�Rethinking the Economy�Modern Monetary Theory and a Green New Deal

• How to achieve Economic and Environmental Sustainability
• What a National Job Guarantee would mean for Australia

Where does money really come from?

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Money does NOT come from:

A big pile of gold (we left the gold standard

during the Great Depression; this is not a coincidence)

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Exports (exports $195 billion, imports $187 billion)

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Government borrowing (More on this

shortly)

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Your taxes (first the government issues

the money, then it taxes some of it back)

Money is made by the Federal Government

As the economy grows, the Federal Government issues more money

Someone at the Reserve Bank hard at work making more money.

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A few strokes on the keyboard and the money is made and sent into bank accounts.

Australia has an Independent Fiat Currency

• The Australian Government has currency sovereignty
• Our dollar is not backed by a commodity
• It floats, so it is not tied to any other currencies
• We do not use other currencies domestically

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The Federal Government is NOT like a Household; it issues Australian Dollars

Everyone else IS like a household:

• State government
• Local government
• Companies
• Organisations
• Families
• Individuals

We all have to get money by working, trading, inheriting or getting a government grant, but the Federal Government does not, it is the source of the money

Busting Myths about the Federal “Deficit”

• The money the government creates does not have to be “paid back”
• The government cannot default on its payments
• We are not burdening future generations with present spending
• There is enough money to create a sustainable future

Read this book!

But didn’t Australia borrow �a lot of money? �(which we will have to pay back for ages?)

• Actually NO, and here’s why not:
• Firstly, the Australian Government has almost no debts in foreign currency
• The Australian Government lets organisations like banks and superannuation funds to buy BONDS. When the bonds mature the money is returned to the bond holders with interest, in Australian dollars. And where do those dollars come from? Oh yes, I remember …
• The Reserve Bank also buys Bonds directly and has bought about 1/3 of total “debt” back.

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If it’s not a Deficit, what is it then????

• Total amount of money spent by the Federal Government per year = Gross Money Supply
• Take away the amount collected in taxes and other payments
• The difference is the Nett Money Supply

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A Short History of the Nett Money Supply

Source: Ashley Owen, Philo Capital Advisers (ABC fact check)

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So Where’s the Catch?

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What about INFLATION????

Arrrrrggggggggghhhh!!!!!

We’ll be just like Venezuela!!!!

A loaf of bread will cost $10,000!!!!!

My life savings will disappear!!!!

Our currency will be worthless!!!!

What really causes inflation?

Too much money chasing too few goods and services

Here’s the secret:

Only spend money on goods and services that are actually available

The real limits to spending are the RESOURCES that we have, ie

• The people
• The physical materials
• The natural environment
• Our knowledge and skills

What really causes hyper-inflation?

Hyper-inflation is initially caused by

1. Resource shortages AND an incompetent government response,
2. Next it is made worse by printing too much money.

It is not an inevitable consequence of tough times.

Case studies:

• Zimbabwe 2007-08
• Venezuela 2016-19
• Weimar Germany 1921-23

Government spending does not necessarily cause inflation

Here is a recent real world example:

• Amount of government spending on Coronavirus Stimulus Packages has been at least $507 billion (and counting!)
• In the last 12 months inflation was 0.7%.

We do have to live within our means, but we’ve been looking at the WRONG MEANS

Money is not the limitation; it is the amount of RESOURCES we have available

We can always make more money, but we must do this responsibly, ie within the limits of our resources

Now let’s have a Test!

Which of these possible government policies might cause prices to rise (hence contribute to inflation) and which are unlikely to do so?

• Employing unemployed people to do community care work
• Giving first home buyers larger grants to help them get into the property market
• The federal government announces it will employ 5,000 extra psychologists in the next 6 months to deal with the COVID mental health crisis
• Giving grants to farmers to improve soil and native vegetation cover on their land
• Giving stipends to artists and musicians, so they can spend more time being creative

Got most of these right? Congratulations: you are now an expert on the Macroeconomic Impact of Federal Government policies.

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Why do we have taxes then?

1. To control inflation
2. To reduce inequality
3. To nudge behaviour
4. To keep Australian dollars as our main medium of exchange

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The National Job Guarantee

For sustainable prosperity, we need Full Employment. We propose a jobs program that is:

• Federally funded
• Nationwide
• Available to all who want to work
• Not compulsory
• Meets local needs
• Permanent

Why we need a National Job Guarantee

• Eliminates the poverty, misery and despair of long-term unemployment
• People can choose Job Guarantee work instead of insecure, underpaid work elsewhere
• Stimulates the economy +++++
• Stablilises the economy; smooths out booms and busts
• Enables essential environmental and community work to be done that is not profitable in the private sector

How would a National Job Guarantee work?

• State and local governments work out what their needs are
• Job opportunities submitted to the federal government via a regional “Job Bank”
• Jobs funded federally at minimum wage level
• Part-time is available on request
• Training and work experience system runs in parallel for those who want to move to other work
• The jobs are real, permanent and meaningful work with the usual entitlements

Why do we need a Job Guarantee when we have low unemployment and labour shortages?

• In a recession, many people will take up Job Guarantee positions instead of being unemployed. They learn skills and keep their networks.
• When the economy picks up, they are ready to move back to public and private sector jobs, so the labour shortage is reduced.
• The Job Guarantee also brings in the long-term unemployed, who are left in poverty even in a time of low unemployment.
• The Job Guarantee continues to set the standard for pay and conditions. If a business relies on exploiting people, then they will still find it hard.

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Read our report on �c�The Case for a Job Guarantee

More Information

• Sustainable Prosperity Website https://www.sustainable-prosperity.net.au
• Modern Money Lab https://www.modernmoneylab.org.au
• ABC News 17 July 2020 https://www.abc.net.au/news/2020-07-17/what-is-modern-monetary-theory/12455806
• Modern Money Australia https://modernmoneyaustralia.org
• Stephanie Kelton TED talk https://www.ted.com/talks/stephanie_kelton_the_big_myth_of_government_deficits
• And read this book!

What Next?

The Sustainable Prosperity Action Group is doing several things:�

• Workshops: Two day Rethinking Capitalism workshops offer an introduction to Modern Monetary Theory and environmental economics. We’ve run them in Adelaide, Melbourne and Hobart, the next one is in Sydney July 2022.
• The Case for a Job Guarantee: Producing a second version of our report, and getting invited to the Australian Government’s Job Summit in 2022.
• Want to get involved? Go to our website https://www.sustainable-prosperity.net.au and join our mailing list for info about future events. Those who become one of our financial and/or organizing supporters can join our steering committee.