Welcome to The Weekend Quiz. The quiz tests whether you have been paying attention or not to the blog posts that I post. See how you go with the following questions. Your results are only known to you and no records are retained.
Last week, I did a seminar with a Melbourne financial market group (Wattle Partners), who I regularly help in their education programs. It took the form of an informal (somewhat structured) conversation about Modern Monetary Theory (MMT) and more practical applications of the MMT understanding. There were several questions from the audience that we didn’t get time to answer in the allotted time so today I am honouring my agreement to provide answers, which might be of interest to the broader readership, if only to reinforce knowledge. The video of the interaction is also available now and you can watch it here.
It is Wednesday and so just a few points today. I obviously like data as it tells me a lot about the world and often forces me to alter my views on things. While I mostly analyse economic and financial data, which is my professional skill, I also like to investigate other data sets on things that interest me. Today, I am looking into the vaccine question, which has been playing on my mind lately as the Australian political class, under pressure from all sorts of business lobby groups who fund their election campaigns, have been ‘opening up’ the economy (states and territories) despite high case numbers in some jurisdictions and despite relatively low vaccination rates. They have come up with a ‘Roadmap’ to ‘living with Covid’ (which will see many people die from Covid) and defined key thresholds in terms of average vaccination rates. The problem is the these thresholds are not very scientific at all and their semblance of ‘safety’ points is an illusion. In effect, the political class has abandoned their pretence to following health advice and are just going for it. It is a difficult period in our history.
One of the recurring criticisms I face when presenting at events comes from those who say they are ‘socialists’ or ‘Marxists’. They accuse me in various ways of being an apologist for capitalism, for offering palliative solutions to workers, which will delay the break down of the system and the revolution to socialism and communism. These critics proudly announce they follow Marx’s solutions and that they reject Modern Monetary Theory (MMT) because it is just a stooge for capitalism. The problem is that Marx had no real vision of how we would transit to Communism. A recent book referred to Marx’s philosophical position on this as a ‘dream’ (more later). And MMT is not specific to any mode of production, by which I mean, who owns the material means of production. It is applicable to any monetary system, and I cannot imagine any modern, technologically-based society functioning outside of that reality – socialist, capitalist or otherwise. But, moreover, the critics seem to be displaying a lack of basic humanity where they exercise reasoning that Noam Chomsky regularly refers to as belonging in a philosophy seminar. Even progressives (and socialists) have to be aware of humanity – as they plot and scheme for the revolution.
The US Bureau of Labor Statistics published the latest JOLTs data last week (October 12, 2021) – Job Openings and Labor Turnover Summary – August 2021 – which has raised a possible shift in bargaining power in the US labour market towards workers. The most obvious sign of that is the rising quit rates, which are most prevalent in the low-wage sectors. While there is still some slack in the US labour market, the evidence suggests that workers are taking advantage of the improved job opportunities to pursue better wages and conditions. We will have to wait and see whether there are any significant wage outcomes arising from this behaviour or whether workers are just jumping from very bad to bad jobs. Time will tell.
Here are the answers with discussion for this Weekend’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.
Welcome to The Weekend Quiz. The quiz tests whether you have been paying attention or not to the blog posts that I post. See how you go with the following questions. Your results are only known to you and no records are retained.
The Australian Bureau of Statistics released the latest labour force data today (October 14, 2021) – Labour Force, Australia – for September 2021. The background is that the entire East Coast is in or has been in lockdown over the last few months and for the two largest labour markets (NSW and Victoria) that lockdown has been very tight. Both states are in the process of easing restrictions as vaccination rates rise. The September 2021 data reveals that the longer NSW lockdown is now impacting heavily on employment growth which is now 4.7 points below the March 2020 level. Similarly, Victoria’s employment level has fallen and is 2.1 points below the pre-pandemic level. Overall for the nation, employment fell for the second consecutive month as did the participation, the latter cushioning the rise in official unemployment. But if we take into account the participation decline, the actual unemployment rate would be 5.7 per cent rather than the official rate of 4.6 per cent. Quite a difference. The turbulence caused by the pandemic has really masked the steady decline before that and my estimates are that the true unemployment rate, taking into account the rise in hidden unemployment since August 2019, is close to 7 per cent. Again, quite a difference. The more stable ratio – the Employment-to-Population ratio plunged again in September – two months of massive declines. Last month, I predicted the situation will would worse in September – and it did. So while the unemployment rate might be relatively low by recent historical standards, the situation is dire. The lack of any significant stimulus from the federal government is telling. There is now definite evidence that further and rather massive fiscal support is required.
It’s Wednesday and my blog-lite day or so it seems. Today I briefly discuss the proposition that the British government can run short of sterling. It cannot unless it chooses to do so. And the basis for choosing to do so would be deeply irrational and irresponsible, when judged from the perspective of advancing the well-being of the citizens. I also reflect on the vested interests in the financial markets and the way they get platforms in the media and policy making circles to advance their sectional interests (profit). And mostly, we just have a 33 minute musical feast to reflect upon.
I learned long ago that when you consult a surgeon the recommendation will be surgery. After about 10 or more knee operations (both legs) as a result of sporting injuries, and, then some, to undo the damage done by previous surgery, I ran into a physiotherapist who had a different take on things. He showed me ways the body can respond to different treatments and retain the capacity for high-level training and performance even with existing damage. I still run a lot and his advice was worth a lot. The point is to watch out for one-trick ponies. The analogy is not quite correct because sometimes surgeons get it right. I don’t think the same can be said for a mainstream economist, who are also one-trick ponies. If you ask a mainstream economist what to do about macroeconomic policy they recommend hiking interest rates and cutting fiscal stimulus if the CPI starts to head north, irrespective of circumstances. But the message is getting blurred by realities, especially since the GFC. More pragmatic policy makers realise that just responding in the textbook manner hasn’t provided a sustainable basis for nations to follow. In the last week, we have seen the contradiction between the one-trick ponies, who are desperate to get back into their textbook comfort zone, and those who see the data more clearly. In Britain, one part of the Bank of England, the Financial Policy Committee has indicated the way forward is going to require careful policy support for businesses because many SMEs have loaded up on debt during the pandemic and face a precarious future. In the same week, a private sector bank economist, who is also an external member of the Bank of England’s Monetary Policy Committee, called for interest rate hikes and a deeper withdrawal of fiscal support (and central bank coordination of that support) to deal with, an as yet, unclear inflation threat.