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If Australia does draw back from globalisation — as opposed to trade, which will continue — then there should be more focus on our primary sector and how it could be better financed. Australia’s long history as a primary producer constitutes what economists call a ‘comparative advantage’: an economic area in which a country does best while giving up the least.
The Glasgow United Nations Climate Change Conference has been advertised as an effort to focus on sustainable environmental solutions. What got much less attention, if any, is that it is probably at least as much about having a sustainable financial system. Many noted that China, did not send its leader: Xi Jinping, president of the world’s greatest CO2 emitter. There was also another significant absence: the financiers who are hoping to profit from the trillions allocated into climate change projects.
Over the last two years, money printing has created the illusion of strength in savings. But when reality resurfaces, and actual returns are required from actual economic and business activity, the global financial system will come under extreme stress.
There is a three-way battle looming over the future of money and the stakes could scarcely be higher. Conventional money, mainly debt created by banks — the ‘folding stuff’ is only a tiny proportion of the total — is in trouble. Total global debt is now so large relative to the world economy it cannot be serviced, which is why monetary authorities have resorted to dropping interest rates. When they almost hit zero, the next step was quantitative easing (QE): printing money by getting the central bank to buy back government and corporate bonds and putting them on its ‘balance sheet’.
In July, Anthony Albanese announced a significant change of stance on Labor tax policy which was disappointing, if not surprising. An elected Labor government, Albanese promised, would keep the coming high income tax cuts he previously opposed. This decision to not oppose the government proposal to restructure the income tax system through reduced marginal rates is supporting a government policy that will lead to a significant redistribution of wealth towards high income earners.
The biggest mystery of the financial markets is why, when the monetary authorities have been printing money with their ears pinned back, is inflation for the most part not a problem? What happens with inflation is crucial to the short-term survival of the whole system. Global debt, which is running at well over 300 per cent of global GDP, is only sustainable because interest rates are exceptionally low (the base rate in Australia is only 0.1 per cent). And interest rates are low because inflation is not a problem.
When you put rising housing costs alongside stagnating wages, an alarming trend in normalising insecure work, persistent unemployment and underemployment, and statutory incomes that are going backwards in real terms, there’s good reason to be deeply worried about an increase in homelessness.
There really is no such thing as ‘capitalism’ — or rather there are so many capitalisms that the word is altogether too imprecise to be useful. A much better term to identify the problems, even evils, of modern developed economies is ‘corporatism’. This can be precisely identified and its transgressions and general harm are getting worse.
Our economy is 1.1 per cent larger than a year ago. Yet, as the situation in Victoria reminded us, none of us are safe unless all of us are safe. And we cannot be safe while work remains increasingly insecure, while social security payments are inadequate and while our public infrastructure is found wanting.
An often overlooked fact about the financial system is that it entirely depends on trust. When trust starts to evaporate, especially between the big players such as banks and insurance companies, the whole artifice is put into peril. Trust in the system is now at an extreme low and that points to extreme danger.
In a recent speech to business leaders, Prime Minister Morrison made the remarkable claim that ‘we are going to meet our [climate change] ambitions with the smartest minds, the best technology and the animal spirits of capitalism.’ This is straight from the neoliberal playbook, the doxa that the role of government is to get out of the way to make room for those animal spirits so as to pander to the fantasies of the wealthy few.
But although the Coalition will never admit it, it looks suspiciously like there has been some bipartisan institutional learning about how to manage financial crises. If you want to stimulate an economy in times of crisis put the money directly into the economy, either into people’s pockets or to businesses who then pass it on to workers.
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