Our affect is driving us back to a need for continuous fiscal deficits

The field of psychology is usually ignored by mainstream economists, which, in its typically arrogant and closed practice, adopts a series of a priori assumptions about human behaviour – the so-called Homo economicus – where were are always rational and self-interested and, as a result, always make choices that maximise our present and future well-being based on available market signals. Real world forces that condition actual human behaviour, such as cognitive biases and irrationality, in general, as well as cooperative and collective behaviour is ignored by mainstream neo-classical (free market) economic theory, because admitting its dominance in human decision-making would void the entire edifice of that theory and scuttle the authority that is given to the on-going narratives about deregulation, small government, privatisation, pernicious cutting of income support, and the rest of the economic policies that have defined this dysfunctional neo-liberal era. But humans do not behave in the way economists suggest. We are a complex mass of irrationality, custom, habit, and affect. We certainly use cognitive processes in our decision making but often we take shortcuts based on affect. These tendencies are pushing our behaviour back to what was normal before the credit binge that led to the GFC. This shift in our behaviour is associated with stagnation and entrenched mass unemployment. But the reason for these parlous outcomes is not that we have returned to more normal spending behaviour but, rather, because governments have not realised that they had to return to more normal behaviour as well. Instead of promoting the benefits of austerity (in the face of all evidence to the contrary), governments should have been promoting the benefits of continuous fiscal deficits to support non-government saving desires and maintain better employment outcomes and stronger income growth. The malaise advanced nations are stuck in at present is directly the result of ideologically-motivated choices made by governments to use to use fiscal policy properly. Neo-liberal ideology remains dominant but citizens are rebelling and something has to give.

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I, Daniel Blake – essential viewing

So Italy has now gone the way of the UK and the US in its referendum vote – rejecting the establishment but not sure on what to do instead. It seems that the US voters have been duped by a conman (noting he beat a conwoman). Now Renzi is to go and we will see what happens next. But the trends around the world are unmistakable. Ordinary folk are in rebellion and for good reason. Last night I saw the latest Ken Loach film – I, Daniel Blake, which is a grinding, shocking statement of how society has been so compromised by the neo-liberalism that these voting patterns are rebelling against. I would say that as an Australian the film was a little less shocking than it might have been because our stupid nation led the way in introducing the tyrannical administrative processes that accompany income support systems in this neo-liberal era. Britain (under Tony Blair – never let it be forgotten – he did more than lie about Iraq) followed Australia’s lead in this respect. So, Australians have seen this dystopia for more than 18 years now – and while I hope we have not become inured to it – normalised it – it has been part of our awareness for a long time. Nonetheless, the film is shocking in what it says about the societal compromise and the rise and normalisation of sociopathic relationships between state and citizen.

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The Weekend Quiz – December 3-4, 2016 – 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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Australia races to the low-pay bottom while employers’ lies are exposed

Over the last 12 months, it has been increasingly obvious that the Australia has become a part-time employment nation. While the trend towards increasing part-time employment as a proportion of the total has been with us since the 1970s, the nature of that trend has been changing in recent years and belies the claims by the mainstream that it is a reflection of increased choice by workers for better life-work balance and the rising proportion of women in the workforce combining family responsibilities with income earning opportunities. The reality is different. Overall, there is a lack of working hours being generated in Australia (as elsewhere) because macroeconomic policy is restrictive (fiscal deficit to low as a proportion of GDP). That rationing of job creation is giving way to more part-time work, higher levels of underemployment (part-time workers who desire more hours but cannot find them), higher proportions of casual work, and a bias towards jobs that provide low (below average) pay. And the pressure is on to cut pay and conditions even further as employers make spurious claims about the damage penalty rates (overtime rates at weekends) cause the economy. The problem for them is that a recent (leaked) report by a Citi Research (part of Citigroup), hardly a friend of the unions and workers, has exposed the truth – cuitting penalty rates will just boost profits and will not lead to increased employment.

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When Britain went fiat and the skies remained above

A former student sent me an E-mail recently and updated me on his progress and his current research project – the history of British banking in the 19th century. He also wanted to draw my “attention to a little known period in British Economic history that seems to reinforce the interrelationship between fiat currencies, public debt and expenditure and rates of economic growth and unemployment”. So square centre of my own research interests (among others). So I did some further digging and read back through the notes I have taken over the last 35 years as a researcher. I was aware of the Bank Restriction Act 1797 “was an Act of the Parliament of Great Britain … which removed the requirement for the Bank of England to convert banknotes into gold.” This essentially created a fiat currency system with the central bank as the currency issuer. More interesting things arise as you dig further. For a period of 24 years, Britain lived under this form of monetary system. And, need I add, during this period Britain usurped the Netherlands as the most developed economy in the world at that point in history and the industrial revolution boomed. The mainstream economists of today would have predicted catastrophic results from the 1797 Bank Act. But then we know that what they say has zero credibility anyway.

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The British reality defying the ideologically-based gloom and doom

I last wrote about the aftermath of the June 2016 Brexit vote in this blog – Mayday! Mayday! The skies were meant to fall in … what happened?. Admittedly, it was written just a month after the vote and so the analysis could legitimately be considered as being tentative and was designed to refute the claims by the remainers that the UK would instantly sink into recession. It didn’t and it hasn’t. Despite the tentative nature of the blog (using the first data releases after the vote), I received a bevy of ‘hate’ E-mails, presumably from those ‘darlings’ that were miffed they didn’t get their way in the vote. Bad luck, that is the way ‘democracy’ works. We are now at the end of June and we have more information and my conclusion in August is now more concrete. The doom and gloom that was meant to follow the vote outcome is not to be seen in the data. While we might dismiss the on-going strength of consumption expenditure as being short-termism (it might change quite rapidly), last week (November 25, 2016) we learned that private capital formation (investment) is growing strongly and a number of foreign companies have reaffirmed their commitment to on-going investment in the UK. That is forward-looking decision making – out years into the future. Doesn’t look like a Brexit calamity to me.

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Poor fiction from the OECD – the organisation should be abolished

In assessing the role of the multilateral international institutions such as the IMF, the World Bank, and the OECD, one has to have an idea of what their purpose is. The IMF was created to provide funding support to nations under the Bretton Woods system of fixed exchange rates when their trading accounts endangered their capacity to sustain the agreed parities. After the system collapsed in August 1971 (effectively), the IMF had no further purpose. It reinvented itself as a neo-liberal attack dog on government intervention, and, as such, has no progressive (productive) role to play and should be scrapped. Similarly, the World Bank. The OECD was created (as the Organisation for European Economic Co-operation (OEEC)) to manage the Marshall Plan funds that Canada and the US provided to reconstruct Europe at the end of World War II. It has similarly outlived its productive purpose and is now a major source of disinformation. Even in the realm of fiction, there are much better fiction writers than exist within the bowels of the OECD in Paris. Its latest entreaty, specifically – Using the fiscal levers to escape the low-growth trap – from the exemplifies the way in which the OECD chooses to perpetuate myths about government policy options, even when its message might appear reasonable to progressive eyes and ears. That is the problem really, by buying into the neo-liberal scam that mainstream economists have been running for the last 3 or 4 decades, progressive politicians and their apparatchiks have no room to move and will applaud the OECD’s current message, not realising how destructive that complicity becomes. That has been the problem all along and Trump, Brexit and the rising extremism in Europe is the outcome. Reap what you sow!

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The Weekend Quiz – November 26-27, 2016 – 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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