached a curb! He would prevent the automatic turning of the wheel, and the car would surely be overturned! And besides, we believe in democracy and cannot give anyone the extreme authority of life and death over all the occupants of the care. That would be dictatorship." "Down with dictatorship!" chorus the other occupants of the car. "If you are worried about the way the car goes from side to side," continues the first speaker, "forget it! We have wonderful brakes so that collisions are prevented nine times out of ten. On our better roads the curb is so effective that one can travel hundreds of miles without going off the road once. We have a very efficient system of carrying survivors of wrecks to nearby hospitals and for rapidly sweeping the remnants from the road to deposit them on nearby fields as a reminder to man of the inevitability." You look around to see the piles of wrecks and burned-out automobiles as the man in the car continues. "Impressive, isn't it. But things are going to improve. See those men marking and photographing the tracks of the car that preceded us? They are going to take those pictures into their laboratories and pictures of our tracks, too, to analyze the cyclical characteristics of the curves, their degree of regularity, the average distance from turn to turn, the amplitude of the swings, and so on. When they have come to an agreement on their true nature we may know whether something can be done about it. At present they are disputing whether this cyclical movement is due to the type of road surface or to its shape or whether it is due to the length of the car or to the kind of rubber in the tires or to the weather. Some of them think that it will be impossible to avoid having cycles unless we go back to the horse and buggy, but we can't do that because we believe in Progress. Well, want a ride?" In other words, macroeconomics was all about "steering" the fluctuations in the economy. Fiscal policy was the steering wheel and should be applied for functional purposes. Laissez-faire (free market) was akin to letting the car zigzag all over the road and if you wanted the economy to develop in a stable way you had to control its movement. This led to the concept of functional finance and the differentiation from what he called sound finance (that proposed by the free market lobby). Sound finance was all about fiscal rules – the type you read about every day even these days. So balance the budget over the course of the business cycle; only increase the money supply in line with the real rate of output growth; etc. Lerner thought that these rules were based more in conservative morality than being well founded ways to achieve the goals of economic behaviour – full employment and price stability. He said that once you understood the monetary system you would always employ functional finance – that is, fiscal and monetary policy decisions should be functional – advance public purpose and eschew the moralising concepts that public deficits were profligate and dangerous. Lerner thought that the government should always use its capacity to achieve full employment and price stability. In modern monetary theory (MMT) we express this responsibility as "advancing public purpose". In his 1943 article (page 39) we read: The central idea is that government fiscal policy, its spending and taxing, its borrowing and repayment of loans, its issue of new money and its withdrawal of money, shall all be undertaken with an eye only to the results of these actions on the economy and not to any established traditional doctrine about what is sound and what is unsound. This principle of judging only by effects has been applied in many other fields of human activity, where it is known as the method of science opposed to scholasticism. The principle of judging fiscal measures by the way they work or function in the economy we may call Functional Finance … Government should adjust its rates of expenditure and taxation such that total spending in the economy is neither more nor less than that which is sufficient to purchase the full employment level of output at current prices. If this means there is a deficit, greater borrowing, "printing money," etc., then these things in themselves are neither good nor bad, they are simply the means to the desired ends of full employment and price stability … This is why I always criticise the mainstream use of fiscal rules as being divorced from a functional context. It may be that a budget surplus is necessary at some point in time – for example, if net exports are very strong and fiscal policy has to contract spending to take the inflationary pressures out of the economy. This will be a rare situation but in those cases I would as a proponent of MMT advocate fiscal surpluses. But just mindlessly rehearsing the sort of nonsense that you read in Mankiw which proposes fiscal rules that always apply is totally irresponsible. Lerner outlined three fundamental rules of functional finance in his 1941 (and later 1951) works. 1. The government shall maintain a reasonable level of demand at all times. If there is too little spending and, thus, excessive unemployment, the government shall reduce taxes or increase its own spending. If there is too much spending, the government shall prevent inflation by reducing its own expenditures or by increasing taxes. 2. By borrowing money when it wishes to raise the rate of interest, and by lending money or repaying debt when it wishes to lower the rate of interest, the government shall maintain that rate of interest that induces the optimum amount of investment. 3. If either of the first two rules conflicts with the principles of 'sound finance', balancing the budget, or limiting the national debt, so much the worse for these principles. The government press shall print any money that may be needed to carry out rules 1 and 2. In this Biography of Lerner you read the following (pages 218-19): In 1943 Lerner published an article, "Functional Finance and the Federal Debt," that announced a new approach to fiscal policy. (The subject was further developed in his Economics of Control and the Economics of Employment.) He noted that conventional fiscal wisdom was based on the principles and morals of good household management: don't spend what you don't have – a tacit reminder that the words "economy" and "economics" are etymologically derived from oikos, the Greek word for household. Lerner, however, picking up on the summary Keynesian prescription of deficit spending, argued that governments should not be concerned with conventional morality but rather should consider only the results of their actions. The aim of government spending and taxing, he said, should be to hold the economy's total spending at a level compatible with and conducive to full employment at current prices – in other words, no unemployment and no inflation. In doing this the government should not be concerned with deficits or debt. Second, the government should borrow or repay only insofar as it wants to change the proportions in which the public holds securities or money. Changing this proportion will raise or lower interest rates and hence discourage or promote investment and credit purchasing. If the only question, then, was how to finance a deficit, Lerner advocated printing money. Third, the government should put money into circulation or withdraw (and destroy) it as needed to effect the results called for by the first two principles. So the only reason a government should issue debt is if it wanted to alter the "proportions in which the public holds securities or money". It is clearly recognised that the government does not need to raise revenue. Debt and taxation are dimensions of the "steering wheel" and help keep the economy on the road. In his 1943 article Lerner says (page 355) that the government would only issue debt "if otherwise the rate of interest would be too low". So you start to understand that the "borrowing" is a monetary operation not a funding necessity. He went further on this theme in his 1951 book when he says (pages 10-11) that the: … spending of money … out of deficits keeps on increasing the stock of money (and bank reserves) and this keeps on pushing down the rate of interest. Somehow the government must prevent the rate of interest from being pushed down by the additions to the stock of money coming from its own expenditures … There is an obvious way of doing this. The government can borrow back the money it is spending (emphasis in original). This is one of the fundamental insights of MMT – that the issuing of debt drains excess bank reserves that were generated by the net spending (deficits) in the first place. The government just borrows its one spending back. If it didn't do that and if the central bank didn't pay a return on overnight reserves then the interest rate would fall to zero (or some support rate that the central bank did pay). So two things are learned here: (a) net public spending generates the financial assets which are then borrowed – so debt issuance cannot "finance" (by which we mean allow) government net spending; and (b) deficits do not put upward pressure on interest rates contrary to the crowding out story rehearsed above in Mankiw. And for those progressives (the deficit-doves) – the "proponents of organized prosperity", Lerner had this to say in his 1951 book (page 15). A kind of timidity makes them shrink from saying anything that might shock the respectable upholders of traditional doctrine and tempts them to disguise the new doctrine so that it might be easily mistaken for the old. This does not help much, for they are soon found out, and it hinders them because, in endeavoring to make the new doctrine appear harmless in the eyes of the upholders of tradition, they often damage their case. Thus instead of saying that the size of the national debt is of no great concern … [and] … that the budget may have to be unbalanced and that this is insignificant when compared with the attainment of prosperity, it is proposed to disguise an unbalanced budget (and therefore the size of the national debt) by having an elaborate system of annual, cyclical, capital, and other special budgets. On the next page (p.16) Lerner addressed the problem of progressives who present their arguments in a conservative way because the public might not understand the fundamentals of functional finance. He says: The scholars who understand it hesitate to speak out boldly for fear that the people will not understand. The people, who understand it quite easily, also fear to speak out while they wait for the scholars to speak out first. The difference between our present situation and that of the story is that it is not an emperor but the people who are periodically made to go naked and hungry and insecure and discontented – a ready prey to less timid organizers of discontent for the destruction of civilization (emphasis in original). So way back then Lerner was dealing with the same debates and charlatans as are everywhere today. Once you understand these ideas then you are well on the way to comprehending the basis of policy design in MMT, which adds a very rigorous stock-flow consistent framework ground in the national accounting identities to the principles of functional finance. It also helps you realise why the progressives who argue like Gittins are really conservatives. You might like to read the following references: Lerner, A. (1941) 'The Economic Steering Wheel', University of Kansas Review, June. Lerner, A. (1943) 'Functional Finance and the Federal Debt', Social Research, 10, 38-51. Lerner, A. (1944) The Economics of Control, New York, Macmillan. Lerner, A. (1951) The Economics of Employment, New York, McGraw Hill. Digression: what the hell? The federal government announced today that it was appointing former (failed) conservative treasurer Peter Costello to the board of the Future Fund which was the fund that Costello, himself created by denying Australia of investment in public infrastructure and full employment. Towards the end of the conservative period in office, they started to purchase financial assets claiming it was salting away the budget surplus. In fact, it was just spending but rather than create jobs or improve our schooling or health system, they speculated in financial assets. They bought the remaining "public shares" in the privatised Telstra which have since declined in value. They did that to avoid having to sell the shares privately after the second tranche of Telstra shares had brought such losses. By the end of the conservative's 11 years in office (10 of them in budget surplus) Australian households had record levels of debt, our public infrastructure including our higher education system was in tatters, and we still had 8.5 per cent of our willing labour resources underutilised (either unemployed or underemployed). And now the Labor Government has the audacity to appoint the architect of this fiscal abomination to the very totem of his failure. Read the former Labor Treasurer then Prime Minister (before the conservatives 11 years) comments HERE. He also didn't get it but at least his outrage to this decision is genuine and supportable.
Functional finance and modern monetary theory
Today I am continuing my recent theme of considering the flaws in the standard progressive attack on neo-liberalism. I will write sometime about manufacturing but it is Sunday and it has been a beautiful day here and I don't feel like setting off the flamethrowers out there that clearly think manufacturing is important. It might be, but the standard arguments are based on a vertically integrated conception of the sector that we haven't had for years anyway. But later. Today, I consider the "public debt is good" approach that progressive use to counter the manic "public debt is always bad" arguments proferred by the mainstream of my profession.
The vehicle I use to explore this issue is yesterday's economic commentary by the Sydney Morning Herald's Ross Gittins – No infrastructure unless you borrow (published October 31, 2009).
Gittins begins:
Get this straight: if you think we should be spending a lot more on economic infrastructure, you can't be chicken-hearted about government debt. Similarly, if you think debt-free is the only acceptable way for governments to be, resign yourself to living in an economy characterised by bottlenecks at ports, inadequate rail and road systems, rising congestion on urban roads, inadequate public transport and the threat of urban water shortages.
As a literary device he often opens articles or paragraphs with statements such as "get this straight" or "get this" and similar. It is a way of trying to capture authority and to portray to the reader that he knows something about the topic he is writing about. I just think … poor fool reader – hoodwinked again.
Anyway, his opening juxtaposition is a standard ploy by "self-styled" progressives who think they are being reasonable in the face of the conservative morality and denial that public investment is useful.
But of-course, the argument is, in itself conservative and fails to reflect an understand of the way the modern monetary system operates and the opportunities that fiat monetary system offers to governments.
Gittins continues:
It's not good enough for big business to be demanding hugely increased spending on infrastructure while looking the other way as its Coalition mates do all in their power to put the frighteners on the punters over government deficits and debt. That was the simplistic, short-sighted and self-serving line of Peter Costello that did so much to help create our infrastructure backlog. The more success his successors have in using it against the easily frightened Rudd Government, the more inadequate its infrastructure efforts will be.
The simple point is that, to a large extent, spending on capital works has to be financed by borrowing. That's the way the private sector always does it and governments have to do it, too.
Well I agree with the first point – the sheer hypocrisy of the conservative side of politics and the games big business play to extract as much corporate welfare for themselves and deny as much social welfare to the disadvantaged. It is not as if big business does much that is worth anything anyway (in my view). I value public goods well above the private goods that are available.
I also agree with the criticisms of the past conservative government (Costello was Treasurer – see later on him) and the weak-kneed current government. I haven't written anything about the federal government's handling of the current refugee crisis in the north west – but suffice to say is is a bit more tricky (read sneaky) than the brazen way Howard and his government handled the matter – but none the less shameful. Maybe a separate blog on this but it would just be a stream of personal consciousness rather than any professional level understanding (as is my usual blogs) and I tend to avoid this sort of writing – that is what Saturday morning cups of tea are about!
But the final paragraph is straight ignorance – and just takes us back down the deficit-dove road back to nowhere – that is, nowhere progressive.
First, spending on capital works could easily be realised without a cent of debt being issued. Not a cent is required to allow a sovereign government to spend whatever it likes subject to goods and services being available for sale. This is not the same thing as saying the government can always build infrastructure without concern for other dimensions in the aggregate economy.
For example, if the economy was at full capacity and the government tried to undertake a major nation building exercise then it might hit inflationary problems – it would have to compete at market prices for resources and bid them away from their existing uses.
In those circumstances, the government may – if it thought it was politically reasonable to build the infrastructure – quell demand for those resources elsewhere – that is, create some unemployment. How? By increasing taxes. It might also issue debt – more about which later. But neither of these actions (tax rate rises or debt-issuance) would be about raising funds for the spending. They would not even be remotely about that.
As we will see in a moment – these policy actions are about reducing the amount of spending capacity in the private sector.
Second, the analogy that if it is okay for the the corporate sector to borrow to invest and earn profits, then it must be okay for government to follow the same strategy, even if the profits are in the form of social returns, is flawed at the most elemental level. It is often used by progressives in a way that they think skewers the conservatives. Then the debate, they think, has to shift to the returns on the "investment" rather than the act of "financing" it via debt.
The problem is that the corporate sector has to finance its spending (whether it be consumption or investment) from a variety of sources, one of which is debt. It is the user of the currency and so it is always revenue-constrained.
Conversely, the sovereign government is the monopoly issuer of the currency and is never revenue-constrained. So it never has to "obey" the constraints that the private sector always has to obey.
The household/corporate/government analogy is a non-sequiter. It is a basic tactic used by mainstream economists to come up with all the nonsense that appears in the text books which ultimately is used to argue against deficits and to justify moralistic fiscal rules.
In the influential textbook by Mankiw "The Principles of Economics" (First edition) we read on page 767 in the chapter "Five Debates over Macroeconomic Policy" that:
The most direct effect of the government debt is to place a burden on future generations of taxpayers. When these debts and accumulated interst come due, future taxpayers will face a difficult choice. They can pay higher taxes, enjoy less government spending, or both, in order to make resources available to pay off the debt and accumulated interest. Or they can delay the day of reckoning and put the government into even deeper debt by borrowing once again to pay off the old debt and interest. In essence, when the government runs a budget deficit, it allows current taxpayers to pass the bill for some of their government spending on to future taxpayers. Inheriting such a large debt cannot help but lower the living standard of future generations.
In addition to this direct effect, budget deficits also have various macroeconomic effects. Because budget deficits represent negative public saving, they lower national saving (the sum of private and public saving). Reduced national saving causes real interest rates to rise and investment to fall. Reduced investment leads over time to a smaller stock of capital. A lower capital stock reduces labor productivity, real wages, and the economy's production of goods and services. Thus, when the government increases its debt, future generations are born into an economty with lower incomes as well as higher taxes.
Now this nonsensical view of the way the monetary system operates is based on the same fundamental building blocks as Gittin's view expressed above. The only difference between the two (and between deficit-doves and the more extreme mainstreamers) is that the former think there is some return on the public investment which transfers to future generations and justifies the higher tax burden they have to bear as a consequence of the public debt accumulation.
None of these arguments are remotely correct in a fiat monetary system.
Gittins continues:
… if you want adequate infrastructure you have to be prepared to live with a fair bit of debt. And if you want to build all the additional economic – and social – infrastructure needed to cope with a 60 per cent increase in the population over the next 40 years, you have to be prepared to live with a huge whack of debt. As every economist understands, there's nothing wrong with borrowing a high proportion of the cost of infrastructure, provided that infrastructure efficiently fulfils a genuine need. That is, provided it earns an adequate "social" rate of return (not necessarily an actual, money-in-the-hand rate of return).
The point is that capital works – from a new police station to a new port – deliver a flow of services stretching over 20, 30 or 40 years. Borrowing to cover, say, half the cost of the work is a way of sharing its cost between the present and future generations who will benefit from its services.
There's a price to be paid for this sharing – and for gaining the services of the facility before we've saved sufficient money to be able to buy it for cash – of course, and that's the interest bill. Nothing wrong with that …
When the Opposition carries on about all this debt and interest burden we're leaving for our children, it forgets to mention the benefits that go with the debt. It's not clear our children would be better off if we left them a debt-free government, but also a world with inadequate infrastructure.
So you see that the difference between the two views turns on whether the public investment delivers future returns that offset (to some extent) the costs that are imposed on future generations.
However, there is no understanding that a sovereign government does not have to reach a point where it says – today, we have to pay the debt back … therefore we have to cut spending on other things or increase taxes. It might have to make those decisions but as we will see not because it issued the debt in the first place.
But Gittins digs himself further in a hole by trying to be cute:
… Maybe in an ideal world you and I would hold off buying things until we'd saved enough to pay cash, thereby avoiding all debt and interest payments.
Trouble is, many of us don't have sufficient self-control to keep saving until we've got enough. We'd end up spending more than we should on cheap frivolities and not enough on durable items that could make a big difference to the amenity of our lives.
Thus borrowing turns out to be a form of "commitment device" to overcome our self-control problem. It's not just a way of getting to use something before you can afford it, it's also a way of leaving yourself no choice but to save.
When you borrow to buy something, you don't avoid having to save. You just do your saving in retrospect (as you make your monthly repayments), rather than in prospect. The interest you pay is the cost of doing your saving in reverse because you lack the self-control to save before you buy.
It's possible that what's true for individuals has some parallel at government level. Where governments eschew debt, they probably save less than they otherwise would, end up with less adequate infrastructure and spend more on less-beneficial bits and pieces on the way through.
It is not possible that there is any parallel between the individal person (clearly revenue-constrained) and the national government. This is the worst of the worst when it comes to trying to explain the options facing a sovereign government in a fiat monetary system.
The two choice (and constraint) sets are not alike in any way, except that neither can buy what is not available for sale. After that point, there is no similarity or analogy that can be exploited.
Of-course, the evolution in the 1960s of the literature on the so-called government budget constraint (GBC), was part of a deliberate strategy to argue that the microeconomic constraint facing the individual applied to a national government as well. So therefore while the individual had to pay the piper when he/she spent so to did the government. This provided the conservatives who hated public activity and were advocating small government, with the ammunition it needed.
It used this concept (GBC) relentlessly to justify the sort of statements that Mankiw (above) drums into his poor impressionable students, who should sue him for being deceived during their university education.
And Gittins uses his influential column to perpetuate the same myths even though he is trying to appear reasonable and distance himself from the manic deficit terrorists. The problem is that he is one of them.
This all reminded me of Abba Lerner and his notions of functional finance. Here is a useful Bio of Lerner.
Lerner's objective was to advance economic policy debate beyond what he called "sound finance" (which is the precursor of modern mainstream (neo-liberal) thinking). So he juxtaposed the his "economics of control" policy thinking with the dominant laissez-faire approach that prevailed during the Great Depression.
Chapter 1 of Lerner's 1951 book The Economics of Employment, was really a rewritten version of the 1941 article The Economic Steering Wheel where he elaborated his version of Keynesian thinking. He began the book as such (1951: 3-5):
Our economic system is frequently put to shame in being displayed before an imaginary visitor from a strange planet. It is time to reverse the procedure. Imagine yourself instead in a Buck Rogers interplanetary adventure, looking at a highway in a City of Tomorrow. The highway is wide and straight, and its edges are turned up so that it is almost impossible for a car to run off the road. What appears to be a runaway car is speeding along the road and veering off to one side. As it approaches the rising edge of the highway, its front wheels are turned so that it gets back onto the road and goes off at an angle, making for the other side, where the wheels are turned again. This happens many times, the car zigzagging but keeping on the highway until it is out of sight. You are wondering how long it will take for it to crash, when another car appears which behaves in the same fashion. When it comes near you it stops with a jerk. A door is opened, and an occupant asks whether you would like a lift. You look into the car and before you can control yourself you cry out, "Why! There's no steering wheel!"
"Of course we have no steering wheel!" says one of the occupants rather crossly. "Just think how it would cramp the front seat. It is worse than an old-fashioned gear-shift lever and it is dangerous. Suppose we had a steering wheel and somebody held on to it when we reached a curb! He would prevent the automatic turning of the wheel, and the car would surely be overturned! And besides, we believe in democracy and cannot give anyone the extreme authority of life and death over all the occupants of the care. That would be dictatorship."
"Down with dictatorship!" chorus the other occupants of the car.
"If you are worried about the way the car goes from side to side," continues the first speaker, "forget it! We have wonderful brakes so that collisions are prevented nine times out of ten. On our better roads the curb is so effective that one can travel hundreds of miles without going off the road once. We have a very efficient system of carrying survivors of wrecks to nearby hospitals and for rapidly sweeping the remnants from the road to deposit them on nearby fields as a reminder to man of the inevitability."
You look around to see the piles of wrecks and burned-out automobiles as the man in the car continues. "Impressive, isn't it. But things are going to improve. See those men marking and photographing the tracks of the car that preceded us? They are going to take those pictures into their laboratories and pictures of our tracks, too, to analyze the cyclical characteristics of the curves, their degree of regularity, the average distance from turn to turn, the amplitude of the swings, and so on. When they have come to an agreement on their true nature we may know whether something can be done about it. At present they are disputing whether this cyclical movement is due to the type of road surface or to its shape or whether it is due to the length of the car or to the kind of rubber in the tires or to the weather. Some of them think that it will be impossible to avoid having cycles unless we go back to the horse and buggy, but we can't do that because we believe in Progress. Well, want a ride?"
In other words, macroeconomics was all about "steering" the fluctuations in the economy. Fiscal policy was the steering wheel and should be applied for functional purposes. Laissez-faire (free market) was akin to letting the car zigzag all over the road and if you wanted the economy to develop in a stable way you had to control its movement.
This led to the concept of functional finance and the differentiation from what he called sound finance (that proposed by the free market lobby). Sound finance was all about fiscal rules – the type you read about every day even these days. So balance the budget over the course of the business cycle; only increase the money supply in line with the real rate of output growth; etc.
Lerner thought that these rules were based more in conservative morality than being well founded ways to achieve the goals of economic behaviour – full employment and price stability.
He said that once you understood the monetary system you would always employ functional finance – that is, fiscal and monetary policy decisions should be functional – advance public purpose and eschew the moralising concepts that public deficits were profligate and dangerous.
Lerner thought that the government should always use its capacity to achieve full employment and price stability. In modern monetary theory (MMT) we express this responsibility as "advancing public purpose". In his 1943 article (page 39) we read:
The central idea is that government fiscal policy, its spending and taxing, its borrowing and repayment of loans, its issue of new money and its withdrawal of money, shall all be undertaken with an eye only to the results of these actions on the economy and not to any established traditional doctrine about what is sound and what is unsound. This principle of judging only by effects has been applied in many other fields of human activity, where it is known as the method of science opposed to scholasticism. The principle of judging fiscal measures by the way they work or function in the economy we may call Functional Finance …
Government should adjust its rates of expenditure and taxation such that total spending in the economy is neither more nor less than that which is sufficient to purchase the full employment level of output at current prices. If this means there is a deficit, greater borrowing, "printing money," etc., then these things in themselves are neither good nor bad, they are simply the means to the desired ends of full employment and price stability …
This is why I always criticise the mainstream use of fiscal rules as being divorced from a functional context. It may be that a budget surplus is necessary at some point in time – for example, if net exports are very strong and fiscal policy has to contract spending to take the inflationary pressures out of the economy. This will be a rare situation but in those cases I would as a proponent of MMT advocate fiscal surpluses.
But just mindlessly rehearsing the sort of nonsense that you read in Mankiw which proposes fiscal rules that always apply is totally irresponsible.
Lerner outlined three fundamental rules of functional finance in his 1941 (and later 1951) works.
1. The government shall maintain a reasonable level of demand at all times. If there is too little spending and, thus, excessive unemployment, the government shall reduce taxes or increase its own spending. If there is too much spending, the government shall prevent inflation by reducing its own expenditures or by increasing taxes.
2. By borrowing money when it wishes to raise the rate of interest, and by lending money or repaying debt when it wishes to lower the rate of interest, the government shall maintain that rate of interest that induces the optimum amount of investment.
3. If either of the first two rules conflicts with the principles of 'sound finance', balancing the budget, or limiting the national debt, so much the worse for these principles. The government press shall print any money that may be needed to carry out rules 1 and 2.
In this Biography of Lerner you read the following (pages 218-19):
In 1943 Lerner published an article, "Functional Finance and the Federal Debt," that announced a new approach to fiscal policy. (The subject was further developed in his Economics of Control and the Economics of Employment.) He noted that conventional fiscal wisdom was based on the principles and morals of good household management: don't spend what you don't have – a tacit reminder that the words "economy" and "economics" are etymologically derived from oikos, the Greek word for household.
Lerner, however, picking up on the summary Keynesian prescription of deficit spending, argued that governments should not be concerned with conventional morality but rather should consider only the results of their actions. The aim of government spending and taxing, he said, should be to hold the economy's total spending at a level compatible with and conducive to full employment at current prices – in other words, no unemployment and no inflation. In doing this the government should not be concerned with deficits or debt. Second, the government should borrow or repay only insofar as it wants to change the proportions in which the public holds securities or money. Changing this proportion will raise or lower interest rates and hence discourage or promote investment and credit purchasing. If the only question, then, was how to finance a deficit, Lerner advocated printing money. Third, the government should put money into circulation or withdraw (and destroy) it as needed to effect the results called for by the first two principles.
So the only reason a government should issue debt is if it wanted to alter the "proportions in which the public holds securities or money". It is clearly recognised that the government does not need to raise revenue. Debt and taxation are dimensions of the "steering wheel" and help keep the economy on the road.
In his 1943 article Lerner says (page 355) that the government would only issue debt "if otherwise the rate of interest would be too low". So you start to understand that the "borrowing" is a monetary operation not a funding necessity. He went further on this theme in his 1951 book when he says (pages 10-11) that the:
… spending of money … out of deficits keeps on increasing the stock of money (and bank reserves) and this keeps on pushing down the rate of interest. Somehow the government must prevent the rate of interest from being pushed down by the additions to the stock of money coming from its own expenditures … There is an obvious way of doing this. The government can borrow back the money it is spending (emphasis in original).
This is one of the fundamental insights of MMT – that the issuing of debt drains excess bank reserves that were generated by the net spending (deficits) in the first place. The government just borrows its one spending back. If it didn't do that and if the central bank didn't pay a return on overnight reserves then the interest rate would fall to zero (or some support rate that the central bank did pay).
So two things are learned here: (a) net public spending generates the financial assets which are then borrowed – so debt issuance cannot "finance" (by which we mean allow) government net spending; and (b) deficits do not put upward pressure on interest rates contrary to the crowding out story rehearsed above in Mankiw.
And for those progressives (the deficit-doves) – the "proponents of organized prosperity", Lerner had this to say in his 1951 book (page 15).
A kind of timidity makes them shrink from saying anything that might shock the respectable upholders of traditional doctrine and tempts them to disguise the new doctrine so that it might be easily mistaken for the old. This does not help much, for they are soon found out, and it hinders them because, in endeavoring to make the new doctrine appear harmless in the eyes of the upholders of tradition, they often damage their case. Thus instead of saying that the size of the national debt is of no great concern … [and] … that the budget may have to be unbalanced and that this is insignificant when compared with the attainment of prosperity, it is proposed to disguise an unbalanced budget (and therefore the size of the national debt) by having an elaborate system of annual, cyclical, capital, and other special budgets.
On the next page (p.16) Lerner addressed the problem of progressives who present their arguments in a conservative way because the public might not understand the fundamentals of functional finance. He says:
The scholars who understand it hesitate to speak out boldly for fear that the people will not understand. The people, who understand it quite easily, also fear to speak out while they wait for the scholars to speak out first. The difference between our present situation and that of the story is that it is not an emperor but the people who are periodically made to go naked and hungry and insecure and discontented – a ready prey to less timid organizers of discontent for the destruction of civilization (emphasis in original).
So way back then Lerner was dealing with the same debates and charlatans as are everywhere today.
Once you understand these ideas then you are well on the way to comprehending the basis of policy design in MMT, which adds a very rigorous stock-flow consistent framework ground in the national accounting identities to the principles of functional finance.
It also helps you realise why the progressives who argue like Gittins are really conservatives.
You might like to read the following references:
Lerner, A. (1941) 'The Economic Steering Wheel', University of Kansas Review, June.
Lerner, A. (1943) 'Functional Finance and the Federal Debt', Social Research, 10, 38-51.
Lerner, A. (1944) The Economics of Control, New York, Macmillan.
Lerner, A. (1951) The Economics of Employment, New York, McGraw Hill.
Digression: what the hell?
The federal government announced today that it was appointing former (failed) conservative treasurer Peter Costello to the board of the Future Fund which was the fund that Costello, himself created by denying Australia of investment in public infrastructure and full employment. Towards the end of the conservative period in office, they started to purchase financial assets claiming it was salting away the budget surplus.
In fact, it was just spending but rather than create jobs or improve our schooling or health system, they speculated in financial assets. They bought the remaining "public shares" in the privatised Telstra which have since declined in value. They did that to avoid having to sell the shares privately after the second tranche of Telstra shares had brought such losses.
By the end of the conservative's 11 years in office (10 of them in budget surplus) Australian households had record levels of debt, our public infrastructure including our higher education system was in tatters, and we still had 8.5 per cent of our willing labour resources underutilised (either unemployed or underemployed).
And now the Labor Government has the audacity to appoint the architect of this fiscal abomination to the very totem of his failure.
Read the former Labor Treasurer then Prime Minister (before the conservatives 11 years) comments HERE. He also didn't get it but at least his outrage to this decision is genuine and supportable.
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