Whose debt are we in?

On June 17, 2014, in Uncategorized, by mkennedy

Editors note:This article is a guest submission.

Jay Nicolevski

The Government’s decision to raise the retirement age to seventy was as predictable as it is irrational. And yet it had no choice, we are supposed to believe, given demographic trends towards an increasingly elderly population, the national debt, etc., etc. Brushing aside a straw man opponent, Joe Hockey pontificated as he announced the policy: “Government services are somehow deemed to be magically free but of course they’re not free. They are paid for by the taxpayer” 1—with interest, he might have added.

It’s often cited as a major social problem (though nothing an endless stream of immigrants can’t fix), but why people are having fewer children is seldom seriously discussed. Maybe the increasing cost of living, driven in part, ironically, by out of control population growth, might have something to do with it. This graph (source: Australian Bureau of Statistics) shows the slump in our fertility:

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While this one (source: Department of Immigration and Border Protection) shows our growth towards the dystopia of a “Big Australia” that cost Kevin Rudd his job in 2010:

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As you can see from the graph (or, if you live in a capital city, by walking down the street) the population isn’t shrinking, it’s growing; and it’s growing faster than we can support, putting pressure on housing, infrastructure and natural resources and causing an increase in the cost of living and a decline in our quality of life.

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(Source: Reserve Bank of Australia).

Here we are complaining about an ageing population when the real issue is that young Australians can’t afford to have big families, or even to start a family. They have to study for longer and work harder at finding a decent job; they have to save up for years and sign up to a ruinous mortgage if they want a home; they have to avoid the ever-present pitfalls of personal debt, so that by the time they’re ready to reproduce they’ve only got a few reproductive years left. We need 2.1 babies per woman just to replace ourselves (source: ABS); since 1976 we’ve been running a deficit.

Thanks to a vast crop of deliberately unhelpful economists, we are accustomed to thinking about inflation as something that happens when there is too much money around. Absurdly, the Reserve Bank is supposed to fight inflation, which means rising prices relative to incomes, by raising interest rates when the economy appears to be doing too well for its own good!

Economics textbooks differentiate between “cost push” and “demand pull” inflation, the former happening when the price of inputs goes up and the latter when for some reason the government decides to devalue its currency by “printing” too much of it (usually because it is in debt). Contrary to popular belief, but as attested by the immediately preceding graph, it is “cost push” inflation that is the biggest problem for us today.

The Government is so sure of our befuddlement about cost-push inflation that they’re advertising the fact that their paid parental leave scheme is to be paid for by a company tax levy (something their “trickle down” forbears would never have done). As if those companies won’t raise prices to recoup the cost!

But at least we’ve got this “generous” parental leave scheme, someone might say; at least the Government is encouraging us to make babies, acknowledging that, as we all know, it’s just not possible for a family to get by on a single income these days.

My answer is that it was perfectly possible back in the days when women gave up their jobs upon falling pregnant, or got married and started a family early in life. What if mass female participation in the workforce, encouraged by the feminist employment legislation of the ‘60s and ‘70s is one of the driving forces behind the following graph?

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If they were really interested in helping families to get by or in boosting the birthrate, a helpful and obvious measure would be to grant single income families a tax cut.

But back to debt. We all hear about the cuts that are necessary to get the Government back into surplus, but the reality is that we’re nearly up to five trillion dollars in combined government and private debt,2 and household debt is increasing dramatically. Is it likely to go down as a result of the Government’s latest tax grab, its “deficit reduction levy”?

According to Abbott’s school of thought, only Government debt is a matter of public policy; private debt is a private matter.

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In fact, private debt dwarfs government debt (see graph below), which of course is serviced by taxes. Monetary reformer C.H. Douglas3 developed his A+B theorem to demonstrate the need for government to spend interest-free money into circulation. It goes like this. A=wages and other personal incomes, and B=costs of production that don’t translate into wages, namely interest charges and retained earnings (aka profits).

Now, both A and B go into prices, but we have only A with which to purchase goods and services. Therefore the economy can’t function unless we get the amount to cover B from somewhere. This is where the banks step in to offer you a new credit card, or the government a more palatial debt ceiling.

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If we accept this financial system as it is, then it’s logical to ask what we can all do to make more money to pay back the ever-increasing interest burden on all that debt. Try to get the budget back into surplus, whatever the cost; cut services, cut welfare and pensions, don’t invest, keep up the mass immigration to expand the tax base…

But just imagine if we had a financial system that wasn’t based on debt. What if the government took upon itself to circulate and regulate the currency, if we had a government bank offering loans to individuals on collateral (i.e. the purchased item) only, and to business on a profit-sharing basis? What if the same government paid for itself instead of borrowing at interest, then taxing us to pay principal plus interest?

Then the gap between prices and incomes represented by profits and savings could be calculated, and that amount paid as a stipend to those who’ve contributed the most to the nation’s prosperity, so that they can continue doing so—as consumers.

“That would be inflationary,” say the economists. But if our productive capacities are tapped by releasing this additional purchasing power, why should it be so? Someone has to create money, after all—it doesn’t grow on trees. Currently it grows only on banks’ balance sheets.

If the money problem were solved, grandparents wouldn’t be forced to get out there and compete for jobs with their grandchildren; instead we’d be talking about lowering the retirement age.

1. “Coalition deflects budget criticism and plunge in voter confidence,” The Guardian, 4 May, 2014 (Bridie Jabour).

2. Retrieved from: http://www.australiandebtclock.com.au/

3. Douglas, C.H. (1933). Social Credit. Retrieved from: http://www.mondopolitico.com/library/socialcredit/socialcredit.htm

 

 

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One Response to Whose debt are we in?

  1. democratoz says:

    One of the most incisive posts I’ve seen on any nationalist website for years. Congratulations.

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