Today (October 3, 2024), MMTed releases Episode 6 in the Second Season of our Manga series – The Smith Family and their Adventures with Money. Have a bit of fun with it while learning Modern Monetary Theory (MMT) and circulate it to those who you think will benefit. Episode 6 was delayed by two weeks due to a family tragedy within the team.
It’s Wednesday and I am flat out finishing things today as I am off to Japan again to work once again at Kyoto University. I will keep you updated on the progress of that work and a public event that we are thinking about in November in Kyoto (or possibly Tokyo or both). For now a few thoughts on current political happenings and some administrative matters.
The celebratory headlines in Australia today are about how the Federal government has just recorded two consecutive financial year fiscal surpluses, which the Treasurer lauded as an example of “responsible economic management” as the government removes from the economy a cumulative sum of $A172.3 billion since it was elected in May 2022. The headlines should have said “Federal government destroys non-government financial wealth over the last 2 years as more people are without work’, which is actually what has happened. Anyway, it is too depressing to see the media fawn over the Treasurer today. So I am going to go abstract and avoid talking about that any further. There was an interesting article in the UK Guardian the other day September 26, 2024) – Take it from me (and Keir Starmer) – you should never pretend to be more working class than you are. I don’t usually agree with the journalist but this article made me reflect on a lot of things.
This week, the Australian government (Labor) did the unthinkable. It approved three thermal coal mine expansions in NSW – the Environment Minister approved the expansion of the Whitehaven Coal mine until 2044, the Mount Pleasant mine until 2048 and the Ravensworth mine until 2032. For a government that claims to hold superior ‘green’ credentials to the main opposition this was a major disappointment and once again demonstrated that the lobbying power of foreign-owned capital, which is only chasing massive profits and care little about the well-being of the environment or its workers, is dominant in public decision-making. It brings into question whether there is a solution to the environmental crisis (the 1.7 times biological capacity problem) while resource allocation remains determined by those seeking private profit, who reluctantly bow to regulative constraints, while continually trying to get around them. In this blog post, the first of a few, I provide some insights drawn from my current research that will come out in my next book (with Dr Louisa Connors) on degrowth and related topics. The question that has to be answered is whether the solution to a sustainable future includes maintaining the capitalist system. Today, I talk about how capacity constraints may prevent full employment from being possible and extend that analysis to the current context where environmental capacity is more important than productive capacity.
It has been quite the week in central banking terms in Australia. We had the Federal Greens economic justice spokesperson demanding that the Federal Treasurer use the powers he has under the Reserve Bank of Australia Act 1959 and order the RBA to lower interest rates. Then we had the Treasurer playing the ‘RBA is independent’ game, which depoliticises a major arm of economic policy, a (neoliberal) rort that ordinary people are finally starting to see through and rebel against in voting intention. Then an ABC journalist finally told his readers that the RBA was using a flawed theory (NAIRU) and was screwing mortgage holders relentlessly for no reason. Then the RBA Monetary Policy Board met yesterday and held the interest rate constant despite the US Federal Reserve lowering the US funds rate by a rather large 50 basis points last week and continued their pathetic narrative that inflation was too high and ‘sticky’. And then, today (September 25, 2024), the Australian Bureau of Statistics (ABS) released the latest – Monthly Consumer Price Index Indicator – for August 2024, which exposed the fallacy of the RBA’s narrative. The annual inflation rate is now at 2.7 per cent having dropped from 3.5 per cent in July and the current drivers have nothing to do with ‘excess demand (spending)’, which means the claims by the RBA that they have to keep a lid on spending – which really means they want unemployment to increase further – are plainly unjustifiable. As I said, quite a week in central banking. My position has been clear – the global factors that drove the inflationary pressures are resolving and that the outlook for inflation is for continued decline. This was never an ‘excess demand’ episode and there was no case for higher interest rates, even back in May 2022, when the RBA started hiking.
There is renewed debate in Britain at present on the use and design of the new government’s fiscal rules, which many people are now saying will force expenditure cuts which will “damage the ‘foundations of the economy”, according to the Financial Times article (September 16, 2024) – UK spending cuts would damage ‘foundations of the economy’, Reeves told. Those reported ‘telling’ Reeves include British economists, who were instrumental in the design of the rules that the new Chancellor has taken on and deemed necessary to rigidly control government spending. The economists claim that if Reeves continues to operate according to the fiscal rule “inherited by the Labour government” it will cut public investment expenditure significantly and undermine prosperity. I agree that the application of the ‘Fiscal Rules’ will be damaging but I find it amusing that some of the ‘Letter Writing Economists’ were prominent in advocating such rules in the past as the way ahead for British Labour are now criticising those rules.
Today (September 19, 2024), the Australian Bureau of Statistics released the latest – Labour Force, Australia – for August 2024, which shows that the labour outlook might be about to change despite the on-going employment growth. Employment growth was biased towards part-time jobs as full-time employment fell. The unemployment rate was slightly lower (decimals) as employment growth outstripped the underlying population growth – although the rise in underemployment might be due to employers rationing working hours as a first step in dealing with lower sales. We will know more next month. But we should not disregard the fact that there is now 10.6 per cent of the working age population (over 1.6 million people) who are available and willing but cannot find enough work – either unemployed or underemployed and that proportion is increasing. Australia is not near full employment despite the claims by the mainstream commentators and it is hard to characterise this as a ‘tight’ labour market.
It’s Wednesday and I am mostly thinking about Japan today. In just over a week’s time, I will once again head to Japan to work at Kyoto University. I will be there for several weeks and will provide regular reports as I have in previous years of what is happening there. The LDP leadership struggle is certainly proving to be interesting and there is now a view emerging that the hoped for break out from the deflationary period has not happened and further fiscal expansion is necessary. This is at a time when the yen is appreciating and the authorities are worried it is making the external sector noncompetitive. That is, light years away from the predictions made by the ‘MMT is dead’ crowd when they saw the depreciating yen during 2022 and beyond. It just goes to show that trying to interpret the world from the ‘sound finance’ lens will generally lead to erroneous conclusions.
For some years now (since the pandemic), I have been receiving E-mails from those interested in the Eurozone telling me that the analysis I presented in my 2015 book – Eurozone Dystopia: Groupthink and Denial on a Grand Scale (published May 2015) – was redundant because the European Commission and the ECB had embraced and was committed to Modern Monetary Theory (MMT) so there was no longer a basis for a critique along the lines I presented. I keep seeing that claim repeated and apparently it is being championed by MMT economists. While there are some MMTers who seem to think the original architecture of the Economic and Monetary Union has been ‘changed’ in such a way that the original constraints on Member States no longer apply, I think they have missed the point. They point to the fact that the ECB continues to control bond yield spreads across the EU through its bond-buying programs (yes) and that the Commission/Council relaxed the fiscal rules during the Pandemic (yes). But the bond-buying programs come with conditionality and the authorities have now ended the ‘general escape clause’ of the Stability and Growth Pact and are once again enforcing the Excessive Deficit procedure and imposing austerity on several Member States. The temporary relaxation of the SGP rules (via the general emergency clause) did not amount to a ‘change’ in the fiscal rules. Indeed, the EDP has been strengthened this year. The Member States still face credit risk on their debt, still use a foreign currency that is issued by the ECB and is beyond their legislative remit, and are still vulnerable to austerity impositions from the Commission and their technocrats. To compare that situation with a currency-issuing government such as the US or Japan or Australia, etc is to, in my view, commit the same sort of error that mainstream economists make when they say that ‘the UK is at risk of becoming like Greece’ or similar ridiculous threats to discipline fiscal authorities in currency-issuing nations.
On Tuesday (September 10, 2024), the UK House of Lords Economic Affairs Committee released their first report for the Session 2024-25 (HL Paper 5) – National debt: it’s time for tough decisions – which was the result of their decision to hold an inquiry – How sustainable is our national debt? – into whether “UK’s national debt is on a sustainable path” and whether “the Government’s fiscal rule regarding the national debt is meaningful”. They didn’t need a large-scale investigation to come up with answers to those questions: Yes and Not meaningful- are my answers based on the reality of the currency status of the British government.