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I used to regularly look forward to watching Alan Kohler’s financial report on the ABC news each evening. But when the global financial crisis hit, I suddenly realised that even he didn’t know what was going on. Fast forward to 2020 and I’m having that strange sense of déjà vu—all over again—as I watch him spruik the benefits of Modern Monetary Theory (MMT).
While MMT is not without its critics, it has become increasingly fashionable, especially amongst those employed by our national broadcaster. In case you might have missed it, the ABC has produced the following promotional video featuring Kohler here:
It was the great far-left-turned-conservative, as well as former editor of Quadrant (1997-2007), Padraic P. McGuinness, who best outlined the dangers of adopting this kind of macroeconomic approach in a speech for the H.R. Nicholls Society, which was appropriately titled: In Search of the Magic Pudding. McGuinness presciently observed:
One of the things you discover in folk literature and children’s literature (and of course they were originally the same) is that something for nothing always has traps. Norman Lindsay’s, The Magic Pudding, was written in the middle of the First World War, though actually published in 1918; when I went back to read it again for the first time since my own childhood it came back to me in an extremely fresh and interesting way.
Rod Cavalier who is a former Labor minister for education in the NSW government knows a lot about Lindsay, and was in fact married at one time to a member of the Lindsay family. The book certainly turned out a magic pudding for them, since they are still enjoying apparently inexhaustible royalties from it. I asked him whether there was reference in the book to a contemporary political controversy, since one of the interesting things about nursery rhymes and similar apparently innocent folk-stories is that often they originate in political or social conflict.
But although he cannot recall any such context for Lindsay’s book, I see it as a political commentary on many Australian attitudes and institutions. The Magic Pudding, you will remember, was a pudding which could be steak and kidney pudding, or it could be a plum duff, or an apple dumpling—you just had to turn the dish around and whistle twice and it changed to whatever you wanted. It was absolutely unlimited in supply, and the pudding enjoyed being eaten and in fact pleaded to be eaten.
McGuinness’ speech is worth re-reading in full. Not just for its economic, literary and political insights, but also for its humour. Just take, for instance, this comedic gem:
The story of the Magic Pudding is one of the great stories of the hazards of having something for nothing … But this tradition of magic abundance needs to be contrasted with another tradition in economics one of the many reasons it is known as the dismal science…It is summed up in one phrase There Ain’t No Such Thing As a Free Lunch (TANSTAAFL) … Surprisingly the notion of a free lunch is basic to economics—it might be called the science of free lunches.
In all seriousness though, McGuinness argued that Modern Monetary Theory taps into a larger “universal theme” going all the way back to the Bible. In particular, the widow’s jar of oil that the Lord miraculously re-fills during one particular famine. (i.e. 2 Kings 4:1-7) In fact, McGuinness stated that, “John Maynard Keynes uses the story of the widow’s cruse in his Treatise on Money to illustrate the notion that profits are endlessly replenished by increases in money demand.”
Now, as someone who has studied theology—but not necessarily economics—even I can see the problem here: the government is not God! The whole point of that particular Old Testament incident is to demonstrate that there is a divine power with infinite resources upon whom people should look, rather than trusting in the work of their hands. What J.M. Keynes does, however, is turn the whole thing upon its head. As McGuinness—who was ironically a life-long atheist—explains:
In Keynesian economics, the magic pudding is the notion that there is a kind of cost-free process of economic expansion. So, government deficits became the magic pudding. In Reagan-style supply-side economics there is a similar magic pudding notion, that tax cuts could magically generate more than the output and revenue increase needed to finance them. Like the widow’s cruse, there is always a trap in the attempt to utilise these notions.
Essentially, the problem is one of magical thinking. But magic puddings are treacherous beasts, and the old principle in approaching confidence tricksters should be applied. If someone offers you something which is too good to be true, then it is not true. Distrust governments bearing neat and easy solutions, and distrust simple and comprehensive solutions to complex problems, whether they be labour market deregulation or easily reaped increases in product which appear to be cost-free.
As a man of the cloth, I’d beg readers’ indulgence to note that, while the Bible is not chiefly concerned with economics, it does present a more robust and integrated worldview than MMT, as Quadrant‘s Peter Smith has ably explained here and here. In short, it places a high value on the importance of work (see 2 Thessalonians 3:6-15) as well as being prudent with one’s spending (Luke 16:10-12). It also wisely warns about the danger of wealth quickly received (Proverbs 20:21) and instructs that money is best accumulated little by little (Proverbs 13:11). How different this is to the fiscal largesse of MMT.
My parents instilled in me the self-evident truth that “money doesn’t grow on trees”, but according to folks like Kohler, that’s not actually the case. As long as one understands there being a direct equivalent between ‘trees’ and the Reserve Bank’s printing presses. Although, to be fair, since Australian currency is now made out of polymer—and not paper—that is no longer the case either.
Mark Powell is associate pastor of the Cornerstone Presbyterian Church in Strathfield, NSW
“Yet a little sleep, a little slumber, a little folding of the hands to sleep: so shall thy poverty come as one that travelleth, and thy want as an armed man”. Proverbs 6:10-11 KJV
Having watched him tonight on ABC before the news its not clear that Kohler is actually advocating MMT.
What he is saying is that whatever the theory, all states are now borrowing from themselves multiples in effect of their GDP with no clear plan to pay it off, which is what MMTheorists say is good policy.
At the same time,my thoughts, and he said the same, there is not a high likelihood of inflation.
We are heading for recession/depression.
So lets say the Australian inflation rate long term ends up at 1% and the Reserve bank lending rate at .1%.
Then in 50 years the trillion borrowed will be negligible in value.
In Germany,so the EU, before COVID,the interest rates were already heading negative.
When lend lease was set up during WW2, the UK paid it off in 2000, more than 50 years later.
In the meantime, with borrowed money, it may be possible to keep the wheels on the economic cart before mass layoffs. Rational efforts may limit the spread of this virus.
My own, not economic view, is that the countries that best use the borrowed money will emerge strongest. Goods and services will flow to them.
Things like cheap power, efficient agriculture, better education and tourism must help.
Lets not let this crisis go to waste.
As I recall, the irascible pudding, Albert, at one stage expressed his irritation with his owners thus: “I hope you get the stomach ache from eating me a lot”. There may be a nasty stomach ache to follow this latest exercise in dubious economics. There certainly will be for those who are unemployed. And self-funded retirees like me, with interest rates so low, may soon be wishing a stomach-ache upon those currently gorging themselves on the pudding.
The pudding actually changed hands several times in the story, as various parties sought for control of its magical properties. Battles were fought. An attempt was made to poison the pudding out of spite. So although the pudding was a fine provider of free fodder, it also became an object of greed, envy and general unpleasantness. A magic pudding is a fine idea, but it has ramifications.
It is important to remember that The Lord is sovereign and that every outcome is the best in His economy
of which we are all under, regardless. Keynes, on the other hand, was not sovereign, was imperfect and
was fallable. This means that the outcomes of his economic principles were, and still are, open to failure.
Barnacle Bill and Sam Sawnoff snaffled Albert aboard the Saucy Sausage, from the Chinese cook who mysteriously disappeared overboard one stormy night, a parable of a nation founded on original theft. Paddy McGuinness, aka Sebastian Scragg, was rotund and orotund, massively entertaining, wise and married to an exquisitely beautiful German, whom he mentions in his address. It must be a huge relief to economists that the formerly dismal science has burst the boiler in the orgasmic starshot cornucopia that is Modern Monetary Theory. What could go wrong? The theory is perfect. Like Euclid’s geometry it is perfectly true in the world of its own devising.
No article referring to the ABC should be allowed to go by without noting that those (and there are many) who rely solely on the ABC for news are necessarily living in an imaginary world rather similar to that of The Magic Pudding. In the glory days of Walter Disney, his version of this imaginary world was known as Fantasyland. Every single day the ABC addict imbibe an item explaining why Donald Trump is a dangerous, incompetent, untrustworthy fool. This crusade against an imaginary Trump has been going every single day for years at the ABC. Also imbibed will be an item explaining that racism is endemic in Australia and/or America. And so on. The ABC is a blatantly woke Leftist propaganda machine. It selectively references reality only to add credibility to its ideological narrative. By what argument can such an organisation be funded with taxpayer dollars in the Internet age, when vast quantities of precisely similar opinion is freely available online? The ABC ought to be forced to support itself by carrying advertising and charging subscription fees.
“But when the global financial crisis hit, I suddenly realised that even he didn’t know what was going on.”
First economist: “Do you understand what’s going on?”
Second economist: “Let me explain.”
First economist: “I can explain perfectly well myself. Do you understand what’s going on?”
Lewis P Buckingham – 11th August 2020:
If he endorses MMT policy outcomes, it is hard, sans an alternative theory to support the policy, to separate himself from de facto support for MMT.
I’m not an economist, but MMT and the flood of money from the RB must be a delight to the Greens who always expected they could fund there extravagant policies from “money that grew in trees”!