As Andrew Little and the rest of the Labour Party heirachy sit down to decide policy and strategy for the next 3 years, they would do well to consider this Gordon Campbell interview with Bryan Gould. Yes Gould is part of a review committee that is reporting back to Labour on its election defeat but I doubt that report will be as candid as Gould is himself in this interview. Remarkably he talks about Public Credit as an option, something the 1935 Labour Government used for State Housing, and which I have championed here, here and here as an option many times. (Gould below with Campbell in italics)
But what is not recognised in New Zealand or other Western countries is that the main inflationary impact comes from the banks. As the Bank of England has recently recognized in a major paper earlier this year some 97% of all the money in circulation in the case of Britain – and its similar here – is originally created by banks, out of nothing. And they create it in order to lend it out on mortgages. Most people think that banks take in savings from depositors and then they lend that out again, to borrowers. No, not a bit of it. The amount that the banks lend has got nothing to do with the money that people deposit with them.…
The only thing that constrains them is the absence of willing borrowers….
So the first point I want to make is that the whole focus of our monetary policy is wrong. We think that somehow, by putting up interest rates, we are going to solve inflation. All that does is increase the return to the banks on the lending side, on money they create out of nothing.
While not constraining their capacity to lend?
No. And all that money being pumped into the housing market is causing huge increases in asset values –
OK. But the political problem here is that if and when governments do exactly the same thing in order to meet social goals, that’s derided as ‘printing money’
And as the US has shown that you can do that – they called it ‘quantitative easing’ – when you’re bailing out the banks. But you’re regarded as being beyond the political pale if you do this for any social purpose, right?
Absolutely. You’ve got it.
So how then, does a centre-left party engage with the politics of this situation, beyond poking holes in it from a distance? In the current circumstances, what you’re saying simply isn’t a viable political programme – it sounds like Social Credit.
Yes, and that’s the central dilemma I believe, for the left.
The original New Zealand Labour Party of the 1920’s and 30’s was full of Social Creditors. John A Lee was the most influential of them, much to the chagrin of the more conservative Savage and Fraser. They forced Savage into more radical measures than he would otherwise have taken.
Yet when has anyone in the current Labour caucus even mentioned an “unorthodox” idea like Public Credit. All the financial spokesmen have been stultifyingly mainstream because like Goff and Shearer they are only semi reformed Rogernomes; like Cullen want to believe debt fueled consumption is a sustainable boom; or like Parker are afraid of the financial markets.
What Gould is talking about is economic heresy. It is the same heresy that had Russel Norman retreat in humiliation from the ridicule National directed at him over his proposal to print some money for the Christchurch rebuild. It was a worthy suggestion but he and the Greens lacked the courage to face down the facile ridicule and explain the idea.
Labour haven’t even got that far, and despite Gould’s position, I doubt a Little led Labour Party ever will. Yet it is vital they come up with real alternative policies and face down Key with his “far left” jibes or Joyce with his inane “North Korea” comparisons. Gould again;
The suggestion that you move back to the centre is wrong. What you should be doing is putting forward policies that you think will work, and that will address the major issues, and be more successful than the current lot.
Right on queue George Monbiot has just penned another provocative Guardian piece Growth: the destructive God that can never be appeased addressing just the issues outlined above and more. I would love to hear Little and indeed Norman’s response to his call for Steady State economics. Monbiot is writing about the UK but the identical issues are repeated here in New Zealand, right down to the TPP/TPIP agreements.
The system the world’s governments have sought to stabilise is inherently unstable; built on debt, fuelled by speculation, run by sharks.
If it goes down soon…. The problem that then arises – and which explains the longevity of the discredited ideology that caused the last crash – is that there is no alternative policy, accepted by mainstream political parties, with which to replace it. They will keep making the same mistakes, while expecting a different outcome.
To try to stabilise this system, governments behave like soldiers billeted in an ancient manor, burning the furniture, the paintings and the stairs to keep themselves warm for a night. They are breaking up the postwar settlement, our public health services and social safety nets, above all the living world, to produce ephemeral spurts of growth. Magnificent habitats, the benign and fragile climate in which we have prospered, species that have lived on earth for millions of years – all are being stacked on to the fire, their protection characterised as an impediment to growth.
While they are at it Labour might like to consider the 2013 book The Entrepreneurial State by Professor Mariana Mazzucato (well summarised by Live Mint) which makes a compelling case that the state drives the big innovations not the private sector as a lot of research and development is over too long a time frame and too risky for private investors.
She uses a case study of Silicon Valley and the i-phone to show Apple did not develop most of the pivotal technology used in the phone. Government funded research initiatives, particularly DARPA, did. Apple’s genius was aggregating and commercialising the technologies in a new form. Mazzucato would approve of New Zealand’s Crown Research Institutes, funding collaborative research of long term benefit.
When it comes to infrastructure in New Zealand, only the state has the long term horizon and stable funding to have built ports, railways, roads, airports, power stations and dams etc. All of this and more can be funded with Public Credit from the Reserve Bank at no interest if so desired. Money spent into existence as payment for wages and materials rather than loaned into existence as mortgages for houses. What do you say Andrew Little? Savage would acknowledge it. Do you?
I complained in the previous post about the lack of curiosity, courage, visionary leadership and drive for alternatives from anyone, from any party. Monbiot sums it up nicely.
It would ask the question that never gets asked: why? Why are we wrecking the natural world and public services to generate growth, when that growth is not delivering contentment, security or even, for most of us, greater prosperity? Why have we enthroned growth, regardless of its utility, above all other outcomes? Why, despite failures so great and so frequent, have we not changed the model? When the next crash comes, these questions will be inescapable.
National is a lost cause especially with a financial market insider in charge. Labour and the Greens are at a crossroad. The opportunity is theirs to take but I doubt they have the inclination or the courage.