Welcome to the billy blog Saturday quiz. The quiz tests whether you have been paying attention over the last seven days. See how you go with the following five questions. Your results are only known to you and no records are retained.
Yesterday, the British government announced that they had actually recorded a deficit in January which is rare given they normally get a big revenue boost in that month. The reaction to the news has been hysterical and calls to invoke fiscal austerity measures in the lead up to their national election are gathering pace. You can imagine that these calls are suggesting exactly the opposite of what I think the British government should be doing. Given that they risk locking a generation of their youth into a lifetime of disadvantage, job creation programs are required now which will require further stimulus. That is the only responsible course of action. The bond markets disagree. But if the governments around the world really represented the interests of their citizens they would use their capacities to render all these vandals irrelevant. Most people, however, do not understand what that capacity is and how the government could use it. Anyway, now to the news …
Last week (February 10, 2010), the ever-louder irrational rantings of Niall Ferguson about debt got another airing in the Financial Times in his article – A Greek crisis is coming to America. My two word reaction – which might be better than writing a whole blog was – Oh really! But the article demonstrates how desperate conservative academic commentary is becoming. The inflated self-importance of these characters quite obviously craves for ever increasing attention. However, not only does Ferguson demonstrate a poor attention to detail; a confusion about which monetary system is which; and a denial of history – but he also discloses such a vivid imagination that he might productively turn his hand to writing children’s fairy tales. Except then he would have to lighten up a bit or the kid’s would be having nightmares. As for the rest of us, we should be getting the lifeboats out if he is right. For me, I am staying on dry land except in the mornings when I chase those waves!
In recent comments on my blog concern was expressed about continuous deficits. I consider these concerns reflect a misunderstanding of the role deficits play in a modern monetary system. Specifically, it still appears that the absolute size of the deficit is some indicator of good and bad and that bigger is worse than smaller. Then at some size (unspecified) the deficit becomes unsustainable. There was interesting discussion about this topic in relation to the simple model presented in the blog – Some neighbours arrive. In today’s blog I continue addressing some of these concerns so that those who are uncertain will have a clear basis on which to differentiate hysteria from reality. We might all sleep a bit better tonight as a consequence – hence the title of today’s blog!
First, devise a monetary union that is based on flawed notions of how the monetary system operates. Second, within that union invent nonsensical rules that give the system in general or member nations in particular the no capacity to deal with a damaging economic crisis. Third, allow countries within the union to game it to their own advantage at the expense of other member nations (for example, Germany – although the advantage was at the expense of German workers). Fourth, when a crisis hits elevate the nonsensical rules to the level of the sacrosanct and commit innocent citizens to years of unnecessary economic hardship. That is the level of sophistication that Europe has reached in 2010.
The other day I introduced a simple model of how a monetary economy works. The model was centred on the payments of my personal calling cards to elicit labour from the kids that live in my house. All the basic national accounting results that apply in a real economy were present. The simplicity extended to considering only two sectors – the kids (private) and the “house” (public). In terms of modern monetary theory (MMT) we start by examining the broad relationships between the government and non-government sector, where the latter comprises the private domestic and foreign sector. Some readers have suggested that the results obtained would not apply if I had have explicitly modelled the cross-border flows (that is, the external sector). Well today, I have some news … some neighbours have arrived next door to my place and the kids from each house are jumping fences.
On Friday (February 12, 2010) as Eurostats released the flash estimates of fourth quarter GDP for the EU (see below), the IMF released a new staff position note entitled – Rethinking Macroeconomic Policy. The bad news is the Europe is looking more like a region that is heading for a double dip recession. The even worse news is that that cretins at the IMF are claiming they know why they messed up in the past and how to address their failure. Stay tuned for a modified version of the same. The fact is that the IMF Report reveals they are as ignorant as ever of the workings of the modern monetary economy. So this revisionist exercise doesn’t signal a major paradigm stage.
Welcome to the billy blog Saturday quiz. The quiz tests whether you have been paying attention over the last seven days. See how you go with the following five questions. Your results are only known to you and no records are retained.
In this recent blog – Who is in charge? – I outlined the case that all the so-called “financing” arrangements that government deploy which are held out to us as being required to allow them to spend are in fact voluntary and reflect deep-seated ideological anti-government positions. I wanted to make the point that it is governments not amorphous “bond markets” that ultimately in command of the destiny of their nations and that citizens are being grossly mislead by lies and half-truths into believing that governments have to introduce harsh austerity packages to appease the markets because if they do not the latter will “close them down”. I continue with that theme today and address some issues raised in the comments that accompanied that blog.
Today the ABS released the Labour Force data for January 2010 and there was quite a strong growth in employment reveals, albeit it was dominated by part-time growth. The employment boost confounded the “markets”, some of the so-called experts had “factored in” contraction (so I guess their clients are dudded by their incompetence again!). With participation constant, the net jobs growth translates into solid reductions in unemployment. Unfortunately, total hours worked plummetted so I suspect it will be a grinding part-time led recovery. But the good news is that unless something bad happens elsewhere in the World we are now well over the aggregate unemployment rate peak and surfing down the face!