Social Justice doesn't need to be 'put on hold' to Fight Inflation

 

above:  Albanese doesn't need to 'put social justice on hold' to fight inflation

In Australia the Labor Government is being warned not to spend too much for fear of exacerbating inflation.  At the same time workers are urged to moderate wage demands to avoid a ‘wage/price spiral’.  This is the ‘common sense’ of the day.  But at the same time the labour share of the economy has fallen by over 10 per cent of GDP since the 1970s.

Furthermore, income inequality is marked.  ACOSS observes that:

“People in the highest 20% income group receive 42% of all national income, which is more than the share of the lowest 60% combined. People in the lowest 20% receive only 6% of all household income, while the second lowest 20% receive 12%.”

Here, those in the lowest 20% bracket earn on average $753 a week. While those in the highest 10% bracket take $5230.

Meanwhile, in terms of wealth the bottom 20% average $36,000, while the top 10% average $4,754,000.

Amidst this the Federal Labor Government’s support for an increase of the minimum wage in line with inflation is welcome. But ‘the bigger picture’ is one of increasing inequality, and an increasingly lower share of the economy going towards the needs of working Australians.  At some point Labor needs to confront inequality ; and rectify these imbalances.  But rather than suppressing wages or implementing austerity, the ‘heat’ could be taken out of the economy by raising tax.  Temporary tax increases could target those on middle incomes, while permanent tax increases could target those on high incomes with the goal on funding social wage measures – like Medicare Dental.   Because of the need to moderate demand at this time, the ‘middle’ will be affected either by interest rates, or wage suppression, or tax.  Choosing ‘the tax lever’ achieves this while providing the means to fund infrastructure, welfare and social wage initiatives.   At the same time wages – especially at the lower end – could rise – with the aim of furthering distributive justice.  Overall wages should also rise where the wage share is lower ; and where rectification is necessary. Labor should make representations to Fair Work Australia to achieve this ; and to increase the share going to lower income earners overall. But in the immediate term demand would be moderated through higher tax.  Over the longer term such taxes on ‘the middle’ could be removed to promote an economic recovery. 

The question Labor needs to ask is: ‘can social and distributive justice be furthered while tackling inflation at the same time?’  In this context, pursuing the Stage Three tax cuts makes no sense economically, and from a social and distributive justice perspective.  They will see a flat 30 per cent tax rate for all incomes from $40,000 to $200,000.   This will see an increase in overall demand rather than have a dampening effect.  (though by then the inflation genie may be 'back in the bottle' so to speak)  It will also minimise progressive redistribution and entrench inequality.   It means proportionately those on lower incomes will pay more for the services and infrastructure functions of government, The Stage Three Tax Cats will also cost the Budget billions: almost $250 biillion over nine years.  This money could fund high speed rail, and Medicare Dental, while improving pensions, and winding back user pays in Higher Education.  It could also fund a massive investment in public housing, while improving the wages of Aged Care workers significantly. And probably much more besides.  Some would say such investment would act as a stimulus ; but again it depends on what temporary and permanent tax increases accompany said measures.  Importantly, if such spending kicked in a bit later down the track, the inflation crisis might be over ; and stimulus may in fact be appropriate once more.

The bottom line is that managing inflation does not have to mean social and distributive justice are put on hold. There is scope to improve welfare and social wage while dampening demand overall in the immediate term ; but also rectifying the imbalance between capital’s share of the economy and labour’s share of the economy.  When we have Labor Governments we need to make the most of such opportunities.  We need an Albanese Government that makes the most of the possibilities of government ; and makes long term structural reforms which further the goals of social and distributive justice.

Crumbling Pillars of Capitalist Political Economy

In the following reflections, former Australian communist leader Eric Aarons considers the moral and practical shortcomings of capitalist political economy and its attendant Ideology; including the Ideology underpinning 'Austrian Economics' and the thought of Friedrich Hayek.

by Eric Aarons

 

The pillars of a building, a narrative, a culture or theoretical edifice are those parts of the whole  that keep the other parts  in their designated places. The many books Friedrich Hayek wrote outlining his economic, social and philosophic  views , of and for humanity, eventually prevailed over other theories and became dominant.  I therefore  re-examine  its  major beliefs and assertions –  the pillars – that sustain the capitalist system he championed, and which are daily crumbling before our eyes.

The first pillar is money

Hayek asserts that: ‘Most people are still reluctant to accept the fact that it should be the disdained ‘cash nexus’ which holds the Great Society together, [and] that the great ideal of the unity of mankind should in the last resort depend on [it]’. (LLL,2, 112)’

Money is of course essential in a commodity-based society; but are its possession and use uniformly  equitable and honest?  Why could Oxfam, unchallenged, reveal that: ‘Almost half of the world’s wealth is now owned by just one percent of the population [and] the bottom half of the world’s population owns the same as the richest 85 people in the world?’ (Jan. 2014).

Moreover, compared with earlier stages of the capitalist system, honesty today is very much wanting. For examples of top-organised fraud, recall the laundering of billions of dollars of Mexican drug money by HSBC (Hong Kong and Shanghai Banking Corporation), and the Libor scandal.

Libor referred to the internationally used and trusted benchmark, the ‘ London Inter-bank Offered Rate’ set daily by experts.  On a  day when  the person in charge was an employee of Barclays Bank which was suffering survival difficulties  in the developing  Great Financial Crisis, he skewed the benchmark  rate to favour his bank over others.  Though big fines were imposed, the practice spread worldwide, and even years later new instances of benchmark  corruption keep cropping up, while  new scams are continually invented.

To believe that ‘cash’ in these circumstances can unify rather than divide humanity is among the greatest of follies, especially considering the next pillar which is rotten from the start. 

In essence this means creating more and bigger capitalist organisations which, with globalisation, today embody the worldwide domination of possessors of ever larger slabs of capital,  and general wealth.

What else can this lead to but the conditions reported by Oxfam, that signify the increased concentration of wealth in the form of capital , which has reached a stage where capital is such a large proportion of the total wealth created, that governments cannot now provide, as they formerly did,  services, such as health and higher education, let alone the sums needed to ease the burdens of the disabled, or the facilities for learning, and character development,  now socially essential.

 It is called austerity.

Giving to those who already have

This is a second pillar of the existing capitalist system, stated by Hayek in these words: ‘… ‘such a system gives to those who already have. But this is its merit rather than its defect, because it is this feature which makes it worth-while for everybody to direct his efforts not only towards immediate results but also to the future increase of his capacity of rendering services to others. It is the possibility of acquisition for the purpose of improving the capacity for future acquisition which engenders a continual overall process in which we do not at every moment have to start from scratch, but can begin with equipment which is the result of past efforts in order to make as large as possible the earnings from the means we control.’ (LLL vol. 2, pp.123-4)

Who is it that does the giving?  Consumers of course and waged employees. But here we are talking about economic theory which purports to show that economic processes involving markets are objective because individuals, as such, and by and large, cannot alter what the larger forces of the markets have proclaimed. This is not fully true due to monopolies and cartels – especially in these days of globalisation, where the stated aims of many multinational corporations are to make these forms of economic plunder almost routine, as illustrated in the oil and gas areas today.

Even in Hayek’s much smaller scale he had put the case just as pertinently: ‘We (capitalists) can decide whether the material reward others are prepared to pay for our services makes it worthwhile to render them.’ (The Moral element in Free Enterprise, pages 229 – 236 of Studies in Philosophy, Politics and Economics, 1966)

Who is it that does the giving? The consumer and the waged employee of course. But here we are talking about economic theory which contends and purports to show that economic processes involving markets are objective because individuals, or groups of them, cannot alter what the larger forces of the markets  have proclaimed. This is not fully true because of monopolies and cartels – especially in these days of globalisation, where the stated aims of many multinational corporations are to make these forms of economic plunder almost routine.

Even on a smaller scale Hayek, addressing capitalist organisations in 1961, put their moral case just as pertinently: ‘We (capitalists) can decide whether the material reward others are prepared to pay for our services makes it worthwhile to render them.’ (The Moral element in Free Enterprise, pages 229 – 236 of Studies in Philosophy, Politics and Economics, 1966)

Compare this with his contention that market processes are impersonal  (The Constitution of Liberty, page 45).

Neo-Liberalism claims that human beings are (basically) rule-following animals

This is a claim without substance, and differs from every serious account of human nature that I have read. For instance, I recently reviewed a very useful and interesting book  (The Sixth Extinction, by Elizabeth Kolbert) which had a brief description of the human race:

‘The members of the species are not particularly swift or strong or fertile. They are, however, singularly resourceful. Gradually they push into regions with different climates, different predators and different prey. None of the usual constraints of habitat or geography seem to check them. They cross rivers, plateaus, mountain ranges. In coastal regions, they gather shellfish; further inland they hunt mammals. Everywhere they settle they adapt and innovate. On reaching Europe they encounter creatures very much like themselves, but stockier and probably heavier, who have been living on the continent longer. They interbreed with these creatures and then, by one means or another, kill them off.

The current system is beyond human control

In Hayek’s theory this is because capitalism is not a system formed by humans, but an entity that spontaneously formed itself. This is so singular (so idiosyncratic) a view that, unless grasped, it renders much of his early writing in The Constitution of Liberty and Law, Legislation and Liberty almost illogical. At least I found it so.

Conclusion: The pillars of the present system are crumbling; It is rickety (liable to break or fail) as Thomas Piketty so  thoroughly exposed.

 It requires major restructuring .

Debate on Low-Tax and Small Government Flares yet Again

Recent Claims by Joe Hockey that Australians pay about half their income to the Government through the tax system has once more spurred a broader debate about tax reform - and the falsehoods spread by the Conservatives and Economic Liberals to rationalise their Ideology.

Tristan Ewins

January 25th, 2015

 

Recently  debate has arisen once more about rates of tax in this country.  Again Joe Hockey has come out with totally unfounded claims that individuals on average pay half of their income in tax.

 In response ACOSS chief executive Cassandra Goldie has argued that in fact middle income earners pay only 11 per cent of their income in personal tax, and higher income groups only about 20 per cent.  

Peter Martin of ‘The Age’ further explains how:  “ACOSS [arrived] at the figures by including all household income in its total, including untaxed or lightly taxed…Income washed through superannuation, family trusts and negatively geared properties.”

Martin also explains how:

“The bottom one-fifth of households pay 3 per cent of their income in personal tax, the next group pays 7 per cent, middle group 11 per cent, the second-top group 15 per cent and the top group 20 per cent…

But [this] progressivity vanishes when other forms of tax are included. Including the goods and services tax and other consumption taxes such as petrol and tobacco excise, the lowest earning household pays 24 per cent of its income in tax and the highest earning household only a little more at 28 per cent.”

So the existing system is also barely progressive when taken as a whole; and the Conservatives want to dilute or reverse this even more!

And today Gareth Hutchens of ‘The Age’ has also questioned the facts surrounding Joe Hockey’s claim that increased taxation through bracket creep is ‘the only alternative’ if Labor does not support the Conservative government’s austerity agenda. 

Crucially: improper reliance on bracket creep and increases in the GST and other regressive taxes and charges – including user pays mechanisms - are not the only alternative.

The Liberals’ offensive against any and all forms of progressive  redistribution rests upon their commitment to a classical liberal economic philosophy which naturalises the inequalities in wealth, income and power that arise under capitalism. Employers rather than workers are seen as ‘the real wealth creators’.  Workers are seen as freely entering into contracts with employers.   Their bargaining power as relates to skills in the marketplace are recognised; but the influence of trade unions in improving that bargaining position of workers is not. Differences in recompense based on demand and supply in the labour market are also ‘naturalised’.  Because of this ‘naturalisation’ government intervention in the economy is rejected outright – except for instance in cases where this paradigm is enforced – for instance through impositions against the industrial liberties of organised labour.  Hence the Conservatives and economic libertarians press for ‘simpler’ tax and lower tax because that means less redistribution.

There is also the question of peoples’ own liberties in their capacities as consumers. This issue is raised by the Conservatives and economic liberals and deserves a considered response.  There is the question of whether or not we are better off to determine our own ‘needs structures’ freely through consumption.

Very few socialists today would aspire to abolishing ‘the market’ in its entirety. Most socialists today would recognise the place of ‘the market’ as a medium by which workers and citizens in their capacities as consumers hold corporations accountable through the play of market signals.  Importantly, though, this entails the organisation of people in their capacity as consumers – both to improve the quality of information they can access as consumers – but also improving their market power through collective bargaining as consumers.

But there are problems with this ‘market utopia’.  Information is not perfect. Consumers are not sufficiently organised.  There are monopolies and oligopolies which minimise the effective role of competitive market forces and signals. And there is the possibility of consumers prevailing to the expense of the more poorly organised  workers. That is: the prospect of more – not less –exploitation.  

ALSO where there is intense competition there is the problem of investment in ‘the means of production’ growing so disproportionate compared with recompense through wages that the market is no longer able to absorb these costs – or provide sufficient consumption power to absorb what is produced.

But if all this is true what are the alternatives?

Firstly Labor should support a progressive restructuring of the tax system as a whole.  That must mean winding back superannuation concessions for the well-off – a good proportion out of about $50 billion in total by 2016-17. In total superannuation concessions  cost about as much the entire aged pension budget. It could also mean partially withdrawing dividend imputation (tax breaks ostensibly to negate ‘double taxation’) - justified on distributive grounds – and with exemptions for ‘small investors’.  

Further – it could entail an active restructuring of the income tax system – as opposed to ‘passively’ waiting for bracket creep to ‘do its work’. ‘Passive’ reliance on bracket creep for lower and middle income tax thresholds would have a regressive distributive effect. (which is why Hockey is willing to consider it despite his preference for ‘ever smaller government’) But restructuring and altering income tax scales and rates could allow bracket creep to work for higher income earners, delivering billions while actually reducing income tax for those on low incomes. A new top income tax rate could also be established for the millionaires.  Restoration of a robust ‘resource rent’ tax for mining could deliver billions; as could ‘super profits’ taxes in crucial areas such as banking. Finally: with modest increases in corporate tax we could signal our desire to end the ‘race to the bottom’ that results in effective ‘corporate welfare’.

If an incoming Labor Government succeeded in raising at least $45 billion in new Commonwealth revenue (in today’s terms) through these and other measures in its first term upon retaking government it would be in a strong position to deliver on Australian taxpayers needs in education, health, transport, communications, welfare and more.  Specifically it could fund big initiatives such as the National Disability Insurance Scheme progressively; And could also provide for another area of critical need – for a National Aged Care Insurance Scheme. Without austerity.

In response the Conservatives and economic libertarians would insist that public provision ‘rejects the market’ which is the proper arbiter of all goods and services.

 But Labor must reject such claims for several very practical reasons; as well as for the sake of economic justice.

Firstly ‘collective consumption’ as taxpayers can often secures for us ‘a better deal’ than in our capacities as isolated private consumers. Private infrastructure means user pays – which hits low and middle income citizens hardest.  It also involves higher rates of borrowing – with the cost structures passed on to consumers.  Finally it  means private profit margins and dividends – which demand that as much income be extracted from consumers as is possible. And in the case of private toll roads, for instance, can mean the exclusion of public transport investment to artificially support the particular private investors.

Competition in place of ‘strategic and natural public monopoly’ also passes on increased underlying cost-structures to consumers.  A ‘hybrid’ economic system which delivered those efficient cost structures on would mean more consumption power – not less.  Business actually gains from this. Both through cheaper infrastructure and services – but also through the increased consumption power of workers and citizens.

Hence there is ‘the bottom line’ that tax-payers would have more to spend in the areas where choice is most important as a consequence of strategic ‘collective consumption’; including ‘social insurance’ for instance.  And frankly ‘market forces’ do not necessarily make enough of a difference when it comes to roads and rail; or in the provision of water and energy; or in areas that are properly the reserve of ‘natural public monopoly’. (eg: energy, water, communications, and transport infrastructure)  Often it all comes down to a contest as to which provider can most efficiently fleece consumers with unintelligible deals and plans foisted upon people who would much rather take ‘the basics’ for granted.  And in areas like Education – ‘market choice’ just sorts us out on the basis of our capacity to pay.  That is, on the basis of class. And that is unfair.

But if ordinary people secure a ‘better deal’ through collective consumption in these areas that frees up more money for determining our needs structures in the areas where that really counts.  For instance, including but not limited to the consumption and other participation in culture, sport, fitness, social activity and art.  

The time has come to question neo-liberal shibboleths around ‘small government’ and ‘the market’.  An alternative is possible which delivers a better deal for the general public in our capacities as workers, citizens and consumers.  But which has also learned from the mistakes of the old socialism which thought it could supersede ‘the market’ entirely.