Fiscal policy is a potent instrument for productivity growth

Sometimes we have to take a longer look at things to see the present in perspective. Greece has been a living experiment for the neo-liberal Groupthink machine that is the Troika. We rarely experiment on humans on any sort of large-scale if there is the likelihood of adverse result. That would breach any notion of human ethics. It is a pity that we relax those standards when dealing with other animals, but that is another story again, which I will leave silent here. The Nazis certainly conducted large-scale experiments on humans and we vilified them for it. The Troika is conducting different types of experiments on the citizens of Greece, which defy reason, and which also have had devastating effects. But still the mantra continues from the babbling mouths of the political leadership in Europe and its technocratic squawk squad (SS) embedded in the European Commission bureaucracy, the ECB, the IMF and various so-called ‘think tanks’ that continually pump out pro-Euro propaganda disguised as research – more structural reform, more fiscal austerity. Apparently, this scorched earth approach is the only alternative and will deliver higher productivity, increased international competitiveness and underpin a return to prosperity. Greece is on the front line of this approach. I never believed it would work because it defies economic reason. Economic reason that is not blighted by the neo-liberal Groupthink. It hasn’t worked. And now, the IMF, or at least segments within the IMF, are admitting that and producing research that supports the opposite case – the Modern Monetary Theory (MMT) case – that expansive “fiscal policy is a potent instrument for productivity growth through innovation”. Correct!

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The Weekend Quiz – April 2-3, 2016 – 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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British trade unions in the early 1970s

The mainstream economics (by which I mean neo-classical economics and its siblings in a History of Economic Thought context) constructs trade unions as being market imperfections that interfere with the freedom of supply and demand to determine optimal price (wage) and quantity (employment) outcomes. The textbooks teach students that the supply of and demand for labour without the intrusion of trade unions (and other impositions from the state – minimum wages etc) will deliver optimal outcomes for all in accordance with the respective contributions of each ‘factor of production’ (labour, land, capital etc). The real world isn’t like that at all and the determination of shares in national income is the result of a continuous struggle between labour and capital for supremacy. It is very easy to construct the trade unions has job killers in this context and to blame them for inflationary outbreaks. That certainly is how the British trade unions in the early 1970s were constructed by the conservatives and later the Labour Party itself. By the early 1970s, Monetarism was gaining a dominant hold in the academy and strong adherents in policy circles. Trade unions were considered by the Monetarists to be ‘market imperfections’ that should be destroyed by legislative fiat. Governments came under intense pressure to introduce legislation that would constrain unions. However, once we understand history, we can see the early 1970s in Britain leading up to British Labour Prime Minster James Callaghan’s speech to Labour Party Conference held at Blackpool on September 28, 1976 in a different light. It also allows us to see just what surrender monkeys the British Labour Party became after that period. This is a further instalment of my next book on globalisation and the capacities of the nation-state, which I am working on with Italian journalist Thomas Fazi. We expect to finalise the manuscript in May 2016.

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The CEDA Report – one of the worst ever

The public policy debate in Australia today has been hijacked by two ridiculous interventions. The first, being a proposal that the states be given back their income tax powers (which they voluntarily forfeited in 1942). It is an attempt to align the large spending responsibilities that the Constitution places on the state governments with the capacity to raise revenue. The ideology behind the conservative proposal is to reduce the size of the federal government and to increase the likelihood of a Eurozone-type crisis where the non-currency issuing states would not be able to maintain first-class health and education systems. A far better and more modern solution to the spending-revenue mismatch would be for the currency-issuing federal government to assume responsibility for large-scale public infrastructure, education, health and other related expenditure areas that are currently the responsibility of the states. I will leave that at that for the moment. The second intervention came in the form of a publication, released yesterday (March 29, 2016), by the so-called Committee for Economic Development of Australia (CEDA) – Deficit to balance: budget repair options – which has been in the headlines over the last 24 hours. All the media outlets have been salivating over this report – some calling it the work of a “high-powered … Commission”, and I have not read one report as yet, which has given it any form of critical scrutiny. All the reports on all media forms have essentially acted as amplifiers – as press agents for CEDA. Which only goes to show how our national media fails to serve the people in areas that are of crucial importance to our national prosperity. The fact that such a report gets any coverage also confirms that in these crucial areas of public life, the debate is conducted within a fog of ignorance and lies. Almost all of the propositions that form the basis of this Report are just ideological myths perpetuated to advance the interests of capital over the workers.

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US economy – slowing down – fiscal stimulus needed

Last week (March 25, 2016), the US Bureau of Economic Analysis released their ‘Third Estimate’ of – Gross Domestic Product, 4th quarter 2015 – which showed that the US economy slowed rather appreciably in the last three months of 2015. The BEA said that real GDP growth was “increased at an annual rate of 1.4 percent” after having increased by 2 per cent in the third-quarter of 2015. Two things stand out from the data: (a) Private consumption expenditure, while still relatively strong continues to slow. The main drivers of consumption expenditure are recreation and health care services and durable goods; (b) Capital formation (investment) declined for the second consecutive quarter, signalling a lack of confidence in the medium-term outlook by business firms. However, residential investment was relatively strong as was federal government spending. The BEA also reported that corporate “profits decreased by 7.8 per cent at a quarterly rate”. The data release provides no succour to those who think the Federal Reserve Bank should continue to hike interest rates. Inflation is still well below the implicit central bank target rate (2 per cent) and growth is faltering.

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India’s national employment guarantee hampered by supply constraints

It is a holiday today and so my blog will be relatively short. The Mahatma Gandhi National Rural Employment Guarantee Act 2005 (MGNREGA) was proclaimed on September 7, 2005. It aims “to provide for the enhancement of livelihood security of the households in rural areas of the country by providing at least one hundred days of guaranteed wage employment in every financial year to every household whose adult members volunteer to do unskilled manual work …” The program is an example of supply-determined job creation, which renders it less effective than it might otherwise be if it was redesigned to become a demand-determined scheme. The latest data shows that as the relevant labour market starts to slow down in terms of employment creation, the number of workers who are unable to access jobs at all within the MGNREGA are rising and the proportion of workers who cannot access the full 100 days of guaranteed work remains high (as does the hours gap).

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The Weekend Quiz – March 26-27, 2016 – 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.

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The right-wing counter attack – 1971

The early 1970s brought into relief the internal contradictions of the capitalist system of production and distribution. This was never more evident than in Britain at the time. The trade unions, previously illegal had become more powerful and integrated as they defended the rights of their members. The very existence of the union movement exposed the conflictual nature of capitalism. The trade unions caused havoc in Britain in the early 1970s. But before we consider the role of the trade unions, it is important to understand what was happening on the capital side at the time. After the Monetarist ideas of Milton Friedman and his colleagues at the University of Chicago and beyond had seeped out of the academy into the policy and lobbying circles, it became obvious that capital would mount a major action against the unions and governments that gave them succour. Corporations and big money were far from passive. They didn’t buy the line that the Left has been lured into believing that the state had become increasingly powerless as capitalism became more global. Far from it. They got more organised than ever! The British Labour Party became lambs for the …

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