Catalonia’s vote largely misses the point

The bets are on at the moment that the Eurozone will dip back into recession for the third time since 2008 such is the incompetence of the policy makers and the policy framework they have erected to operate within. There is constant talk that the ECB will once again step in to save the day but all they can do is stop a nation going broke by guaranteeing their fiscal deficits and/or buying their debt. The central bank has very limited capacity to actually stimulate aggregate spending, which is the source of economic growth when there is massive idle productive capacity. In this context, the vote on Sunday by Catalonians (well around 33 per cent of them), which was overwhelmingly yes (81 per cent), is interesting although I doubt it will lead to anything constructive – like the Community exiting the Eurozone and really becoming independent. Most likely, Spanish prime minister Mariano Rajo will come up with some fiscal compromise to relieve the calls about Spain robbing Catalonia blind and the same problems will persist. I don’t pretend to know much about the cultural issues but in the scheme of things as I show below the economic circumstances the Community finds itself in are a direct consequence of being part of the Eurozone. That would have to change for there to be any meaning to the calls for secession. I don’t hear those arguments coming out strongly at all.

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European Commission is once again bereft of credibility

The European Commission released its – European Economic Forecast – Autumn 2014 – which is its bi-annual statement of economic outlook. In his editorial to the outlook, Director General Marco Buti admits that “euro area is still projected to have spare capacity in 2016”, which means the Commission is overseeing economic policy choices that will deliberately impose a recessionary bias for the next two years (at least) and deliberately force millions of Europeans to endure joblessness, savings erosion and the march towards poverty and despair for the next two years. Its a statement of monumental policy failure and the Director General Marco Buti should resign immediately just after he sacks his policy advisers.

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Saturday Quiz – November 8, 2014 – 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 – US midterm election show lack of progressive leadership

Its my Friday no blog day yet a brief discussion of this week’s US mid-term elections cannot be resisted. In the spirit of the lay day, I will just have a little stretching and warm up type blog though. What the F*&#! The largest economy with the biggest weapons has just voted into majority positions in both houses of their parliament a bunch of crazies, who are only slightly crazier than the alternatives they might have chosen. Although in many cases, the crazies were voted in uncontested.

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Australia Labour Force – weak and no signs of improvement

Today’s release of the – Labour Force data – for October 2014 by the Australian Bureau of Statistics is the since it made extraordinary admissions about the breakdown of seasonally adjustment methodology, which had made the last three months’ data largely unbelievable. See below for comment on that. Today’s major revision shows that employment growth was modest in October after two consecutive months of negative growth. Unemployment edged up again this month although the unemployment rate remained stable (when rounded to one decimal place – it actually rose a little in unrounded terms). The participation rate edged up a little but remains well below recent peaks. Monthly hours of work rose but that was due to the fact that full-time employment growth dominated the overall tepid employment expansion. The teenage labour market deteriorated further and has been signalling a state of emergency for several years now – a crisis ignored by the policy makers.

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ABS revises labour force methodology – things are much worse than we thought

Yesterday, the Australian Bureau of Statistics released an extraordinary press notice – Statement from the Australian Statistician on the Labour Force estimates – which aimed to help everyone understand why the Labour Force data has been so weird lately. A lot of readers E-mail me seeking help understanding what seasonal adjustment is all about. It is a dry topic and not one I relish even though I have a background in statistics and econometrics. But given yesterday’s announcement and the disarray that people have sensed with the official labour force data in Australia recently, I thought I might try a non-technical explanation of what has been going on. Here goes! And for those who like attacks on austerity etc, underpinning this whole discussion is the mindlessness of neo-liberalism. That should get you reading!

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Japan demonstrates the real limits on government spending

Last week, Reuters put out a story (October 30, 2014) – Special Report: Tsunami evacuees caught in $30 billion Japan money trap (thanks Scott Mc for the link) – which provides an excellent demonstration of the true limits of government spending in a currency-issuing nation. The underlying principles should be understood by all as part of their personal mission to expel all neo-liberal myths from their thinking and to help them see the nature of issues more clearly. Unfortunately, the application we will talk about is sad and has tragic human and environmental consequences, but that doesn’t reduce the relevance of the example for conceptual thinking. In a nutshell, the central Japanese government has transferred some $US50 billion worth of yen to the local government to combat the destruction caused by the tsunami in March 2011. Thirty billion is unspent despite people still living in temporary housing and suffering dramatic psychological trauma as a result. Why is this happening? Doesn’t Modern Monetary Theory (MMT) tell us that a currency-issuing government can spend what it likes? Well, not exactly. What MMT tells us is that a currency-issuing government can purchase whatever is for sale in its own currency and that propensity is limited by the availability of real resources. Here is a classic demonstration of the limits of government nominal spending.

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The secular stagnation hoax

Last year, the concept of secular stagnation was reintroduced into the economics lexicon as a way of explaining the lack of growth in advanced nations. Apparently, we were facing a long-term future of low growth and elevated levels of unemployment and there was not much we could do about it. Now it seems more and more commentators and economists are jumping on the bandwagon such that the concept is said to be “taking economics by storm” – see Secular Stagnation: the scary theory that’s taking economics by storm. The only problem is that it first entered the economics debate in the late 1930s when economies were still caught up in the stagnation of the Great Depression. Then like now the hypothesis is a dud. The problem in the 1930s was dramatically overcome by the onset of World War 2 as governments on both sides of the conflict increased their net spending (fiscal deficits) substantially. The commitment to full employment in the peacetime that followed maintained growth and prosperity for decades until the neo-liberal bean counters regained dominance and started to attack fiscal activism. The cure to the slow growth and high unemployment now is the same as it was then – government deficits are way to small.

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Saturday Quiz – November 1, 2014 – 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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