Australia Economist Steve Keen to Run for Parliament, Pursue MMT

(Bloomberg) -- Australian economist Steve Keen plans to run for parliament in next year’s election, campaigning for a radical reshaping of the nation’s economy that would be financed through Modern Monetary Theory. 

Keen will be a senate candidate for the New Liberals and says he wants to revive the economic golden era of Robert Menzies, who was prime minister for a record stint from 1949-1966. The present ruling Liberal Party, originally founded by Menzies, is now dominated by “reactionaries” and is a shadow of its former self, Keen said this week.

His priorities for the party’s economic platform:

• Run a budget deficit of 3-4% of GDP -- similar to Menzies -- to pay for spending via MMT. The theory holds that governments with their own currency are unable to go broke and can therefore keep spending until inflation becomes a problem. Keen notes that inflation is so weak these days that it’s barely an issue
• Housing: Keen argues soaring property prices are a product of ever-rising mortgage debt. His goal would be to reduce the amount available for borrowing for a purchase to, say, 10-times the annual rental income of a property, although he wouldn’t do this immediately as that would crash the housing market.
  • The aim is to lower home prices without reducing household equity. For example, if someone had a property with a sale price of A$1 million ($725,000) and a mortgage of A$600,000, Keen would aim to cut the price by 20% to A$800,000 and cut the loan to A$400,000, thereby maintaining the homeowner’s A$400,000 equity. This would be financed through budget deficits/MMT

• For the Reserve Bank of Australia, Keen wants to introduce a central bank digital currency that would give everyone a digital account at the RBA. He would demand RBA officials “up their thinking” beyond standard neoclassical textbooks. They should be more like the Bank of England, whose research department, he says, agrees with his view that mainstream economics is wrong about banking
• On free trade, Keen says the specialization argument that has dominated modern economic policy has resulted is Australia going backwards in industrial complexity. It needs to rebuild its industry, he says, and this would be the main focus of trade policy
  • That’s a lesson from the pandemic, according to Keen, which showed that Australia couldn’t make the masks, ventilators, or the other things it should have as a domestic capability
• On jobs, Keen would push for genuine full employment, in the Menzies mold, noting the jobless rate hit 1.5% in that era. He would also introduce something resembling a basic income, saying the sums provided to the unemployed and others on welfare are “appallingly low.” This would also be financed by the budget/MMT

The 68-year-old has been living and working abroad in recent years, including a stint as head of economics at the U.K.’s Kingston University. Keen intends to return to Australia in January to rejoin the electoral roll and stand for parliament. The election has to be held by May 2022.

The maverick economist was most recently famous Down Under for losing a 2008 bet on the direction of property prices with then Macquarie Group Ltd. economist Rory Robertson. As a result, Keen walked 224 kilometers (139 miles) from Canberra to the top of Australia’s highest mountain in April 2010 after wagering wrongly that housing would drop 40%. 

Since the end of 2008, home prices in Sydney have risen 130%, according to real-estate data provider Corelogic Inc. 

©2021 Bloomberg L.P.