Welcome to the September 11th edition* of the billy blog Saturday quiz. The quiz tests whether you have been paying attention over the last seven days. See how you go with the following five questions. Your results are only known to you and no records are retained.
Yesterday, two public statements were made which caught my roving eye. First, the British Government claimed they were going to cut harder than planned to weed out the unemployed who took income support payments to support their “lifestyles”. That was the approach the previous conservative government took in Australia between 1996 and 2007 and so we have experience with it. It failed dismally to achieve anything remotely positive. Second, the OECD released their Interim Assessments to update the May Economic Outlook publication. It showed that the GDP growth forecasts for 2010 and beyond were being revised sharply downwards. The OECD now claims there are many negative indicators and that governments should not push ahead with their austerity plans if the world economy is really slowing. The British government has used the earlier May EO forecasts (which were overly optimistic) as authority to justify their proposed cutbacks. Well now that authority is gone. However, their proposal to further cut back public spending would seem to be in denial of what is now obvious to even the right-wing hacks at the OECD. It is time for George to admit his austerity push is purely ideological in motivation.
The national ABC news carried the headline – Unemployment slashed by jobs boom after the ABS released the Labour Force data for August 2010. While the net employment change was more than the market economists predicted (why would that surprise anyone given their tendency to continually get it wrong) I would hardly call the outcome a jobs boom. Further, the broader indicators of labour underutilisation deteriorated in the August quarter of 2010 with underemployment rising by 0.4 percent. There are 12.5 per cent of workers (at least) idle in one way or another (unemployed or underemployed). The fact that our teenagers continue to experience negative employment growth is also telling. While the bank economists have hailed today’s figures as indicative of “very strong across the board” performance and are whipping up the inflation bogey, the reality is different. We continue to waste a huge amount of our potential capacity and there are no inflationary pressures coming from the labour market at present.
Answer: Probably not! Elections bring out all sorts of revelations and epiphanies. We have seen that in spades in the last few weeks as the two main parties, both rejected as viable governments by the electors have struggled to lure the all important casting vote from the independents who are not only identifiable for the first time (there are even cartoons about them now) but who have taken advantage of their day (or 3 years in the sun) to lever as much out of the parties as possible. So last night, with the government returned as a minority operation at the behest of the vote of three independents and a Green MP, we suddenly see a renewed interest in regional development, public education and parliamentary process. The US President has also found a path to Damascus or at least he is trying to convince voters that he has – even making speeches to industrial workers with his sleeves rolled up. The reality is likely to be different but at least the topic of unemployment is centre stage for a day or so. And dare I add – with some support from the IMF.
Today I consider the idea that governments which have surrendered their sovereignty either by giving up their currency issuing monopoly, and/or fixing their exchange rate to the another currency, and/or incurring sovereign debt in a foreign currency might find defaulting on sovereign debt to be their best strategy in the current recession. I consider this in the context that any government that has surrendered their sovereignty is incapable of pursuing policies across the business cycle that serve the best interests of their population. While re-establishing their currency sovereignty may not require debt default, in many cases, default will necessarily be an integral part of the move back to full fiscal sovereignty. This is especially the case for nations that have borrowed in foreign currencies and/or surrendered their currency issuing capacities to a common monetary system. So here are some thoughts on when default is a way for a nation to progress.
For some time I have been promising to write a blog about the role that manufacturing plays in a modern economy. There is a strong presumption, especially from the progressive side of the political debate that manufacturing – or what you produce – defines the capacity for a nation to enjoy growth in real wages and therefore standards of living. So when I have said in the past that I am against industry protection I usually get attacked from the left and I note that this if often coming from people who think it is cute to sound technical by saying the government should balance their budget over the course of the business cycle. As if! Neither viewpoint coming from that quarter has much credibility. I take a more experiential viewpoint. People prefer to consume than to work. What we consume is more likely to give us joy than what we produce especially if the latter is in the context of exploitative capitalist production relationships. I am painting this in black and white terms to garner your interest. Clearly it is more complicated but in general I do not think you need a manufacturing sector to enjoy strong growth in material living standards and perhaps a polluting manufacturing sector erodes the capacity to enjoy broader concepts of growth and well-being. My flame resistant suit is now in place … so here goes.
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.
Welcome to the billy blog Saturday quiz. The quiz tests whether you have been paying attention over the last seven days. See how you go with the following five questions. Your results are only known to you and no records are retained.
Whenever unemployment rises substantially – that is, whenever there is a recession, the conservatives hide out for a while because the rapid rise in joblessness does not resonate with their models of voluntary choice (that is, workers choosing leisure although they can never explain why workers would suddenly get lazy?) or with their claims that structural factors push the unemployment rate up (although welfare policies etc rarely alter much). Of-course, they love it when some “structural” policy changes during a recession which is why they are cock-a-hoop about the decision of the US government to extend unemployment benefits. It has given them some latitude to get back into the debate even if all the data is working against them. But they always oppose the use of fiscal policy and so typically, towards the tail-end of a recession, they attempt to justify the deplorable unemployment levels by playing the “structural card”. We are now seeing that again and I expect the propaganda to spread and proliferate. It should be rejected like the rest of the cant.
On the first day of Spring, when the sun shines and the flowers bloom, the IMF decide to poison the world with some more ideological positioning masquerading as economic analysis. I refer to their latest Staff Position Note (SPN/10/11) which carries the title – Fiscal Space. I think after reading it the authors might usefully be awarded an all expenses trip to outer space. It is one of those papers that has regressions, graphs, diagrams and all the usual trappings of authority. But at its core is a blindness to the way the world they are modelling actually works. I guess the authors get plaudits in the IMF tea rooms and get to give some conference papers based on the work. But in putting this sort of tripe out into the real policy world the IMF is once again giving ammunition to those who actively seek to blight government intervention aimed at improving the lives of the disadvantaged. The IMF know that their papers will be picked up by impressionable journalists who are too lazy to actually seek a deeper understanding of the way the monetary system operates but happily spread the myths to their readers.