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The British government does not have to appease the financial markets

Sometimes one journalistic piece captures the problem facing those who are trying to change the economics narrative and promote an alternative framing that is ground in the reality of the system rather than one that serves to reinforce the dominant ideology of the elites. The opinion article by Larry Elliot in yesterday’s UK Guardian (October 13, 2024) – Labour’s challenge is complicated by the triumph of finance. That’s bad news for UK plc – is one such article. It summarises how far the progressive debate and the British Labour Party has become trapped by fiction. It demonstrates clearly how if we start off assuming that there is a rigid constraint on decision-making then the bind will lead, invariably, to poor decision making because the opportunity set is so artificially limited by the starting assumption. I am amazed really that progressives in Britain (and everywhere by the way) still adopt this flawed framework for debate and decision-making. So let’s work it out properly.

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More misery and dysfunction coming for France – as the fiscal rules bite

For all those Europhile progressives who have held out that reform is the way to deal with the neoliberalism of the European Union and even, in some cases, claimed that the austerity mindset was over (once the fiscal rules enshrined in the Stability and Growth Pact were temporarily suspended during the pandemic), the behaviour of the French government should wake them out of their delusional reverie. The new Prime Minister addressed the National Assembly last week and outlined a new fiscal direction involving significant expenditure cuts and tax hikes. His plan will not satisfy the European Commission, however, who under the Excessive Deficit Protocol (EDP) have indicated they want a faster transition back to the fiscal rule thresholds (that is, even harsher austerity than Barnier is proposing). This policy shift is in the context of an elevated unemployment rate (which is rising) and an already significant output gap. The austerity is likely to push the unemployment rate towards 9 per cent (around) and will be a disaster for the prosperity of the French people who are still enduring the cost-of-living fallout from the pandemic and the Russian-Ukraine situation. Add in the possible impacts of the Middle East crisis and we have a failed state. Once again the fiscal rules defined within the EMU architecture are going to deliver shocking outcomes.

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Shipping disruptions unlikely to precipitate another inflation surge

It’s Wednesday and while I usually have a few topics to discuss, today I am concentrating on the recent disruptions to shipping channels and the likely impact on inflation. I was also hoping to post a video of the recent launch of my new book with Warren Mosler in Melbourne on September 12, 2024 but the editing is not quite finished. If we analyse the shipping data it is quite clear that global shipping channels are being seriously disrupted by a number of factors. Most particularly, the Suez Canal is becoming unusable while the Panama Canal is struggling with water levels following a devastating drought. The impact of the former has been for major shipping companies to divert their movements around the Cape of Good Hope, adding time and costs to the freight deliveries. If we reflect on the implications, the most reasonable conclusion at this stage is that these shifts in shipping patterns are unlikely to precipitate another surge in inflation. There might be some temporary cost and price shocks but I cannot see them persisting. And, there is nothing here that is relevant to central bankers.

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IMF surcharges cripple the poorest nations and transfer wealth from the poorest to the richest nations

I am now working in Kyoto again and have a full day’s commitments ahead of me. But as part of my on-going research I have been investigating the conditions under which the IMF extends financial support to the poorest nations. And today I will tell you about the surcharge system which the IMF uses to make it even harder for those nations to repay the already onerous debt obligations that the IMF imposes on them. These surcharges are just another component of the IMF’s extraction system which transfers wealth from the poorest nations to the richest. I have long advocated the abolition of the IMF and a replacement, multilateral institution being created that actually works to help reduce poverty and the redistribute resources from endowed to less-endowed nations without any harsh austerity measures. The challenge is how would that work. I will write more about my ideas on that in due course. But the evidence keeps mounting to justify the abolition. The surcharge system is one part of that evidence suite.

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Recent and upcoming elections tell us a lot about how far gone the global order is

It’s Wednesday and I am flat out finishing things today as I am off to Japan again to work once again at Kyoto University. I will keep you updated on the progress of that work and a public event that we are thinking about in November in Kyoto (or possibly Tokyo or both). For now a few thoughts on current political happenings and some administrative matters.

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Class origins matter – but who are the agents of change?

The celebratory headlines in Australia today are about how the Federal government has just recorded two consecutive financial year fiscal surpluses, which the Treasurer lauded as an example of “responsible economic management” as the government removes from the economy a cumulative sum of $A172.3 billion since it was elected in May 2022. The headlines should have said “Federal government destroys non-government financial wealth over the last 2 years as more people are without work’, which is actually what has happened. Anyway, it is too depressing to see the media fawn over the Treasurer today. So I am going to go abstract and avoid talking about that any further. There was an interesting article in the UK Guardian the other day September 26, 2024) – Take it from me (and Keir Starmer) – you should never pretend to be more working class than you are. I don’t usually agree with the journalist but this article made me reflect on a lot of things.

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Biocapacity constraints and full employment – Part 1

This week, the Australian government (Labor) did the unthinkable. It approved three thermal coal mine expansions in NSW – the Environment Minister approved the expansion of the Whitehaven Coal mine until 2044, the Mount Pleasant mine until 2048 and the Ravensworth mine until 2032. For a government that claims to hold superior ‘green’ credentials to the main opposition this was a major disappointment and once again demonstrated that the lobbying power of foreign-owned capital, which is only chasing massive profits and care little about the well-being of the environment or its workers, is dominant in public decision-making. It brings into question whether there is a solution to the environmental crisis (the 1.7 times biological capacity problem) while resource allocation remains determined by those seeking private profit, who reluctantly bow to regulative constraints, while continually trying to get around them. In this blog post, the first of a few, I provide some insights drawn from my current research that will come out in my next book (with Dr Louisa Connors) on degrowth and related topics. The question that has to be answered is whether the solution to a sustainable future includes maintaining the capitalist system. Today, I talk about how capacity constraints may prevent full employment from being possible and extend that analysis to the current context where environmental capacity is more important than productive capacity.

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Australian Treasurer refuses to use his legislative power to rein in the rogue RBA

It has been quite the week in central banking terms in Australia. We had the Federal Greens economic justice spokesperson demanding that the Federal Treasurer use the powers he has under the Reserve Bank of Australia Act 1959 and order the RBA to lower interest rates. Then we had the Treasurer playing the ‘RBA is independent’ game, which depoliticises a major arm of economic policy, a (neoliberal) rort that ordinary people are finally starting to see through and rebel against in voting intention. Then an ABC journalist finally told his readers that the RBA was using a flawed theory (NAIRU) and was screwing mortgage holders relentlessly for no reason. Then the RBA Monetary Policy Board met yesterday and held the interest rate constant despite the US Federal Reserve lowering the US funds rate by a rather large 50 basis points last week and continued their pathetic narrative that inflation was too high and ‘sticky’. And then, today (September 25, 2024), the Australian Bureau of Statistics (ABS) released the latest – Monthly Consumer Price Index Indicator – for August 2024, which exposed the fallacy of the RBA’s narrative. The annual inflation rate is now at 2.7 per cent having dropped from 3.5 per cent in July and the current drivers have nothing to do with ‘excess demand (spending)’, which means the claims by the RBA that they have to keep a lid on spending – which really means they want unemployment to increase further – are plainly unjustifiable. As I said, quite a week in central banking. My position has been clear – the global factors that drove the inflationary pressures are resolving and that the outlook for inflation is for continued decline. This was never an ‘excess demand’ episode and there was no case for higher interest rates, even back in May 2022, when the RBA started hiking.

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