There is no equivalent of a trench-coat-bedecked debt collector with rottweiler and baseball bat at the front door demanding that the Australian Government repay its debt. Nor will there ever be.
To the contrary, there is an orderly queue of businesses and individuals desperate to buy more Australian Government bonds which would put Australia into greater debt. Why? Because they know the Australian Government will never, cannot ever, default.
The investors will always get their Aussie dollars back with the nominated interest – an interest rate, moreover, that Australia sets.
Should we worry as citizens about our “share” of the debt and if it can ever be repaid?
Should we worry about the Australian Government running up huge deficits during the COVID pandemic?
Should we worry that the debt may get so large that it can never be repaid?
The short answer is No, No, No, but only up to a point.
That point, of course, is when inflation increases beyond around two percent. Inflation goes out of control when too much money chases too few goods and services. Ultimately it corrodes faith in the currency.
Government finances are radically different from household finances. But politicians across the spectrum, especially on the conservative side, forever talk about the Government as if it were a household with a bloated credit-card debt about to send it into bankruptcy. Nations, like Australia, which issue their own currency and whose debt is nominated in that currency cannot default and cannot go bankrupt.
On the other hand, countries like Greece, Italy, Ireland and Spain were silly enough to join the Euro zone in the belief that it gave them status. Instead they were throwing themselves upon the mercy of the European Central Bank with debt nominated in Euros that had to be repaid in Euros. The European Bank, dominated by Germany, would only bail them out at a very heavy price.
The other surprising thing is that when the Government should be behaving like a household, it behaves like a charity.
The COVID stimulus package, which was tinkered with this week, is a classic case of a Government, on one hand, unnecessarily worrying about debt, as if it were a household, and on the other hand, dishing out money as if it were a charity when it should be ensuring it is getting value for money, like a household.
The key to achieving the best economic result is not elimination of debt, but getting the most production from the economy
It short, the Government can do a lot better than the dole, which is the same thing by any other name – Unemployment Benefit, Newstart or JobSeeker (trendily, and illiterately, one word with a capital in the middle).
In very rough terms, the pre-COVID dole was $283 a week and then roughly doubled for COVID. Either way, why give people a demeaning amount of money (under Newstart) for doing nothing? Instead, the Government should just guarantee everyone who wants to work a job. The job would be 35 hours a week on the minimum wage ($16 an hour or $560 a week).
There is plenty of productive work to be done and on-the-job-training in Australia. Why reduce people to meaningless idleness when they want to work?
Instantly unemployment would vanish and all the dole money would go to boost the ever-beloved GDP and in to the economy where it would be spent on the goods and services largely produced by the private sector.
When the private sector shrinks during economic slumps and crises, the public sector would pick up the slack. After a while, the private sector would get the benefit from the spending of the new government employees and gradually pick up and people who had been thrown out of private sector jobs and moved the government-provided minimum wage would move back to better-paying private sector jobs.
It is better than a work-for the-dole scheme. It is a work-at-a-job scheme. It is better than a guaranteed-minimum-income scheme, because the Government, or more pertinently, the people of Australia would get value for money, and people would avoid the indignity of unemployment.
It would be more effective that tax cuts for the rich which would just go to savings and more high-wealth generation rather than spending into the economy.
Further, the destructive effect of long-term unemployment on employability would end. Employers are often reluctant to take on someone who has been out of work for a long time, probably on the mistaken belief that they have lost the work ethic.
Perhaps of equal importance, people would have job security. That has two major health benefits: less psychiatric illness and infectious people staying at home with sick pay rather than spreading their infection to the community.
The spread of COVID by people feeling too financially insecure to stay at home has cost Australia billions. COVID aside, the spread of flu by contractors who cannot miss a shift would also no doubt cost a bit.
It seems bizarre that the Government would pay someone the dole to essentially do nothing, but with a bureaucratically expensive and largely fruitless sets of work tests searching for jobs that are simply not there.
Contrary to conservative myth only a minuscule number of people want to bludge and be out of work. People become unemployed not because they are lazy, but because of the boom-and-bust cycle in the private sector.
Once employed in the minimum-wage government scheme, all of the bureaucratically expensive and often fruitless effort to get find these people jobs in the private sector during a bust could be re-channelled to supervise them as public-sector employees to do any amount of work begging to be done for which they could be trained: land care, care of old and young, call centres and so on.
This stuff is called Modern Monetary Policy, but much of it has been around for some time. President Franklin Roosevelt wanted his New Deal to be something like it in the 1930s. He got some of the way, but was stymied by Congress and even his own party.
Australia and other developed countries have to recognise that the neo-liberal economic model which minimised the role of the government, lauded the private sector and gave central banks control over interest rates so they could control inflation was effective up to a point. COVID or not, with interest rates hovering around zero and the private sector failing to provide enough secure, decently paying jobs or to give wage earners a reasonable share of rising productivity, we have arrived at that point.
This article first appeared in The Canberra Times and other Australian media on 25 July 2020.