Jobs to Phil

One of the main benefits of having worked for the Reserve Bank is the immense sense of relief that newly former employees are granted upon leaving.


Bernie loves retirement as much as the camera loves Bernie.

Liberated RBA economists can publish, if they so choose, their now unfiltered and ill-conceived ideological rants with any low-traffic, vainglorious blog platform they choose, or with more reputable and distinguished media outlets.

Of course, former central bankers are obliged to ‘maintain confidentiality in relation to the affairs of the Bank‘. Pamphlets into the Wind takes this obligation very seriously and refers only to items on the public record.

It’s three years to the day since the RBA and I parted ways. I’ve been happy and lucky in my post-Bank life and have never wanted to return. Since leaving the Bank, certain positions that I’ve stuttered and scrawled about full employment appear to contradict my contributions as a Bank employee, even if the remarks I’ve made in a private capacity are perhaps more consistent with the RBA’s mandate. I offer no comment and leave it to any interested/borderline obsessed reader to divine which position might better represent my true thoughts.



One former RBA boffin who seemed to take the ‘full employment’ part of the Bank’s mandate seriously was its first Governor, Nugget Coombs. Coombs had codified his commitment to full employment some fifteen years before he was appointed to the Governorship, in the 1945 White Paper on Full Employment. The White Paper outlined a policy in which:

Governments should accept responsibility for spending on goods and services to the extent necessary to sustain full employment. There will be no place in this full employment policy for schemes designed to make work for work’s sake.

Whether Coombs maintained this position during his tenure as RBA Governor might be surmised from the average unemployment rate over 1960–1968: 1.5 per cent.

This rate of unemployment sounds almost fanciful in Australia today, where according to current RBA Governor, Phil Lowe:

The current unemployment rate of 5.6 per cent is around ½ percentage point or a bit more above full employment.

So what happened? How could one Reserve Bank Governor consider employment to be ‘full’ when 70,000 people were between jobs, while another can think the same when 700,000 people are unemployed? The answer lies in the perceptive analysis of one of the 20th century’s more understudied economists: Abba Lerner.


No, L-E-R-N-E-R.

You can change your mind…

Lerner was a prolific and prescient economist, but arguably his most important contributions were in labour economics. In his 1951 book, The Economics of Employment, which proudly gathers dust on the shelves of the RBA’s library, Lerner distinguishes between two notions of full employment:

  • ‘Low’ full employment, where fiscal and monetary policies–the actions of the government and the central bank, respectively and collectively–ensure that aggregate demand for goods and services is sufficient to employ as much of the labour force as will not lead to sustained price increases.
  • ‘High’ full employment, where additional policies to control any increases in prices and incomes enable a still-greater number of potential workers to be employed without threatening price stability.


Lerner’s definitions of ‘low’ and ‘high’ full employment don’t completely capture the differences in policy settings between 2010s and 1960s Australia. Average consumer price inflation during Coombs’s Governorship (1960–1968) hit the middle of the current RBA target range of 2–3 per cent, but any wage restraint that contributed to these quiescent prices was afforded by a savvy Commonwealth Conciliation and Arbitration Commission, which kept wages growing at around the same rate as productivity, rather than by enforcing an explicit incomes policy.

Nevertheless, the post-war boom in Australia was accommodated by a Reserve Bank that, under Coombs, had an ’employment-first’ mandate. In effect, if not in precise detail, Coombs and his counterparts in government delivered a period of sustained, ‘high’ full employment, consistent with Lerner’s estimation of that term.

The Reserve Bank of 2017 believes that Australia is close to full employment once again. With interest rates at all-time lows and the budget deficit forecast to close, it appears that the RBA and the government have exhausted their policy options and, according to Governor Lowe’s remarks, it’s now just a matter of waiting for the pesky decimal to disappear before we’re back at the magical jobless rate of 5 per cent.


There’s high full employment… and Lowe full employment!

Needless to say, the benchmark of 5 per cent unemployment, with fiscal and monetary policy apparently fully deployed, would be considered ‘low’ full employment in the Lerner taxonomy. Regardless of:

the magical figure of 5 per cent remains lodged in the minds of most Australian economists and public policy makers as being synonymous with full employment. Any unemployment rate lower than 5 per cent and we’ve got a one-way ticket for runaway inflation. Apparently.



The history book on the shelf…

The shift from high to low full employment as an acceptable policy goal has its roots in the history of macroeconomics. Following the relative economic tranquility of the 1960s, when inflation and unemployment were low, their relationship was stable, and both could be managed with apparent ease, the oil price shocks following the OPEC embargo of the early 1970s triggered in many western countries a wage-price spiral, which was reinforced by the aggressive competition between labour and capital for available economic output.

The inflationary outbreak of the early 1970s appeared to shatter the so-called Keynesian consensus. Into the intellectual vacuum slipped monetarism, whose standard-bearer Milton Friedman had advocated in 1968 for a ‘natural rate of unemployment’, which coincided with wage and price stability:

A lower level of unemployment [than the natural rate] is an indication that there is an excess demand for labor that will produce upward pressure on real wage rates. A higher level of unemployment is an indication that there is an excess supply of labor that will produce downward pressure on real wage rates.

Friedman’s natural rate of unemployment was soon formalised as the non-accelerating-inflation rate of unemployment (NAIRU), which has, more or less, been synonymous with [low] full employment ever since.

Accompanying the collapse of the Keynesian consensus were two other trends in macroeconomics:

  1. The ascendancy of monetary policy at the expense of fiscal policy, and
  2. The push for central banks to formulate monetary policy independently of the government.

Firstly, the primacy of monetary policy meant that the government’s operations of spending and taxing took a back seat to central bank operations of ‘controlling’ the money supply and, when that failed, setting the price of money, or the cash rate. It didn’t matter so much what the government was spending money on, or how many people it was employing in the process, as it mattered that budget expenditures were matched by tax collection and by selling any outstanding debt to private investors in the primary market.


Sweet, sweet liquidity

Secondly, central bank independence meant that governments could no longer turn to the Reserve Bank to finance any additional expenditures. That is, ‘printing money’ for government expenditure was strictly forbidden–even if this money simply filled the pockets of new employees, rather than drove up the prices of goods and services.

The confluence of these trends, in conjunction with the apparent unwillingness of economists to consider an incomes policy (although with the present wage stagnation it’s hard to see whether this would be immediately necessary), means that ‘full employment’ is something of a misnomer today, relative to its more generous and intuitive definition during the 1960s.


Where are those happy days, they seem so hard to find…

With the abandonment of the high full employment objective and the emasculation of fiscal policy came the notion, now commonplace, that below a certain level of unemployment, the remaining unemployed were simply beyond help. Whether they were lazy, incompetent, or a mortal threat to inflation, there was just something about that stubborn 5 per cent of the labour force that meant they’d never be employed. Lest you think this is a recent belief, here’s someone reminding us that the same prejudices existed before the Golden Age of high full employment:

The Conservative belief that there is some law of nature which prevents men from being employed, that it is ‘rash’ to employ men, and that it is financially ‘sound’ to maintain a tenth of the population in idleness for an indefinite period, is crazily improbable–the sort of thing which no man could believe who had not had his head fuddled with nonsense for years and years… Our main task, therefore, will be to confirm the reader’s instinct that what seems sensible is sensible, and what seems nonsense is nonsense. We shall try to show him that the conclusion, that if new forms of employment are offered more men will be employed, is as obvious as it sounds and contains no hidden snags; that to set unemployed men to work on useful tasks does what it appears to do, namely, increases the national wealth; and that the notion, that we shall, for intricate reasons, ruin ourselves financially if we use this means to increase our well-being, is what it looks like–a bogy.

Yes, that’s Keynes, and before you scream ‘logical fallacy–you said Keynes was discredited‘ and ‘no, I don’t care what Keynes “really” meant‘; firstly, he wasn’t, and secondly, you should. (And thirdly, take it easy! Wouldn’t you rather channel that energy into giving people jobs?)

When the Keynesian consensus ‘collapsed’ in the early 1970s, what really collapsed was the economics of the ‘neoclassical synthesis’, devised by economists like Paul Samuelson and John Hicks, who had read Keynes but had weaved his insights into the architecture of neoclassical economics that Keynes himself was attempting to escape. When the early-1970s stagflation hit, ‘synthesis’ Keynesianism was mortally wounded.

This family tree is instructive:


Meanwhile, the economics of the ‘true’ Keynesians–the militant interpreters such as Abba Lerner, Joan Robinson and their students–remained intact, but was largely ignored. (Maybe because they sound like such fun at parties.) These ‘Post Keynesians’ argued that Keynes’s General Theory, and its faithful interpretations by Lorie Tarshis and Abba Lerner, contained all of the insights necessary to overcome stagflation and to maintain high full employment with price stability.

Geoff Harcourt, who fits under Joan Robinson in the family tree, and IS fun at parties, tells the story of Tarshis’s blacklisting in the economic profession (from 19:20):

According to Tarshis, full employment with price stability could be achieved through a combination of monetary policy, fiscal policy and incomes policy. Lerner took this analysis a step further with his notion of ‘functional finance’, which envisaged monetary policy as the direct financing, by the central bank, of as much government expenditure as would guarantee ‘high’ full employment, accompanied by taxation and incomes policies to contain inflationary pressures.

Lerner and Lowe

Could we ever return to an era of high full employment with price stability? Certainly.


The idea that the federal government could act as an ‘employer of last resort‘ for workers, in parallel to the Reserve Bank’s existing capacity as a ‘lender of last resort‘ for banks, is entirely feasible. A job guarantee for anyone willing and able to work would constitute an immediate resumption of full employment.

However, contemporary governments, even those nominally in favour of full employment, have openly resisted any solution to unemployment involving direct job creation programs or adequate ongoing fiscal stimulus, even if these are the ‘obvious’ answers, containing ‘no hidden snags’. The agents of fiscal policy at Treasury, like their monetary policy counterparts at the Reserve Bank, remain wedded to a NAIRU of 5 per cent.

On top of this, the artifice of central bank independence, which prohibits the direct financing of government spending, unnecessarily complicates the question for governments of ‘how are we going to pay for it?’ Of course, this stricture could be abandoned immediately in favour of Lerner’s functional finance, but there appears little appetite for so-called ‘helicopter money’, at least from the previous RBA Governor.

All of this leaves employment policy at an impasse, with 5 per cent unemployment apparently as low as can be hoped for. Despite Governor Lowe’s guess that full employment is only half a percentage point away, there’s something in his recent statement that workers should be emboldened to ask for higher wages to imply that even if the unemployment rate eased to 5 per cent, employment might not be as ‘full’ as that number once suggested.


But…if the independence of the central bank truly constitutes the independence to pursue its mandate, then the achievement of full employment becomes relatively straightforward. The solution, inspired by the theory of Abba Lerner and the pragmatism of Nugget Coombs, is one that, having left ‘forever’, I never thought I’d recommend.

The Reserve Bank becomes Australia’s employer of last resort.


It doesn’t matter if you’re not an economist. In fact, it’d probably be better if you’re not.

  • Before becoming Governor, Phil Lowe spoke about the need for better infrastructure. I’m sure he has plenty of shovel-ready projects in mind.
  • If you have a predilection to ‘act local’, then maybe you could take a job at the RBA helping to build houses for the homeless who were until today literally camped on the Bank’s doorstep.
  • Sydney’s live music scene needs rejuvenation, so if that’s where your talents lie, the RBA could become a patron of your art.
  • As a greater proportion of the workforce enters retirement accommodation, we might choose to foist robots upon them…or, if the customer is always right and ‘nothing is as good as humans‘, the RBA could deploy living, breathing people to spend time with our senior citizens. Maybe you and an elderly stranger could reminisce about your shared experience of full employment in two different eras.
  • The Bank already has offices in six capital cities, but there’s no reason to stop expanding. Regional areas might well benefit from a local employment office that actually…employs people. The shortage of things to do is limited only by the imagination of local employees, who can see better than most the things that need doing in their communities.

Of course, if you think a universal basic income is a good idea, then the Bank could jettison these and other ideas for public goods and services, and just pay you directly. I’m sure civic involvement would be just as high and society wouldn’t descend into an anarchic winner-takes-all trash fire.


But even if it did, the RBA would always have you back. And if the institution of high full employment meant that activity in other sectors finally picked up, then maybe you could leave the Bank for a private sector job instead!

Unlike the government which has tied its hands, the Reserve Bank will not run out of money to pay you. Sure, that income might, at times, risk pressing up against the productive capacity of the economy, but what better way to expand productive capacity than through meaningful employment, and what better place to work out how to defuse any inflationary risks than at the RBA, the coalface of inflation control? If we expand the definition of employment, there’s truly no shortage of jobs to fill. We should take these jobs to Phil.


  1. #1 by martin connolly on 9 August 2017 - 9:55 pm

    Wow. “Pamphlets in the Wind” or “Postcards from the Front”?
    There is SO much here to chew on.
    Some simple questions:
    The government/RBA creates money by spending it into existence?
    What is the purpose of issuing bonds of the same amount, to be seen to be ‘borrowing” at the same time?

    • #2 by Daniel De Voss on 11 August 2017 - 10:52 am

      Thanks for your comment Martin.
      1. Under current institutional arrangements, the Australian government is compelled to behave ‘like a household’ and spend money from its account with the Reserve Bank. This account is filled with the proceeds of tax collection and of bond sales. But of course, for taxpayers and bond-buyers to get the Australian dollars to fill the government’s account, the Australian government must have spent them into existence at some point. So in short, you’re right, but under the current tangle of rules, it *appears* as though the government needs its own money before it spends. Further, the RBA isn’t allowed to ‘print money’, or make payments on the government’s behalf using money the government doesn’t have.
      2. While these arrangements could be suspended with the stroke of a pen, they mean that the bond market is currently seen as one way of filling the government’s account. But a more compelling reason for its operation, and one that’s also consistent with a more realistic order of operations (i.e. the government spends money into existence, then takes some back as taxes), is that the bond market acts to absorb any extra liquidity in the system. Say the government convinced the central bank to finance the purchase of a second Sydney airport. The government would then pay the airport builder, say, $2 billion. The airport builder then pays for its workers, materials, etc., so the $2 billion ends up in various commercial bank accounts. This additional $2 billion, now held by ANZ, CBA, and so on, wasn’t there before, and if the commercial banks are unable to offload it to each other at a decent return, the central bank can provide an alternative interest-earning vehicle, by selling bonds on behalf of the government. This is now managed by the AOFM.

      A couple of helpful links:

  2. #3 by martin connolly on 11 August 2017 - 11:00 am

    Thanks Daniel. Can I Post your reply on Facebook “Modern Money (MMT) Australia”. Those on the page are intensely interested in all this, and are big fans of Bill Mitchell and Randal Wray etc

    • #4 by Daniel De Voss on 11 August 2017 - 11:19 am

      Certainly Martin. The disclaimer that these comments are my own and in no way reflect those of my former employer of course applies in full force! My comments are just a mixture of what’s available on the RBA’s website and the work of people like Bill and Randall, so I’m not sure if I’ll be adding anything new. As for the comment below, I tend to still call it “borrowing” and “debt” because that’s the world we live in, but I have a pretty benign/MMT outlook on so-called “debt and deficit disasters”. Cheers.

      • #5 by martin connolly on 11 August 2017 - 11:30 am

        Daniel. I guess MMTers would like us to get beyond using those two words – “borrowing” and “debt” – because of their use in imposing constraints and austerity on “spending” that would otherwise be seen as “investment”.
        So education spending is a direct investment in the ability of the future generation.
        Some wellness spending is in investment in reducing personal harm and so reducing future health costs.
        Spending to achieve full employment is a direct and an almost immediate increase in productivity.

        Treasurer Morrison is trying to allow spending on infrastructure because it “gives a return”, but disallows the things I mentioned above.

        We know there are still constraints – you can’t “print money forever” but making the ins and outs approximately equal all the time should not be the focus of government. Or the RBA ( where’s that full employment phrase gone?)

        I know this is political rather than economic, but the framing of the political debate has been based for years on the continued use of “borrowing” and “debt” to scare people who don’t know any better, and probably think our dollar is still backed by roomfuls of gold.

        Please feel free to join the FB page I mentioned – we would welcome your comments

      • #6 by Daniel De Voss on 11 August 2017 - 11:53 am

        Thanks Martin, good points well made. It appears that finding precise and unambiguous terms is always going to be hampered on the one side by a misapprehension of familiar words (e.g. “borrowing”) and on the other by a reluctance to adopt and diffuse terms that better reflect what’s going on. I know that many MMT progenitors rue the “T” for similar reasons. Will be jumping into the Facebook group though, thanks!

  3. #7 by martin connolly on 11 August 2017 - 11:02 am

    oh … and .. so the selling of bonds: “borrowing” or not. “Debt” or not?

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