Friday lay day

The Friday lay day comes around again. I am at present working on a paper on European unemployment clustering (a spatial econometric analysis commissioned by a leading academic journal). When we have finished I will post results in a layperson’s type of blog. I also am working on the Modern Monetary Theory (MMT) book (a collection) for Edward Elgar which will come out early in 2015 (as well as my other Eurozone Groupthink book). So I need more time and hence the easier Friday. But I was watching a program on the plane yesterday about the number of people being displaced from Syria and the crisis that nations such as Turkey are now facing trying to house and feed them. Guess what? They lack basic resources because the governments claim they haven’t enough money. Austerity strikes again and as winter approaches in that region, many people including children are going to die through lack of basic care that could be at the fingertips of any number of government officials if they cared escape the neo-liberal world they are locked up within.

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Direct central bank purchases of government debt

There was a recently published Federal Reserve Bank of New York Staff Report – Direct Purchases of U.S. Treasury Securities by Federal Reserve Banks – by Kenneth D. Garbade, which recounts the way the central bank in the US could purchase unlimited amounts of treasury debt by creating funds out of thin air and how that capacity was eventually constrained. The Report is an understated account of the way in which the conservative ideological forces eventually prohibited this capacity and forced the US government to only issue debt to the private sector. He shows that between 1917 and 1935, this capacity was used often “without incident” but as the conservative antagonism grew it was limited (in 1935) and then abandoned altogether in the early 1980s. The Report demonstrates there were no intrinsic financial reasons for abandoning this capacity.

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British economic growth shows that on-going deficits work

In Australia, the Federal Treasurer announced today that they would be making further spending cuts to the fiscal position of the government in the mid-year statement to pay for “an increase in funding for security agencies” and its onslaught against ISIL. So education, health spending, income support etc will get the chop so we can make the world an even more dangerous place than it is currently at a time when unemployment is rising and economic growth falling. Another case of austerity madness combined with the mindless approach to dealing with the external threats from extremist groups. He should take a note from the British Chancellor’s book who is overseeing an expanding fiscal deficit and public debt ratio, despite the rhetoric to the contrary, and that on-going deficit is supporting growth, helping private households increase their saving ratio and is generally a good thing to behold. Austerity in the UK?- not if you consider the current data!

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Another Eurozone plan or two that skate around the edges

There was an article in UK Guardian last week (September 26, 2014) – Debt forgiveness could ease eurozone woes – which was interesting and showed how far the debate has come. The outgoing European Commissioner for Employment, Social Affairs and Inclusion, László Andor also gave a speech in Vienna yesterday – Basic European unemployment insurance: Countering divergences within the Economic and Monetary Union – which continued the theme from a different angle. While all these proposals will be positive rather than negative they essentially are not sufficient to solve the major shortcoming of the Eurozone – its design will always lead it to fail as a monetary system because they have not accepted that all citizens in each country have equal rights to avoid economic vulnerability in the face of asymmetric aggregate spending changes. That lack of acceptance means the political leaders will never create an effective federal fiscal capacity and the member nations will always be vulnerable to major recessions and wage deflation, which undermine living standards.

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Strong public benefit from tertiary education in Australia

There was an interesting article this morning in the Fairfax press (September 29, 2014) – OECD figures show public benefits more than individuals from tertiary education – which used the recently released – Education at a Glance 2014 – to compare private and public (social) returns from tertiary education. The results are that private net returns outweigh social returns in the majority of nations but not for the UK, Australia, Japan and Korea. The results have implications for the debate about who should fund tertiary education – the private individuals (or families) of those undertaking it or the government. They also highlight that one should be somewhat protean in outlook and avoid falling into Groupthink.

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Saturday Quiz – September 27, 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

Its Friday lay day for me. I am up in Northern Australia until later today finalising my involvement in some projects that I have been part of. I was watching the TV in my hotel this morning after a run in the early morning humidity. There was a program on the Ebola crisis and how medical teams in Western Africa are so short of basic resources that the virus is spreading and becoming uncontrollable. The world is facing a major health crisis at present that is currently centred on the impoverished nations of West Africa. The struggle to combat the spread of the Ebola virus is being seriously hampered, if not imperiled by a lack of resources – simple things like disinfectants, drugs, staff etc. You might be wondering how the world could envision cutting the budget of the World Health Organisation, which is the prime institution charged with dealing with these sorts of crises. Well – fiscal austerity – take a bow! A class act.

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Yet another solution for the Eurozone

The basis of a fiat currency, which is issued under monopoly conditions by the government and has no intrinsic value (unlike say gold or silver currencies) is that it is the only unit that the non-government sector can use to relinquish its tax and related obligations to the government. That property immediately makes the otherwise worthless token valuable and demanded. If there was no capacity to use the currency for this purpose then why we would agree to use the government’s preferred currency? Recently, some economists in Italy have come up with a hybrid scheme to save the euro yet allow Italy to resume growth without violating the rules governed by the Stability and Growth Pact and without the ECB violating its no bailout clause, even though both violations have occurred in the last 5 years and been overlooked by the elites. The plan is similar to that proposed in 2009 by the Government in California. It has merit but ultimately misses the point. The Eurozone problem is the euro!

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Time to ditch the export-led growth mania

Last week, the former head of the Australian Treasury, Ken Henry gave a speech at the Australian National University entitled – Writing a New Australian Story – which received considerable press coverage. His message has relevance to all advanced nations who are engaged in a war on their population via fiscal austerity and attacks on workers wages and conditions as a enhancing so-called international competitiveness and engendering an export-led recovery. He considers these things are fine but not as ends in themselves and successive Australian governments have forgotten that message and undermined our national prosperity as a result. He believes it is time to reorient the public debate to focus on the challenges ahead rather than be mired in single-minded goals that only help a small sector of our society. I agree with some of what he says but we reach the same conclusions from an entirely different body of economic understanding. I had a 4-hour flight today on my way up to the North of Australia and this is what I wrote on the journey to keep myself amused.

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