Is the mood of the boardroom behind the eight ball?
A former NZ National Prime Minister and a former Australian Labour Treasurer are on the same page.
Both are calling for direct monetary financing, or in layman’s language, the Reserve Bank giving money directly to the government to spend, bypassing the investors who make profits from buying and selling government debt (bonds).
One would think that was worthy of substantial coverage.
Yet the opinion of the NZ Initiative, a self appointed right wing think tank comprising neo-liberal economics adherents dedicated to continuing with the policies that have seen inequality expand to the greatest level in the last 100 years, are considered more worthy of reporting.
One would expect respondents to a Mood of the Boardroom survey to not understand the intricacies of government bonds, quantitative easing, and direct monetisation of government deficits. Those things are not within their range of experience or their day to day sights, and neither should they be. Running a profitable, productive company should.
Jim Bolger and Paul Keating are not the only ones with specific knowledge in the field of government finances to make the calls for their country’s Reserve Bank’s to buy bonds directly from their respective Treasury’s.
Their opinions are backed leading economists like Ganesh Nana, Senior Economist and Research Director of BERL, who said on Radio NZ’s Morning Report way back in April “The government can borrow from the Reserve Bank. To be technical, it’s literally borrowing from itself. We should not close off any [options] just because somebody told us 30 years ago that it was bad.”
In an article in the Otago Daily Times in May he reinforced that saying it was a "no-brainer". "It’s been in the textbook a long time ... It’s just another tool in the toolbox to use when sensible. And now is the time to use that, very definitely."
Dr Geoff Bertram, former Senior Lecturer in Economics at Victoria University in an opinion piece in the NZ Herald in April agreed. “Issuing money in the current circumstances has impeccable support from mainstream economic thinking. In the current context it is the correct, most efficacious way to proceed. [Govt] should not be prisoners of outmoded, arch-conservative political doctrines.”
Strategy and risk consultant Raf Manji, a former investment banker, in a piece on Interest.co.nz in March wrote “What the Reserve Bank needs to do now is to make clear that it can and will purchase government bonds directly from the Treasury at 0%. These funds should be used to fund the current and forthcoming economic support packages.”
Commentators Bryan Gould and Bernard Hickey have been writing about it since 2012.
The voicing of opinions by Bolger and Keating add significant weight to those views but are hardly world shattering, although some appear to think so.
Internationally, we’re way behind the eight ball. Discussion on the concept of direct money financing has been going on for years.
Macroeconomist, and Research Professor at the Barcelona School of Economics, Jordi Galí, contends “There is an alternative to a strategy based on higher taxes and/or more government debt - namely, direct, unrepayable funding by the central bank. A transfer from the central bank to the government.”
The list of professors of economics who agree would fill a whole page.
Adair Turner, former chairman Britain’s Financial Services Authority, Martin Wolf, associate editor and chief economics commentator at the Financial Times of London, and Anatole Kaletsky, economics commentator for The Economist, the Financial Times and The Times of London have been writing about the subject for ten years.
And of course Social Credit, as a political party since 1953, and a movement since the 1920’s, has direct money financing as it’s key economic policy.
The first Labour government used direct financing from the Reserve Bank to build 30,000 state houses, as well as other things.
In Australia around the same time, the Commonwealth Bank (Australia’s central bank at the time) supplied the Australian government with direct funding for major infrastructure development.
It’s nothing new to those of us who study history, who understand that the lessons of the past often supply the solutions of the future.
Despite ridiculous comparisons with Zimbabwe and Venezuela, Social Credit has never advocated the creation of money in an unrestricted fashion. A key policy is setting up a New Zealand Credit Authority with independence similar to the Judiciary, accountable to Parliament as a whole. Its task would be to assess the economy, measure its unused capacity and labour capability, and determine how much new money the Reserve Bank could safely create without generating inflation.
Direct monetary financing, recognising those limits, has the potential to save future generations of taxpayers billions in wasted interest and debt repayments, freeing up that tax money for hospitals, schools, state house building, desperately needed infrastructure, poverty reduction, and a host of other investments in improving society and business productivity.
Just think where the country would be now, if the roughly $5 billion in taxpayers money that’s been paid annually in interest over the past 50 years, because the government didn’t borrow from its own bank, had instead been invested in NZ Inc.
That’s something for respondents to Mood of the Boardroom surveys to factor in, along with reduced taxes, improved infrastructure, better off customers, better educated and healthier staff, and numerous other benefits of direct monetary financing before voicing opinions next time round.
Perhaps they’ll be better informed by then as New Zealand commentators play catch up and write more about it, as Brian Fallow and Simon Wilson have done so well recently. Let’s hope so.