There is an interesting dilemma currently emerging in Australia, which provides an excellent case study on how governments can use fiscal policy effectively and the problems that are likely to arise in that application. At present, the Australian states are engaging in an infrastructure building boom with several large (mostly public sector) projects underway involving improvements to road, ports, water supply, railways, airports and more. I travel a lot and in each of the major cities you see major areas sectioned off as tunnels are being dug and buildings erected. Not all of the projects are desirable (for example, the West Connex freeway project in Sydney has trampled on peoples’ rights) and several prioritise the motor car over public transport. But many of the projects will deliver much better public transport options in the future. On a national accounts level, these projects have helped GDP growth continue as household consumption has moderated and private investment has been consistently weak to negative. But, and this is the point, there have been sporadic reports recounting how Australia is running out of cement, hard rock and concrete and other building materials, which is pushing up costs. This is the real resource constraint that Modern Monetary Theory (MMT) emphasises as the limits to government spending, rather than any concocted financial constraints. If there are indeed shortages of real resources that are essential to infrastructure development then that places a limit on how fast governments can build these public goods. The other point is that as these shortages are emerging, there is still over 15 per cent of our available labour resources that are being unused in one way or another – 714,600 are unemployed, 1,123.9 thousand are underemployed, and participation rates are down so hidden unemployment has risen. So that indicates there is a need for higher deficits while the infrastructure bottlenecks suggest spending constraints are emerging. That is the challenge. Come in policies like the Job Guarantee.
Practical MMT. MMT is made up of an operational analysis of monetary systems, macroeconomic theory, and policy guidance. They are complementary.
Bill Mitchell – billy blog
Real resource constraints and fiscal policy designBill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia
" there have been sporadic reports recounting how Australia is running out of cement, hard rock and concrete and other building materials, "
ReplyDeleteWell they will just expand quarries and mills to increase production...
"there is still over 15 per cent of our available labour resources that are being unused in one way or another"
ReplyDeleteWell they should go work in expanding the quarry and milling operations no?
“At present, the Australian states are engaging in an infrastructure building boom with several large (mostly public sector) projects underway involving improvements to road, ports, water supply, railways, airports and more.”
ReplyDeleteWhen complete, these will all be privatized (i.e. handed to the rich) under the excuse that the Australian government “has no money.” The Australian government will tell the masses that the infrastructure must be privatized because the (non-existent) “trust fund” is bankrupt.
Anyone who tells you that the UK, US, Canadian, or Australian governments have “trust funds” is a liar or a fool. “Trust funds” only occur in the non-federal world. At the level of national government, “trust funds” are an accounting fiction. (Does a sports scoreboard need a "points trust fund"? No.)
“But, there have been sporadic reports recounting how Australia is running out of cement, hard rock and concrete and other building materials, which is pushing up costs.”
That’s the cover story, and it is a lie. Australia is running out of rock? Nonsense. (Incidentally you don’t “run out” of concrete, since concrete is a product, not a natural material.)
As for cement, Australian is running out of sand, gravel, limestone, and gypsum? More nonsense.
No, the reasons why infrastructure construction costs are rising in Australia are…
[1] Construction company monopolies.
[2] Some aspects of infrastructure projects involve bank lending. Bankers lend as much as they can, since the larger the loan, the more profits they make from interest payments. This causes prices to inflate throughout the economy.