US labour market in dire straits – overheating potential – zero

Payroll employment highly subdued. 408 thousand workers exit the labour force due to lack of jobs. Overheating potential zero. In last month’s assessment – US labour market – things are getting worse again as the virus spreads (January 18, 2021) – I predicted things would get worse given the trajectory of the virus. I have formed a strong view that nations have to deal with the health issue before they can expect the economy to open up again. No nation can ignore a spiralling death rate and avoid some restrictions which damage the economy. The evidence demonstrates that the nations that have largely suppressed the virus are doing the best in economic terms. Last Friday (February 5, 2021), the US Bureau of Labor Statistics (BLS) released their latest labour market data – Employment Situation Summary – January 2021 – which is consistent with my prediction. Payroll employment growth has slowed rapidly (only increasing by 49 thousand). But the labour force survey data is a bit difficult to interpret this month due a population benchmarking changes (see below). In terms of the household survey, employment rose by 201 thousand and the labour force was reduced by 408 thousand, meaning that official unemployment fell by 606 thousand and the unemployment rate fell by 0.4 points. Taking out the population control effect, the labour force shrank by 200 thousand. While the signals are a little confused, the data is showing there is no strong recovery going on at the moment as the health crisis intensifies. There is an elevated degree of excess capacity. I consider that the US will have to stabilise the health situation before they will be able to sustain any economic recovery. And we can disregard New Keynesian macroeconomists who are suffering from attention deficit problems it seems, and claiming that the economy is close to overheating and cannot absorb the proposed stimulus from the new Administration. The stimulus is actually too little!

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The Weekend Quiz – February 6-7, 2021 – 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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Unemployed in Australia forced to live in abject poverty and the business sector thinks that is fine

Last week (February 1, 2021), the Australian Chamber of Commerce and Industry, which represents the business lobby, demanded the Australian government cut the unemployment benefit back to less than $A40 per day but at the same time it also demanded the Government extend wage subsidies to businesses. It is repugnant that the business culture in Australia is so impoverished, that the key business lobby group wants unemployed workers who cannot get a job because there are not enough jobs on offer to be forced to live at income support levels that are well below conventional poverty lines. But, at the same time, it supports businesses putting their own hands out to government for more. It is also stupid. They don’t seem to realise that providing an environment for strong wages growth produces the best conditions for profits. Yet these characters just want to accelerate the ‘race to the bottom’ which is a self-defeating strategy.

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Central bank at odds with Australian treasury – again

It’s Wednesday and a blog-light day as usual combined with some great jazz. But it is worth commenting briefly on yesterday’s monetary policy decision, which saw the Reserve Bank of Australia hold its policy rate at the record low of 0.1 per cent. That was no surprise. Mildly surprising given all the hype about the size of the public debt at present was the RBA’s decision to expand its asset purchasing program by an addition $A100 billion. In effect, the RBA is doing what many central banks are now doing – buying up the debt that has been issued to match (not fund) the expansion of fiscal deficits by governments as they try to deal with the negative consequences of the pandemic. While all this has helped the Australian economy record the disastrous economic impacts of the virus the state of affairs is still very poor. And the RBA knows that and is urging extending fiscal and monetary policy support until “at least” 2024. Yet, the Federal government is starting to talk about cutting fiscal support next month. This tension in aggregate policy was evident before the crisis. And it has been a global tension. The neoliberals haven’t disappeared. Austerity is in the wind. More struggle is necessary.

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European Union – no democracy, no rule of law, no solidarity, no human rights, no economic miracle!

On Monday (February 1, 2021), I wrote about recent developments in the EU, which make it hard to argue that it can be reformed in any way that would deliver progressive outcomes. There was also a good article in the London Review of Books (January 7, 2021) – Ever Closer Union? – by veteran British author Perry Anderson, which, while long, is worth reading if you somehow still think the EU is a haven for democracy and progressive potential. It provides a massive body of evidence that reinforces the view I presented in my 2015 book – Eurozone Dystopia: Groupthink and Denial on a Grand Scale (published May 2015). It amazes me that the EU is held out as something progressives should aspire to be members of.

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It’s hard to conceive of anything the EU could manage properly

Since Britain left the European Union, the Remainer Woke Brigade (RWB) has associated every little bit of bad news that has been published about that nation to the decision to leave the EU. Op Ed articles, Tweets and the like. All scathing of the decision, indicating a failure to accept the democratic volition of the 2016 Referendum. They lost. They can’t get over it. But in the last few weeks there has been an extraordinary silence from this media ‘traffic’. It is of no surprise to me that this should be so. Their beloved EU has been demonstrating across multiple fronts why no sensible nation would want to be part of it bungling and dysfunctional membership. I also admit that I have been astounded how bad things have become under this European administration. Britain did the right thing in getting free of it even though its political scene is not yet capable of dealing with the new scope it now has. But the events of the last few weeks in Europe have been nothing short of breathtaking in their hypocrisy, incompetence and venality. The cosmopolitan progressive set have surely now realised that their dreams of pan-national workers paradise led by Brussels is just a figment of their own imagination.

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The Weekend Quiz – January 30-31, 2021 – 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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How come the principles supported austerity one day but fiscal dominance the next?

As part of the paradigmic turmoil that is confronting mainstream economists, we are witnessing some very interesting strategies. Imagine you establish a set of principles that are seemingly inviolable. They are the bedrock of the belief system, even though it is not called that. These principles then offer all sorts of predictions about, yes, the real world. They are without nuance. The predictions are so worrying, that politicians, whether they are knowing or not, proceed with caution in some cases, and, in other cases, openly damage the well-being of citizens because they have been told that shock therapy is better than a long drawn out demise into ‘le marasme’. The authority for all the carnage that follows (unemployment, poverty, pension cuts, degraded public infrastructure and services, etc) is these ‘inviolable principles’. Economists swan around the world preaching them and bullying students and others into accepting them as gospel. The policy advice is hard and fast. Governments must stay credible. Except one day they completely change tack and all the policy advice that established certain actions to be totally taboo become the norm. We observe things are better as a result. Does this mean those ‘inviolable principles’ were bunk all along? Not according to the mainstream economists who are trying to position themselves on the right side of history. Apparently, their optimising New Keynesian models can totally justify fiscal dominance and central bank funding fiscal deficits when yesterday such actions were taboo. Which leg are they trying to pull?

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