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Paul Krugman’s ideas are part of the problem

It was always going to happen. Several prominent New Keynesians both in the US and the UK have been hiding behind a smokescreen they erected during the Global Financial Crisis to allow their readers to form the view that they were not part of the problem. That they were different from the more rabid anti-deficit economists and that they had a deep understanding of why the crisis occurred and what the solutions were. For a while they masqueraded under the aegis of promoting the discretionary use of fiscal deficits (increasing them nonetheless) to stimulate growth in output and employment. They were seen by many who have a lesser understanding of economics as being progressive economists. The British Labour leader even had some of them on his inner advisory team. But the masks can only stay on so long. Yesterday, one of the most prominent of these characters, Paul Krugman came out! He is not progressive at all. He is a New Keynesian with all the IS-LM baggage that they cannot let go of. In his New York Times article (January 9, 2016) – Deficits Matter Again – he well and truly shows his colours. And they (to speak American) ain’t pretty!

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Austerity is the problem for Britain not Brexit

Regular readers will know that I firmly supported the LEAVE vote in the British referendum in June 2016 even though that was somewhat gratuitous given I am neither a British citizen or live there. It was one of those academic exercises where we wax lyrical with little personal at stake. But that aside, if I had have been a British citizen then I would have voted to leave without doubt. The Internet links us more closely these days and in before the Referendum vote I received heaps of antagonist E-mails informing me that I was bereft of all credibility in taking that position. After the vote, when I dared to point out that the official (Bank of England, Treasury, IMF, OECD) and non-official predictions (the investment bankers etc – remember Credit Suisse sending out a Mayday alert of an impending recession which would wipe out 500,000 jobs!) were over the top to say the least (given the post-vote data), I was called delusional and worse. And these personal attacks came mostly from those who claim to be on the progressive side of the debate. Spare the thought! Subsequent data has indeed pointed out that none of the predictions of doom have so far turned out to be true. I know there might be longer term issues when they get onto working out the detail but I stand by my view – Brexit – if handled correctly by the British government will be a net benefit to the nation and its democracy. If not it could offer no real gains. But in this smokescreen of misinformation, a serious study from Cambridge University researchers – The macro-economic impact of Brexit – has concluded, that while there might be some short-run losses in GDP per capita, they soon recover as the British economy adjusts to its break from the dysfunctional European Union. There is no disaster scenario forthcoming! To the de

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The Weekend Quiz – January 7-8, 2017 – answers and discussion

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.

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The Centrelink letters – a clear breach of human rights

Readers who have now seen the latest Ken Loach movie – I, Daniel Blake – will know the frustration that it depicts when a disadvantaged citizen is confronted with the reality of having to deal with a national welfare agency. Many readers, presumably, have first hand experience of the labyrinthic procedures, rude staff, endless waiting on telephone lines, threatening letters and the rest of the wall that neo-liberal governments have erected to discourage access and/or push people of welfare benefits. While this access and receipt became a right of citizenship in the social democracies that emerged after the Second World War, the neo-liberal era has degraded those rights in favour of a bean-counter interpretation of the world – welfare payments are dollars that can always be saved to balance fiscal accounts and every opportunity should be taken to do so. Australia is way ahead of the game in terms of using government policies and processes to punish and isolate our most disadvantaged citizens so the Government can reduce its welfare spending a few million. We now allow our Government to implement the work of sociopaths and threaten poor citizens with imprisonment on the basis of half-cocked ‘automatic computer-matching’ algorithms that are allegedly tracking welfare fraud. The evidence suggests these processes are massively buggy and deliver wrong outcomes in almost all the cases of fraud they claim to detect. However, that hasn’t stopped the government from sending out tens of thousands of letters to the most disadvantaged among us accusing these people of receiving thousands of dollars in illegitimate welfare payments and threatening criminal prosecution if these alleged overpayments (now debts) are not paid back. Mostly, it seems, the debts are illusory – mistakes by the ingenious (not!) algorithm that was introduced to replace people sacked by the austerity push – sorry, by the Government’s “efficiency dividend” policy. Some people should be prosecuted for breaching human rights in this latest scandal!

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Performing artists bear the brunt of austerity under neo-liberalism

A regular reader (thanks Sam) sent me some information about the cancellation of performing arts festivals in France as a result of austerity. This accelerating trend, which is worldwide, brings into focus the two pronged attack on workers by neo-liberalism. First, governments have been pressured or acceded to cutting public spending which has created higher unemployment, higher underemployment, casualisation and suppressed wages. Then, second, there has been a massive attack on income support systems with claims that they have become nonviable because of the increased demand for state support arising from the rising unemployment. The worker cannot win – which, of course, is the object of the exercise. Performing artists are among the most disadvantaged workers in the labour market and face particular problems – precarious, multi-employer jobs with variable pay interspersed with long periods of non-pay (although they are still working – rehearsal etc). The French developed a unique scheme to cope with this precarious existence, recognising the massive cultural and economic benefits that the arts industry generates. But even that scheme of income support is under attack as job opportunities decline even further in the face of public spending cuts. A Job Guarantee would go a long way to redressing these problems for musicians and other artists. It is a superior way to achieve progressive social change about the meaning of work and productivity.

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Mainstream macroeconomics in a state of ‘intellectual regress’

At the heart of economic policy making, particularly central bank forecasting are so-called Dynamic Stochastic General Equilibrium (DSGE) models of the economy, which are a blight on the world and are the most evolved form of the nonsense that economics students are exposed to in their undergraduate studies. Paul Romer recently published an article on his blog (September 14, 2016) – The Trouble With Macroeconomics – which received a fair amount of attention in the media, given that it represented a rather scathing, and at times, personalised (he ‘names names’) attack on the mainstream of my profession. Paul Romer describes mainstream macroeconomics as being in a state of “intellectual regress” for “three decades” culminating in the latest fad of New Keynesian models where the DSGE framework present a chimera of authority. His attack on mainstream macroeconomics is worth considering and linking with other evidence that the dominant approach in macroeconomics is essentially a fraud.

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Foreign sales of US government debt are largely irrelevant

Happy New Year to all readers. I will not write much today (to reflect to on-going holiday spirit!). But, there was an article in Bloomberg media (December 30, 2016) – Beware the Foreign Exodus From Treasuries – stirring up fear about the recent sales of foreign-held US government debt. I guess it was a slow news day or something because there is very little in the story that is relevant to assessing whether the US government can run an appropriate fiscal policy stance. The fact is that the foreign sales of US government debt are largely irrelevant for the US government’s capacity to maintain its net spending program. The sales are in US dollars and only the US government itself issues those dollars. To think that a foreign purchaser of a US Treasury debt liability are ‘providing dollars’ to the US government is to completely misunderstand the nature of the transaction. This blog considers the current data and explains how to think correctly about these matters. The question that financial commentators really should be asking is why should the US government extend that corporate welfare (risk-free bonds with income flow) to domestic bond-buyers and foreign governments/private investors. There is no financial reason (in terms of facilitating fiscal policy) for the bond issuance. It is just a form of welfare spending which helps the top-end-of-town.

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The Weekend Quiz – December 31-January 1, 2016-17 – answers and discussion

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.

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