Welcome to the Billy Blog Saturday Quiz. The quiz tests whether you have been paying attention over the last seven days. See how you go with the following questions. Your results are only known to you and no records are retained.
I am now using Friday’s blog space to provide draft versions of the Modern Monetary Theory textbook that I am writing with my colleague and friend Randy Wray. We expect to complete the text during 2013 (to be ready in draft form for second semester teaching). Comments are always welcome. Remember this is a textbook aimed at undergraduate students and so the writing will be different from my usual blog free-for-all. Note also that the text I post is just the work I am doing by way of the first draft so the material posted will not represent the complete text. Further it will change once the two of us have edited it.
The Politics of Envy – that old chestnut from the neo-liberals – is bandied around every time there is any insinuation that the capitalist system produces distributional outcomes that are not remotely proportional to the effort put into production. Whenever governments challenge the distributional outcomes – for example, propose increasing taxes on the higher income recipients (note I don’t use the word “earners”) there is hell to cry and the defense put up always appeals to the old tags – “socialist class warriors undermining incentive”, “envy”, etc. In the 1980s, when privatisation formed the first wave of the neo-liberal onslaught, we all apparently became “capitalists” or “shareholders”. We were told that it was dinosauric to think in terms of the old class categories – labour and capital. That was just so “yesterday” and we should just get over it and realise that we all had a stake in a system where reduced regulation and oversight would produce unimaginable wealth, even if the first manifestations of this new “incentivised” economy channelled increasing shares of real income to the highest percentiles in the distribution. No worries, “trickle-down” would spread the largesse. We know better now – and increasingly the recognition, exemplified in 2006 by Warren Buffett’s suggestion that “There’s class warfare, all right … but it’s my class, the rich class, that’s making war, and we’re winning” (Source), is that class is alive and well and in prosecuting their demands for higher shares of real income, the elites have not only caused the crisis but are now, in recovery, reinstating the dynamics that will lead to the next crisis. The big changes in policy structures that have to be made to avoid another global crisis are not even remotely on the radar.
Australia is in the final stages of a federal election campaign and it is likely that the conservatives will be returned to power after being out of office for eight years. The current government, allegedly non-conservative, is so close in most respects to the conservatives that it is hard to distinguish between the two. One significant point of difference over the last several years relates to the effectiveness of the fiscal stimulus that the current government introduced in late 2008 to attenuate the consequences of the global financial crisis. The conservative opposition claimed they would not have allowed the budget to move back into deficit during this period. Given the scale of the crisis, they would have had no choice anyone because the cyclical impacts via lost tax revenue would have been sufficient to drive the budget into deficit irrespective of the discretionary stimulus packages that were introduced in stages by the current government. Both major parties are obsessed with pursuing budget surpluses without the slightest recognition that in current circumstances such a policy orientation is destructive to growth and employment. I was examining some data relating to the construction industry today for another project, which demonstrates why the introduction of the 2008-09 fiscal stimulus packages were extremely effective in reducing the output and employment losses that might otherwise have occurred. The future under a surplus-obsessed conservative government for workers looks rather bleak. Here is some evidence.
The hoopla over the US government voluntarily imposed debt ceiling is about to begin again with the US Treasury Secretary predicting that the government will run out of money in mid-October. He must have been listening to his President who told an audience at the State University of New York the other day, that in the face of rising demands for more government expenditure of education “At some point, the government’s going to run out of money” (Source). It is not the first time he has made that claim. Please read my blog – The US government has run short of money – for more discussion on this point. The debt ceiling is one of those ridiculous conventions that government introduce which from time to time provide some quaint, if not bizarre, theatre. But none of the conservatives will have the intestinal fortitude to really drive the US government artificially broke anyway. Anyway, all this was amusing me as I read the latest – US Federal Reserve Flow of Funds – data the other day. That data tells us that the US government can buy as much of its own debt as it chooses. Game over!
I read this article yesterday (published August 12, 2013) – The euro area needs a German miracle – among a group of articles that are concluding that things are on the improve in Europe. I expect a wave of articles which will be arguing that the harsh fiscal austerity has worked. I beg to differ. This article agrees that it is too early to “declare victory” because the austerity has to go further yet. My interpretation of that claim is that the author doesn’t think the ideological agenda to shift the balance of power away from workers has been completed yet. But the substantive point is that the fiscal austerity failed to promote growth and growth has only really shown its face again as the fiscal drag has been relaxed. This relaxation is much less than is required to underpin a sustained recovery at this stage but it is a step in the right direction. Governments, with ECB support, should now expand their deficits further and start eating into their massive pools of unemployment.
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.
Welcome to the Billy Blog Saturday Quiz. The quiz tests whether you have been paying attention over the last seven days. See how you go with the following questions. Your results are only known to you and no records are retained.
I am now using Friday’s blog space to provide draft versions of the Modern Monetary Theory textbook that I am writing with my colleague and friend Randy Wray. We expect to complete the text during 2013 (to be ready in draft form for second semester teaching). Comments are always welcome. Remember this is a textbook aimed at undergraduate students and so the writing will be different from my usual blog free-for-all. Note also that the text I post is just the work I am doing by way of the first draft so the material posted will not represent the complete text. Further it will change once the two of us have edited it.
There were two interesting articles I read (among others) in recent days that attack mainstream economic analysis in different ways. The first, published August 18, 2013 – Removing deadweight loss from economic discourse on income taxation and public spending – is by Northwestern Economics Professor Charles F. Manski. He wants our profession to dump all its negative welfare analysis about the impacts of taxation (as “deadweight losses”) and, instead, focus on the benefits that come from government spending, in particular, highly productive infrastructure provision. So, an attack from the inside! The second article was a Bloomberg Op Ed (August 21, 2013) – Economists Need to Admit When They’re Wrong – by the theoretical physicist, Mark Buchanan, who has taken a set against my profession in recent years. Not without justification and with some panache, one should add. They both add up to the same conclusion – mainstream economics is defunct and we should decommission teaching programs throughout the world and introduce new progressive approaches to the discipline that will produce a new bread of useful Phd graduates, rather than the moribund graduate classes that get rubber-stamped out of our higher education institutions, ad nauseum, at present.