There are riots in the street but the IMF wants more unemployment

I am writing this on late Friday afternoon European time. Today has been very busy and so I don’t have a lot of time to write this blog. I had a birthday in my immediate family to deal with and so some special celebrations were in order. Then I had meetings with two government officials – one from the Flemish government and the other from the Dutch government – they travelled down to Maastricht for consultations. The topic was the Job Guarantee and how they could implement such a buffer stock employment scheme into their own policy thinking. I will write up some thoughts about this meeting next week. Then I had to wade through a new International Labour Organization (ILO) report – World of Work Report 2010 – which has estimated that high unemployment will persist for much longer than they had previously forecast. The talk is that the “product market” (real output) recession is now becoming an entrenched labour market recession. Meanwhile, I also read the latest IMF World Economic Outlook report and noticed they were advocating changes to macroeconomic policy positions across the advanced world that would by their own reckoning increase unemployment and prolong recovery. They are still appealing to the nonsensical idea that fiscal austerity is good for a nation. Their view now is nuanced but still a disgraceful mis-use of econometric modelling. So only a relatively short tour through this work today.

Read more

In austerity land, thinking about fiscal rules

I am now in Maastricht, The Netherlands where I have a regular position as visiting professor. It is like a second home to me. The University hosts CofFEE-Europe, which we started some years ago as a sibling of my research centre back in Newcastle. My relationship with the University here is due to my long friendship and professional collaboration with Prof dr. Joan Muysken who works here and is a co-author of my recent book – Full Employment abandoned. Our discussions last night were all about the Eurozone and I was happy to know that most of the Dutch banks are now effectively nationalised as part of the early bailout attempts. It is also clear that the ECB is now stuck between the devil and the deep blue sea. If it stops buying national government debt on the secondary markets those governments are likely to default and the big French and German banks the ECB is largely protecting will be in crisis. Alternatively, every day it continues with this policy the more obvious it is that the Eurozone system is totally bereft of any logic. Once the citizens in the nations that are being forced to endure harsh austerity programs realise all this there will be mayhem. The other discussion topic was the possible revision of the fiscal rules that define the Maastricht treaty. That is what this blog is about.

Read more

A new progressive agenda?

Today I am heading into the lands of austerity – those scorched, barren places where people with increasingly hollowed out faces are being forced by their misguided polities to forego wages and conditions and pensions and their happiness because some neo-liberal told them that government deficits were bad and all that. I am off to London this afternoon (I am typing this on the train to Sydney) and then to Maastricht University where visit each year and my colleague Joan Muysken is located. I have been thinking about various efforts that have emerged in the recent period suggesting that a new progressive agenda (narrative) is required to reverse the onslaught of neo-liberalism. This is clearly a topic close to my own heart. I have been thinking about the development of an alternative economic paradigm for my whole academic career. So whenever I see some progressive efforts I am always interested. This blog considers that question. So now a long flight then I will report on how hollow those faces are becoming.

Read more

Not the best way to keep interest rates down

The article by Fairfax economics editor Ross Gittins today (September 27, 2010) – How to limit the looming interest rate rises – is a testament to how ingrained the neo-liberal thinking is when it comes to discussing sensible economic policy. He argues that the Australian government needs to get back into budget surplus as quickly as possible and then continue to generate bigger and bigger surpluses and pay down all the outstanding public debt. Evidently this is because we are experiencing strong export conditions and face a dramatic inflationary threat. However, even if that is true (the boom and inflation threat) there are better ways to manage the adjustment process so that inflation remains stable especially when the private sector is still so heavily indebted (as a result of the last credit binge). The other policy options available to the Australian government clearly warrant continued budget deficits. The sticking point: Gittins and most other commentators think that when you have 13 per cent of your willing labour resources idle you are approaching full capacity. I consider that the fact that that proposition has currency is the ultimate evidence of the success of neo-liberalism in poisoning our judgement and distorting the policy debate and policy choices.

Read more

Saturday Quiz – September 25, 2010 – answers and discussion

Here are the answers with discussion for yesterday’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.

Read more

We can conquer unemployment

Many readers have written to me asking me to explain the British Treasury view during the Great Depression. This view was really the product of several decades of literature which culminated in the political process during the 1929 British election where the number one issue of the day was mass unemployment. The Treasury View was thoroughly discredited in the immediate period after it was articulated and comprised one side of the famous Keynes versus the Classics debate. When propositions – such as the Earth was flat – are shown to be incorrect constructions of reality the ideas cease to be knowledge and instead become historical curiosities which allow us to benchmark how far our education systems have taken us. However, the same cannot be said for my profession.

Read more

Heading back to where we started

In the last few days I have read some really loony stuff. One article from an esteemed investment advisor (which I will not dignify by a link) was arguing that the build up of public debt is signalling the death knell for democracy and that capitalism will survive but our freedoms will be gone. I asked some basic questions – which freedoms are they exactly? – and – Why should a rise in private wealth lead to constitutional change or revolution that would deprive us of a vote? But the trend in policy is becoming very clear. Fiscal policy makers are succumbing to the relentless attacks from the deficit terrorists and withdrawing the essential stimulus that has been propping up growth. Most economies are starting to slow again as a result. The response is to seek solace in monetary policy – as if it is effective. The point is that the neo-liberal years have seen the promotion of monetary policy as the principle counter-stabilisation tool – driven by the obsession with inflation. This ceding of macroeconomic policy responsibility to unelected officials in central banks was a major erosion of our democratic rights. Moreover, it has been a failed policy strategy. It is neither an effective inflation control nor does it promote growth. So we are just heading back to where the crisis started. Pity the unemployed.

Read more

Budget deficits do not cause higher interest rates

I have always been antagonistic to the mainstream economic theory. I came into economics from mathematics and the mainstream neoclassical lectures were so mindless (using very simple mathematical models poorly) that I had plenty of time to read other literature which took me far and wide into all sorts of interesting areas (anthropology, sociology, philosophy, history, politics, radical political economy etc). I also realised that the development of very high level skills in empirical research (econometrics and statistics) was essential for a young radical economist. Most radicals fail in this regard and hide their inability to engage in technical debates with the mainstream by claiming that formalism is flawed. It might be but to successfully take on the mainstream you have to be able to cut through all their technical nonsense that they use as authority to support their ridiculous policy conclusions. That is why I studied econometrics and use it in my own work. It was strange being a graduate student. The left called be a technocrat (a put-down in their circles) while the right called me a pop-sociologist (a put down in their circles). I just knew I was on the right track when I had all the defenders of unsupportable positions off-side. But an appreciation of the empirical side of debates is very important if a credible challenge to the dominant paradigm is to be made. That has motivated me in my career.

Read more
Back To Top