JIM COOMBS. What Economic Policy should be about

The idea that government economic policy should only be about making capitalist enterprise easier is just plain wrong. It should be trying to make it better for the nation.

The “economic question”, so we were taught, is how to find the optimum allocation of finite resources amongst competing ends.  So the idea that any proposal which makes money, especially in the short term, which seems to be the current orthodoxy, could not be even wildly considered optimum.  We have to make our choice on the basis of what is best for the individual, the business, the country, the world. “Best ?”, I hear the neo-libs shriek, “are you importing value judgements?”  Well, yes.  How else to determine what is optimum?  So, question one must be, “Is this the best use of the resources at hand to serve our purposes?”  We have to decide what is best for us, our business, our community and so on.  And not just for now, but into the future.

For government what is seen to be optimum will, inevitably, differ from the perspective of a business and its market.  In a sane, well-ordered society, government has the task of ensuring that the basic elements of civilization are ensured: we have to have universal water reticulation and sewerage (not a market solution), universal access to power (electricity, gas, etc)(ditto), telecommunications, let alone adequate food supplies (think “Venezuela”).  These are the “public goods” which I have previously written about.  It is non-productive to let “the market” into these things, as the profit motive is the least consideration, and equity the principal one.  Then, sadly, we have the need for defence, and the management of our relations with the rest of the world.  And, even more, the environment, our natural resource, which must be protected to sustain everything else. For equity’s sake we should include public education and reliable , accessible transport.

As Keynes rightly observed, the role of government in the economy is vital to keep the balance that allows for the capitalist system to operate, both fairly and successfully.

I used to think that these things hardly need saying, but the neo-liberal (whatever that means) economics appears to ignore it all completely, making Says Law (a trivial truth) into a near religious mantra: “the market” can solve everything ! Well, it can’t. At least not in a civilized society.

So how should government proceed ? Firstly it should ensure that it has the revenue to achieve equitable distribution of public goods. Yes, the citizens must expect that they will pay. Using tax as a “boo word”, appeals to the mean spirited, but survey after survey shows that the clear majority are content to pay a bit more to ensure that fair and adequate services are provided, reasonable pensions, unemployment relief and so on. But there is more to tax than that. Tax has been used  (and still is) as an instrument of government policy. It is used to discourage the consumption of unhealthy or antisocial products like tobacco and alcohol (and incidentally reap lots of revenue for the government). Tax should discourage the bad and encourage the good (thank the Lord for good old fashioned value judgements). On-line gambling, which is unproductive and socially destructive, should be high on the list of candidates, ditto poker machines. Foreign investors in property who do not provide affordable housing should not escape the tax axe. Supporting dubious operators in the education and employment sectors should be reversed, so as to fund proper education for our children, preferably in the not for profit government sector, and employment schemes which are not designed to fleece the workers so employed restored.

The notion that anything which turns a short term profit is “business” and bears no further examination, is, by definition, short sighted, and socially deleterious. Somehow stock exchanges have to be reeled back to what investment really is, putting resources to worthwhile uses, instead of the moment by moment casino operation manned by computer algorithms which is what we have got. These “investors” (read “speculators”) reward companies who sack workers, off-shore production to exploit unregulated foreign labour, and produce unhealthy and antisocial products. Surely the tax weapon can be used to restore sanity, and direct resources to ends which benefit the people as opposed to corporations, many off-shore.

No doubt this will attract accusations of “socialism”, yet it is what we used to do when government was for the people.

I have not mentioned nationalisation as opposed to privatisation. But the idiocy of privatising the NSW Land Titles Office is an example of government deserting its post. British privatisation and multifranchising of the railways is a widely acknowledged disaster, as is water supply privatisation.  And privatised telecommunications, with multiple providers, has become an impenetrable maze, and an almost certain rip-off (but that is “commercial-in-confidence”).

So why can’t we have a Government with a sense of Right and Wrong that acts upon it?

Jim Coombs is a retired magistrate and sometime economist.

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5 Responses to JIM COOMBS. What Economic Policy should be about

  1. Colin Cook says:

    ‘So how should government proceed ? Firstly it should ensure that it has the revenue to achieve equitable distribution of public goods.’
    We are often told that as a nation we ‘should live within our means’ – without the one exhorting us to be frugal recognising that one of the means at our disposal (as a sovereign currency issuing nation) is the ability to create as much money as we need to build a decent and fair society. See https://independentaustralia.net/politics/politics-display/paying-for-public-services-dr-steven-hails-solution,9945
    It would be wonderful if we had a government that proclaimed ‘we aim to build the best, most vibrant, fair and creative society with all the means at our disposal’.
    None seem to recognise the potential benefits of FIAT money – only the potential dangers; is it that fear helps maintain the status quo whereas hope might lessen their control and diminish their privileges?

  2. Geoff Davies says:

    We can Jim. See my Desperately Seeking the Fair Go (just an eBook at this stage I’m afraid): https://www.amazon.com.au/dp/B073QHG5BF
    Or my punchier Sack the Economists: https://betternature.wordpress.com/my-books/sack-the-economists/

  3. Malcolm says:

    Agree completely with the sentiment of this article with the exception of the need for Government to raise “revenue” to pay for services. This is completely incorrect in a modern monetary economy where the government is the sovereign, is the monopoly currency issuer and the currency floats in the international exchange markets. This means the Federal Government can never be bankrupt in it’s own currency and is fiscally limited only by the available productive resources in the economy ; which in Australia is vast. This is irrefutable and debunks the notion of the balanced budget mantra and the notion that surpluses are evidence of “good’ Government. This is far from the truth and “good” should mean measures of social and environmental factors, more so than fuelling the capitalist pump with pathetic trickle down theory.

    The other factor is that taxes are NOT revenue in the ordinary sense of the term. Federal taxes in a modern economy are designed to drain the currency out of the economy, to support the fiat and trigger behavioural forces in the economy. They are not stored for spending at a future date, nor do they “pay” for anything. The Federal Government simply credits bank accounts to spend in transactional arrangements between Treasury and the RBA where balances would disappear were it not for the choice, not the necessity for issuance of bonds. The fact is, federal taxation doesn’t pay for anything http://bilbo.economicoutlook.net/blog/?p=9281

  4. Mike Gilligan says:

    Indeed – why can’t we have such government as you make perfect sense.
    And we have three levels of government each about as sad as the others in comprehending much less acting upon efficient resource allocation
    principles.

    As a long time despairer of our public functioning
    I take refuge in Donald Hornes demonstration of the ineptitude
    Antipodesn politicians – this seems to be an enduring feature which I speculate derives from the mismatch in time horizons of politicians and decent resource allocation.
    Once we had a public service which lived and breathed your principles – the remnants now find it futile to push hard- headed agenda unless a political bonus can be contrived alongside.
    All this is just to say that your article is so refreshing and writing such could just touch
    someone sometime who cares and is able to act.

  5. John Bloomfield says:

    Banking and finance are also an essential service to citizens and the nation that should not be driven by the profit motive.
    We should have learned from the experience of the Great Depression.

    “…6. Banking differs from any other form of business because any action – good or bad – by a banking system affects almost every phase of national life. A banking system should have one aim – service for the general good of the community. The making of profit is not necessary to such a policy. In my opinion the best service to the community can be given only by a banking system from which the profit motive is absent, and, thus, in practice only by a system entirely under national control…”
    – Ben Chifley statement in dissent, 1937 Royal Commission into the Monetary and Banking System

    Let’s have a People’s Bank for citizens – let the insatiable ‘4 pillars’ chase their casino type investment profits, but not at the risk of peoples savings, or backed by Govt. guarantees.

    Economist and commentator Nick Gruen, (ABC Podcast) or (Saturday Paper) offers a radical redesign of Australia’s banking system.
    Gruen says…
    “…Today we need to do on the internet what the British banking system did with analog payments via banknotes in 1844. We need our central bank on a level playing field with the commercial banks it services, by providing us with the same services it already provides our banks.
    Not only would the resulting banking system have much lower costs and greater efficiency, not only would it generate tens of billions in revenue to government, but it would be a simpler, safer, more rational system playing much better to the respective strengths of the public and private sectors…”

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