Episode 33 – Sustainability in a Modern Money Economy with Steven Hail & Phil Lawn

Macro N Cheese – Episode 33 
Sustainability in a Modern Money Economy with Steven Hail & Phil Lawn 
September 14, 2019  

Phil Lawn [intro/music] (00:00:03): 

It would seem that it’s not so much running out of resources that’s going to be the problem, it’s the fact that the amount of waste we’re generating is exceeding the capacity of the natural environment to safely assimilate those wastes. And some of those are, of course, carbon dioxide emissions. 

Steven Hail [intro/music] (00:00:22): 

We need to treat climate change the way the US government would have treated the threat of fascism in the 1940s. 

Geoff Ginter [intro/music] (00:00:40): 

Now let’s see if we can avoid the apocalypse altogether. Here’s another episode of Macro N Cheese with your host, Steve Grumbine. 

Steve Grumbine (00:01:34): 

All right, everybody. Thank you for joining us here at Real Progressives. I just want to tell you I have the pleasure of bringing on, not one, but two really high quality gentlemen from down under in Doctors Steven Hail and Dr. Phil Lawn. We’re going to be talking about MMT Australia, some of the differences, some of the similarities, but mostly about Australia.  

So without further ado, let me bring on my guests. Welcome sirs. How are you tonight? 

Steven Hail (00:02:10): 

Fine, Steve. Good to see you again. 

Steve Grumbine (00:02:13): 

So let me start out because most of our audience has had the opportunity to talk with Dr. Hail. Let’s start with Dr. Lawn. Phil, how have you been, sir? 

Phil Lawn (00:02:23): 

Ah, pretty good, yeah. I’m quite well considering, Well, it wasn’t that big a night. This time of year we’re sort of winding down it’s, because it’s our summer. And with Christmas sort of coming up, yeah, everyone sort of lets their hair down. 

Steven Hail (00:02:38): 

He’s been crisscrossing the world since we saw you in Kansas City. Everybody should look up Phil. Phil did a press conference at the climate change conference in Bonn? 

Phil Lawn (00:02:50): 

Bonn in Germany. 

Steven Hail (00:02:51): 

Which is online somewhere. People want to look that up and see what Phil had to say about climate change about his book on climate change. You’ve been to Singapore as well, haven’t you, teaching? 

Phil Lawn (00:03:00): 

Yeah, just teaching and so forth. 

Steven Hail (00:03:05): 

I’m always in Adelaide. Phil’s all around the world. 

Phil Lawn (00:03:08): 

Well, to much traveling for my liking, I’ve got to say. I don’t mind a little bit, but… 

Steve Grumbine (00:03:11): 

You gentlemen, let me tell you. There was a, I actually did get to see Phil’s presentation and I don’t remember whether it was in Germany. I can’t pronounce the word where it was located. 

Phil Lawn (00:03:23): 

It wouldn’t have been Bonn. 

Steve Grumbine (00:03:27): 

I thought there was a longer name associated with it, but it was at a conference and I did get to see, in fact, Steven I think you posted it up for us to see, and we shared it as well. But it was quite intense, you know, about climate change and maybe this is a good place as any to just dive in. Can you tell us a little bit about that presentation? 

Phil Lawn (00:03:52): 

Okay, I have two. I can’t remember them now. This first one, I think I just pointed out that we’ve got no chance whatsoever of meeting our climate change goals. I guess I’d better point something out to start with. I’m a Modern Monetary theorist, but I’m also an Ecological Economist. And Ecological Economists do not believe that the economy can continue to grow forever.  

And in fact, growth beyond a certain point is undesirable. And of course, one of the things about growth is that the more the economy grows, the more resources are required to produce the goods that we use to stop the economy. And of course that means more waste that’s generated. And I wrote a book where I did a simulation exercise and showed that if gross world product, so that’s GDP at the global level, if that grows at the rate that they believe it is likely to, the average rate per year until the end of the century, I worked out that we’ve got absolutely no chance of meeting globally, the climate change goals.  

And, therefore, we can look forward to, well, we won’t be around, I suppose, a planet that’s about three or four degrees warmer by the end of the century at least. I’m not a climatologist. I’m only going by what the climatologists say, but there’s virtually no way we’re going to make those climate change goals.  

And we have to start cutting greenhouse gas emissions globally, quite radically. And it’s interesting, there was a summit, climate change summit in Paris. And this year global greenhouse gas emissions will be the highest ever for a year. So, when they should be falling, and they promised they would start falling after the 2015 Paris Conference, in fact, on the rise.  

It’s not a good sign. So I talked about that, the fact that the Paris Agreement, which superseded the Kyoto Protocol, well, there’s all these targets that have been set. They’re not ambitious enough, but we’re not going to meet those targets. And I sort of explain why that I didn’t think that would be the case and the evidence revealed at this particular climate change summit tends to support that view.  

So that’s a bit of a concern. So that was my first presentation. I think the second one, I got to present something that someone wanted me to present. There’s an Ecological Economist called Herman Daly who’s got these 10 sort of policy goals to move towards a so-called steady state economy. If you’re not familiar with what a steady state economy is, it’s a non-growing economy, but it doesn’t mean that it’s not an economy that can’t be improving.  

So the best way to think of a steady state economy is to think of a person you grow for a certain period of your life, until you’re about age 20 and you stop growing. But that doesn’t mean you stop developing as a person. So a steady state economy is one where you increase the scale of the economy up to what the natural environment can sustain and then you focus on qualitatively improving what forms part of the economy.  

So you improve the quality of goods in the way you go about maintaining those goods and so forth. So that’s what Ecological Economists tend to prescribe and Herman Daly is probably the best known Ecological Economist. He’s got these 10 policy goals and this fellow wanted me to go through them. In fact, I avoided one because I don’t agree with one of them and that’s a hundred percent money goal.  

I specifically said to him, I don’t want to talk about one. Didn’t say I didn’t agree with it, but I just said, of the ten, I can probably only get through four or five. So I hand pick the four or five that I thought were most relevant. 

Steve Grumbine (00:07:49): 

Genius. Alright, so let me ask you a question because obviously one of the things that’s important to the progressive movement is the environment. And, you know, most people, they can’t get past the idea of the basics. I mean they know, oh my God, fossil fuels and then they, some of the buzz words.  

But, you know, when I hear people talk about ecosocialism and other adjacent belief systems that can leverage an understanding of MMT, I oftentimes hear people speak in terms that are quite foreign to what an average person that might be interested in getting involved or might be interested in seeking candidates that can achieve those goals.  

Can you talk about the perspective of, from an economist, in how individuals might be able to relate the economy to the environment? Are there measures, are there ways to assess? 

Phil Lawn (00:08:51): 

Yeah, there are. The best way to look at it is just to, what I tend to do if I’m teaching my students is I’ll just draw a circle and I’ll call that the natural environment or the natural ecosystems and we’re talking at a global level. And I’ll just draw a box inside it and I’ll call that the economy.  

And I’ll say to my students, “Okay, like that box it’s increasing in size, that’s the economy growing. Can that box grow to the point where exceeds the size of the circle, which is non-growing?” And of course the answer is no. Now, even if you’ve got the steady state economy where the box is no longer growing, you still need to maintain the goods that form part of that economy, because goods wear out.  

They’re consumed and durable goods were out through depreciation and so forth. So, you’re always going to have production to replace the goods that wear out through use and are consumed. In order to produce, you need to use natural resources. You can’t produce goods from thin air. So then you have an arrow from the inside the circle going into the box called the economy, which has resources in.  

And then of course, for a period of time, you’ve got goods and services flooding around the economy. They get destroyed through direct consumption and they wear out through use. And I exit as the matter and energy embodied in those goods and services as waste. And in fact that there’s two very basic physical laws that a lot of people may have it off.  

I don’t know whether they understand them or not. They’re quite simple, really they’re the first and second laws of thermodynamics. And the first law is the law of conservation of matter and energy. So it’s impossible to destroy or create matter and energy. So effectively, when resources enter the economy, there’s a certain amount of matter and energy embodied in them and the amount of natural and energy that enters the economy as resources exits as waste.  

So in fact, you hear a lot of people talk about zero waste. Zero waste is impossible. If you’ve got resources entering the economy to produce goods to maintain the economy at a particular physical scope, you are going to have waste. Because the real issue is how much waste, how many resources can be provided on a sustainable basis by the natural environment.  

And effectively we can use resources at a rate at some sustainable basis so long as it doesn’t exceed the capacity of the natural environment to regenerate resources. So as long as we extract resource from the environment, no greater than resources can regenerate, we can have a sustainable input of resources.  

But, of course, there’s the waste side as well and most of the global environmental problems are on the waste side, not on the resource side. So the old Club of Rome report from 1972, talked about how we might run out of particular resources. It would seem that it’s not so much running out of resources that’s going to be the problem.  

It’s the fact that the amount of waste we’re generating is exceeding the capacity of the natural environment to safely assimilate those wastes and some of those are of course, carbon dioxide emissions. So the rate at which carbon dioxide is being generated and is exiting the economy back to the natural environment, exceeds the capacity, the natural environment to absorb it.  

In fact, current global greenhouse gas emissions are five times the capacity of the natural environment to safely assimilate those greenhouse gases. So we need to reduce greenhouse gas emissions to one fifth of what they currently are globally just to stabilize the concentration of greenhouse gases in the atmosphere.  

So what people confuse stocks and flows of greenhouse gases . . . So when you hear of greenhouse gas emissions, we’re talking about flows. When you hear someone say all this, say X parts per million of greenhouse gases in the atmosphere, that’s the stock side, the amount of greenhouse gas emissions going into the stock of greenhouse gases is five times what’s exiting through the assimilation of greenhouse gases by the natural environment.  

So you can see that, I think, it might’ve been 2009, which was just after the global financial crisis. I think which occurred about 2008. So that particular year global greenhouse gas emissions fell slightly and people were jumping for joy and saying, oh look, the concentration of greenhouse gases has gone down.  

And of course that wasn’t right. It went from about five times what the environment can simulate to let’s say 4.99 times. It was still, the concentration was still going up. So the concentration of greenhouse gas in the atmosphere is going up and will continue to do so until we reduce greenhouse gas emissions to one fifth of their current level. And I’m not sure if we’re going to be able to do that. I really can’t see that ever happening, sadly. 

Steven Hail (00:13:38): 

What ordinary people can do about this, in terms of their own individual lifestyles, is very little. But what is more important is to stop voting for people who don’t take these issues seriously and start voting for politicians who are going to treat dealing with, in so far as it’s possible to deal with, the issue of greenhouse gas emissions like a war.  

And it needs a major dramatic, very rapid shift in terms of how we generate energy. We need, in some countries, to confront the unpleasant truth, that as a short term bridge, in some parts of the world, nuclear power might be unavoidable, which is a very unpopular thing to say to people. It’s not true here.  

We’ve got abundant renewables here if we want to take advantage of them here, I mean, in South Australia, but there are some parts of the world where that isn’t true, or at least it’s not true yet. And the other issue which Phil was discussing is continued growth in real GDP in the long run may just be infeasible. 

Phil Lawn (00:14:56): 

It, well, it is infeasible. Hmm. 

Steven Hail (00:14:58): 

That is another difficult issue. As far as MMT is concerned, the good news from MMT is that in terms of making investments and changing out the way in which we generate power, the idea that as you’ve said, many times before yourself, Steve, the idea that governments can’t afford to do it is utter nonsense. We need to treat climate change the way the US government would have treated a threat of fascism in the 1940s. 

Phil Lawn (00:15:33): 

That’s one of the things I said in my presentation. Climate change is not a separate problem in itself. It is a symptom of a larger problem. And that, as far as I’m concerned, you can, when you’re talking about biodiversity loss, deforestation, desertification, in my opinion, even tensions between countries, I think even international peace is likely to be jeopardized by this belief that economies have to keep growing.  

They can’t and they shouldn’t. And of course, that issue was raised at the MMT conference. Someone pointed out that because it was mentioned that, you know, one of the things that central governments should do is spend more to grow the GDP to eliminate unemployment. And then someone mentioned that, well, what does that mean from an ecological point of view?  

And there was a lot of avoiding with that particular issue. I am one of these who believes that Modern Monetary Theory, if it does anything, it indicates to us that if in order to meet a range of goals, economic, social, and environmental goals, it requires the central government to deficit spend, then the central government should deficit spend, and it can do that forever.  

But I think GDP growth has to be remembered is not an end in itself. It is a means to an end. GDP is a means to an end. And I’m one of those who does not believe that you have to necessarily grow GDP to achieve employment. Is there enough GDP being generated in the USA to have full employment and your answer is probably yes, of course there is.  

So that then raises the issue, well, why isn’t there full employment? Well, it’s got a lot to do with the way GDP is distributed within the USA through work. And I can’t see why the USA needs to grow its GDP in order to have full employment. The idea of a job guarantee would be that those who currently are unemployed would be given work by the US federal government.  

But it would probably mean that very high income people would probably have to give up something in order to provide the goods and services that would then be consumed by people who would be on the job guarantee, but you don’t have to grow the economic pie if you’ve got unemployment to achieve full employment.  

You just have to distribute it more evenly. And I think the distribution issue is an important one. In fact, in a world where we’re running into all these environmental problems, distribution is the key. It really, oh, and of course using resources more efficiently. That’s also fairly important, but of course, unemployment [inaudible].  

I don’t see it as an economic problem. I actually think it’s an ethical problem. I think there are ethical issues associated with unemployment. We should have full employment, not because it means there’s a wastage in terms of what can be produced because when you produce something, there’s a benefit, but it also comes at a cost.  

And most of those costs are ecological. So you could actually argue that unemployment is good for the environment because it means you’re producing less and therefore there’s less stress on the natural environment. I don’t like to see it in those terms. I think that yes, we should be, perhaps, reducing our impact on the natural environment by being careful about how much we produce.  

But that doesn’t mean that’s an excuse for unemployment. We can still have full employment without having to grow the economy. And in fact, I see the job guarantee as a policy instrument that can redistribute income through work instead of having a basic income guarantee. I don’t know if that’s discussed much on your program, where you just give money to people.  

Well, you give them money through work so that you’re able to redistribute income in a way that doesn’t affect the incentive structure they have in a market economy. I don’t know if that all makes sense or not. So I’m speaking here, not just from a Modern Monetary Theory perspective, but as an Ecological Economist.  

Would I sound pretentious if I said that I’m probably one of about a handful of people in the world who are bringing Ecological Economics and Modern Monetary Theory? 

Steven Hail (00:19:54): 

You wouldn’t. I could name them all, and they’d go on one hand, really: Fadhel (Kaboub) and Mat Forstater and Phil. 

Steve Grumbine (00:20:03): 

When talking about developing nations and looking at what we have, the opportunity for folks like Fadhel, who work with developing nations and demonstrate the job guarantee in places that don’t have, you know, all the bells and whistles that the United States has amassed over the years, you start to realize that so much of not just national, boundary based economics, but global economics in distribution and not distribution of pieces of paper, but distribution of real resources.  

I think that right there, but this is one of those things that really is probably the most important aspect to being a good global citizen in leveraging economics in such a way that we all prosper, share prosperity globally, not just within our little boundaries. Can you try and talk to that for me a moment? 

Phil Lawn (00:21:01): 

Well, I think we’ve just reached a point in history where we cannot make people better off by growing the gross world product. That doesn’t mean that GDP in certain countries can’t increase, but it may mean that GDP in countries like the USA and Australia on a per capita basis will have to fall, have to decline.  

But Steve can probably talk a bit more about this. Steve’s sort of been doing some work on happiness, life satisfaction and increase in GDP. And once per capita GDP reaches a certain level, additional increases in per capita GDP seem to do nothing to improve the well being of people, whatsoever. 

Steven Hail (00:21:41): 

There are problems with measures of subjective well being but as far as we can tell, once you get to about the standard of living, well, that’s the wrong term. Once you get to about the level of GDP per person of a Spain or Portugal, there’s very little sign of any positive relationship between gross domestic product per person and how satisfied people are with life beyond that.  

Moreover, there’s no sign that people have got happier in the US over the last 30, 40, 50 years as income has risen. And a lot of the feeling of improved well being that people once their income is at a high enough level might derive from an increase in income is about comparing themselves with others, or it’s about comparing the income they have now with what they had in the recent past and taking income as an indicator of how well you’ve done in life; rather than in terms of people feeling happier when they’re consuming more, a greater quantity of goods and services.  

To go back to something Phil was talking about earlier, I’m an agnostic about growth in real GDP. Although I think what Phil has to say is very important and that it’s not being addressed. At least nobody has proved to my satisfaction that it will be possible to continue to increase real GDP per person in the future indefinitely, the way we measure real GDP.  

Now what that then means if we’re going to have full employment, which there’s a great deal of evidence relating to subjective well-being that tells us that full employment is important. That unemployment has a very major and long lasting impact on subjective well-being in all sorts of ways on people’s mental health and their physical health, too.  

And all those things are important. If we’re going to deliver full employment, and if we’re not going to attempt to do that in the traditional way, which is to grow the economy as quickly as possible until it mops up all those unemployed workers, then that’s going to mean that, although, well I’ve said this before, we don’t need rich people’s money to pay for things.  

The government does not need tax money from rich people to pay for things. It’s the government’s money. Of course, one role of taxation, as we’ve said, is to limit total spending in the economy to the productive capacity of the economy. It’s also got to limit total spending over time to the ecological capacity of the economy, but we do need to tax people.  

We do need to tax rich people, but we need to find other ways of limiting the real resources that people with very high levels of income have. And there’s an ecological argument for that. There’s a power based argument for that. Rich people, especially in countries like the US and perhaps to a slightly lesser extent in Australia have too much wealth.  

And as a consequence of that are able to pervert the political process or divert the political process in their direction to defend their own interests. We have to end that, but we also have to limit the wealth of the most wealthy in our communities because they’re in a position to consume too many real resources. 

Steve Grumbine (00:25:12): 

That’s where I was going to go with. Because, as you look, you know, you hear people just say, oh, you just hate the rich. You just hate the rich. If you take all emotion out of this and you simply just assess our ability to survive as a species and our ability to thrive as a species, it is unconscionable that one person, forget the money .  

. . I don’t care about the money part per se, but the access to real resources, minerals, water, medical supplies, whatever the real resources are that regular people have no access to. That, to me, is unconscionable. Now I appreciate that they should, I’m not one of these people that’s so egalitarian that I think that person A, that has no ambition doesn’t want to do anything and person B that’s striving to change people’s lives and working their butt off to do whatever.  

I believe there is some validity to you reap what you sow. But I also believe in a very, very even playing field in terms of ensuring that we’re not placing an individual’s ability to prosper above the needs of the overall community. 

Phil Lawn (00:26:27): 

Well, that’s the thing. Equity, which is about fairness. The prime minister of Australia earns about $500,000 a year. I think that’s his income and there’s probably no more important job in Australia then being the prime minister of Australia. So I think the maximum income anyone should earn in Australia at present is about $500,000 per year.  

And in fact, I think anyone who earns more than that is earning what’s referred to by economists as economic rent – it exceeds what they’re actually worth. So people think that if the market’s willing to pay X for someone to do something, that means that person deserves that. But in a lot of cases, people who get paid fortunes are, in fact, earning an economic rent.  

When you earn an economic rent, it basically means that you’re earning an income that far exceed your contribution, economic contribution to the economy. And if that’s happening, there must be some people who are earning less than what they’re contributing to the economy. So from a fairness perspective, the incomes of these people should be reduced.  

And of course, that then frees up resources also to give to those down the lower end of the scale so you can meet ecological constraints. 

Steve Grumbine (00:27:43): 

Excellent, excellent. So let’s get back to Australia now for a moment. So, obviously, much of the discussions we have here are about MMT and they typically tend to stay within the walls of the United States. But Australia is a nation that is monetarily sovereign. Many of the same rules and economic truths exist down under.  

I believe, you know, many people have got it locked into their brain, that when we talk about Modern Monetary Theory, and we just say modern monetary reality or something, so people stop getting fussed around with the T. But the reality is that the same concept of a sovereign, free floating fiat currency that is in the United States, exists in Australia, perhaps some different manmade rules that control this and that, but largely the same exact parameters.  

Can you talk to us a little bit about the Australian economy? What makes it unique and what makes it the same? 

Steven Hail (00:28:45): 

What makes it unique and what makes it the same? Well, Australia is a more resource based economy. Well, obviously the US has a much bigger economy than Australia and a more complex economy than Australia. In terms of Australia’s exports, we export a lot of resources, iron ore, coal and others to China, India, many other manufacturing countries around the world.  

But in terms of the financial balances, we’re in quite a similar position to the US. Australia has run a deficit with the rest of the world, what’s sometimes called a current account deficit, every year since about 1974. So just as the rest of the world wants to net lend to the US or net save in US dollars, the same thing is true for Australia and Australian dollars.  

So all that stuff you hear people talking about with respect to the US about the Petro dollar and the US is in a unique position because its currency is used to value resources around the world, or is the central currency, as far as the global foreign exchange market is concerned, all that’s true of the US dollar, but in terms of Modern Monetary Theory, it’s irrelevant because those things are not true of Australia, but Australia has just the same monetary sovereignty as the US and, in many ways, as I said, has been in the same position the rest of the world has wanted to net saving our currency, has wanted to net land or net invest in the Australian economy over time, which means we in Australia have had the option of either having the government inject Australian dollars into the system by running large enough government budget or fiscal deficits to offset the net savings desires of the rest of the world in Australian dollars, or the only alternative for that has been to rely on private debt to do it.  

And particularly between the mid- 1990s and the global financial crisis in Australia, we relied on private debt. The government of the day ran for eight out of 10 years preceding the great recession around the world, ran budget surpluses in Australia. So we had the rest of the world running a surplus in Australian dollars.  

We’ve had our government irresponsibly running a surplus in Australian dollars. The Australian private sector was forced to run large deficits, otherwise, our economy would have gone into recession. We did not suffer the worst consequences of the global financial crisis because some of the financial practices that encourage that crisis in the US had not yet taken root here.  

We hadn’t gone very far down the mortgage securitization route. We didn’t have the same type of financial fragility that you had in the US system, but we had just as much household debt as you. And in fact, more so and had the government that we had at the time, it was a labor government, not run a significant fiscal deficit deliberately in order to support our economy here when the financial crisis spread from the US in 2008 or 2009, we would have had a prolonged and severe recession here.  

Fortunately, the government at the time, albeit temporarily, was wise enough to run a big enough fiscal deficit to keep Australia out of recession at the time. But a negative consequence of that is that, whereas in other countries around the world, household debt fell following the financial crisis, partly because of defaults, but also partly because people being more cautious, in Australia, the government didn’t run a big enough fiscal deficit for long enough to allow that to happen.  

And because we didn’t have a major financial crisis here at the time, household debt in Australia is still at record levels now. So we have now in Australia, in many ways, a more fragile financial system than we had in 2005 or 2006. It would take a minor recession in Australia to trigger a property market crash here because we didn’t learn the lessons of 2008 because we didn’t suffer the consequences of 2008.  

But, yes, we have the same monetary sovereignty you have. In some ways, even a bit more. For a few years, the government did stupidly introduce a US style debt ceiling here, but they scrapped it again. There is no debt ceiling here. And whereas in the early 1980s an informal arrangement was made between our government and our central bank, that the central bank in Australia, the reserve bank doesn’t just allow the government to net spend.  

It doesn’t allow the government to run large overdrafts. In Australia, unlike in the US there’s no legislation behind them. So there is nothing to stop the government if they decided to do so tomorrow just canceling the issuance of any new government securities, and purely net spending by keystrokes. That could happen here without any legislation taking place, unlike in the US. 

Intermission (00:34:20): 

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Steve Grumbine (00:35:08): 

Can I ask you both a question? The concern about, you know, we have a lot of people in the left that hearken for a resource based economy. You talk to Ellis Winningham. Ellis would say that we already have a resource based economy when you consider the way MMT is to be used and when you consider the way the economy functions.  

And in terms of Australia, you guys have a, as you stated, a more simplified economy, However, both use resources, both are strapped to whatever resources are in the ground, coupled with whatever relationships they have around the world to bring other resources in the country to do whatever it is that they require.  

Can you explain to our audience, what real resources means? We always talk about the point of where we should cease spending where it becomes inflationary is the real constraint, which is real resources. Can you talk a little bit about that and what might some real resources be in Australia that we’d be interested in knowing about? 

Steven Hail (00:36:13): 

Well, when we talk about resources in the context of Australia, we’re generally speaking, talking about minerals, natural resources we dig out from the ground like iron ore and coal. But the word resources more correctly used, which is the way you’ve used it, is all of those resources, not just minerals but other natural resources too, human resources, our labor, our skills, capital resources, capital equipment, the computer that we’re looking at at the moment, machinery, infrastructure, buildings, roads, power stations, everything that’s available to produce goods and services.  

So, yes, I’m glad you raised that point because the use of language can sometimes be confusing. And when people talk about Australia being a resource based economy, they’re not talking about the skills and the people. They’re talking about the stuff which is dug up from under the ground in Western Australia in enormous amounts, shipped to China and then used to manufacture… 

Phil Lawn (00:37:16): 

Goods that to come back to Australia. 

Steven Hail (00:37:17): 

Goods that to come back to Australia, anyway. 

Phil Lawn (00:37:19): 

I have this view of, the economy’s essentially divided up into what’s referred to as the primary sector, which is the resource extractive sector, which is agriculture, mining and so forth. Then there’s what’s referred to as the secondary sector, which is manufacturing. And then there’s the tertiary sector, which is services.  

And you hear a lot of people talk about how as economies develop and so forth, they move towards services and the movement towards services and away from agriculture and manufacturing is sign of economic maturity. I actually think it’s a sign of economic stupidity. I think you need to have strength in all three sectors.  

For example, a country like Japan . . . If the rest of the world stopped exporting natural resources to Japan, it would be in all sorts of trouble. It doesn’t have many of its own. And so whilst Japan has a strong secondary and tertiary sectors, it has a weak primary sector. So it’s vulnerable in that sense.  

If you take a country like Greece, well, it hasn’t got anything other than a fairly weak tertiary sector. It doesn’t have a strong primary sector. Well, that’s probably, wicked. It used to have a reasonably strong secondary sector, but it’s just de-industrialized itself like many European countries over the last 30, 40 years.  

So I think it’s important that you have strength in all three sectors. You need to have a fairly strong resource base because you need resources to produce goods and services. And if you’ve relied upon importing them from the rest of the world, that renders you very vulnerable. You need a strong manufacturing sector because the goods that are produced by the manufacturing sector are in fact inputs to the services sector.  

I don’t know about you, but I’ve never had my hair cut by an imaginary hairdresser in an imaginary salon, I mean, using imaginary scissors and an imaginary comb. I mean, all these things that are required to run the services or tertiary sector are goods that are being produced and generated by the manufacturing or secondary sector.  

So I think it’s important to have strength in all three. I think Australia’s got strength obviously in the primary and the tertiary, but has got weakness in the secondary. But the fact it’s had so much strength in the primary sector, particularly terms of exporting resources is one of the reasons why Australia avoided the global financial crisis.  

The other thing is, as Steve said, was the deficit spending of the labor government at the time, but not all countries have the luxury of having so many resources to be able to export natural resources, to export to the rest of the world, to help reduce the full impact of the global financial crisis.  

So Australia was fortunate in that respect. I think Canada was probably much the same as well. I don’t think Canada was that adversely affected by the global financial crisis. And I think it was similar to Australia. It’s very strong resource based economy. And so it was able to export natural resources to countries like China and India, which help to moderate the impact of the global financial crisis.  

But ultimately Australia is now in a situation where resource prices aren’t what they were around that time immediately after the global financial crisis where exporting natural resources is not supporting the economy to the same extent that it was. And the fact that we lack a strong manufacturing sector is one of the reasons why the Australian economy sort of in limbo at the moment. It’s not in recession but it’s not burning either. 

Steven Hail (00:40:53): 

Fadhel often talks about, in the context of developing economies, a fear of a floating exchange rate at limited monetary sovereignty, where countries are dependent on importing food and imported energy. And where a job guarantee and where planning could be used to rapidly increase the local generation of energy through, in many countries, solar power is being talking about and where you can begin to increase agricultural productivity locally so that these economies are less dependent on imported necessities, that then gives you more freedom to be relaxed about moving towards a floating exchange rate.  

And it’s only as we know when you have a floating exchange rate that you have genuine monetary sovereignty. And you’re in a position like Australia and like the US where, if governments choose to do so, they can use that monetary sovereignty to deliver non-inflationary and ecologically sustainable, to mention what Phil was talking about before, full employment.  

Actually, Phil, you should talk about the genuine progress indicator, because if we’re going to replace GDP as a guide to economic policy, and as something that we aspire to see rising over time, real GDP per person, we probably need another reasonably simple indicate for politicians to aim at and to judge the efficacy of their policies with respect to overtime.  

And Phil is one of the pioneers of a green national income statistic called the genuine progress indicator that I think he’s going to be working in the next couple of years on a project to create GPI figures for every country in the world, which is something nobody’s done before. 

Steve Grumbine (00:42:48): 

Let me ask you, what would it take to get an indicator like that to not only be adopted, but to become the primary driver for assessing economic activity? I mean, you can answer that after you tell me about it, or you can answer . . . 

Phil Lawn (00:43:02): 

Well, I could start with it. One of the reasons why politicians don’t like the genuine progress indicator is because, unlike GDP, which tends to go up, you know, you get the odd occasion where a year or two where it falls, but it’s a general trend up. So anything that trends up looks good. The genuine progress indicator for many developed countries has been going nowhere for about the last 20 or 30 years.  

So it looks like a bad news indicator. So politicians don’t want to put up a shot up on a screen that goes up for a period of time and then goes nowhere. They’d rather put up something that continues to go up. So that’s why they like GDP and they’re hesitant to use the GPI; but the genuine progress indicator is an indicator that takes account of economic, social, and environmental benefits and costs.  

And it treats benefits as positives and it treats costs as negative. So you add up the benefits and you add up the cost and you subtract the cost from the benefits. So the GPI is a measure of net benefit of economic activity, unlike GDP, which adds up everything, whether it’s a benefit or a cost. So a good example was at the state or provincial level, GDP is referred to as gross state product.  

And when the Exxon Valdez spilled its oil in Alaska in the early 1990s, Alaska’s GSP went through the roof because the US federal government threw all these resources at Alaska to help clean up the oil spill, assuming that the Alaskan natural environment was restored to what it was previously. Well, there was no betterment, they we’re no better off, but Alaska’s GSP went up giving the impression that they were better off.  

So with the GPI, all those resources that would have been used to clean up the oil spill are referred to as either defensive or rehabilitative expenditures. They’re not included in the GPI. So environmental costs which can add to GDP, they’re, in fact, they’re counted as subtractions. You subtract from the benefits when you include the environmental cost.  

The cost of unemployment – that’s not taken into account at all with GDP. That’s a negative item with the genuine progress indicator. The GPI takes into account changes in the distribution of income on the basis that the extra benefits or the benefits of extra consumption for a rich person are less than they are for a poor person.  

So if you took a hundred dollars a week away from America’s or Australia’s richest person, it would barely affect that person one little bit. But if you gave it to America’s or Australia’s poorest person, it’d have a huge impact on their well-being. So it takes into account the income distribution.  

It takes into account a lot of things, but it gives you a better indicator of the net benefits of economic activity. Now, the interesting thing about the GPI is when it was initially calculated, it was calculated for a number of developed countries, European, North American countries, and eventually Australia.  

What it showed was that the genuine progress indicator from, let’s say, the 1950s was going up in unison with GDP. And then it reached a point, depending on which country you’re talking about in the US, I think, it was about the early 1970s where the GDP continued to go up but the genuine progress indicator sort of leveled out and has fallen and gone sort of nowhere since.  

So, as we’re talking about before, the increase in GDP doesn’t seem to be adding to people’s well-being, life satisfaction, but increased GDP puts additional stress on the natural environment. So environmental costs are going up. So economic benefits aren’t going up that much, but environmental costs are going up considerably.  

So the costs of GDP growth are going up faster than the economic benefits, meaning the net benefits are falling. So it gives you a much better indication of what’s happening in terms of the net benefits of economic activity which GDP does not at all. 

Steve Grumbine (00:47:19): 

Let me counter that slightly and not counter, like as in disagree, but add something to that. Obviously in 1971, 72 timeframe, Richard Nixon removed the United States finally from the Bretton Woods Accord, which removed the tether of the, at least, global gold standard. And by doing that, you know, he gave us full monetary sovereignty on one hand but in the other hand, there was no protections for labor.  

It was no protections for the common man. And so at that point in time, you can see, I mean, we’ve shown this graph many times, the spike is almost ridiculous where income inequality shot through the roof. So obviously they understood what was going on then and they’d made no course correction whatsoever to enhance our lives.  

In fact, I would say our lives have gotten significantly worse and even more troubling, our two popular parties, the Democrats and the Republicans – and quite frankly, even the greens who are very, very economically inept – they have all sat there and pushed the whole debt crisis nonsense. They have all pushed the, we got to reduce deficits nonsense.  

And quite frankly, what they’ve done is they’ve allowed the people to be petrified of being made whole. And so, as you see that gap that you’re describing so well, I think that we could isolate that down to the neoliberal approach to global economics, which is still destroying us to this day. I just wanted to add that in there. 

Phil Lawn (00:48:56): 

I agree that the increase in social costs and the growing gap between rich and poor, which has a downward or negative effect on the GPI, can be put down largely to neoliberal type policies, but I think the environmental cost aspect can be put down with this obsession with growth. And it’s ironic, well 1972, that’s when the Club of Rome report was released.  

So we need to somehow, given that the gap between rich and poor has widened, to narrow that gap, achieve social goals, such as full employment in a way where we are not placing additional stress on the natural environment. And most of that space is not due to the fact that we don’t use the resources as efficiently as we could.  

I’m sure we can use resources more efficiently and technological progress might allow us to use resources more efficiently, but most of the global environmental problems are scale related. They’re due to the fact that the economy is growing. It’s something that’s growing within the niche of the global ecosystem, and it’s filling that up.  

So Herman Daly talked about the fact we’ve moved from a relatively empty world to a full world where all of human kinds’ bits and pieces, capital, consumer goods, this and that is filling up the world. And in order to do that, it means that you’re having to convert natural resources to be human made goods and services, which of course has impacts on the natural ecosystems, on wildlife habitat, and so forth.  

And of course it means additional waste, which is leading to a lot of waste related problems of which climate change is just one of them. Excessive greenhouse gas emissions is one of them. 

Steven Hail (00:50:43): 

But you can deal with the sort of poverty that you see in the US while addressing these issues too, because what Phil has mentioned the early seventies, if you were to compare them, there are a lot of people in the U S who are still working in minimum wage jobs now at the federal minimum wage. Now the federal minimum wage in the US is so low that in real terms, it is substantially now below what it was in 1970, before as Phil said the genuine progress indicator started to fall.  

If you were to restore people on the federal minimum wage, to their relative position in the US taking into account the increase in the cost of living down the years and also rising labor productivity, you’d have to increase the minimum wage in the US above $16 an hour. Where is it now? $7.25 cents now, you need to more than double it.  

And I don’t see any contradiction between that and moving over time to at least moderate the growth in real GDP. I said before, I’m an agnostic. I actually think that you need to take those actions, which are necessary to defend and restore the natural environment, maintain full employment, avoid involuntary poverty, provide decent public services to people, and just forget about GDP. 

Phil Lawn (00:52:18): 

Forget about it. 

Steven Hail (00:52:20): 

Just like we say, when we do MMT, the fiscal balance should be whatever it needs to be to meet society’s goals. Gross domestic product should be whatever it needs to be to meet society’s goals. If you’re not destroying the ecosystem and GDP happens to be increasing fine. But GDP, as Phil was saying before is not an end in itself.  

It’s a means to an end. And that’s where I think the genuine progress indicator, which Phil didn’t say this, but it takes consumer spending what is supposed to be the benefit of goods and services being produced anyway, so that people can consume them. It takes consumer spending, but then it adjusts, or not just tell people that calculate the GPI, adjusts consumer spending for, I think about 15 social or economic and environmental costs and benefits to come up with this statistic. 

Phil Lawn (00:53:15): 

One thing that’s included . . . There’s a lot of people that aren’t particularly happy with the GPI. They say, oh, you’ve designed this thing that is deliberately designed to create a negative result. Well, in fact, what the GPI includes that GDP doesn’t include is unpaid household and volunteer work, which is enormous.  

So it has an enormous beneficial impact on the GPI, which is not included in the GDP. And of course, a lot of the costs you use very conservative estimates. Many of the environmental costs are understated, and it’s still producing this negative result that doesn’t look as though society has progressed to the same extent as indicated by the rise in per capita GDP. 

Steven Hail (00:54:00): 

It’s backed up by other things too, that social researchers like Richard Wilkinson in the UK has done an immense amount of work now that’s shown that when you look at all the kinds of things that will be indicative of a successful society, you know, issues to do with mental health, murder rates, child mortality, all sorts of things, they’re related very closely to inequality.  

Amongst high income countries, like I was saying before, once you get past your Spain’s and your Portugal’s, they’re not related to GDP at all. There’s no evidence that increases in real GDP over time in already rich countries, make those countries better places to live in. There’s just none. 

Steve Grumbine (00:54:48): 

You bring up something that’s very important, in my opinion. You know, Real Progressive is a volunteer organization. And we have well over a hundred volunteers and we have professional volunteers like yourselves. And then we have people like myself who are a both administrative, marketing, you know, blah, blah, blah, all the different things that go on.  

I literally put in over a hundred hours a week doing this. No joke, easily, a hundred hours a week doing Real Progressives. The thing is, that, you know, that’s work. Even though I’m not getting paid it’s work. And, you know, even though you’re not getting paid right now, this is work. It’s great fun. 

Phil Lawn (00:55:31): 

He is, I’m not. 

Steven Hail (00:55:32): 

I’m not getting paid to talk to him. 

Steve Grumbine (00:55:36): 

My point being is that, you know, we oftentimes hear about the robots coming to take away jobs and all of these other things, but I can assure you my team who helps not only share posts, but create promotionals, work on the technology behind the scenes, work on the website, work on the YouTube channel, work on our Twitter feed, work on all the different aspects from fundraising to logistics, you name it, all of that is work.  

And if you think about it in a society where money is distributed evenly, an organization like this could relatively easily afford to help offset some of their life costs and their investments in this. Now mind you, it’s a noble thing to donate your time perhaps, but the flip side is that this is still a real resource of your own towards a cause, et cetera.  

So I just find it interesting that people are so quick to say automation is taking away all of our work. When in reality, there is incredible amounts of work out there that have to be done. I can assure you between my regular 40 plus hour a week job that pays the bills and my non-paying job that I work more than double that, I’m putting in an incredible amount of time.  

I barely sleep. So I know that there’s work left to be done in the country and around the world, quite frankly. So… 

Phil Lawn (00:56:59): 

What you’re doing does not appear in the GDP. 

Steve Grumbine (00:57:02): 

No, it does not. 

Phil Lawn (00:57:03): 

But it does appear in the GPI. It would give it intuitive value for what you’re doing, and it would be included as a positive in the GPI, but is not included in the GDP if you’re just giving up your time and not being paid for it. So I just put a point that out. 

Steven Hail (00:57:18): 

Well I was going to say a couple of things. One, Phil was talking about costs being recorded very conservatively in the genuine progress indicator. And one respect to which that’s true is the cost of unemployment. We had a look at some research from about the year 2000, very careful statistical research, into how much additional income you need to give somebody who became unemployed to compensate them in terms of their well-being, for the involuntary loss of their job.  

And it was such a huge amount of money that you just couldn’t put it in to a measure like the genuine progress indicator without completely undermining the whole statistic. That’s how important involuntary unemployment appears to be to someone. It’s one reason why just a universal basic income on its own, one of the many reasons, why that just doesn’t do the job because, yes, lost income is vitally important to people who are struggling to get by when they lose their jobs.  

But it’s not the only problem. In fact, it’s not the main issue with many people. And secondly, as you were saying about automation, if the human species ever gets to the point where we have so much automation, that there is nothing that we can ever do, then we may as well just commit suicide. That would be the end of humanity.  

And we’re not going to get to that point, thank God. Consequently, there will always be purposeful things that we can do for each other and for the community. And for that reason, if you have a job guarantee in place, it will always be possible to dignify that work by remuneration, by paying people to doing it. 

Phil Lawn (00:59:06): 

I also think automation’s been going on for centuries. 

Steve Grumbine (00:59:12): 

Exactly. 

Phil Lawn (00:59:12): 

I think one of the great concerns about automation if there is a need for some sort of concern, is that automation had a positive effect on most people say 30, 40, 50, 60 years ago, because what automation tends to do is it increases the productivity of an hour of work that Steve was talking about and how the minimum wage should be more than two times in the USA what it is at present.  

So if the benefits of increased productivity were going equitably to capital and to labor, what it would mean is that real wages would be rising and would mean that people wouldn’t have to work as many hours to obtain a reasonable income to live a reasonable existence. And so when we had automation in the fifties and sixties, it didn’t really matter.  

The working week got shorter. People weren’t worse off. In fact, they became better off, but now we’ve moved into this era where we’ve got lack of wages growth and all the productivity gains going to capital. It means that all the benefits from automation are going to capital. And those who are fortunate enough to have a job, their wages haven’t been going up and, of course, a lot of people don’t have a job.  

So that’s my greatest concern of automation. If we had a system in place where the benefits of productivity improvements from automation were equitably shared between capital and labor, it wouldn’t be a problem. And, in fact, people would be able to do what economists talked about fifty to a hundred years ago when they said, we’d all be working 15 hours a week, which would give most people the minimum amount of hours they need to feel as though they’re doing something purposeful. 

Steven Hail (01:00:54): 

Do you know what undermines that a bit though? What undermines that a bit is that there is no evidence of all this automation. When you look at productivity per hour, it’s not rising rapidly, it’s rising more slowly than it has been rising for years. If we add all this automation that was supposedly transforming the workplace where people weren’t working anymore because everything was being done by automation, then output per hour of labor would be skyrocketing and it isn’t.  

There is one thing that Americans are not aware of, that I should point out. Many Americans not aware of. Phil was talking about people working fewer hours a week. Americans work longer hours than virtually anybody else in the world, longer hours than all the Europeans including the Germans, longer hours, I think, even than the Japanese, longer hours than the Australians.  

Americans are not working less and less time because automation is coming on. Americans, because people at the bottom are not enjoying the benefits of rising income and relating to what productivity growth has happened, in fact, are being pushed into lower and lower productivity jobs very often. They’re working longer and longer hours. 

Steve Grumbine (01:02:08): 

The very people pushing basic income narratives are these individuals who are libertarian, who have a different bend in life. I mean, if you go back to Milton Friedman and his negative tax rate and his idea of a basic income being the only thing wrong with capitalism is we need more of it. And here we have a situation where libertarians like the Koch Brothers, who would love to dismantle any social safety net around the world are actively pushing this narrative of automation and all these other things so that the left, ironically, is buying this.  

It’s a Trojan horse to remove the social safety net and, quite frankly, it disgusts me. But that’s a story for another time. I want to thank both of you gentlemen, for your time. Dr. Lawn, thank you so much for coming. I would love to have you guys back on. I love having the pairing of you guys, but I understand your time is precious, but I would love to have you back anytime, all the time, whenever. You guys are great. 

Phil Lawn (01:03:06): 

Well, we spend a lot of time in this office just having these chats about these things anyway. We got a third person involved. 

Steve Grumbine (01:03:15): 

Well, I appreciate you allowing me to crash your conversation. You guys are wonderful. I love you like brothers and thank you so much for giving us of your time. Without further ado I bid you ado. 

Steven Hail (01:03:27): 

Thanks, Steve. Thanks very much. 

Phil Lawn (01:03:27): 

Alright, see you. 

Ending Credits (01:03:36): 

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