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British Chancellor and his Shadow – arm in arm promoting fiscal myths

Last week (June 20, 2019), the British Chancellor (for now) gave his – Mansion House dinner speech 2019 – Philip Hammond – at the Lord Mayor’s residence just across the road from the Bank of England in London, which should have conditioned the content of his speech. The guests at Hammond’s evening were mostly male bankers with the usual cohort of politicians. This event is the UK equivalent of the US President’s State of the Union speech except at the British event, both senior economic officials, the Chancellor and the governor of the Bank of England address the audience. The Chancellor’s speech, aimed mostly at the potential PM candidates tried to claim that the if Britain was to exit the EU without a ‘deal’ then the Government would run out of money. He didn’t use those words but shrouded the message in buzz-terms such as “fiscal space” and “fiscal headroom”, which are among those mainstream macroeconomic terms that mean nothing when coming from a guy like Hammond. Worse, was the response over the weekend by the Shadow Chancellor.

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    The Weekend Quiz – June 22-23, 2019 – answers and discussion

    Here are the answers with discussion for this Weekend’s Quiz. The information provided should help you work out why you missed a question or three! If you haven’t already done the Quiz from yesterday then have a go at it before you read the answers. I hope this helps you develop an understanding of modern monetary theory (MMT) and its application to macroeconomic thinking. Comments as usual welcome, especially if I have made an error.

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      A leopard never changes its spots – Jens Weidmann, ECB President aspirant

      Various people are vying for the key positions in the European structures (EC President, ECB head, and a range of other positions) at the moment. The presence of French and German interests typically dominate these outcomes, although as a result of the Treaty of Lisbon changes, more weight was given to the jockeying of the various political coalitions that find their way into the European Parliament. But that process has new been compromised by the decline of the traditional parties as other political forces (Greens, En Marche, Liberal Democrats etc) have gained ground. So Europe is back to its Franco-German rivalry and emerging out of that process is the unthinkable – Bundesbank President, Jens Weidmann – becoming a front-runner to take over the ECB role. He is a man with a past and his current ‘political’ statements, as he lobbies for the position he clearly covets, appear to contradict that past. A leopard never changes its spots. Beware.

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        Forget the official Rule, apparently, there is a secret Fiscal Credibility Rule

        It is Wednesday and only a relatively short blog post. Yes, some more on that Fiscal Rule that seems to be causing people to lose sleep (not me). First, we had the Duck Test debate about the British Labour Party Fiscal Credibility Rule. Those promoting the Rule have been at lengths to deny its neoliberal framing, language and concepts. Not an easy task when the Rule talks about a currency-issuing government wanting to avoid “putting the rent on the credit card month after month”. Sounds like a duck to me. Then there was the ‘all critics (me) are stupid’ approach because they (I) apparently didn’t understand the Rule, simple as it is in construction. That didn’t end well either. Now, rather innovatively, we have the introduction of the Secret British Labour Party Fiscal Credibility Rule – which tells us that the actual British Labour Party Fiscal Credibility Rule, you know, the one published by the “General Secretary of the Labour Party on behalf of the Labour Party” is not the real rule. There is another one that us silly billy types have failed to detect and only those who have close personal contact with the members of the Monetary Policy Committee of the Bank of England could possibly know about. So in our ignorance we have no right to criticise the Rule or to impute nasty motivations from the MPC (not that we did impute anything anyway). And, to put the icing on the cake, we now are told that the Chancellor can abandon this ‘Secret’ Rule whenever he/she likes and does not require the imprimatur of the MPC anyway – so butt out all of you. Of course, only those who are part of our insiders’ club can know anything about this. Summary: Losers getting more lost each time they try to come up with a justification for the duck!

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          Fiscal policy paralysis and ECB credibility in tatters

          Last week, the EU finance ministers (the ‘Eurogroup’) met (June 13, 2019) in Luxembourg as part of their regular schedule. There was a lot of talk in the lead-up to the meeting whether Emmanual Macron’s push for a more coherent EU fiscal capacity to act as a counter-stabilisation capacity for the beleaguered Economic and Monetary Union (EMU). As is normal, there was no progress made and the press reports said that the finance ministers “continued to clash over almost every feature of the new fiscal tool, including the source of funding” (Source). No surprises at all. So the ‘fix the roof while the sun is shining’ agenda, that many Europhile Left commentators have been hoping for, was abandoned. The roof still has gaping holes and the EMU will once again fail badly when the next economic cyclical downturn comes through. And further, the lack of leadership in the fiscal area is creating a massive dilemma for the ECB and its conduct of monetary policy. In effect, the lacuna is demonstrating to all and sundry that monetary policy is incapable of achieving the aims despite the ECB deliberately breaching the legal framework established for it in the Treaties. The Eurozone dysfunction goes to a new level – and it is a time of growth.

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            Seize the Means of Production of Currency – Part 3

            The week before last, Thomas Fazi and I had a response to a recent British attack on Modern Monetary Theory (MMT) published in The Tribune magazine (June 5, 2019) – For MMT. In effect, there were two quite separate topics that needed to be discussed: (a) the misrepresentation of MMT; and (b) the issues pertaining to British Labour Party policy proposals. The article we were responding to – Against MMT – written by a former Labour Party advisor, was not really about MMT at all, as you will see. Instead, it appeared to be an attempt to defend a policy approach, that I have previously criticised as giving to much back to the neoliberals. Whenever, progressives use neoliberal frames, language or concepts, it turns out badly for them. Anyway, the published article only allowed 3,000 words, which made it difficult to cover the two topics in any depth. In this three-part series, you can read a longer version of our reply to the ‘Against MMT’ article, and, criticisms from the elements on the Left, generally, who think it is a smart tactic to talk like neoliberals and express fear of global capital markets. In this final Part, we focus explicitly on Labour Party’s Fiscal Credibility Rule – which uses these neoliberal frames – and we show that it would fail in a deep recession, causing grief to a Labour government should it be in office at that time.

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              The Weekend Quiz – June 15-16, 2019 – answers and discussion

              Here are the answers with discussion for this Weekend’s Quiz. The information provided should help you work out why you missed a question or three! If you haven’t already done the Quiz from yesterday then have a go at it before you read the answers. I hope this helps you develop an understanding of Modern Monetary Theory (MMT) and its application to macroeconomic thinking. Comments as usual welcome, especially if I have made an error.

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                Australian labour market improves slightly but remains in a fairly weak state

                The Australian Bureau of Statistics released the latest data today – Labour Force, Australia, May 2019 – which reveals a slightly improved labour market although full-time employment growth was weak and total hours worked declined. Underemployment rose slightly (0.1 points) to 8.6 per cent further accentuating the fairly weak overall situation. The total labour underutilisation rate (unemployment plus underemployment) remained steady at 13.7 per cent and the persistence of that level of wastage makes a mockery of claims by commentators that Australia is close to full employment. The other disturbing outcome was that full-time and total teenage employment also fell. My overall assessment is the current situation can best be characterised as remaining in a fairly weak state. Most of the dynamics over the last few months have been due to swings up and down in part-time employment.

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