It is Wednesday and I am catching up on other things. But In a rather extraordinary article (May 16, 2021) – Nobel prize-winning economist Paul Krugman explains why he’s more left-wing than the Modern Monetary Theory crowd – we learn about hubris. I provide some brief commentary on that claim before chilling out to some great post minimalist music.
I am tied up most of today in Sydney and so am handing over the blog responsibilities to our regular guest blogger, Professor Scott Baum from Griffith University who has been one of my regular research colleagues over a long period of time. Today he is writing about the impact the Australian Government’s COVID income supplement has had on financial stress and the need for continued support for our mot vulnerable households. Over to Scott who shows clearly that the persistence of poverty is a government choice …
The other day I gave a talk to the ‘investment’ community in Melbourne and they wanted to talk a lot about inflation, which seems to be their foremost concern at the moment. Tomorrow, I am giving a similar presentation in Sydney and I expect a similar line of questioning. Think about it. Wages growth is projected to be so low over the next several years that real wages will decline for at least 3 to 4 years. The Output gaps are still significant and were significant even before the pandemic. Households were already cutting back consumption spending growth, given record levels of indebtedness and no prospect of wages growth. Where pray tell are the inflationary pressures going to come from? I also keep reading of similar fears from economists and central bankers. The latest I saw came from Britain, where the outgoing chief economist from the Bank of England started beating on the inflation drum. There are some areas of our economies that will experience price pressures in the coming period given the disruptions in supply and various administrative pricing decisions by governments (reversing pandemic assistance in areas like rents, energy, child care etc). But these pressures in some segments of the economy are unlikely to instigate a major shift to high generalised inflation rates because the capacity of workers to defend their real wages is diminished now. Fiscal policy has a long way to go yet in reducing unemployment and underemployment from their elevated levels before that capacity becomes functional again.
Here are the answers with discussion for this Weekend’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 Weekend Quiz. The quiz tests whether you have been paying attention or not to the blog posts that I post. See how you go with the following questions. Your results are only known to you and no records are retained.
Today, I am treating as Wednesday, given I wrote an extended treatment of the Australian government’s fiscal statement yesterday and I reserve Wednesday’s for other writing commitments. So just a few things today but including a really interesting piece of news. Some music to follow for those who seem to like what I come up with on Wednesdays. But the interesting snippet is from a tiny island in the middle of the Indian Ocean that might just be showing the world how central banks and treasuries should interact.
Last night, the Federal Treasurer released the annual ‘fiscal statement’ (aka ‘The Budget’) and everyone is jumping up and down at the size of the spending proposed. Yes, the deficit and debt hysteria has been abandoned for the time being – but only because this is an election year (presumably). This is an announcement government (with little action) and the actual bigger spending initiatives are not next year but in the hazy forward years which means we can largely disregard them. Further, what most commentators are ignoring is that the Government is proposing a record fiscal contraction next year (2021-22) and is relying on (unrealistic) growth in household consumption expenditure over a period they project real wages will fall. If their projections are to be believed then household debt will rise significantly beyond its already record levels. But I don’t believe the projections anyway. In terms of my wish list, the fiscal strategy fails – no funding for carbon retrenchment, little for social housing, nothing for higher education and lots of handouts for their business mates who will pocket the funds and pay themselves very well in the process.
Tonight, the Federal Treasurer releases the annual ‘fiscal statement’ (aka ‘The Budget’) and we already know that the Government is now in a period of fiscal contraction despite all the big expenditure numbers being touted in the press. I will write more about that tomorrow. But it is now 6 weeks since the Government abandoned the JobKeeper wage subsidy program and today’s ABS release of the – Weekly Payroll Jobs and Wages in Australia, Week ending 24 April 2021 – might give us some guidance as to the impact of the fiscal withdrawal in terms of job loss. The problem though is that the period in question was also a school holiday period, which confounds things somewhat. Suffice to say that the labour market is definitely not booming. It has gone backwards since the end of March but how much of that is due to the withdrawal of the wage subsidy is difficult to say at this stage. Some sectors are still enduring major job losses with Accommodation and hospitality sector 10.3 points below its March 14, 2020 employment level. Manufacturing is still 2.1 points down, Transport, postal & warehousing is down 6.8 points, and Information media & telecommunications is down 6.7 points. The sectors that have gained the most employment are Electricity, gas, water & waste services (up 3.3 points), Financial & insurance services (up 7.7 per cent), Public Administration (up 10.4 per cent) and Health care & social assistance up 4.9 per cent. Anyway, I have been using my spare time to get up to speed on all the various data trends so I can better understand what tonight’s statement is likely to do.
Last Friday (May 7, 2021), the US Bureau of Labor Statistics (BLS) released their latest labour market data – Employment Situation Summary – April 2021 – which showed that the recovery since the catastrophic labour market collapse in March and April 2020, has substantially slowed after signs in March that the revovery was accelerating. The change in payroll employment fell from 770 thousand in March 2021 to a miserly 266 thousand and unemployment edged up slightly to 6.1 per cent. The broader labour wastage captured by the BLS U6 measure fell by 0.4 points to 10.7 per cent. The US labour market is still 8,215 thousand jobs short from where it was at the end of February 2020 and the unemployment to job openings ratio also suggests significant slack remains.
Here are the answers with discussion for this Weekend’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.