Re: PKT debate

[Steve.Keen@xxxxxxxxxxx]

A quick reply to Paul Phillips (not the horizontal one! -:)) re Australia's
accord; more later, since I am currently moving house (incidentally,
perhaps Peter Kriesler might also want to join in!)(the debate, not the
moving).

The Accord as formulated was influenced by many (some) economists who
could be called post-Keynesian. There was a reasonable set of such
advising unions, who had some input to the original documents. The
idea was to avoid the wage-price spiral aspects of a possible reflation
(from a recession which peaked at I think 9.7% unemployment baclk in
1982, and which had inflation--again from memory--at over 17% at one
stage).

The Accord traded off wage rises against changes to income tax arrangements
and extensions of government services--the "social wage". The product was
for a while, via our centrally administered wage-fixing body, wage rises
which were less than the coincident rate of inflation, while real living
standards were maintained via the tax and benefits arrangements. However,
it broke down at some points to less than maintenance, as always seemed
to occur down here.

I would generally concur that it worked, but there were other factros
behind both our reflation and the decline in inflation (which has been
worldwide--though probably steepest in Oz and NZ). The poroblem, IMHO,
was that once the ALP (Australian Labor Party) got to power, the
centre of advice shifted from the drafters of the Accord (who were
generally left of centre, if not theoretically PK) to the centres of
economic advice in the bureaucracy--our Treasury, Dept of Finance, etc.
So simulataneously with a policy which argued that (labor) markets sometimes
got it wrong (in the sense of inflationary spirals) we had a near-
untramelled belief in the effifacy of free markets directing policy wrt
financuial regulation, industry policy etc (though wrt the latter there
was a strong cout counter-thrust via a body called the Australian
Manufacturing Council).

The product of these two counterposed trends was a decline in general
taxation levels (Oz abolished tax on income from dividends, for example,
arguing that it had already been taxed in the hands of the companies and
it was thus "unfair" to tax it twice. It is I believe, however, common
practice worldwide to "dip twice", and in any case, why this
wasn't also a reason for exempting workers from paying sales tax
escapes me!) especially for middle and upper class income earners. I
would hazard a guess that this is at least part of the reason why
our strock market boomed so excessively during 85-87, and of course,
why our crash afterwards was so marked (we still havr 10%+ official
unemployment).

So social compacts a la Accord (and a la Weintraub) can work; but, a
bit like the neoclassicals' own message on "theory of the second best",
if these are not allied to complementary policies, the overall outcome
can be quite different to what was desired. For us, we went from
possibly a shallow recovery to a steep one, followed by an even steeper
slump.

Cheers,
Steve Keen