Planning public works – history has a lot to say if we listen properly

A few weeks ago, in my three part series answering questions about Modern Monetary Theory (MMT), I addressed the issue often raised about the fiscal policy emphasis in MMT, that it is difficult to time government spending injections to match the cyclical need. These criticisms go back a long way and were used by the likes of Milton Friedman to build up his case against discretionary fiscal activism in favour of monetary rules. Of course, that was an ideological preference, given the Monetarists wanted ‘small’ government and technocrats implementing economic policy. The basic precepts of Monetarism have not stood the test of time and the GFC and its aftermath have showed, beyond doubt, that monetary policy is an ineffective means of stimulating aggregate spending and that fiscal policy is the best way to counter non-government spending collapses. In those blogs, I outlined several ways in which fiscal policy could overcome ‘timing’ issues and deliver prompt stimulus when needed and be able to contract the stimulus in a timely manner once non-government confidence and spending had recovered. The points I raised are not new and have been discussed and made operational many times in the past. A tweet from my MMT colleague Stephanie Kelton last week reminded us of this again when the US National Resources Planning Board (NPP) was mentioned with a link to the The Internet Archive is a “non-profit library of millions of free books, movies, software, music, websites, and more” and is a fabulous resource for researchers. Reading the Report from the NPP is like music to the ears! History has a lot to say if we listen properly.

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IMF finds the Eurozone has failed at the most elemental level

The IMF put out a new working Paper last week (January 23, 2018)) – Economic Convergence in the Euro Area: Coming Together or Drifting Apart? – which while they don’t admit it demonstrates that the Economic and Monetary Union (EMU) has failed to achieve its most basic aims – economic convergence. The stated aim of European integration has always been to achieve a convergence in the living standards of those within the European Union. That goes back to the 1957 Treaty of Rome, which established the EEC (Common Market). It has been reiterated many times in official documents since. It was a centrepiece of the 1989 Delors Report, which was the final design document for the Treaty of Maastricht and the creation of the EMU. The success or otherwise of the system must therefore be judged in terms of its basic goals and one of them was to create this convergence. The IMF finds that the EMU has, in fact, created increased divergence across a number of indicators – GDP per capita, productivity growth, etc. It also finds that the basic architecture of the EMU, which has allowed nominal convergence to occur has been a destabilising force. It finds that the Stability and Growth Pact criteria has created an environment where fiscal policy has become pro-cyclical, which is the exemplar of irresponsible and damaging policy implementation. Overall, the conclusion has to be drawn that the EMU, at its most elemental level, has failed and defies effective reforms that would make it workable. It should be scrapped or nations should exercise their own volition and exit before it causes them further damage.

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The Weekend Quiz – January 27-28, 2018 – 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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Older workers in the US dominate employment growth – troubles ahead

The Federal Reserve Bank of St Louis published a very interesting article earlier this month (January 15, 2018) – Older Workers Account for All Net Job Growth Since 2000 – which was written by William Emmons, the Lead Economist with the Bank’s Center for Household Financial Stability. The Center focuses on the “balance sheets of struggling American families” and was launched in May 2013 in response to the GFC. It seeks to investigate factors that impact on the fragility of household finances. The research paper finds that since 2000, workers older than 55 have captured almost all the net employment growth leaving the prime-age workers (more than a million) languishing. This abnormal pattern is not predicted to continue for much longer but that is disputable. Further, even if the domination of older workers ends within the decade, the lack of opportunities that are apparent for those who are moving through the prime-age years now spells a looming disaster in a decade or more in the form of increased poverty rates and disadvantage. Then you will hear the screams that the US government cannot afford the income support that will be needed. But at the same time, without that income support the situation will get worse. Something needs to be done now to interrupt this trend.

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Greece – the next bailout is just around the corner

When the latest Greek bailout deal between the Greek government and the European Commission/IMF) was concluded on June 16, 2017, I concluded that it was designed to fail. Please read my blog – Latest Greek bailout – a recipe designed to fail. Despite all the statements from the European Commission and the IMF to the contrary, the terms of the deal with the Greek government confirms that these institutions had abandoned any pretense to being interested in serious economic policy. For the European Commission, the desired irrevocable status of the euro, as a political statement, is all it seems interested in when it comes to Greece. They just don’t want to admit that Greece cannot reasonably function in this monetary union. This deal only stalled reality for yet another day and the only goal it serves is to keep Greece using a currency it cannot afford to use. And now the reality is emerging that the Greek economy will need a further bailout to survive for another period. The latest analysis from the German research group – Centrum für europäische Politik – shows that Greece remains close to insolvent and cannot survive within the Eurozone on its own. One has to ask what has all the austerity been for if the patient is still on life support some 10 years later. We know the answer.

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The GFC only temporarily interrupted the trend towards rising inequality

The UK Guardian Editorial ran a sub-header yesterday (January 21, 2018) “Democracies will fall under the spell of populists like Donald Trump if they fail to deal with the fallout of globalisation?”, which I thought reflected the misunderstandings that so-called progressive have about ‘globalisation’ and its impacts on the capacities of the sovereign state. The UK Guardian Editorial was responding to the release of the latest Oxfam report (released January 16, 2018) – An Economy for the 99%: It’s time to build a human economy that benefits everyone, not just the privileged few – timed to coincide with the gathering of “billionaires and corporate executives” at Davos this week. The Oxfam report reveals further staggering shifts in inequality across the globe, that the GFC barely interrupted. A major shift in political sentiment on the Left is needed to arrest these trends before they break out in destructive social instability.

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The Weekend Quiz – January 20-21, 2018 – 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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