Japan’s unemployment rate decline is due to fiscal stimulus not ageing

In yesterday’s blog – Time for fiscal policy as we learn more about monetary policy ineffectiveness – I discussed, in part, the way that fiscal and monetary policy in Japan were working in a harmonious way, in contradistinction to the way these two major policy levers are working elsewhere (for example, Australia and the Eurozone). One of the results of that harmony is that the official unemployment rate in Japan has dropped to 3.1 per cent, the lowest since July 1995. I considered the willingness of the Japanese government to introduce and maintain large fiscal stimulus programs under its Prime Minister – Shinzō Abe – to be a major contributing factor in that reduction (down from 5.5 per cent in July 2009). However, a Bloomberg journalist asserts that – Japan’s Plunging Jobless Rate Is All About Aging, not Abenomics (published August 10, 2016). We can explore whether that assertion is true. It will certainly be partly true given the population ageing in Japan. That is what this blog is about today.

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Time for fiscal policy as we learn more about monetary policy ineffectiveness

The week before last, the Bank of Japan didn’t set off any bazookas and basically held ground on monetary policy. In its – Summary of Opinions at the Monetary Policy Meeting on July 28 and 29, 2016 – (released August 8, 2016), we detect some tension among the Board members as to the effectiveness of monetary policy as a counter-stabilisation force (altering the economic cycle). The distinguishing feature about Japan is that monetary and fiscal policy are working in harmony in contradistinction to other nations (or currency blocs) where monetary easing is being accompanied by fiscal contraction. The latter ensures that growth will not occur, while the former provides a virtuous cycle. The recent retail sales data for Australia, released last week by the Australian Bureau of Statistics provides further evidence that monetary policy is not very effective in stimulating spending. The same data demonstrated categorically in 2009 how effective fiscal policy can be. It is time for the Australian government to shift policy positions and introduce another major fiscal stimulus and stop relying on the central bank to salvage what is becoming an ugly situation. The latter simply hasn’t got the policy tools available to fulfill the task it has been (implicitly) set by the Government’s irresponsible pursuit of fiscal surpluses.

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Reducing income inequality

The recent political ructions such as the Brexit outcome in the UK, the popularity of Donald Trump and Bernie Sanders in the US, the growing extremist popularist movements in Europe and elsewhere, and the scrape-in victory of the incumbent conservative government in Australia at the recent federal elections, have been attributed in no small part to a growing resentment against rising income (and wealth) inequality. A ‘progressive manifesto’ has to address this issue and work out ways that the gap between real wages and productivity growth is eliminated so that workers can rely more on wages growth to fund their consumption growth rather than credit. This blog continues to discuss the elements of such a Manifesto and today we focus on the question of income inequality and ways in which productivity growth can be better shared.

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The Weekend Quiz – August 6-7, 2016 – 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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Reforming the international institutional framework – Part 2

This blog is the second part (now of three) where I discuss how the international institutional framework has to be reformed to serve a progressive agenda where rich countries (and the elites within them) do not plunder then pillory poor countries. In this blog I detail why we should dissolve the World Bank, the OECD, and the BIS, all of which have become so sullied by neo-liberal Groupthink that they are not only dysfunctional in terms of their original charter but downright dangerous to the prosperity and freedoms of people. The third part will consider what a new international institution might look like and the role it can play in aiding poor nations, particularly those who are reliant on imported food and energy. We will also discuss reforming the foreign aid system.

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Reforming the international institutional framework – Part 1

This blog continues the unedited excerpts that will appear in my new book (with Italian journalist Thomas Fazi) which is nearing completion. This material will be in Part 3 where we present what we are calling a ‘Progressive Manifesto’, which we hope to provide a coherent Left philosophy to guide policy design and policy choices for governments that are struggling to see a way beyond the neo-liberal macroeconomics. In this blog I examine how the international institutional framework has to be reformed to serve a progressive agenda where rich countries (and the elites within them) do not plunder then pillary poor countries. Central to this new framework is the abolition of the World Bank, the IMF and the OECD, all of which have become so sullied by neo-liberal Groupthink that they are not only dysfunctional in terms of their original charter but downright dangerous to the prosperity and freedoms of people. Former World Bank chief economist Joseph Stiglitz told journalist Greg Palast in an interview in 2001 that the IMF “has condemned people to death” (Source). I will propose a new international institution designed to protect vulnerable nations from damaging exchange rate fluctuations and to provide investment funds for education, health and public infrastructure. We will explore how new institutions protect themselves from developing the sort of dysfunctional Groupthink that has crippled the existing institutions. We will disabuse ourselves of notions that are popular among some progressive voices that a fixed exchange rate, international currency system is required. This will be a two part blog and will also have context for other blogs where I discuss reforms to the global financial system.

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Don’t let neo-liberal (idiots) loose with a spreadsheet!

I was in the airport lounge yesterday and as one does I picked up the right-wing Australian Financial Review (which purports to present financial news and comment but is in reality a propaganda machine) and read an Opinion piece, which would serve as a classic demonstration for statistical students of how to confuse causation with correlation. It would also serve as a classic piece for macroeconomics students on how to completely misunderstand the role of fiscal policy and the dynamics that are associated with it. All round an excellent learning piece – in the right hands. But in the hands of the normal reader, not versed in these matters, the Opinion piece is a trashy piece of dangerous propaganda, which serves to indoctrinate the readership into believing that the correct policy path is, in fact, exactly the opposite of the responsible policy path for governments. It still amazes me how this sort of rubbish can parade as serious public offerings to the economic debate. It was an appallingly ignorant article. One of the worst you might read.

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Growth outlook deteriorating – and don’t blame the Brexit vote

Last week, National Accounts data for the June-quarter 2016 was published for the US and the Eurozone and we learned that the next slowdown is happening now, even though neither economy has yet fully recovered from the last downturn (the GFC). Data from the UK is similarly poor, which suggests to me that the Brexit hoopla (where everything bad is blamed on the Exit vote success) is misplaced. In the case of the US, there is now a marked slowdown underway and the growth rate has been in decline since the March-quarter 2015. Private consumption expenditure remained strong and there was a substantial decline in the personal saving ratio as households spent a much higher proportion of their disposable incomes to fund their growing consumption. The other standout result was the decline in Private capital formation (investment), for the third consecutive quarter and the fact that its rate of decline is accelerating signals a lack of confidence in the medium-term outlook by business firms. The government sector also undermined growth in the June-quarter 2016. With inflation still well below the implicit central bank target rate (2 per cent) and growth is faltering the outlook suggests that the federal government will need to increase its discretionary fiscal deficit to stimulate confidence among business firms and get growth back on track.

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The Weekend Quiz – July 30-31, 2016 – 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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