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Friday lay day – the neo-liberal Groupthink conspiracy continues in Australia

Its my Friday lay day blog and today it comes from a dark London (given the hour). At present, there is an event going on in Australia that sums up what is wrong with our conception of the economy. The right-wing News Limited press and the conservative Fairfax financial newspaper along with a management consulting firm that has had its snout in the privatisation trough around the world (and given my location – was one of the ‘approved suppliers’ of support services as the British government moves to privatise the National Health Service) have organised what they call the ‘National Reform Summit 2015’. It brings together big business, the co-opted trade union movement and welfare agencies, academics who propagate neo-liberal fiscal myths, and government officials who are intent on pushing more deregulation and reduced government involvement in the economy. It beggars belief that this stuff can pass muster. But it is no surprise, given that the right-wing media is organising the show and can make money by pumping out ridiculous headlines that it knows will scare but the content will not be understood by the average reader. So as the neo-liberal Groupthink is not challenged publicly at the Summit, the organisers have carefully screened the invited participants to sing from the same hymn sheet. The cartoon that follows says it all really.

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US Federal Reserve should not increase interest rates

Greetings from London in the early morning! If we went back a few years and dug out all the predictions and scare campaigns that were being issued by mainstream economists and their conservative ‘think tank’ conduits about the impending disaster that would accompany the near zero interest rate regimes that the US Federal Reserve Bank had implemented it would make a great comedy sketch. There should be no surprise with the massive predictive failures of the mainstream economists in this regard. They clearly did not understand the underlying dynamics that govern the way the central bank interacts with the commercial banks. The problem is that these conservative forces are so dumb they don’t have adaptive learning mechanisms and so even in the fact of evidence contrary to their Groupthink they keep pumping out the same nonsense. The other problem is that they tend to be well funded by the right-wing establishment that they exhibit disproportionate influence on the public policy debate. That influence has turned to demands that the US Federal Reserve Bank (the central bank) increase interest rates and reverse its quantitative easing – apparently because hyperinflation is just around the corner. Nothing could be further from the truth. At present the US economy is some way into a very slow and relatively tepid recovery. But it has still some way to go and while interest rate changes have a relatively weak impact on overall growth any anti-growth noise is undesirable. It is also not justifiable given the central bank’s own logic.

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Travelling – back to typing Thursday

There will be no detailed blog today as I am in the midst of inter-contintental travel, which is one of those terms from the C19th that sounds exotic but is in reality pretty awful. Somewhere in the next 24 hours I will surface and start typing again. A new blog will appear Thursday sometime. But while I am gone you can listen to some music, if you like.

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The roots of MMT do not lie in Keynes

I am currently working on an introductory chapter to a collection I have prepared for my publisher (Edward Elgar) which describes the evolution of Modern Monetary Theory (MMT). The task might appear to be straightforward but in fact is rather vexed. There is considerable dispute as to where the roots lie. A specific debate is the importance of the work of John Maynard Keynes. Many Post Keynesians, almost by definition, believe that Keynes was a central figure in the development of what we now call Post Keynesian economics, although that ‘school of thought’ evades precise identification and is certainly anything but homogenous. There are MMT proponents, who while sympathetic with much of Post Keynesian theory, disagree on key propositions – specifically relating to debt and deficits (as an example). But then they also point to Keynes’ work as seminal in the development of MMT. My own view is that many of the important insights in Keynes were already sketched out in some detail in Marx. Further, the work of the Polish economist Michał Kalecki was much deeper in insight than the work of his contemporary, Keynes. But for me the real sticking point against Keynes was his view that fiscal deficits should be balanced over the business cycle and that would allow governments to pay back debt incurred in the deficit years. That view has crippled progressive thought ever since and is antithetical to MMT. The debate also has resonance with the current leadership struggle within the British Labour Party about fiscal deficits and the claims by the ‘socialist’ candidate, Jeremy Corbyn that he will “balance the budget” when unemployment is low so as to avoid inflation. This view derives from the adoption by progressives of Keynes’ views, whether they know that or not. It is a mistaken view and retards progressive policy development.

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Greece – now the conservatives are denying there was austerity

The Project Syndicate recently (August 6, 2015) published an Op Ed by conservative Edmund Phelps – What Greece Needs to Prosper. The article was widely syndicated by the conservative media and represents part of the conservative narrative to conveniently revise history when the facts violate the conservative ideological agenda. It is an appalling article. We are now in a phase of “Austerity denial”, where conservatives attempt to massage history to avoid the unpalatable conclusion that the massive austerity that has been imposed on certain countries by the IMF and its partners in crime (in Greece’s case the European Commission and the ECB) has caused huge declines in GDP (levels and growth rates) and deliberately led to millions of people becoming jobless with associated rises in poverty rates. That causality is undeniable.

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Saturday Quiz – August 22, 2015 – answers and discussion

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.

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Friday lay day – when governments act outside the law they just change the law!

Its my Friday lay day. This week I have written a few (very) long blogs on what I consider to be significant topics. I have been writing on topics that have a direct bearing on what is happening within the British Labour Party over the last few weeks as a way of providing an economic knowledge base for activists who wish to defend their position against the attacks from the Tory-lites (New Labour). Anyway, after a few days of heavy writing I am not going to write much today (in blog space) and will fill this blog up with music, advertisements, promotions and a cartoon. But there is an issue that has come up this week in Australia which goes to the heart of the neo-liberal attack on our democratic rights which I can write about succinctly. The decision by a court to overturn an approval for a coalmine development has caused our neo-liberal government to go into ‘conniptions’ and accuse community groups of being “radical green activists” engaging in “vigilante litigation”. Read on to learn how the neo-liberal way is that when the government is caught acting outside the law to help their corporate business mates the solution is simple – change the law to make it easier for business to bypass acceptable approval processes.

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Mitterrand’s turn to austerity was an ideological choice not an inevitability

As background research to one of my book projects I have been reading a recent biography of François Mitterrand by Philip Short. Its title “Mitterand: A Study in Ambiguity” points to the capacity of Mitterand himself to blow with the wind but only when it suited his sense of personal ambition. Hiding behind his statesmanship was a man with “infinite shades of deviousness, an aesthete and intellectual, a sensualist, a crook”. The story of Mitterrand and his famous turn to austerity in March 1983 is very important to understand because it is used by progressives to justify their ‘austerity-lite’ stances with respect to economic policy. The New Labour politicians that are attacking Jeremy Corbyn’s policy proposals fit into this camp. The ‘left’ narrative is that the demise of Keynesian policy options was inevitable in the face of globalisation of capital and the growing importance of Transnational Corporations (TNCs). But, my argument is that there was nothing inevitable at all about Mitterrand’s poorly contrived shift into austerity. The progressives who advocate the inevitability thesis conflate the development of the TNCs with the emerging dominance of the neo-liberal ideology (which is concoction from economists intent on pushing the textbook competitive free market model with minimal state intervention). The development of the TNCs didn’t undermine the capacity of currency-issuing nation states. That has been accomplished by the imposition of the neo-liberal ideology and is reversible if the politics can be won. That is what I see as Jeremy Corbyn’s challenge – to win the politics. There is plenty of strong economic argument to help him do that.

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PQE is sound economics but is not in the QE family

The conservative forces including those ‘Tories’ that are within the British Labour Party (aka New Labourites) continue to gather their forces to counter the growing threat posed by Jeremy Corbyn to their secure world as neo-liberal, Tory-lite hopefuls. They are part of a phalanx of critics, including mainstream economists who seek to diminish his credibility. At the extreme end of this bunch are the evil ones who have accused Corbyn of being antisemitic and a friend to Islamic terrorists. I am reliably informed that the same tactics have been deployed against Bernie Sanders in the US. It tells us that desperation has replaced any sense of decency or reason. It also tells us that the Tory-lites are finally seeing the evidence that their day in the sun has gone and they are being cast into irrelevance. Not before time, I should add. But all is not clear on the Corbyn front either. Today, I want to discuss what appears to be a major economic policy proposal – the so-called People’s Quantitative Easing (or PQE). There are elements of a good idea in this proposal but the QE reference and the resulting language is all wrong, in that it betrays as lack of understanding of the difference between a monetary

policy operation and a fiscal policy intervention. The concept should be re-framed so that a consistent narrative can be provided and that a good policy proposal gains the wings it needs. PQE is a wealth generating policy which is in contradistinction to QE which just shuffles wealth portfolios.

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