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Labour market measurement – Part 1

I am now using Friday’s blog space to provide draft versions of the Modern Monetary Theory textbook that I am writing with my colleague and friend Randy Wray. We expect to complete the text by the end of this year. Comments are always welcome. Remember this is a textbook aimed at undergraduate students and so the writing will be different from my usual blog free-for-all. Note also that the text I post is just the work I am doing by way of the first draft so the material posted will not represent the complete text. Further it will change once the two of us have edited it.

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British labour market is very active but stuck

The British economy has entered a double-dip recession as a result of aggregate spending slowdowns driven by a pessimistic private domestic sector, a poor net exports outlook and the increasing impacts of the fiscal austerity. The result has been that unemployment is stuck at its elevated levels and will likely rise in the coming year if the government doesn’t change its tack. However, the official data released last week by the UK Office of National Statistics (see link below) shows us that if you are employed in Britain at present the chances of losing one’s job are slim. It is rising but still very small. What the gross flows data allows us to appreciate is that the much-focused on unemployment rate does not tell us about the chances that are worker will remain in that state, become employed or leave the labour force. Even those the risk of an employed person becoming unemployed is low, it still remains that the chances of an unemployed person remaining so is higher and significantly higher than before the recession. This is because the net flows into employment are too low relative to the labour force growth. This blog is the first of a few which attempts to encourage people to look deeper into the statistics and gain a wider appreciation of what is happening in the labour market. I will write more on it in further blogs when I have more time.

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Neo-liberals can’t even identify self-interest when it is staring at them

The British Prime Minister gave a – Speech – to the Confederation of British Industry Conference on November 19, 2012, where he outlined how tough his government had been in terms of imposing fiscal austerity. In other words, he was taking responsibility for Britain’s appalling dive back into (double-dip) recession, although it is hard to find that confession in his actual words. Over the English Channel, the EU is busily preparing the champagne and fine foods for its upcoming summit on the 2014-2020 EU Budget. The EU leadership is talking tough and proposing large cuts in EU-level spending not the least being harsh cuts in the Overseas Development Aid (ODA) budget. The cuts are, of-course, based on false premises – that the economies are broke and have to live within their means – even though millions of workers lie idle. The idiocy is exemplified though in the failure to understand that ODA, while perhaps provided for ethical reasons, actually improves the outcomes of the donor nation. So these so-called free marketeers cannot even identify self-interest when it is staring them in the face. So they busily go about cutting their noses off!

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Timor-Leste – beyond the IMF/World Bank yoke

I am hosting a workshop in Darwin today, the first CofFEE event since we established a branch of our research group here at the University in October 2012. The topic is the Economic Prospects for Timor-Leste and the discussion is oriented to broaden the economic narrative beyond the rigid and growth-restricting fiscal rules that the IMF and the World Bank have pushed onto the Timor-Leste government. The aim of my work generally is to develop more inclusive and equitable approaches to economic development, which emphasise full employment, poverty reduction and environmental sustainability. A complete understanding of Modern Monetary Theory (MMT) allows one to see the agenda of the multilateral organisations in a clear light. So while Timor-Leste has a major struggle ahead to achieve its strategic goals of becoming a middle-income nation by 2030, it would be advised to scrap its present currency arrangements and use its massive oil wealth to introduce unconditional and universal job guarantees as the starting point for a more coherent and inclusive development path.

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Governments that deliberately undermine their economies

I get many E-mails from readers who are confused about stocks and flows. At least that is my diagnosis because from the questions that I get asked it is apparent that there is a deep misunderstanding of what a budget deficit actually is and how it is different from the stock of outstanding public debt. This is an important issue and bears on how many seek to comprehend the latest Eurostat – Flash National Accounts data – for the third quarter 2012. The data is now signalling a further descent into recession in the Eurozone and with further cutbacks being imposed on various nations, already mired in what should be called Depression, the outlook for 2013 is worse. This is a case of governments deliberately undermining their economies. The strategies in place cannot work. All they will do is add more workers to the millions that have already been forced into unemployment by this policy folly. I view the policies being imposed in Europe and the UK, for example, as criminal acts.

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Saturday Quiz – November 17, 2012 – answers and discussion

Here are the answers with discussion for yesterday’s quiz. The information provided should help you understand the reasoning behind the answers. 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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External economy considerations – Part 3

I am now using Friday’s blog space to provide draft versions of the Modern Monetary Theory textbook that I am writing with my colleague and friend Randy Wray. We expect to complete the text by the end of this year. Comments are always welcome. Remember this is a textbook aimed at undergraduate students and so the writing will be different from my usual blog free-for-all. Note also that the text I post is just the work I am doing by way of the first draft so the material posted will not represent the complete text. Further it will change once the two of us have edited it.

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Fiscal policy should sustain full employment and reduce inequality

Sometimes there is serendipity in a researcher’s life. Usually not. But sometimes. The last few months I have been investigating the question of how to effectively design fiscal policy interventions. It is an important issue because there are multiple goals that need to be satisfied. Two clear goals can be identified to simplify matters. First, fiscal policy has to be designed and implemented in a way that ensures there is sufficient aggregate demand in the economy relative to its real productive capacity so that full employment is achieved and sustained. Second, it should be designed and implement so as to reduce inequality. The two goals are interdependent despite the myths that economics students learn about the trade-off between efficiency and equity. It is now clear that rising inequality harms the prospects for sustainable economic growth. The evidence is now starting to come in that during the neo-liberal era, fiscal policy was actively used to reduce its redistributive capacity and its capacity to reduce market-generated inequality was severely compromised. Not eliminated but substantially reduced. That is what this blog is about.

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Win-win – US budget deficit expands and supports growth and private saving

The Sydney Morning Herald carried an AFP story today (November 14, 2012) – US deficit hits $120b as fiscal cliff nears – which reported the latest US Treasury Department figures which showed that “the US budget deficit rose 22 per cent in October from a year ago, to $US120 billion ($A115.56 billion), as spending far outpaced revenue”. At which point I thought – how lucky the American people are that the Government deficit is still expanding and supporting growth unlike the expanding deficits in Europe which are expanding because of a lack of growth. It is an astounding achievement for the US people. Unfortunately all the signs are that the American polity doesn’t actually understand that their in-fighting, which has allowed the deficits to continue growing, has been good for the nation. Had they actually cut the deficits or failed to pass the debt limit extension, the US economy would be in the doldrums just like Europe. The problem now is that the political debate will reach some conclusion pretty soon and the harbingers of doom are growing stronger. But for the time being with the US budget deficit expanding and supporting growth and private saving it is a win-win.

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