Australia’s inflation rate falling on back of weak spending

The Australian Bureau of Statistics released the Consumer Price Index, Australia data for the September-quarter 2014 today. The quarterly inflation rate was 0.5 per cent (down from 0.6 per cent last quarter) and this translated into an annual rate of 2.3 per cent, down on the 3.0 per cent in the June-quarter 2014. The Reserve Bank of Australia’s preferred core inflation measures – the Weighted Median and Trimmed Mean – are still well within the inflation targetting range and are not trending up. Various measures of inflationary expectations are also flat, including the longer-term, market-based forecasts. This suggests that the RBA may consider that the major problem in the economy is declining growth and rising unemployment, especially in the context of China’s surprise slowdown announced yesterday, and may even cut rates before the year’s end. The evidence is suggesting that the economy is still very sluggish. The benign inflation outlook provides plenty of room for further fiscal stimulus.

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US labour market beset by massive job shortages

There was an interesting piece of analysis presented on the US Economic Policy Institute (EPI) site a few weeks ago – Labor Market Weakness Is Still not due to Workers Lacking the Right Skills – which showed the “the number of unemployed workers and the number of job openings by industry” as a means of evaluating the nature of the job cycle in the US. The conservatives, who want to build arguments against any fiscal activism, try to explain the massive and persistent unemployment in the US and elsewhere in terms of structural constraints including skill shortages and mismatches. The EPI analysis showed that “unemployed workers dramatically outnumber job openings across the board” and in the individual industries. The conclusion – “the main problem in the labor market is a broad-based lack of demand for workers”. I had been working on a similar story myself since the latest Job Openings and Labor Turnover Survey (JOLTS) data came out on October 7, 2014. Here is what I found, which is a little different to the EPI outcomes but similar and doesn’t alter the facts.

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The UK recovery is a false dawn

A few weeks ago (October 1, 2014), I wrote in this blog – British economic growth shows that on-going deficits work – that the British Chancellor was overseeing an expanding fiscal deficit and public debt ratio, which despite the rhetoric to the contrary, was supporting growth and helping private households increase their saving ratio. The national accounts and public finance data could not support the claim that it was austerity in the UK that was promoting growth. But in drawing that conclusion, I certainly didn’t want to give the impression that the conduct of macroeconomic policy in the UK was appropriate. The point was that growth, albeit tepid, was occurring in the UK and it was not in an environment where the fiscal deficit was being cut. The fact is that the UK economy is in a parlous
state and such that the word recovery is a totally misleading descriptor for what is happening.

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Saturday Quiz – October 18, 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 – being ashamed of one’s nation

It is my Friday lay day blog – a recent institution designed to give me more time for other things. This week, an Australian author, Richard Flanagan, won the 2014 Man Booker literary award for the best book of the year. It was the first year the prize has been extended to all English language literature published in Britain. That is, it included American writers this time. Previously it was confined to that curiosity collection of nations called the Commonwealth, a residual from the British colonial days plus the Republic of Ireland. The book recounts his father’s experiences on the Burma railway during World War 2. The author has caused a stir back here after he told the press after receiving the award that he was, in fact, “ashamed to be Australian” because of the Australian government’s approach to climate change policy and coal. Our Prime Minister has said recently that “coal is good for humanity” and his Government has scrapped taxes on mining and carbon emissions, as a sop to its rich benefactors in those sectors.

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The German ship is sinking under the weight of its own delusions

Eurostat’s recent publication (October 14, 2014) – Industrial production down by 1.8% in euro area – rightfully sends further alarm bells throughout policy makers in Europe, except I suppose Germany where denial seems to be rising as its industrial production levels fall to performance levels that the UK Guardian article (October 9, 2014) – Five charts that show Germany is heading into recession – described as being “shockingly poor”. The Eurostat data shows that industrial production fell by a 4.3 per cent – a very sharp dip in historical context for one month. Vladmimir Putin and ISIL are being blamed among other rather more oblique possible causes. But the reality is clear – the strongest economy in the Eurozone is now faltering under its own policy failures.

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Bolivia – defiant and prosperous as a result

There was a UK Guardian article yesterday (October 15, 2014) – Evo Morales has proved that socialism doesn’t damage economies – that recounted the recent economic history of Bolivia. There has been growing awareness in the Western press of what has been happening there given that the President Evo Morales has been once again re-elected for a third time, against the opposition of the financial elites in the so-called ‘first world’. A New York Times article (February 16, 2014) – Turnabout in Bolivia as Economy Rises From Instability – also noted the way in which Bolivia resisted the GFC to become a growth powerhouse in Latin America. The experience of Bolivia is a classic case of what can be achieved if a nation defies the international elites (such as the IMF and Wall Street) and carves out a path using its fiscal capacity to increase social capital and public infrastructure. When a nation can increase the real minimum wage by 87 odd per cent in a span of 8 years and see unemployment fall and real per capita income head for the stars then you know the mainstream neo-liberal mantras are wrong. Bolivia defied them and has prospered.

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MMT – lacks a political economy?

There was a ‘Guest Editorial’ published on the UK site Renewal last week – Modern money and the escape from austerity – by one Joe Guinan, who lists himself as a Senior Fellow at The Democracy Collaborative and Executive Director of the Next System Project. He is a journalist by background. Renewal is a “A quarterly journal of politics and ideas, committed to exploring and expanding the progressive potential of social democracy”, so it would seem to be wanting to head in the right direction, which reflects my values. The article’s central message is that “Modern monetary theory destroys the intellectual basis for austerity but needs a more robust political economy”. It is a serious embrace with our ideas and it is welcome that Modern Monetary Theory (MMT) is entering the progressive debate in a thoughtful manner and being advanced by others than the small core of original developers (including myself) who, in turn, built the ideas on the back of others long gone. The problem is that I don’t necessarily agree with many of the propositions advanced in the article. Here are a few reasons why.

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Rising long-term unemployment a sign of policy failure

While the Australian government ramps up its war on terror rhetoric and sending our armed forces to Iraq again, thus providing a major political diversion from their virtually complete policy failure on the socio-economic front, the data keeps coming which highlights the failure of successive federal governments in this regard, the current regime included. The latest – Poverty in Australia report, published by the Australian Council of Social Service (ACOSS) – shows that poverty is rising in Australia with 13.9 per cent of all people living below the poverty line (17.7 per cent of children). The poverty rate has risen by 0.9 per cent since 2010.

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