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 five questions. Your results are only known to you and no records are retained.
The Australian government is digging a hole for itself at present. In the May Budget it talked (neo-liberal) tough to demonstrate what it claimed was “Responsible Economic Management” – and this meant it entered a battle with the Opposition about who would deliver the biggest budget surplus. This became one of the comical (in a tragic way) features of the August federal election campaign. The respective treasury boof-heads from the Government and Opposition boasting about the size of their future budget surpluses. They also tried to win the battle of who would get there the quickest. The whole discussion was definitely mindless. Now with the Australian dollar appreciating fairly strongly the Government has realised the reduced economic activity that seems to be occurring is reducing its tax revenue prospects and therefore undermining its surplus projections. So what do they do next? Answer: announce they will cut spending by even more than originally planned. They are going to deliberately undermine employment growth and force even more people to lose their jobs at a time that labour underutilisation sits at the obscene level of 12.5 per cent and inflation is moderating. It is sadly a case of the fiscal vandals chasing a dream. The dream however is a nightmare.
I followed the US mid-term election campaign as best I could – being an outsider. Sometimes the level of debate appeared to be below that which I imagine the primates engaged in back then. I don’t intend to become a psephologist (not qualified) but I am interested in exploring why these witless conservatives have made ground. In Australia’s recent national election where the so-called progressive Labor Party (not!) lost office in their own right the swing was to the Greens rather than the conservatives. This does not appear to be the case in the US. So there are two questions I am interested in. First, what role did the neglect of the unemployed play in the election results? Second, do the result really amount to an endorsement of the neo-liberal economic approach? But the reality is that the US political debate has become so divorced from reality – which in my parlance means that it has totally failed to provide a vibrant debate about the options that the monetary system offers government to improve the lives of the citizens. Instead, candidates who have no understanding at all have been elected on the basis of a pack of lies and only demonstrate total ignorance when it comes to informed debate. In that sense, the mid-term elections have foisted a number of very dangerous individuals into office. Sad day for America!
Last month, the Reserve Bank of Australia (RBA) held its policy rate unchanged at 4.5 per cent contrary to what the bank economists expected. I said at the time in this blog – RBA confounds the market economists – but that’s easy – that RBA made the correct decision. It reflected the fact that the world economy is still in trouble as the fiscal austerity in various places starts to bite. It also reflected the fact that the trends in the local economy are far from clear and solid evidence is available to suggest that despite the boom in primary commodity prices (from Asia) our economy is still fragile. The labour market has considerable slack (12.5 per cent underutilisation rates) and housing and sales are flat or in decline. Most importantly (for the RBA) inflation is moderating in Australia. Nothing much has changed in the meantime and I was expecting (along with all my bank economist friends) for the RBA to hold its line again. Yesterday, the RBA confounded us all and pushed rates up by 25 basis points. But even more stark was the decision by the formerly public bank (privatised by the neo-liberals) – the CBA – to push its standard mortgage rate up by 45 basis points after announcing a huge and increasing profit earlier in the week. The RBA made the wrong decision yesterday.
I was thinking about the recent European Council meeting today which was held in Brussels over the weekend. It is clear that the Eurozone bosses are choosing to ignore all the lessons that the current crisis has provided to them about the basic design flaws of their monetary system. They think the solution to their problems is to make it even harder for member governments to provide net spending to their economies at times of stress. They fail to articulate the most basic macroeconomic fact that confronts them – unemployment is rising across the zone and production generally is stagnant because there is not enough demand for sales of goods and services. If the private sector won’t provide that demand then the government sector has to given that they cannot rely on net exports to cure the deficiency. By deliberately restricting governments and effectively forcing them to engage in pro-cyclical fiscal responses the Euro bosses are not only prolonging the agony the citizens are facing but are also engaging in a self-defeating strategy. As we are seeing budget deficits are rising as austerity is imposed. The solution to the Eurozone problems is to disband the zone and restore individual currency sovereignty at the national level. It would be painful to do that but in the medium- to long-term it will be less painful than the trajectory they are following.
I suddenly realised what has been going on all this time. They have been smoking some doobies – some real strong doobies and their heads are not what they used to be. How cool is that conclusion? It explains everything – why they typically miss the point of everything; why they say really dumb things most of the time; why they usually look half asleep; why they think down is up or up is down; why they continually think that what is good for them is bad for them and vice versa and all of that funk. I am so relaxed now – I actually thought there was a problem. But a bit of weed is doing it. I guess it is time for them to ease up on their intake though or their lack of concentration and awareness of reality will become entrenched. We need all the citizens we have thinking clearly and working together.
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 five questions. Your results are only known to you and no records are retained.
Today’s blog might appear to be something different but in fact is more of the same. There was an article in the New York Times recently (October 10, 2010) – The Crisis of the Humanities Officially Arrives – by US academic Stanley Fish, which discussed the growing demise of the humanities in our universities. While the debate is about the role of the humanities specifically, the points Fish makes about how we appraise the value in education resonates more broadly to a consideration of the role of educational institutions and human activity in general. One of the vehicles the neo-liberals use to promote their anti-intellectual agenda is the false claims that governments are financially constrained. By appealing to this myth lots of questions about motivation are avoided. They promote the myth that some activity is “too expensive” or “not productive enough” and we are thus shoe-horned into that way of thinking. But I feel good knowing there are libraries full of books of poems and plays and stories and I know that sovereign government are not financially constrained. I might not be able to defend the quality of a poem but I can certainly explain how the monetary system works. So you poets and playwrights under threat – come aboard and learn about fiscal policy and the monetary system and spread the word.
When does the word down mean down? Answer for all of us mortal folks: when something is consistently pointing downwards. Answer for the bank economists: never when it is applied to movements in the Consumer Price Index – down means up. The Australian Bureau of Statistics released the Consumer Price Index, Australia data for the September 2010 quarter yesterday and it showed that inflation is moderate and falling. Over the last week, the bank economists ran their usual line – they were predicting spikes in the inflation rate and thus the absolute necessity for increasing interest rates at the next RBA meeting. As usual they were wrong. The reality is that the Australian economy is not overheating and it is still a long way from being at full capacity. Some sectors are growing strongly (mining) but that unlikely to create significant cost pressures elsewhere in the economy given the amount of labour slack. I have a tip for the bank economists. They should come out next month/quarter and say exactly the opposite to what they typically would say – and they will probably get it right. At least while they are worrying themselves sick about the course of inflation they are not screaming about the deficit being too big.