The catch-all category for my blogs reflecting my professional expertise as a full professor of economics.
Readers of my blog often ask me about how modern monetary theory sits with the views of the debt-deflationists (and specifically my academic colleague Steve Keen). Steve and I have collaborated in the last few days to foster some debate between us on a constructive level with the aim of demonstrating that the common enemy is mainstream macroeconomics and that progressive thinkers should target that school of thought rather than looking within.
This morning’s Sydney Morning Herald (September 27, 2009) carried the front-page story $82m ‘wasted’ in stimulus splurge. As it was written by a political correspondent you might expect little coherent economic analysis. Your expectation would be correct. But the article had the predictable response from the deficit-debt-hysteria club and the “shocking revelation” has been interpreted as a testimony against the use of fiscal policy to attenuate major cyclical downturns in aggregate demand. The under-current is that citizenship doesn’t matter and governments should only assist those who live within the geographic boundaries they are sovereign over. All these conclusions are of-course folderol.
It continues to amaze me how humans lock themselves into constrained debating positions on almost every topic imaginable. In doing so we stand in denial of our history and therefore operate in a sort of “current ignorance”. But also we deny ourselves the adventure of thinking laterally about how new ways of proceeding might help us solve our problems. So we are neither backward or forward looking but churn our debates around and around within a tight set of ideas which we presumably think is safe. In macroeconomics, the problem is that most of these “safe” ideas are based on false premises and actually expose us to on-going danger of the type we are witnessing in this current global recession. I was reminded of this again today when I was reading the latest New York Times debate about Saving the World, Without U.S. Consumers.
The G-20 leader’s summit in the US at the moment will consider new banking regulations. In September 2008, the Basel Committee Banking Supervision (BCBS), via its Working Group on Liquidity released its revised principles for liquidity risk management and supervision. This week, the Australian Prudential Regulation Authority (APRA), which oversees the financial system released a consultation paper which incorporated the revised BCBS principles. It has created a mini-uproar because it has proposals which will force the banks to hold increased volumes of government debt. But overall, while the impost on banks will be modest they are unnecessary. Once again, modern monetary theory provides different and cleaner insights into banking.
Household saving ratios (saving as a percentage of disposable income) have risen significantly in most countries since the onset of the recession. In many countries this has come after a period of increasing indebtedness as national governments pursued budget surpluses. As a result, the macroeconomic concept of the paradox of thrift has been resurrected in the popular press as a discussion point. There are fears that the end of the “consumer boom” will lead to stagnancy. A recently published IMF paper addresses this point but just cannot let themselves address the elephant in the room. They present a new way version of deficit hysteria.
Today I am flying in a small plane to Brewarrina which is in the remote North-West region of NSW, around 730 kms from Newcastle. It is about as far from the surf as I ever might go in Australia and there is not much out there. I am flying (via charter) because it takes over 10 hours to drive there. So why go there?
Many readers have asked me to comment on the recent financial reform proposals from the Obama Administration. Some have tied their questions into more general requests to outline a specific modern monetary approach to the reform process. So I thought I would take this Sunday blog time to put some notes together in this regard. I cover the treasury and central bank in this blog. At some later point I will consider how to better regulate the commercial banks and the role of governments in deposit insurance.
The mainstream economics profession is not saying much during the crisis apart from some of the notable interventions from conservatives and a few not-so conservative economists. In general, what can they say? Not much at all. The frameworks they use to reason with are deeply flawed and bear no relation at the macroeconomic level to the operational realities of modern monetary economies. Even the debt-deleveraging (progressives) use such stylised models which negate stock-flow consistency that their ability to capture sensible policy options are limited. This blog discusses New Keynesian theory which is a current fad among mainstream economists and which has been defended strongly by one of its adherents in a recent attack on Paul Krugman. The blog is a bit pointy.
The OECD, the organisation that has spearheaded the abandonment of full employment in all its member countries since releasing the supply-side blueprint in 1994 – The Jobs Study, has now finally realised that things are very bleak in labour markets across the World and is saying more action is desperately needed. All their rhetoric in the last decade about making labour markets resilient and flexible through active labour market programs has not apparently stopped the major economies from going belly up.
Today we go into the kitchen cupboard for a lesson in macroeconomics. That is according to the main economics writer of the Sydney Morning Herald, which is published in a city of over 4 million people. The reality is that while we are encouraged to get our heads into the cupboard, all we succeed in doing is further obscuring any understanding at all of how budgets work and the opportunities and capacities of a sovereign government operating within a fiat monetary system. We were really scraping the barrel today!