[UPDATE: The following blogpost has been judged as being “full of nasty ad hominem” so I’ve put quotation marks around the more forthright sentiments that aren’t my own. If you’re still “not a fan of the tone“, there’s a former Australian Prime Minister I should tell you about…]
One of Paul Keating’s best pieces of oratory is the “cultural cringe” speech, his reply to a Dorothy Dixer which slams the obsequiousness of Australian conservatism to Britain and the harsh and unequal reality of Australia’s post-war “Golden Age” to which conservatives wished the nation to return.
As ever for a Keating speech, the crescendo delivers mightily. Keating suggests that the proposals for Old Parliament House to become a museum of cultural history should accommodate 1950s relics like the Morphy Richards toaster, “heavily protected slippers” and the Johns Howard and Hewson.
It’s worth watching in full, but the relevant excerpt begins at 3:16, an apt timestamp for those who consider Keating a god:
The punchline, where the kids ask, “Is this the past?” and Howard and Hewson reply, “No, kids. This is the future!” resonates with a recent economics debate in a way that even Keating might consider a stretch.
But back down the time tunnel we go!
I’m going to suggest that some on the centre-left, who are likely to be fans of Keating’s, now find themselves pontificating like Howard and Hewson in the museum diorama, pointing towards an anachronistic future, in which the conclusions are foregone and the premises are largely irrelevant. And ironically, it’s the actions of their spiritual totem Keating that have put them on the wrong side of history.
Keating isn’t Cheating
Whatever you think of him, Paul Keating was a great moderniser. Arguably the most significant break he made from Australia’s “Menzian torpor” was his and Bob Hawke’s floating of the Australian dollar in 1983.
Prior to 1983, the value of the Australian dollar was defined by convention, rather than by supply and demand. The RBA Governor, and heads of Treasury, Finance and Prime Minister and Cabinet would meet daily to determine – and target – the value of the Australian dollar in terms of how many British pounds, US dollars, and then a “basket” of other currencies it could buy.
Today, these exchange rates are market-determined. And it was Keating as Treasurer who made it so, by floating the dollar and shedding the last vestiges of Australia’s “convertible” currency.
The implications of the float and other decisions for federal government finances were profound – perhaps no less profound than the Copernican revolution in astronomy.
Australian government spending no longer revolved around how many tax dollars the government could collect or how many bonds it could sell, with an eye to fixing the value of the dollar in foreign exchange markets.
Instead, unburdened by the “cross of gold” since the collapse of the Bretton Woods system, and unbound to maintaining a fixed exchange rate following the float, the federal government was now limited only by the real resources it could purchase and its imagination as to what to do with them.
Yesterday on Twitter and ABC News Breakfast, Alan Kohler broke ranks with the conventional wisdom of the economics commentariat, by endorsing outright modern monetary theory (MMT).
As Kohler explained, MMT describes the architecture of federal financing in countries like Australia, which issue their own currency, convertible only into itself – not backed by gold, nor pegged to another country’s currency.
The critics responded in force. Predictably, Liberals and libertarians temporarily forgot they were Free to Choose to ignore a humble ABC journo, and openly fretted that this New Kohler would drive their Kool-Aid out of the marketplace of ideas:
But it was the cool, detached, studied cynicism of those not on the far-right of the possible, those voted Most Likely to Have This Poster on Their Teenage Bedroom Wall, that was far more fascinating.
While misgivings about MMT have long been fermenting in the blogs and the subtweets of otherwise progressively inclined commentators and academics, Kohler’s break into breakfast TV pushed these unknowing reactionaries to abandon all chill.
It’s perhaps unfair to single out commentators, but they are representative. Irony cowboy Matt Cowgill from the centrist Grattan Institute, “young fogey” Zac Gross from Monash University, and former Labor advisor and once-relevant person Stephen Koukoulas delivered their smoking hot takes on the Kohler foray:
UNSW Professor and occasional Labor advisor Richard Holden probably said something about it too, but he’s still being stoically thick-skinned about calling other people thin-skinned.
“Hit in the arse by a rainbow“
Unironically, it is a shame that these otherwise sensible centrists and centre-leftists are hewing so publicly to an untenable position. It’s not that they’re anachronisms; they are. It’s that they insist on being so publicly anachronistic, and on making their future mental gymnastics all the more complex when they ultimately say they were never wrong at all.
What’s new about the “what’s new about MMT isn’t interesting and what’s interesting isn’t new” take isn’t interesting, and what’s interesting about the take is that it isn’t new. That sentence is not a misprint.
The fact that “public” “intellectuals” defer to this defence is telling, though.
It’s almost as if they have something to lose.
The timeworn Upton Sinclair remark, that “It is difficult to get a man to understand something when his salary depends upon his not understanding it” of course applies in spades, but the converse is also true. When a man’s salary depends on his understanding something, he can be quite astute indeed.
What does it profit Alan Kohler to think about the Australian economy with an MMT-informed framework? As the author of a financial newsletter, it might profit him substantially indeed!
So it has for Goldman Sachs’ Jan Hatzius, Pimco’s Paul McCulley and Nomura’s Richard Koo, and early MMT scribbler Warren Mosler, all of whom have feasted on considerable free lunches in financial markets as a result of understanding the implications of modern monetary theory. ANZ’s James Culham, who has a PhD and everything, has also put far more nuanced view Keynes, MMT and debt, which respects the history of thought and confers ANZ an advantage over its peers.
“Come in, sucker“
On the other side, for the publicly minded economists publicly inveighing against MMT – who insist it’s neither new nor interesting – we can do one better than the lazy retort, “if you’re so smart, why aren’t you rich?” and instead ask, “if you’re so smart, why aren’t WE rich?”
Why, for instance, do you talk about federal tax as “revenue raising” and a prerequisite to spending, as if the proto-MMTer and Federal Reserve Governor Beardsley Ruml never said “Taxes for Revenue are Obsolete“. You didn’t even have to read beyond the headline on that one!
Why, for instance, do you talk about “monetising the debt” when that doesn’t mean what you think it means post-gold standard and is in fact expressly impossible if the central bank seeks to maintain a positive overnight interest rate?
Why, for instance, do you talk about the crippling costs of “servicing the debt“, as if a federal government is like a state government and its interest payments aren’t simply a credit to a bondholder’s bank account, rather than a costly diversion of potential real resources?
Why, in short, do you interpret the world as if Australia is still in the “golden age” of the gold standard or maintains a fixed exchange rate, when your ideological ally Keating shed the last of these shackles nearly four decades ago?
Why, to paraphrase Abba Lerner, whose functional finance you also “knew all along”, do you advise the emperor to stay clothed while keeping the people naked and hungry and insecure and discontented?
“You are flat out counting past ten“
You cannot hold these positions and claim that MMT, which rejects them outright, is neither new nor interesting.
Keating would do well to call you “pre-Copernican obscurantists“, but even that would be too kind.
While MMT allows us to see there can be a dignified place in the economy for everyone, I imagine you could contribute more if your place wasn’t destined to be a glass case in a museum beside Lake Burley Griffin.
[POSTSCRIPT: Brian Romanchuk has linked to this piece on his excellent blog. (Thanks Brian!) His take is more concise, more polite and, as a result, more devastating. Read it!]