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Japan demonstrates the real limits on government spending

Last week, Reuters put out a story (October 30, 2014) – Special Report: Tsunami evacuees caught in $30 billion Japan money trap (thanks Scott Mc for the link) – which provides an excellent demonstration of the true limits of government spending in a currency-issuing nation. The underlying principles should be understood by all as part of their personal mission to expel all neo-liberal myths from their thinking and to help them see the nature of issues more clearly. Unfortunately, the application we will talk about is sad and has tragic human and environmental consequences, but that doesn’t reduce the relevance of the example for conceptual thinking. In a nutshell, the central Japanese government has transferred some $US50 billion worth of yen to the local government to combat the destruction caused by the tsunami in March 2011. Thirty billion is unspent despite people still living in temporary housing and suffering dramatic psychological trauma as a result. Why is this happening? Doesn’t Modern Monetary Theory (MMT) tell us that a currency-issuing government can spend what it likes? Well, not exactly. What MMT tells us is that a currency-issuing government can purchase whatever is for sale in its own currency and that propensity is limited by the availability of real resources. Here is a classic demonstration of the limits of government nominal spending.

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The secular stagnation hoax

Last year, the concept of secular stagnation was reintroduced into the economics lexicon as a way of explaining the lack of growth in advanced nations. Apparently, we were facing a long-term future of low growth and elevated levels of unemployment and there was not much we could do about it. Now it seems more and more commentators and economists are jumping on the bandwagon such that the concept is said to be “taking economics by storm” – see Secular Stagnation: the scary theory that’s taking economics by storm. The only problem is that it first entered the economics debate in the late 1930s when economies were still caught up in the stagnation of the Great Depression. Then like now the hypothesis is a dud. The problem in the 1930s was dramatically overcome by the onset of World War 2 as governments on both sides of the conflict increased their net spending (fiscal deficits) substantially. The commitment to full employment in the peacetime that followed maintained growth and prosperity for decades until the neo-liberal bean counters regained dominance and started to attack fiscal activism. The cure to the slow growth and high unemployment now is the same as it was then – government deficits are way to small.

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Saturday Quiz – November 1, 2014 – 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 – music while you work

Its my Friday lay day blog – a short blog today about music at work. Building on yesterday’s blog – Self-imposed corporate regulations control workers but choke productivity – which told the story of an increasing imposition of productivity choking workplace rules and procedures that capitalists use to control their workers. A classic manifestation of these workplace changes has been the increased use of open-plan offices (abandoning private offices) and so-called hot desking. This is a very alienating environment for workers and research has shown that if workers have access to music while they work that they choose, they get through the day in better shape. Cue the turntable! Pablo Moses on. Start typing.

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Self-imposed corporate regulations control workers but choke productivity

Two new industries have emerged in this neo-liberal era. The first is what I call the ‘unemployment’ industry, which operates to case manage the unemployed that poorly crafted fiscal policy has deliberately created and entrenched into our modern societies. A whole parasitic array of private providers get paid by the government to coerce and threaten the unemployed under the guise of retraining them for jobs. I wrote about this scandal in this blog – Why we should close the ‘unemployment industry’. In the last few days, a new industry has been identified which employs over a million people in Australia, making it one of the largest sectors, although no official data is published on it. This sector has been labelled in the press this week – the ‘red tape’ industry or the ‘compliance sector’. It is growing faster than any other industry in Australia and probably elsewhere, although there is no data available that can tell us that. It is largely unproductive because it undermines the productivity of other workers. Red tape, compliance, must be the public sector once again imposing its heavy hand on private endeavour, right? Wrong, the neo-liberals not only created and expanded a moribund and dysfunctional financial sector but has also created the red tape industry as it seeks to control workers down to the smallest degree. Hilarious really if it wasn’t so wasteful and hypocritical.

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The case of the financial commentator who turned into a banana

Today, I am writing about the mysterious case of the financial commentator who turned into a banana. It happened around 4.5 years ago and has left a disturbing trail of comedic predictions. The person in question still looks a little like he used to although he has clearly become a piece of fruit. Anyway, some further analysis will help us track down the culprit. In simple terms, the perpetrator is that familiar neo-liberal groupthink that we know so well. The commentator was so imbued with it that he turned into a banana. Read on, it is a terrifying tale.

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Eurozone households still highly vulnerable to bankruptcy

The ECB recently released a Working Paper – Financial Fragilty of Euro Area Households – which attempts “to identify distressed households by taking account of both the solvency and the liquidity situation of an individual household”. The paper uses survey data based on a sample of 51,000 households in 14 Euro nations. Taken at face value, the research provides some interesting and, perhaps, unexpected outcomes with respect to where the vulnerability lies. On the back of further damaging news about the economic prospects for Germany, the ECB research should, but won’t, motivate a major shift in German government policy towards stimulus. But then the head of the Bundesbank claims that stimulus is not required because Germany is travelling at normal capacity. The data would suggest otherwise and the ECB research would suggest that Germany is very vulnerable to a further recession.

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Eurozone battle lines being drawn again with Germany on the other side

The battlelines between the European Commission and France and Italy over the – Corrective arm – of the Stability and Growth Pact are firming up after the Italian Government publicly released a ‘strictly confidential’ letter from the Vice President of the European Commission – La lettera della Commissione Europea all’Italia – on the homePage of the Ministry of Economy and Finance late last week. The European Commission expressed hostility towards the Italian government hinting that there was a lack of trust involved. Nothing could be further from the truth. The fact is that the Commission wants to keep its dirty work away from the public eye because it knows that deliberately creating unemployment and poverty is not exactly an endorsement for its common currency model. But this little skirmish last week between the technocrats and the Italian government is just part of a war that is to come over the implementation of the Excessive Deficit Procedure in both France and soon, Italy. We have been here before – 2002-03 – but this time, Germany was in the trenches with France. Now it is playing the role of the enforcer. It all goes to show however, if we ever needed reminding what a sorry, failed enterprise the Eurozone actually is.

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Saturday Quiz – October 25, 2014 – 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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