Who is responsible for the Eurozone crisis? The simple answer: It is not Germany!

Today, the Australian Treasurer will release the so-called Mid-year Economic and Fiscal Outlook (MYEFO), which will reveal that the fiscal deficit has risen on the back of slower economic growth. I will comment about that and the reactions tomorrow, probably. Today’s blog is about the Eurozone, obviously one of my favourite research topics. There was an article in the UK Independent (December 14, 2015) by British economist Simon Wren-Lewis – Who is responsible for the eurozone crisis? The simple answer: Germany. The article largely avoids the question and chooses, instead, to focus on more contemporary influences which have magnified rather than caused the crisis. The article clearly blames Germany for the crisis and exonerates Greece, Ireland and Spain. However, I have argued in the past that France is largely responsible for the mess that Europe is in economically at present and it’s responsibility goes back decades before the Eurozone was even constructed. The causa causans of the Eurozone crisis is the essential design and construction of the Economic and Monetary Union (EMU), which was never going to be capable of operating in an effective manner. Germany set in train policies that would ensure they were insulated from the wreckage that the dysfunctional system would engender. Germany ‘gamed’ a dysfunctional system for its own advantage but they didn’t create that system and in that sense they are only a causa sine qua non, rather than the essential cause.

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UK household spending falling yet corporate profitability at record levels

Last week (December 8, 2015), the British Office of National Statistics released its updated – Family Spending, 2015 edition – which provides a detailed breakdown of household spending for 2014. What is interesting about the release from my perspective, in addition to seeing how household spending changes in composition over time, is what it says about distributional forces in the UK and the way in which households are losing out to corporate interests under the policy directions of neo-liberal British Labour and Conservative governments. In real terms, household spending overall is a lower in 2014 than what it was at the turn-of-the-century. British households are also saving less as a percent of their disposable income than they were 10 years ago. The weight share in national income has fallen dramatically over that time. Yet, real GDP growth (that is, real national income) has risen by around 27 per cent since the turn-of-the-century. It doesn’t take a genius to work out where that real income that it the workers have lost has gone. There are several components to this story and this blog looks at some of them.

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Saturday Quiz – December 12, 2015 – 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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Friday Lay Day – ruminations on MMT and the JG

It’s my Friday Lay Day blog and today I’m spending some time travelling and some time thinking about the Modern Monetary Theory (MMT) textbook that I’ve been promising to finish for some time. I can confidently say now that we are on track to finish the first edition by March 2016. Randy Wray and I have taken on a third author (Martin Watts) and have agreed on a completion plan. More information on availability will be available in the new year as we get closer to completion. This week I noted a lot of comments (particularly with respect to my Job Guarantee post) that suggested many readers still do not exactly know what MMT is. Further, there was a heterodox conference in Sydney this week, where MMT proponents were accused of being neo-liberals and politically naive. Unfortunately, other commitments prevented me from attending the conference this year but I read the paper in question and wondered why salaried academics would bother writing it. So a few reflections on both those matters today.

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Australian Labour Force – improvement but credibility stretched

Today’s release of the – Labour Force data – for November 2015 by the Australian Bureau of Statistics once again brings into question the validity of drawing assessments about the state of the labour market on the basis of monthly changes in the data. Today’s release shows that employment increased by 71,400 (0.6 per cent) on the back of a similar substantial increase last month. The estimates strain credibility although they are not necessarily at odds with what other data is suggesting. The direction is probably correct – that is, the labour market has improved (the Employment-Population ratio reliably indicates that). The ABS estimated that despite the dramatic increase in employment, unemployment fell by only 2,800 as a result of a 0.3 percentage points surge in the participation rate (again stretching credibility). Perhaps a signal on how volatile the data is, the ABS estimated the teenage participation rate rose by 0.7 percentage points on theh back of a estimated 0.8 point rise in October – again rather fanciful. The cautious position is to look at the trend over the last several months and that suggests that the labour market has improved. However, the teenage labour market remains very week with no discernible upwards trend revealing itself yet. If the forecasted decline in private investment occurs over the next 12 months, then this improvement in the labour market data will not persist.

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Changing private investment activity requires higher fiscal deficits

I read an interesting paper this week from the US Federal Reserve Bank – The Corporate Saving Glut in the Aftermath of the Global Financial Crisis – written by Joseph Gruber and Steven Kamin. It was published in October 2015 as part of their International Finance Discussion Papers (Number 1150). Essentially, the paper documents a rather substantial “increase in the net lending … of non-financial corporations in the years preceding and especially following the Global Financial Crisis”. Their results cast doubt on the notion that the decline in productive investment over the last 15 years or so reflects a desire by firms to “strengthen their balance sheets”. These trends have significant implications for how we view fiscal positions and the normality or otherwise of particular deficit or surplus outcomes. The authors do not tease out those implications so I thought I would.

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The Job Guarantee and contributory unemployment benefits systems

The unemployment rate in Finland is climbing steadily and in October 2015 was 9.6 per cent (seasonally adjusted) and the employment to population ratio stood at 60.1 per cent and was trending down. Finland is fast becoming the next basket case of the Eurozone. What was once a highly supportive society is steadily being turned into a austerity-ridden backwater. The latest news, however, that the Finnish government is due to debate a proposal to provide every citizen with a basic income of €800 a month has excited the progressives – unfortunately. The proposal currently being prepared by the national agency that administers the Finnish welfare system (KELA) would offer this basic allowance in lieu of all other existing benefit payments. It would be paid regardless of whether the person received income from any other source. I have been considering the Finnish welfare system over the last month or so since my visit there in October. This is in relation to a series of queries I had from activists there who were keen on the Modern Monetary Theory (MMT) Job Guarantee proposal but were wondering how it would situate itself within the existing system of unemployment benefits in Finland. This blog captures my thoughts on both of those topics.

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US jobs recovery biased towards low-pay jobs

Last Friday (December 4, 2015), the US Bureau of Labor Statistics (BLS) released the latest – Employment Situation Summary – November 2015 – which showed that “Total nonfarm payroll employment increased by 211,000 in November, and the unemployment rate was unchanged at 5.0 percent”. According to the press reports the data was above expectations and will probably help the US Federal Reserve Bank decide to increase the policy interest rate when it next meets on December 15 and 16. The revised data for September and October also indicated that the US economy had added (net) employment above what had originally been reported. On average, the US labour market has added 237,000 net jobs per month over the last 12 months. What I was curious about was whether these were predominantly low paid jobs or not. I found that the jobs lost in low-pay sectors in the downturn have more than being offset by jobs added in these sectors in the upturn. However, the massive number of jobs lost in above-average paying sectors have not yet been recovered in the upturn. In other words there is a bias in employment generation towards sectors that on average pay below average weekly earnings.

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Saturday Quiz – December 5, 2015 – answers and discussion

Here are the answers with discussion for yesterday’s quiz. The information provided should help you understand the reasoning behind the answers. 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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