The 1976 British austerity shift – a triumph of perception over reality

This is a further instalment in tracing through the British currency crisis in 1976 and its retreat to the IMF later in that year. Today we discuss whether it was the IMF that forced the change of direction for British Labour or all their own dirty work with the IMF just being used to depoliticise what Callaghan and Healey wanted to do (and were doing) anyway. We trace through the way the leadership of the British Labour government were building the case for austerity and the path they followed leading up to the request to the IMF for a stand-by loan. Far from being the only alternative available, the course taken by the Government was a triumph of ideology and perception over evidence and reality.

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The Weekend Quiz – June 11-12, 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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Bias toward low-wage job creation in the US continues

Last Friday (June 6, 2016), the US Bureau of Labor Statistics (BLS) released the latest – Employment Situation Summary – May 2016. I analysed that data release in this blog – The US labour market continues to weaken. The message from the data is that while the unemployment fell to 4.7 per cent, employment growth is virtually non-existant and the unemployment rate fell to 4.7 per cent only because the participation rate fell by 0.2 percentage points (in other words, hidden unemployment rose as people dropped out of the labour force). The sharp slowdown now evident in the US labour market has meant that the US Federal Reserve Bank will have to rethink their so-called interest rate normalisation strategy. In the downturn that began in January 2008, there were 8.7 millions jobs lost (up to December 2009) and 86 per cent of them were in sectors that paid above average weekly earnings. Since the recovery began in January 2009, the US labour market has added 14.1 million jobs (in net terms). The question this blog explores is whether these jobs have been predominantly low paid jobs or not. I found that the jobs lost in low-pay sectors in the downturn have more than been offset by jobs added in these sectors in the upturn. However, the massive number of jobs lost in above-average paying sectors have not yet been recovered in the upturn and do not look like being so, given the labour market is slowing again. In other words there is a bias in employment generation towards sectors that on average pay below average weekly earnings.

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The British Cabinet divides over the IMF negotiations in 1976

This blog continues the discussion of the British currency crisis in 1976. Today we discuss the growing discontent within the British government over the need to negotiate the IMF loan in 1976. While it has been held out that Britain had no alternative but to impose austerity and allow the IMF to dictate policy, the fact is that an alternative was proposed which would have been a superior option.

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The US labour market continues to weaken

Last week (June 3, 2016), the US Bureau of Labor Statistics published the latest – Employment Situation – May 2015 – and the data shows that “nonfarm payroll employment changed little (+38,000)” in May, while the “unemployment rate declined by 0.3 percentage point to 4.7 percent”. The lack of net job creation has been described as a ‘bombshell’ and commentators are claiming it will put an end to any interest rate rise ambitions that the US Federal Reserve Bank might have harboured for this month. Additional poor indications came from the falling participation rate, which fell by 0.2 percentage points and “has declined by 0.4 percentage points over the past two months”. In other words, given the parlous employment growth, the unemployment rate would have been much higher had the supply contraction not occurred. Broad measures of labour underutilisation also indicate a worsening situation. Underemployment (persons employed part time for economic reasons) rose sharply by 468,000 in May. In the recovery, there was a bias towards low-pay jobs – see blog US jobs recovery biased towards low-pay jobs – now there is a dearth of new jobs being created.

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OECD joins the rush to fiscal expansion – for now at least

In the last month or so, we have seen the IMF publish material that is critical of what they call neo-liberalism. They now claim that the sort of policies that the IMF and the OECD have championed for several decades have damaged the well-being of people and societies. They now advocate policy positions that are diametrically opposite their past recommendations (for example, in relation to capital controls). In the most recent OECD Economic Outlook we now read that their is an “urgent need” for fiscal expansion – for large-scale expenditure on public infrastructure and education – despite this organisation advocating the opposite policies at the height of the crisis. It is too early to say whether these ‘swallows’ constitute a break-down of the neo-liberal Groupthink that has dominated these institutions over the last several decades. But for now, we should welcome the change of position, albeit from elements within these institutions. They are now advocating policies that Modern Monetary Theory (MMT) proponents have consistently proposed throughout the crisis. If only! The damage caused by the interventions of the IMF and the OECD in advancing austerity would have been avoided had these new positions been taken early on in the crisis. The other question is who within these organisations is going to pay for their previous incompetence?

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The Weekend Quiz – June 4-5, 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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The Weekend Quiz – June 4-5, 2016

Welcome to The Weekend Quiz, which used to be known as the Saturday Quiz! The quiz tests whether you have been paying attention over the last seven days. See how you go with the following questions. Your results are only known to you and no records are retained.

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Dirty deals by trade unions and minimum wages in Australia

The headline this morning in the Fairfax press yesterday (June 1, 2016) – Sacked for having a cup of coffee on the job – was about a low-wage cleaner in Australia won a case in the Fair Work Commission (a judicial body that sets wages and conditions) for unfair dismissal because she had a cup of coffee just before her shift began in the kitchen of the offices she was cleaning. The boss called it theft despite a convention allowing the workers to use the kitchen. Then there was the single worker who won a landmark case on Tuesday (May 31, 2015) against Coles (supermarket monolith) and his union who had conspired to finalise an enterprise bargaining agreement that violated our industrial laws and made the workers (not the union bosses) worse off. Then there was the minimum wage case decision handed down Tuesday (May 31, 2015) by the Fair Work Commission which provides a little real wage growth for the lowest paid workers but only a little! Life for low-wage workers in Australia is tough and would be much tougher if there were not enforced regulations to stop the capitalists from taking more and dishing out capricious treatment to the workers.

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