I Don’t Get It: Reassessing Price and Value during the COVID-19 Crisis


Words || Nathan Depangher

As of June we have an unemployment rate of 7.4% that could be as high as 13% if it wasn’t for government intervention through programs like JobKeeper. By comparison, the United States has had an unemployment rate of 14.7% as of May. Both of these governments had a similar plan, why don’t we just print money and give it to the people who need it?

Welcome to the recent trend of the progressive economist, espousing a 50-year-old theory with snazzy ‘Modern’ rebranding. It’s called Modern Monetary Theory (MMT), following this radical idea has led to the creation and expansion of unemployment benefits such as subsidies provided to Youth Allowance and $600 checks mailed out in the States. 

But who pays for all this? 

Are our tax dollars going to fund these lazy bums, I mean unfortunate souls? The answer is yes, but also strongly no. For years we’ve been told that there is no magic money tree, that governments tax citizens to create the funds required for capital expenditure. Instead here is where MMT comes in, a term coined by Bill Mitchell, a professor of economics at the University of Newcastle. This theory suggests that countries in possession of their own sovereign currency –  AKA one they can issue themselves – can theoretically print as much as is required to service their own debts, covering the cost of all social welfare and infrastructure programs. This is possible because the central bank, in our case the RBA, cannot ever default because it possesses infinite potential wealth. This policy indicates that taxes are then not used for funding programs but management of inflation, drawing money out of the economy rather than redirecting its use. So here we are, with major governments printing money like it’s the latest in Vogue fashion, whilst in the background we have people screaming about the potential for a V-shaped recovery, where our country returns to a Pre-Covid level of economic prosperity.

Hi everyone, I’m a final year economics student who has been reading and writing about financial systems and the political responses to them for the past few years. I wanted to start discussing a concept you interact with daily but likely never really take the time to think about: VALUE and PRICE. 

Why should we talk about this? Because in the midst of this pandemic we’re seeing these operate in really weird ways, largely due to how our savings and retirement funds work. We’re also watching with bated breath as every major government with a fiat currency – a currency that is produced by governments and backed by the government rather than a commodity – is rapidly pumping their economies with enough digital currency to sink several Titanics. 

Starting with Price, what is it? Simply put, it is how much people are willing to pay for stuff. It’s the number you see on your HECS that goes up every year due to failed second language courses and inflation. Inflation is the amount we all agree to increase prices by because there’s more money to spend on stuff. When under control it increases by 2-3% and when out of control (hyperinflation) you use a wheelbarrow to carry enough cash for your morning milk run. It is separate from Value since the intrinsic value of a thing doesn’t change with the price, a loaf of bread is the same if you spend $5 on it as if you spent $50, a shift in price does not change the inherent value of the thing you are buying.

Hyperinflation is scary, it leads to mass currency devaluation and a downward spiral where you end up in a similar situation to WWII Germany or (God forbid) Venezuela. Venezuela is important because at the core of every money-printing debate they are held up as the unlucky poster child of how not to run a government welfare scheme. Printing in excess of 150% of their available currency in a single year is considered the grand taboo that led to the downfall of one of the wealthiest nations per capita. Of course you need to disregard the sudden plummet in oil prices for a country that is entirely reliant on a single good during a time of extreme social and economic fragility; but that’s the thing about economists, you’ll find they consistently ignore what doesn’t fit so that their models can work.

Models are important, they allow economists to explain the movements of markets and reactions to catastrophic events, unfortunately models are rarely true predictive tools and the actions they recommend should be considered more as a guideline than an actual rule. The models state that an oversupply of government funding leads to unwanted levels of inflation, but the reality is that if there is equitable demand for the currency that doesn’t occur.

Now that we’ve covered all the keywords, let’s get into the zesty economics intrigue that we’re going to start experiencing. The price of goods and general inflation has barely gone up above desired levels (2.2%), and that is largely driven by specific items (toilet paper, veggies from places hit hardest by the bushfires) and if we don’t include the outliers (as we need to do to make our models work), it’s actually below the stable rate of inflation. This is despite the pumping of money through: wage subsidies, Job Seeker, Job Keeper, interest rate freezes on loans; there has been a huge push to not only create money for us to spend but also trying to find a means for us to spend it. Why, despite all of this activity, are prices not moving in a consistent direction but differing per sector? Well the answer is clear, prices are going up across the board, but it can be hard to measure because a lot of it is hidden in debt.

Debt is more than just a loan from Westpac or an overcharged credit card, it’s a type of currency, it is potential future dollars that can be fully traded as currency at a price lower than its value because it doesn’t exist until someone pays for it. You can only benefit from debt in the future and as we all know the future is risky business, despite a debt being worth $100 say, you would only pay cents on the dollar such as $80 to acquire it. Australia’s household debt is immense, sitting at around 120% of GDP – about 2.4 trillion Australian dollars pre-covid. Post-Covid with non-interest loans and a general loss of income we will see this become worse. Much, much worse. Debt puts restraints on income reducing consumption spends and generally gives everyone a bad time. Yet during all of this, people with the largest singular debt like mortgage owners aren’t selling their properties to finance, with only a 7% drop in prices to only have a 7.1% increase over the year.

As I’ve harped on about, banks aren’t making people pay interest rates, so there is no immediate requirement to sell, supply is constrained despite the absolute mangling of the rental and property markets by the end of tourism and AirBnB. This is not the free market that people preach about, this is a market that disadvantages buyers because sellers are capable of holding their capital until it becomes profitable, agents here face dissimilar constraints leading to artificially high prices. Whilst not necessarily a good thing it’s also not bad for this to occur. Our retirement is based on asset accumulation, possessing property and shares in a portfolio that you can expect to grow at a consistent rate if you want a stress-free retirement. Instigating wealth redistribution by having these assets lose value and become cheaper to buy doesn’t solve the problem so much as creating a new one. 

What does this mean for you, the reader? You’re a university student at the forefront of the greatest national debt crisis the world has ever seen, caused by the worst pandemic in a century that came on the heels of an extreme ecological disaster. What we face is worse than the great depression because the fundamental nature of money is different – it’s backed by faith rather than gold – and in a world that is swiftly losing faith, there is no clear and simple choice to make that avoids significant repercussions. 

The point of this article is to discuss the value of things in the wake of a public health and major economic crisis. During one of the highest unemployment periods in its history, the American stock market has experienced one of its largest bull markets, during the sudden supply-side shock of the housing market we’ve seen property increase in price. According to every basic model you’ll encounter, these experiences are meant to cause a drop in price, the question is where do we derive real value? And what will the price of these assets be when the dust settles?

All we can do as we look at the extremes that approach us is to vote for the decisions that promote long-term sustainability, social and environmental welfare. In the process of blindly following Neoliberalist doctrine we have created a debt-ridden monstrosity that threatens every participant, because we have been too focused on increasing the price of the assets we hold and not spent enough time on reflecting the truth of what value we have.