Monday, October 27, 2014

Real waste

The NSW State Finance Minister, Dominic Perrottet, recently wrote an article on government finances and government 'waste'. The Minister notes all manner of waste – CBD heritage buildings used as government offices, government car fleet maintenance, warehouses of paper records – but he misses the most appalling waste over which governments preside.

 (Russell Drysdale, The Deserted Town Hall)

That's the waste of leaving 219 000 persons unemployed (5.7 per cent of the New South Wales labour force) and a further 303 000 persons underemployed (6.2 per cent). Across Australia, 747 000 persons are unemployed, and 1.05 million are underemployed.

That's a big part of our labour resources not working to capacity – and in many instances, simply standing idle. And that's an appalling waste, in terms of the skills and abilities of these people; their aspirations, dignity and sense of worth; and the additional goods and services that they would otherwise have produced and made available to the rest of us.

Indeed, some of them might have the skills and ability to do office fit-outs, maintain cars, digitise paper and solve other problems that frustrate government ministers and their fellow citizens. In the area of our particular interest, some could help build houses, or repair them, or get activities going in local communities to simply make life more interesting and enjoyable.

All this may be had simply by paying them a wage. The private sector isn't doing it and won't – in fact, it can't, where it also wants to accumulate net financial assets (not to mention pay taxes).

Instead, the money to pay wages for jobs for the otherwise unemployed must come from the non-private sector – in particular, the Australian Government, which should embrace its role in eliminating the waste of idle labour by becoming the employer of last resort (or, putting it more positively, operating a Job Guarantee).

In returning for socially useful work, the Government would pay a living wage, which would thereby become the effective minimum wage in the private sector too. It would make for the economy a buffer stock of employed labour, rather than than unemployed labour, and a mechanism for stabilising wages, other prices, and the currency.

And the Australian Government would pay for this by simply crediting the bank accounts of Job Guarantee employees. The total amount spent would depend on the state of the wider economy – in a recession, when the private sector sheds jobs, the program would grow; and when the private sector is growing, rising incomes and wages would draw labour out of the program – but in any event, the amount spent would be the appropriate amount to maintain full employment. And as issuer of the Australian currency, the Australian Government can always afford whatever is for sale in Australian dollars, including unemployed labour.

The Government's role in the elimination of wasteful unemployment is occluded, however, by misconceptions about the Government and money. The Finance Minister perpetuates them when he writes:

the overarching obligation of politicians is to the taxpayers who fund us. Governments do not actually earn, own or generate any money of their own. Our funds only exist because we tax the labor and efforts of our citizens and businesses. They keep their part of the social contract by entrusting us with this money.  We need to keep ours by using it wisely. [Emphasis added.]

This does not reflect the true position of the Australian Government, and it hardly reflects that of the NSW State Government either (which does not issue currency, and which does spend monies raised by taxation, but which is nonetheless part of a federal system that has placed the power to issue currency with the Australian Government and which gets a bit less than half its funds directly from the Australian Government).

Taxpayers do not 'entrust' money to government. They give it up, more or less willing, as part of participating in an economy with a sovereign currency. Government keeps its part of the bargain by using its special role as issuer of the currency to allow all citizens to participate and contribute, through work, to the wealth of the whole community.

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