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Unmasking the budget powers

Monday, 6 June 2016  | John McKinnon


‘The modern conservative is engaged in one of man's oldest exercises in moral philosophy; that is, the search for a superior moral justification for selfishness.’ - John Kenneth Galbraith[1]


Our fight is not against flesh and blood, Paul tells us in Ephesians. We might paraphrase today that our fight is not against Mr Turnbull or Mr Morrison or Mr Shorten. No, Paul says, our fight is against the principalities and powers. Theologian Walter Wink identifies these principalities and powers as the spirituality of institutions:
the ‘within’ of corporate structures and systems, the inner essence of outer organisations of power.[2] While all power comes from God, power expressed through human agency is ‘fallen’, and hence human institutions (nations, corporations, theories) can exert a power over the world that is harmful. He goes on to say that we need to unmask these powers, in order to neutralise their hold over us - to overcome them.

A similar idea can be seen in the work of Paulo Freire.[3] He developed the notion of ‘the adult literacy process as cultural action for freedom’ (known more popularly as conscientisation). To Freire, technical illiteracy guaranteed captivity (disempowerment and marginalisation) to the discourses of the powerful.

Jayakumar Christian, head of World Vision India, puts it this way:

‘…poverty is about a powerful minority, which performs all political functions, monopolizes power and enjoys the advantages that power brings. These powerful seek to play god in the lives of the poor, reinforcing each other to form a god complex…the non-poor create narratives, structures and systems that justify and rationalize their privileged position.’

My thesis is that the narrative used in modern Australia to justify the status quo is that of economics. The government describes the budget as a statement of the their plan for the nation. On May 3, the budget speech mentioned the ‘economy’ or ‘economic’ a total of 37 times. The word ‘social’ got mentioned just 3 times. There was no mention of a ‘society’. Our national narrative is one of economics.

Furthermore, that narrative is protected by inaccessible jargon and seemingly authoritative economic theories - ‘econobabble’, to use the term coined by Richard Dennis, chief economist of The Australia Institute.[4] That is, language and concepts deliberately designed to confuse the public and obscure reality. In Freire’s framework, this creates an ‘illiterate’ class of disempowered people who accept the authority of the seemingly powerful but incomprehensible arguments.

So, when we come to the federal budget (and the economic narrative in Australia in general), we need to unmask the ‘powers’ with liberating pedagogy that empowers the general populace to question, to disagree and to reject the prevailing economic orthodoxy. We need to reach beyond the economic jargon and the myths it perpetuates to identify the forces that determine our future, our wellbeing and our society. Rather than comment on individual measures in the budget, I will simply seek to unmask some of this language. Only then can we evaluate the budget according to Jesus’ golden rule.

Tax

In recent times tax has been seen as a uniformly bad thing, and reducing tax has been claimed as a key aim of most governments. Why? Variously tax is seen as theft (the government taking what rightly belongs to the individual), as removing individual choice (drawing on classical liberalism’s idealisation of the individual), as a brake on economic activity (assuming that, if the government takes the money, it is removed from ‘real’ economic activity) and as destroying incentive (if I am taxed on income I have less incentive to earn). Let’s unmask these arguments by the ‘powers’.

In Jesus’ day, government tax was exploitative. Taxes levied by the Romans were not redistributed to the poor in Palestine but funded the hated occupation and Caesar’s foreign military campaigns. Ched Myers points out how a tough tax regime imposed on the fishing industry may have contributed to certain Galilean fishermen joining Jesus’ movement.[5]

However, tax in our times is different. It can be exploitative, but generally in Australia we have had progressive taxes that have a redistributive effect. Progressive taxes place the highest burden on wealthier Australians and provide benefits to the wider population such as public health, public education and social security, which contribute significantly to a cohesive society. These taxes could loosely be considered a modern institutional approach to the Jewish Jubilee system, as they promote equity in society and seek to prevent entrenched poverty. In this way, tax (or at least progressive tax) is a good thing (or at least has strong potential to be good).

The current argument for reducing tax for wealthier people and corporations is that it will encourage economic activity (hence the slogan ‘jobs and growth’). Is this right? In general, government spending on basic services and social security promotes more economic activity than tax cuts for the wealthy and for corporations. Money in the hands of poorer people tends to be spent immediately, and therefore circulated in the economy, while richer people are more likely to save a bonus, or spend it overseas, therefore not contributing to economic activity in Australia. Although the arguments are a bit different, the same goes for corporate tax: reducing it has little impact on economic activity.[6] Nobel prize winning economist Joseph Stiglitz agrees: ‘An increase in government spending matched by increased taxes stimulates the economy.’[7]

What about incentives? The argument that giving richer people a tax cut incentivises more investment (leading to more jobs for poorer people) dominated US and UK political economics in the 1980s. However, it did not work, and earned the nickname ‘voodoo economics’. It is perhaps one of the most discredited economic theories still being promoted. J.K. Galbraith sums up its de-masking:

We can safely abandon the doctrine of the eighties, namely that the rich were not working because they had too little money, the poor because they had much.


Debt

Another incessant slogan is that we must ‘live within our means’. What does this mean? Typically we are told that a government is like a household, in that it can’t spend more than it earns. Used as a reason to cut spending on the types of services mentioned above, it is exposed as a poor excuse when the truth about government accounts is unmasked.

Firstly, government accounts are not like household accounts. Governments do not have a fixed capacity to earn, but can raise taxes anytime. Many countries have higher taxation than Australia. Governments can also borrow very cheaply (basically at zero interest rates at the moment). There is no fixed limit on a government’s means.

Secondly it makes a simple accounting error. Company accounts separate out capital items (purchases of plant and equipment) from the profit and loss account, and spread the capital cost over many years (because the benefit of the purchases comes over many years). Treating government accounts like this would see items like infrastructure removed from surplus/deficit calculations and smoothed over time. This makes more sense, as the expenditure benefits the population for many years.

Finally, and most importantly, we must understand that a government budget is not about limiting spending to what we earn but about priorities: how much to tax and what items get priority when spending that tax. Suggesting we must ‘live within our means’ and therefore have less money to spend on education is unmasked when $60b is allocated to 12 submarines (make it 11 and the Gonski education model could be funded) and over $1b each year is spent on offshore detention centres. The reason we can’t have more foreign aid or better health funding is not about our limited means but about our priorities.


Jobs

The slogan ‘jobs and growth’ was heard 13 times in the budget speech and has featured even more prominently since. The false claim that company tax cuts produce jobs has been discussed above. However, we have more unmasking to do. Consider the following facts:

  • In the last few years, the government has allowed the car industry to close. This will cost up to 200,000 jobs (on top of the almost 300,000 jobs lost in manufacturing since 1989). The car industry had been receiving about $500 million per year in subsidies.
  • The mining industry continues to receive around $4.5 billion in federal government subsidies each year. In the past 2 years it has shed over 40,000 jobs.
  • Since 2013, the government has attacked the renewable energy industry resulting in 5,000 lost jobs.
  • The government has recently announced massive spending on submarines to be built locally, creating Australian jobs at an unknown subsidy to Australian industry.
  • There is ‘permanent’ unemployment of about 500,000 people. The government and reserve bank (via interest rates) ensures unemployment goes no lower because that might cause inflation. So we have jobs continually being created and destroyed, sometimes with government assistance on both fronts, but unemployment never falling below that level.
  • Each year, regardless of government actions, 100,000-200,000 jobs are created and about the same number destroyed. This is a natural process that happens as technology changes and consumer tastes evolve.

What can we conclude? It is not a question of more or less jobs, but which jobs the government of the day favours.

Economic Modelling

When governments describe the impacts of their budgetary decisions, they make bold claims about the future based on ‘economic modelling’. When we hear those terms, we must proceed with caution. As Galbraith remarks, ‘The only function of economic forecasting is to make astrology look respectable’. It is a case of ‘garbage in, garbage out’ and, even when the inputs are reasonable, the output is still a best guess. The powers would have us believe that models are authoritative and we must submit to their wisdom. They are not and we should not.

Conclusion – be sceptical

I have given just a few examples that I hope may help to empower readers to question claims made by politicians and ‘experts’ of all political stripes. Often the claims are made by people who know no more economics than the average person, but simply know how to use the language. Hence the powers rule, the masses remain captive and privilege is justified.

Through his parables in particular, Jesus unmasked the motives and hearts of the Jewish ruling class and religious leaders. His subversive stories exposed hypocrisy, self-interest and partisanship. Similarly, as we unmask the powers behind economic jargon and discredited theories, we expose the underlying motives and values of the decision-makers. We don’t need to become economists. We simply need the confidence to question, to not be held captive to the controlling narrative and to call it out for what it often is: a justification for selfishness.

John McKinnon was Co-founder and Executive Director of fund manager GMO Australia and NSW State Co-ordinator for Tear Australia. John and his wife Sue are now co-managers of the McKinnon Family Foundation, a private charity that focuses on climate change mitigation, renewable energy and community development.



[1] John Kenneth Galbraith was a Harvard University economist who advised US presidents Roosevelt, Truman, Kennedy and Johnson. He was a best-selling author for over 50 years and had the wonderful ability to summarise complex arguments in pithy quotes, several of which I will borrow.

[2] Wink’s seminal works on the powers are Naming the Powers (1984), Unmasking the Powers (1986) and Engaging the Powers (1992).

[3] Paulo Freire, Pedagogy of the Oppressed (NY, Continuum, 1970, 1992).

[4] I will draw extensively on Richard’s book Econobabble (Sydney, Penguin, 2016).

[5] Ched Myers and Elaine Enns, Ambassadors of Reconciliation, NY, Orbis, 2009.

[6] See The Australia Institute Coalition's company tax cuts claims ignore trade treaties and imputation, http://www.tai.org.au/content/coalitions-company-tax-cuts-claims-ignore-trade-treaties-and-imputation.

[7] Huffington Post, January 4, 2016.


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