In this episode of the Australia Together Podcast on Substack I read Part 3 to 6 of Chapter 2 of my latest book, The Public Interest Economy: the path to wellbeing, security and sustainable consumption in a democratised Australian economy.
Chapter 2 is called Deploying money so that it can make Australians safe. It describes a project of reform of the macroeconomic policy and governance arrangements for Australia’s economy so that in future all Australians can be assured of their prosperity through the achievement of full employment and price stability.
In Parts 1 and 2 of this chapter I foreshadowed the need for a reduction of the degree of independence currently enjoyed by the Reserve Bank of Australia, suggesting that it amounts to an economic governance arrangement that is not in the public interest and is fundamentally anti-democratic.
In Parts 3 to 6, I begin explaining how that economic governance arrangement should be replaced with a new integrated approach to macroeconomic management led by the Treasury via the use of functional finance – a marcoeconomic management system devised in the 1940s in line with Keynesian economics. This system can function as a counter to the failures of neoliberal and neoclassical economic theories.
Functional finance operates on the premise that “deficit spending actually works” to build economic sustainability with wellbeing and Parts 3 to 6 of Chapter 2 show how and why this is so. By contrast, adherence to the neoliberal policy favourites of federal budget balancing and fiscal sustainability cannot deliver Australians from economic insecurity; instead they will exacerbate inequality and poverty.
Functional finance is a proposal to use the government’s unique financial capacity in such a way as to make the economy function as well as we need it to for everyone that lives within it – and that simply means making it function to maintain full employment with stable prices. … Neoliberal policies pit the poorest and the richest classes against each other, but with functional finance that becomes unnecessary, and implementation of it is one of the surest paths we can take towards reduction of income and wealth inequality.
Australia’s economic governance arrangements at the macroeconomic level are not currently set up properly for the purpose of maintaining full employment with stable prices. But functional finance shows how they could be. Chapter 2 shows how it works. It outlines three rules for safely deploying money in the economy.
Quick views of how functional finance works
For a readily accessible summary of the policy orientation of functional finance see Extracts from The Public Interest Economy, particularly:
Table 1 – Key takeaways for macroeconomic policy and governance reform.
Box 1A – The rules of funcational finance.
Box 1B – The most effective macroeconomic governance arrangement using functional finance.
Table 5 – which shows the prevailing economic policy orientation under neoliberalism in Australia and the alternative policy orientation necessary for a public interest economy.
Table 6 – which shows the current mindsets predominant in governments in Australia and the mindsets needed for a public interest economy.
The related schools of post-Keynesianism, functional finance and modern monetary theory open up the prospect that Australians need not feel economically insecure. The members of these schools claim to offer something that we should not be denied – they offer Australians and their governments the potential to eliminate economic insecurity permanently; so, they are presenting an attractive alternative that is worth a decent and proper trial.
Listen to a full reading of The Public Interest Economy
You’ll be able to listen to a complete reading of The Public Interest Economy in weekly instalments.
If you wish to keep reading, the full book has already been published and is available on Kindle here. The paperback is available for mail-order here or click on the picture below. Or visit the Australian Community Futures Planning website to purchase The Public Interest Economy at https://austcfp.com.au/publications#public-interest-economy
