The Centre of Full Employment and Equity (CofFEE) at The University of Newcastle in collaboration with the Australian Catholic Social Justice Council hosted the Second Annual The Path to Full Employment Conference on Thursday, December 2 and Friday, December 3, 1999. The venue was the Radisson Central City Hotel, Corner King and Steel Street, Newcastle.

CofFEE aims to foster high quality research and policy analysis that focuses on the creation and maintenance of full employment and equity in Australia. The Australian Catholic Social Justice Council (ACSJC) is the national social justice body of the Catholic Church in Australia. It has had a long-standing interest in the problem of unemployment and has consistently advanced research and policy analysis aimed at eliminating unemployment.

CofFEE and the ACSJC combined their efforts so that the idea that full employment is possible can be advanced in the public sphere. Both organisations consider that the failure to reduce unemployment is above all a failure of political will. Full employment can be achieved through direct government action and both organisations considered unemployment to be the most pressing problem facing the world economy.

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The following list of keynote speakers attended:

• Professor Malcolm Sawyer, Economics Group, Leeds Univerisity Business School, UK.
• Professor Sumner Rosen, Vice-Chair, National Jobs for All Coalition and Emeritus Professor of Social Welfare Policy, Columbia University.
• Professor Nancy Rose, Economics, California State University, San Bernardino, USA.
• Professor Randy Wray, CFEPS, University of Missouri, USA.
• Professor Mathew Forstater, CFEPS, University of Missouri, USA.
• Warren Mosler, AVM Funds Management, Florida, USA.
• Professor Jan Kregel, UNCTAD.
• Professor Joan Muysken, Economics, University of Maastricht, Netherlands.
• Dr. Miriam Altman, Economics, University of the Witwatersrand, South Africa.
• Professor John Nevile and Associate Professor Peter Kriesler, Economics, UNSW, Sydney, Australia.
• Professor William Mitchell, CofFEE, Australia.

Two special seminars were staged:

• The Five Economists versus the Job Guarantee - One of the Five (Dr Michael Keating) debated with Job Guarantee proponents.
• The Conference also featured a financial markets workshop convened by Warren Mosler which examined issues relating to the dangers of running budget surpluses, financial market instability and unemployment and the likely reaction of financial markets to the introduction of widespread government job creation (the Job Guarantee).

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The Centre of Full Employment and Equity (CofFEE) at The University of Newcastle combined its annual Path to Full Employment Conference with the 9th National Conference on Unemployment, a combination that has endured since that time. The venue was the University Union, Newcastle.

In September 2002, the Australian unemployment rate was 6.2 percent. Across Australia, 629 thousand Australians were without work. CofFEE estimates that an additional 125 thousand people suffered from hidden unemployment at the time. There were 140 thousand people who had been unemployed for more than 12 months. The average duration of unemployment was 46.9 weeks. The 15-19 year old unemployment rate stood at 16.1 percent. To be counted among the employed you only have to work 1 hour per week and a majority of new jobs created were part-time/casual. They are often low-paid and insecure. CofFEE's research showed that the rate of underemployment was increasing as more people were being forced to work part-time yet desired more hours. Regional unemployment was also a problem in Australia. As an example, unemployment rates in September 2002 varied from 4 percent in ACT and the NT to 9.3 percent in Tasmania. There is also clear evidence that economic inequality in Australia is increasing.

Meanwhile the government continues to pursue a fiscal surplus as an act of virtuosity. They continue to adhere to the view that unemployment is a consequence of the personal characteristics of those who are without jobs. It is clear that the Australian economy does not create enough work for all those who desire it. Not only is the number of jobs important but also the desired number of hours. Australia is short on both accounts. The substantial reductions in public sector employment over the last decade have exacerbated this problem. CofFEE estimates indicate that if public sector employment had matched the labour force growth rate over the period 1970 to 1999, there would be an unemployment rate of approximately 1.7 per cent.

CofFEE advocates a return to full employment. Full employment can be made consistent with environmental sustainability. Full employment requires a renewed commitment by the public sector to public job creation. The private sector will never create enough working hours to absorb the growing labour force. CofFEE advocates the introduction of a Job Guarantee as a means to achieve full employment. The 4th Path to Full Employment Conference/9th National Conference on Unemployment addressed these and other issues.

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Neoclassical monetary theory considers that money enters into the economy via exchange. The current stock of money is determined by the interaction with high powered money (issued by the Central Bank (CB)) and the money multiplier (which is a function of the reserve ratio and deposits ratio). Thus, the CB controls the money supply (it is exogenous). Interest rates in this model are endogenous and rise if budget deficit spending rise as a result of the squeeze in the money market. The only way a budget deficit can occur without higher interest rates is if the CB increases high powered money and that is considered inflationary. Further, deficits require bond-financing which implies that taxes have to be higher in the future.

In this brief, we show that government spending does not require financing. Taxes are levied (in part) to ensure that the private sector has an incentive to transfer goods and services to the public sector in response to Government spending of fiat currency. The Government is the monopoly provider of fiat currency. The private sector (households and firms, including banks) has to acquire the fiat currency to pay its taxes. If the Government is in deficit, then the surplus fiat currency in the private sector is accumulated as cash, bank reserves, or as Treasury Bonds (deposits offered by the CB). The taxes are scrapped (either the cash is burned or the CB wipes off liabilities from its balance sheet). Logically, taxes cannot finance spending because fiat currency has to be spent prior to taxes being paid.

Why are bonds-issued? They provide the financial system with an interest-bearing asset and allow banks with excess reserves an opportunity to earn above a zero return. Bond issues are part of monetary policy. If the fiscal spending has created excess reserves and there is downward pressure on the cash rate, then the CB can sell bonds as a means of maintaining their cash rate goals. Spending adds to reserves while taxes and bond sales drain reserves. The latter are considered to be part of the CB reserve maintenance operations.

These are termed vertical components and include the obtaining of fiat currency from the State, the paying of taxes to the State, or any intermediation in the process. CB policy determines the relative distribution of the accumulated currency units of the private sector between cash, reserves (clearing balances), and Treasury securities. State (deficit) spending determines the magnitude of those accumulated financial assets.

The horizontal component is well-described in Post Keynesian monetary theory and includes the all credit activities that leverage of the fiat currency. While the vertical component is exogenous, the horizontal component is endogenous and nets to zero. The banking system responds to depends for credit to finance production and then worries about the reserve implications. The CB stands ready to lend reserves should the banks fall short to maintain stability of the system and the current cash rate target. Government spending cannot crowd out investment in this setting.

The diagram below summarises this discussion.

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