Welcome to The Weekend Quiz, which used to be known as the Saturday Quiz! The quiz tests whether you have been paying attention or not to the blogs I post. See how you go with the following questions. Your results are only known to you and no records are retained.
Yesterday (February 22, 2017), the Australian Bureau of Statistics released its latest – Wage Price Index, Australia – for the December-quarter 2016. For the fourth consecutive quarter, annual growth in wages has recorded its lowest level since the data series began in the December-quarter 1997. Real wages are barely growing and trailing productivity growth by a long way. The flat wages trend is intensifying the pre-crisis dynamics, which saw private sector credit rather than real wages drive growth in consumption spending. The Australian government, which should be showing leadership, is obsessing about who it can rope into a free trade deal now the US have scuttled the TPP. The lessons have clearly not been learned.
One of the defining features of the neo-liberal era has been the buildup of private debt, particularly household debt. The banks and policy makers all assured us that this was fine because wealth was being built with the debt until, of course, it came tumbling down for many as a result of the GFC. Recent commentary on Australia’s record household debt problem and the increasing number of Australian households that are now on the brink of insolvency and cannot pay their bills seems to think this is a new outcome – the result of record low interest rates as thew central bank (RBA) tries to curb the descent into recession. The fact is that the problem emerged in the 1980s as neo-liberalism took hold of the policy process. We have to understand that period to fully appreciate the household debt problem now.
On November 29, 2016, Mario Draghi, the President of the ECB wrote to Mr Jonás Fernández, a Spanish European Parliament member in reply to a request for clarification from the Chairman of the EP’s Committee on Economic and Monetary Affairs (ECON). The Letter discussed whether it would be legal under the Lisbon Treaty for the ECB to engage in direct monetary transfers to citizens bypassing the Member States and whether such a policy would be beneficial for economic growth. Several commentators have seized on the response from the ECB as saying that such a policy innovation would be both legal and beneficial. My view is that, in forming this conclusion, they have not fully understood the difference between a monetary and a fiscal operation. While I think the policy would produce positive results, in the sense that it would stimulate growth and employment and reduce unemployment, I also believe it would be illegal under the Treaty. Further, I don’t think it is a progressive position to argue that a group of unelected and unaccountable technocrats in the central bank should be in charge of economic policy. That should be the responsibility of the democratically-elected members of the government who are fully accountable every electoral cycle. The ECB should not become a fiscal agent. Rather, if the Eurozone elites cannot implement (which they cannot) a full federal treasury function then it should disband the monetary union in an orderly way.
The Federal Reserve Bank of Minneapolis recently published an Economic Policy Paper (February 7, 2017) – The Great Recession: A Macroeconomic Earthquake – by Lawrence J. Christiano (who is both at Northwestern University in Chicago and the Federal Reserve), which shows us that the mainstream profession has learned very little from their failures that were exposed by the GFC. This is a paper that exudes denial while purporting to advocated awareness and progression. There is a long way to go before economics turns the corner I am afraid.
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, which used to be known as the Saturday Quiz! The quiz tests whether you have been paying attention or not to the blogs I post. See how you go with the following questions. Your results are only known to you and no records are retained.
The latest labour force data released today by the Australian Bureau of Statistics – Labour Force data – for January 2017 shows total employment barely increased for the second month in a row and Australia’s status as a part-time employment nation firms. Over the last 12 months, Australia has lost 56.1 thousand full-time jobs (in net terms) and added only 103.4 thousand overall. This status as the nation of part-time employment growth carries many attendant negative consequences – poor income growth, precarious work, lack of skill development etc. The teenage labour market remains in a poor state but improved slightly in January. It requires urgent policy intervention. The unemployment rate fell by 0.1 points but only because the labour force contracted as participation declined. In other words, hidden unemployment rose while official unemployment fell. Not a win-win. Overall, the Australian labour market is weak and showing no signs of improvement. With weak private investment now on-going and real GDP contracting (in the September-quarter), the poor outlook signals the need for a policy shift biased to expansion. It is clear that the current restrictive fiscal policy position adopted by the Federal government is not sufficient to redress the inadequate non-government spending growth.
The Eurozone flash National Accounts estimates for the fourth-quarter 2016 was released yesterday by Eurostat – GDP up by 0.4% in the euro area and by 0.5% in the EU28. The annual growth rate for the Eurozone in 2016 was 1.7. The news also indicated that the Greek economy fell back into its Depression and was followed by the other basket case, Finland. Both recorded negative growth in the December-quarter, Greece -0.4 per cent, Finland -0.5 per cent. Both results reflect the on-going fiscal austerity. Spain, on the other hand, allowed by the European Commission to run large structural deficits (to keep the PPP in power) recorded another strong growth result. Perhaps if Syriza had demonstrated some spine, they too could have got away with the Spanish solution – where Brussels turns a blind eye to the blatant breach of the Stability and Growth Pact rules, while its economy starts to growth strongly. But, then history tells us that Syriza caved in almost immediately and the continued decline of the Greek situation is a direct result of the policies they were then co-opted to inflict on their own people. Deeper analysis of the Greek situation reveals how dire the future is likely to be. I present a few indicators of that future in this blog. As the neo-liberal colony of Greece takes another step backwards, it isn’t hard to understand why? Basically, the Troika conspired to destroy the prosperity of Greece as a nation and its political leadership joined that conspiracy by refusing to broach an exit from the Eurozone. Simple really.
In September 2016, I assessed that – The US labour market is nowhere near full employment. This was in the context of an increasing number of commentators claiming that the US economy had already returned to full employment. The IMF World Economic Outlook is also estimating that the output gap in the US (actual relative to potential) has turned positive (meaning the US is beyond full employment). By way of contrast, the Congressional Budget Office considers the US had an output gap of around 0.9 per cent (actual below potential) in the December-quarter 2016. The facts point to even higher output gaps. The current BLS data release – Employment Situation Summary – January 2017 – has not altered my view. It showed that total non-farm employment from the payroll survey rose by 227,000 and the unemployment rate remained “little changed” at 4.8 per cent. But from the perspective of the labour force survey (Current Population Survey), total employment fell by 30 thousand. See below for an explanation of that paradox. The point is that employment still remains well below the pre-GFC peak and the jobs that have been created in the recovery are biased towards low pay. Additional research reveals that the losses from this sluggish economic performance will be long-lived and undermine the prospects of future generations. Fiscal austerity is bad for our grandchildren! In general, the problem is less job creation as quality of the work being created and the capacity of US workers to enjoy wage increases.