On Budget Eve: Deflation & The Limits to Privatised Keynesianism


NAA- M3130, 81
NAA- M3130, 81

Tuesday 3rd May will see the first budget of the Turnbull-Morrison Coalition government. It is also the date of the Reserve Bank’s next monetary policy decision. So it is an important day for fiscal and monetary policy. Like most people (including the well paid opinion-makers of the commentariat) I have no idea what the budget will contain. It is unlikely that the government will be able to break the impasse facing the state: a general tendency of slowing growth , rising state debt and a pool of sullen and largely inchoate opposition amongst the population to various attempts by the state to address both. The picture is complex. On this blog I have written a lot about ‘Capital’s Plan A’– the stimulation of the economy via infrastructure spending to be financed in part by cuts to social reproduction and through the ‘recycling’ (read privatisation or leasing) of state owned assets. This plan, at a Federal level is stalled, due in part to the 2015 defeat of the Qld LNP government on the question of leasing power assets. However the recent Victorian state budget is built around increased infrastructure spending financed by the leasing of a port and a higher level of debt[i]. Preceding the Federal budget there has been a warning from JPMorgan and from Moody’s about the potential for Australia to lose its AAA rating, projections from Deloitte about the size of the increase in both debt and deficit and,what surprised everyone, the release by the Australian Bureau of Statistics of the latest CPI figures showing .2% deflation in the last quarter (Australian Bureau of Statistics 2016d, Greber 2016, Janda 2016, Martin 2016). It is this last point I want to look at. What does this latest news tell us about the both the direction of capital accumulation and the tensions and fault-lines of antagonism that constitute capitalist society in Australia?

There is a hypertrophic production of statistics in contemporary capitalism. I assume the utility of this is mainly for investors in finance attempting to buy and sell one step ahead of the market. Indeed as soon as the ABS released the CPI data the ‘mimetic behaviour’ (Marazzi 2015a, 83) of the markets could be seen as investors sold off the Australian dollar. It is hard not to get caught up in the undulating movements these stats depict. As Marx (1993, 100) tell us we need to look beyond the surface facts of a society to grasp the social relations that animate it and Luxemburg (2003, 8) advises us to try to understand the general tendency and not get caught up in fluctuations . With this in mind how are we to make sense of the CPI stats?

Deflation means that prices are dropping – that there is more supply than demand. Looking at the stats there seems to be an increase in prices for houses, health, alcohol and tobacco, education and insurance and financial services but a drop in prices in food, clothing and footware, furnishings, transport, communication and recreation (Australian Bureau of Statistics 2016b).

1  (Australian Bureau of Statistics 2016b)



2 (Australian Bureau of Statistics 2016c)

Now falling prices appear great – money can buy more then it could before. The buying power of our wages increases. But deflation can be (and normally is) indicative of underlying pathologies in capital accumulation. Part of this deflation has been caused by the drop in oil-prices (Australian Bureau of Statistics 2016c). This drop in oil prices is due to the over-accumulation of capital and declining growth rates on a global level. The other price drops appear to indicate that everyday people in Australia are perhaps spending less on things that may be deemed as luxuries or at least not necessary right now.

The most recent National Accounts (Australian Bureau of Statistics 2016a) cover the last quarter of 2015 and show that GDP growth was upheld by debt fuelled consumption. This is an example of how capital accumulation is being maintained by the ‘privatization of deficit spending’ (Marazzi 2015b, 47) a kind of ‘privatized Keynesianism’ (Bellofiore 2015, 7) where aggregate effective demand is stimulated by the proliferation of household debt. (It is a way of ‘solving’ Luxemburg’s (2003) question about where aggregate effective demand can come from – but in this case it arises from within the circuit of capital via the generation of debt-money).

This is most obvious in the housing market. The mindboggling increase in house-prices has only been possible because buyers have borrowed more. Indeed the vast majority of household debt, which stands above 180% of disposable income and around 123% of GDP, is made up of mortgages (Reserve Bank of Australia 2016a, b, 21-25, Soos 2016).

There has been a long-term tendency of a lower rate of wage growth and a declining share of national income going to labour since approximately the middle of the 1980s (That is since the implementation of the Accord between the ALP government and the ACTU)(Humphrys 2014). This has been offset by the increasing access to credit. Indeed recent research on inequality shows that consumption inequality is less than income inequality and wealth inequality – credit fills the gap (Dollman et al. 2015). During the twenty years of the boom work, wages and credit all increased even if it that did so at different rates and even if wages growth was lower than during previous historical periods. Since the end of the boom these elements have started disarticulating from each other. In particular wage growth ‘has declined markedly in recent years to the lowest pace since at least the late 1990s’(Jacobs and Rush 2015).

These CPI figures are from the first quarter of 2016. So I pose this hypothesis: the CPI figures show the declining utility of privatized Keynesianism. Statistics of course hide a lot: the actual unending messiness of the world becomes flattened out into a set of crisp averages. Household debt may be over 180% of disposable income but not everyone has the same income or the same debt – indeed only a third of households hold a mortgage. But stats still show us something. And looking at the CPI stats it seems that prices are dropping for things that people can perhaps put off or go without. Now it could be this is just standard seasonal differences – people spend more in December and less in February –  or that global supply has increased or the costs of production declined but I suspect it could be something more. Caught in the vice of declining wage growth, rising house prices and lack of affordable rents a highly indebted working class is following the Treasurer’s advice to ‘live within our means’.

So what is driving this? Declining wages and rising house prices are both products of the impact of the Global Recession on Australian in the shape of the end of the mining boom. The former as the demand for labour is decreasing or shifting to lower paid industries the latter as capital flows into real estate desperately searching for a source of profit.

Of course this could be a blip – the future is unknowable. And capitalism works through the fluctuation of prices. It is after all ‘…a mode of production whose laws can only assert themselves as blindly operating averages between constant irregularities’(Marx 1990, 196). All we can do is make guesses as part of calibrating our strategies and understandings. But that said we can see a general tendency for rate of inflation since the crisis – ‘disinflation’:


4(McKenna 2016)

What happens now? If deflation continues then this would be indicative, and a manifestation, of a deepening malfunction of accumulation. At the very least this will probably mean that pressures on a range of capitalist business will intensify. It would mean a shift and intensification of the breakdown into retail and the like, impacting the workers who work there and the financial institutions that retail capital and retail labour hold debts for…. But as always we should be careful of interpreting every piece of bad data as sign of the breaking of the seals of some kind of FINAL CRISIS – understood in biblical terms. Again this might just be a blip.

The business media is already commenting that there is increased pressure on the RBA to cut interest rates (and the financial markets are already working on the assumption they will) (Pascoe 2016). The hope is that a cut in interest rates will stimulate the economy by making credit cheaper. Deflation means that the real interest rate – that is the difference between the rate of interest and the rate of inflation – grows. Thus the RBA will need to cut rates just to stand still.

However how effective will this rate cut be if it happens? Who knows? But Glenn Stevens, the current Governor of the RBA, recently cast doubt on the continual effectiveness of unorthodox monetary policy. ‘My personal view is that central bank policy at the global level was very effective at heading off a potential catastrophe after the Lehman event, but was always going to have limited capacity to accelerate the recovery… monetary policy alone hasn’t been, and isn’t, able to generate sustained growth to the extent people desire’(2016).

Basically since the crisis central banks through a combination of bailouts, quantitative easing and low or negative interest rates have flooded the financial system with money in the hope of spurring accumulation. Whilst this action prevented the roof of global capitalism from falling in it has mainly done so by stimulating the prices of financial assets: prices rise based on the expectations of continual price rises due to continual increases in money.

Now there is rising concern not just about the declining ability of what central banks can do but the way their actions have simply shifted or delayed the crisis. Money plays multiple roles in capitalism. One role is as a measure of value(Marx 1990, 188-198). Fluctuations in the money supply can destabilise this function (but isn’t the cause of crisis itself – rather it is an internalisation of the broader dynamics of capitalism within the money-form). However unlike previous increases in the money supply since most of this money is appearing as debt that is spent on financial assets we don’t get an outbreak of generalised inflation like during the 1970s – just a rise in financial asset prices. But the rise in these prices is increasingly disarticulated from the actual income streams they represent. Also the stimulation of credit itself creates a problem through the production of ever more debt. As soon as uncertainties emerge doubts rise about the ability of these debts to be serviced and their desirability as assets. As the Bank for International Settlements cautions ‘Some evidence, for example, suggests that volatility in early 2016 is an illustration that markets are now possibly viewing the current valuation of assets as not supported by the foreseeable growth outcomes and future productivity prospects’(Pereira da Silva 2016). Thus Stevens (2016)suggests we have to look at other policy or just except a future of low growth and low expectations: ‘…we can limit the damage from these mood swings by keeping a strong focus on improving growth fundamentals. It is surely time that policies beyond central bank actions did more in this regard.’ And thus we are smack bang back at the state’s ability or inability to act to save capitalism.

Holloway (2016, 1-2), channelling Tronti (1964), reminds us that we should start from our rebellion, the collective resistance of the class – lest we end up reproducing the domination of capital in the heart of our theories. I find this political agreeable but analytically difficult in this kind of work. Especially when by the old traditional metrics of class struggle such as union membership and industrial action are so low (Jericho 2015). The accumulation of consumer debt during the neoliberal period was part of the reaction of capital to the class struggles of the 1960s & 70s. Accompanying the smashing or incorporating of struggles and the profound restructuring of industry and the division of labour the expansion of debt worked to soothe the transition and recuperate the demands for income unlinked from work into the processes of capital accumulation and, as mentioned, increase demand. As discussed in the previous post this was and is deeply contradictory. Capital attempts to escape class struggles and crises via credit and workers attempt to use credit to escape the boundaries of the wage (or wagelessness) but credit also intensifies contractions for all. We can understand the long history of the transformations in money and monetary policy as both the product and the terrain of struggles. However it is hard to see directly how our struggles are creating this current knot of contradictions. (Even the RBA after all are hypothesising the lack of labour’s power is one of the reasons for low wages growth stating ‘There may have been some shift in the bargaining power of labour’)(Jacobs and Rush 2015).

What we can see is the emergence of a number of struggles aimed at breaking the deadlock of housing and debt. These include the occupation of empty state owned houses by the homeless, opposition to off-the-plan residential unit development (on this question see a short op-ed I wrote in the context of a specific struggle) and the struggles of construction workers for safe conditions and decent wages in the face of a Federal government attempt to criminalise their unions. Deflation is perhaps an indicator of the intensity of the knot of contradictions these struggles may yet cut.



Australian Bureau of Statistics. 2016a. 5206.0 – Australian National Accounts: National Income, Expenditure and Product, Dec 2015 MAIN FEATURES INCOME AT CURRENT PRICES. Australian Bureau of Statistics [cited 2nd March 2016]. Available from http://www.abs.gov.au/ausstats/abs@.nsf/Latestproducts/5206.0Main Features4Dec 2015?opendocument&tabname=Summary&prodno=5206.0&issue=Dec 2015&num=&view=.

Australian Bureau of Statistics. 2016b. 6401.0 – Consumer Price Index, Australia, Mar 2016. Australian Bureau of Statistics [cited 30th April 2016]. Available from http://www.abs.gov.au/ausstats/abs@.nsf/mf/6401.0.

Australian Bureau of Statistics. 2016c. 6401.0 – Consumer Price Index, Australia, Mar 2016 -MAIN CONTRIBUTORS TO CHANGE Austalian Bureau of Statistics [cited 30th April 2016]. Available from http://www.abs.gov.au/ausstats/abs@.nsf/Latestproducts/6401.0Main Features2Mar 2016?opendocument&tabname=Summary&prodno=6401.0&issue=Mar 2016&num=&view=.

Australian Bureau of Statistics. 2016d. Consumer Price Index falls 0.2 per cent. Australian Bureau of Statistics [cited 30th April 2016]. Available from http://www.abs.gov.au/ausstats/abs@.nsf/Latestproducts/6401.0Media Release1Mar 2016?opendocument&tabname=Summary&prodno=6401.0&issue=Mar 2016&num=&view=.

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[i] Here the key difference from the plans of the political Right is that social services seem to have been spared – but with a huge drop in Federal funding for schools and hospitals in years ahead who knows how this will play out?

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