By WILLIAM MITCHELL

Japan is the world’s first post-­neoliberal economy. It has been a prime case study in Modern Monetary Theory for three decades. Let me explain.

Like developed nations across the world, Japan drank the neo­liberal Kool-Aid of the 1980s. In 1991, excessive private debt caused a massive commercial property collapse. The government’s response, thankfully, did not follow the neoliberal playbook. Instead, the Japanese pushed economic policies to the extreme of conventional limits: continuously high deficits, high public debt, with the Bank of Japan buying much of it.

Most economists recycled predictions of high interest rates, ­accelerating inflation and bond market revolts. None came to pass. Instead, Japan maintained low unemployment, low inflation, zero interest rates and strong demand for government debt. For three decades now.

Undeterred, these economists continue to promote a fictional economics that keeps citizens in the dark about the true capacity of government and the consequences of using that capacity to sustain full employment.

They manufacture fear about public debt and deficits, predict government insolvency, invoking these names — Weimar, Zimbabwe or Venezuela — to provoke fears of hyperinflation. They rehearse moral arguments about today’s government spending burdening our grandchildren.

None of their predictions has materialised.

Which is why we are hearing more about MMT. It has an impeccable record of prediction and offers answers that the economic orthodoxy fails to provide.

Renowned British economics journalist Martin Wolf, commenting on MMT, recently wrote: “In my view, it is right and wrong. It is right, because there is no simple budget constraint. It is wrong, because it will prove impossible to manage an economy sensibly once politicians believe there is no budget constraint.”

The Australian’s Alan Kohler has made the same observation.

MMT exposes these fictions. But even those central bankers and economists who understand the fictions on which the orthodox view relies think it is better for their political masters and the general public to be kept ignorant.

In the real world, currency-issuing governments have no ­intrinsic financial spending constraint. They can purchase whatever is for sale in their own currency, including all unemployed labour desiring work.

Mass unemployment is a ­political choice. Imagine if all Australians understood that, rather than labouring under the current deception.

It was not too long ago when full employment was official government policy.

The 1945 government white paper on full employment begins with a fundamental commitment to the Australian people. “Full employment is a fundamental aim of the commonwealth government. The government believes that the people of Australia will demand and are entitled to expect full employment,” it states. This commitment was abandoned in the mid-70s.

Australians knew it was government’s responsibility to maintain spending sufficient to sustain full employment. The purpose of fiscal policy was not to achieve a surplus or deficit. Rather, they judged government on how low unemployment was.

Unemployment was a policy target, not a policy tool.

Recall that Menzies nearly lost the 1961 election because unemployment rose above 2 per cent.

Recall, also, that Australia maintained a buffer of public sector jobs that always provided easy employment access to our least-skilled workers.

So when and why did Australians become so tolerant of systemic unemployment and its attendant ills — the accumulated human wreckage, to use indigenous leader Noel Pearson’s description — that goes with it?

The answer lies in the political and economic developments we now call neoliberalism. They were supported by a series of powerful but interconnected economic myths about money, the capacity of government and our economy.

Politicians on both sides now claim that employability (preparing people for jobs) rather than full employment is the proper role for government. They claim the market will take care of jobs.

The past 30 years have not supported their assertions. We have endured elevated levels of unemployment and underemployment, suppressed wages growth, ballooning household debt and rising inequality.

The waste of human potential is staggering.

The unemployed are “managed” within Australia’s newest “industry” — the unemployment industry — and churned through pointless training programs divorced from paid work. They receive below-poverty-line income support and are coerced by pernicious work tests when it is obvious that there are not enough jobs to go around. The robodebt scandal obliges.

The victims of this policy failure are scarred with accusative nomenclature — cruisers, bludgers, job snobs, lifters and leaners — when in truth governments made a policy choice to deny them the chance of employment.

In May, unfilled job vacancies declined by 43.4 per cent. In February, there were three people for each unfilled vacancy. Now it is 7.2. Adding in the 600,000-odd that “left” the labour force after giving up looking as employment opportunities collapsed gives us 12 seekers per job vacancy. Any reasonable person knows this is a systemic lack of jobs.

MMT exposes the fictions that have underpinned our tolerance for such unnecessary labour wastage for too long.

The current government response to the crises is inadequate. I estimate that Australia has more than 25 per cent of available labour underused in some way — a massive daily loss of income growth and harm to the unemployed and their families.

There was no reason for unemployment to rise. The government should introduce what I call a job guarantee by making an unconditional job offer at a socially ­inclusive minimum wage to anyone willing and able to work.

The buffer of jobs would normally be small and would shrink as private sector activity recovers. No inflationary pressures arise because government would not be competing for labour at market prices. There is no market bid for the unemployed.

Treasury said JobKeeper required an investment of $70bn across six months to reduce the ­unemployment rate by five points (585,000 jobs). Our modelling shows that a job guarantee that reduced the unemployment rate by six points would require net investment of $53bn over a year.

The scale of this disaster is so large that Australians will have to get used to very large fiscal deficits for a decade or more to support ­income and employment growth, so that households can reduce their astronomical and unsustainable debt levels.

Any attempt at “paying down the public debt” or “getting into surplus” will be catastrophic and undermine the opportunities of our generation and those that follow.

I am working with Pearson on a proposition for a job guarantee. We can have full employment again. We can future-proof our economy and give all Australians the opportunity to develop and put to use the knowledge and skills we need today and in the years to come.

William Mitchell is professor of economics and director, Centre of Full Employment and Equity, University of Newcastle. He is also docent professor in global political economy, University of Helsinki. He is a co-founder of Modern Monetary Theory.