In this episode of the Australia Together Podcast on Substack, I read Parts 11 and 12 of Chapter 4 of my latest book, The Public Interest Economy: the path to wellbeing, security and sustainable consumption in a democratised Australian economy.
Chapter 4 is about how to arrange Australia’s economy in the public interest. More specifically, it’s about how Australians can take an influential role in this by using National Integrated Planning & Reporting – National IP&R – to build a long term plan for economic and resource sustainability.
In Parts 1 to 5 of the chapter, I spoke about how Australians can enter into orderly conversations in the National IP&R process that will allow them to help governments get public spending right.
In Parts 6 to 8, I showed how they can do the same to get tax right.
In Parts 9 and 10, I showed how we can use these conversations to establish full employment in a non-inflationary environment. This will involve building a national wellbeing industries full employment plan.
In these final sections I show how Australians can integrate long term national financial planning with the federal annual budget setting process so that we can escape economic recessions, including both those brought on by domestic and global market failures.
What are Australia’s chances of escaping economic recessions?
Australians can future-proof themselves against economic recessions and even escape them entirely if governments acknowledge certain truths about the way money and the economy work. Once they admit that:
money is not a limitation for a government with a sovereign currency (like Australia’s), and that
fiat currency issuing governments (like Australia’s) can use taxation to control any inflationary effects arising from our spending (and theirs),
all our governments will be able to build recession-proof domestic economies and insulate Australians from the effects of global recessions. They will be able to build what Treasurer Jim Chalmers has said he wants – economic resilience.
However, governments will only be able to build a resilient economy if they learn how to build long term national financial plans by conversations with the Australian people in National Integrated Planning & Reporting (National IP&R). These plans are currently missing from the federal budget setting process. They are absolutely essential if we wish to secure our wellbeing in the face of global disruptions of fair access to human and natural resources.
Parts 11 and 12 of Chapter 4 set out the reasons why Australians can no longer afford to run their economy without the aid of a long term financial plan that is designed to deliver the sort of economy Australians want.
The necessity of framing annual federal budgets within the context of long term national financial plans
Each year, the federal government designs a budget for its spending and taxing that it promptly disregards as soon as it is delivered. This exposes Australians and their economy to utterly unnecessary risk. Nor does it give them any idea of whether we are building the sort of economy Australians want – one that will secure their wellbeing.
Australians can escape those risks if we collaborate in the National IP&R process to develop long term financial plans for the nation. These plans should supersede the annual federal budgets, at least in terms of the media hype that currently surrounds them.
There is a multitude of problems with federal budget planning processes in Australia including, of course, the irrelevant, futile and outright harmful obsession with achieving a balanced federal budget. But each of these problems can be easily overcome – permanently – by building a long term national financial plan which places annual federal budgets clearly and transparently in the context of an agreed picture of the type of economy and the attendant employment profile we need and want and are intending to build over a period of ten to twenty years. Annual federal budgets formulated without that context risk consigning Australians to an economy that is not in the public interest.
But with the advent of National IP&R, Australians and their governments can be released from the sort of economies that – because they are left to chance and the preferences of private interests rather than planned in the public interest – will be highly likely to afflict more and more people with poverty, low wages, drudgery and insecurity in work, depression, hopelessness, social stigma, homelessness, fear and want.
Australia’s economy can be organised to prevent all that. A planned economy in Australia can also be organised to prevent or, at least, soften the impact of most of the wild swings in economic cycles that have characterised the global economy for decades.
Long term national financial planning can also be used to help prevent the economic atrophy that arises from recessions. It is essential if we wish to achieve economic resilience in the face of global uncertainty. But it is also necessary if we want to enhance the functioning of Australia’s macroeconomy so that inequality and poverty are reduced, prices are stabilised, resources are consumed and renewed at sustainable rates, and people can work in jobs of their choice.
Conversations in National IP&R to develop long term national financial plans can help Treasury use Rule 1 of functional finance effectively to achieve full employment with stable prices. They can also help governments prevent recessions and the failures to which private markets are inherently and inevitably prone.
How will conversations in National IP&R prevent recessions?
If a government purports to be concerned about social justice, its first duty is not to jump in after markets have failed, but to think ahead and design an economy less prone to market failures. Governments can only think ahead by developing a long term plan; and to ensure that this plan will build the sort of economy Australians want, they must develop that plan by collaborating with the community inside a national integrated planning and reporting process.
Australia’s federal governments, including the Treasury, as yet, have no skill in this regard. But it will be to their advantage if they develop it. Conversations in National IP&R provide the only place where key questions of economic management can be answered to the mutual benefit of governments and people.
These conversations will, if well organised, focus on questions about the sort of economy Australians want – questions that go to the fundamentals of how to achieve the lifestyle they want without surrendering to the recessions to which we are exposed by governments that refuse to regulate markets before they fail. These questions will revolve not just around achieving full employment but also around the diversity of employment types that we want the economy to generate.
In the conversations in National IP&R a key question will revolve around whether we want an economy that favours our participation by full employment in work of our choice or one that doesn’t. This is a fairly simple question to which there is a predictable answer: of course, we want an economy with full employment, and of course we want to be able to choose our own career. Otherwise, how can we expect to live with dignity and wellbeing?
And knowing that with a fiat currency, an economy with full employment and diverse job opportunities is entirely within our reach, there is no reason (even in politics) why governments should settle for less.
Governments have no reason to think that a recession resistant economy with full employment is not within our reach or is somehow unaffordable. The reality is that there is only one thing we, our governments and our economies can’t afford: we can’t afford incessant market failures due to excessive consumption of scarce resources. We can’t afford to surrender to the private sector’s boom and bust cycle as though it won’t harm us. In a resource constrained world, market failures will do much worse than that.
These observations illustrate why it will be to everyone’s advantage if Australians stop thinking about the economy as the Prime Minister does. Anthony Albanese is much mistaken. We do not – as he has claimed – have a private sector economy and that sector is not “the key driver of growth.” Nor is the PM correct in saying that “the public sector should step in where there is market failure.” The public sector should step in well before markets make their usual messes, not wait until they fail. Unless the public sector does so, it is not acting in the public interest.
Governments can and should step in to prevent market failures and recessions. That’s their job. And the most effective way to prevent market failures is to ensure that the wellbeing of Australians is always fully funded and provided for by highly competent public sector.
The answer to a smoother ride through economic cycles and transitions is to build and maintain an economy with a big, solid foundational wellbeing sector. That is what makes an economy resilient.
But at the same time, governments and communities need to collaborate in long term national financial planning using decision principles that everyone agrees are fair and democratically determined. The National Accord on Wealth, Welfare and Wellbeing, spoken of in Chapter 3, offers examples of these principles.
If conducted in accordance with the sort of principles outlined in the National Accord on Wealth, Welfare and Wellbeing, conversations in the financial planning component of National IP&R are likely to result in an economy that provides full employment in wellbeing industries. This will provide a platform for diverse types of work across the whole economy which offer life satisfaction to everyone without essential resource destruction.
This sort of economy is the most likely to be efficiently responsive to macroeconomic tools for stabilising inflation, most notably by effective use of Rule 1 in functional finance. Additionally, a wellbeing economy, because it relies on the competitive stimulus that will arise from a bigger public sector focused on wellbeing, is also most likely to result in sustainable wage growth rather than the suppression of wages that has pertained under the neoliberal push for an attenuated role for the public sector in the economy.
Want to know more about functional finance?
For more information on functional finance, see Chapter 2 of The Public Interest Economy or see Extracts from The Public Interest Economy, particularly:
Table 1 – Key takeaways for macroeconomic policy and governance reform.
Box 1A – The rules of functional finance.
Box 1B – The most effective macroeconomic governance arrangement using functional finance.
Find out more about the National Accord on Wealth, Welfare and Wellbeing at https://austcfp.com.au/supporting-activities#national-accord
Find out about National IP&R and how to get involved here.
Stay in touch for the next episode
Next Episode: Chapter 5, Parts 1 to 3. Chapter 5 is offered to show how Australians can collaborate to arrange the welfare of the whole nation.
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
Useful insights into The Public Interest Economy
Click on the picture to listen to a radio interview with Bronwyn Kelly about The Public Interest Economy.
