In a recent article by Ross Gittins titled "Out of balance: There’s not enough investment in Australia," he highlights the importance of examining Australia's near-balanced current account and its implications for the nation's economic growth and labour productivity. As a response to his article, let's explore how Modern Monetary Theory (MMT) can shed light on the consequences of this change and suggest potential policy considerations for Australia's economic future.
The Shift in Australia's Investment Landscape
Gittins points out that Australia has historically been a net importer of investment capital. However, in recent years, it has become a net exporter of investment capital. This shift can be attributed in part to the decline in domestic business investment following the end of the mining boom a decade ago and perhaps the increased savings due to the compulsory superannuation system. Consequently, Australia's current account now hovers around a balanced state, reflecting the fact that Australia has been investing more of its savings in other countries while attracting a similar amount of foreign investment.
MMT and the Importance of Domestic Resources
Warren Mosler, a proponent of MMT, famously said,
"Imports are a real benefit and exports are a real cost; the idea is you want to optimise your real terms of trade, you want to be able to get the most imports for your exports."
Similarly, Stephen Gordon, writing for the Canadian The Globe and Mail, stated,
"The real benefit to international trade is the opportunity to obtain goods more cheaply than by producing them domestically."
With this in mind, the MMT perspective suggests that Australia should focus on utilising domestic resources and promoting investment in its economy to drive sustainable growth and improve labour productivity.
MMT emphasises the importance of both the government and the private sector spending to mobilise underutilised resources and achieve full employment, price stability, and equitable growth.
Policy Considerations for Australia's Economic Future
As long as the current account remains near-balanced, Australia should concentrate on fostering domestic investment, infrastructure development, and job creation. In order to achieve sustainable and inclusive economic growth, it would be beneficial for Australia to consider adopting MMT-informed policies that emphasise the importance of domestic investment and resource utilisation.
Taking advantage of a near-balanced current account allows Australia to optimise real terms of trade. However, it's crucial to keep an eye on the current account balance and adapt to any changes in the way Australia optimises real terms of trade.
Final Thoughts
The insights from Ross Gittins' article provide a solid foundation for discussing Australia's economic balance. By incorporating the MMT perspective, we can better understand the consequences of a near-balanced current account and explore potential policy considerations for Australia's economic future.
In short, currently, the Government and the private sector, including investor forces, need to spend more on and in Australia.
As Australia navigates its near-balanced current account, it is essential to focus on utilising domestic resources, promoting investment, and adopting MMT-informed policies to ensure sustainable and inclusive economic prosperity.
Achieve Financial and Mental Wellness
Looking for effective resources to help overcome financial stress and anxious thoughts? This subscription has you covered.
As a paying subscriber, gain unlimited access to 5 powerful tools absolutely free:
A comprehensive eBook guides transforming your finances through proven habits and strategies.
4 Anxiety-Busting wall posters that provide techniques to quiet worried thoughts and build resilience. Great for personal or professional use!
Whether you seek tools for personal growth or your mental health practice, these science-backed resources can significantly boost well-being over the long run.
Subscribe now to empower yourself and your clients with an all-inclusive wellness toolkit. Finally, take command of money mindsets and unlock healthier, wealthier lives for all. Your future of financial peace and mental ease is just a click away!
If you enjoyed this post, please consider buying me a coffee by pressing the button below.