The catch-all category for my blogs reflecting my professional expertise as a full professor of economics.

The urban impact of the failure of austerity

I use the descriptor ‘failure’ in a selective way, although it is probably the meaning that that vast majority of citizens would ascribe to the term. In this context, I’m thinking that successful policy improves the lives of the most disadvantaged citizens in a region. A small minority of people might think of success in terms of how rich the top end of the distribution becomes (in wealth or income). Yesterday (January 25, 2016), a UK research group, the Centre for Cities released their latest – Cities Outlook 2016 – which is a comprehensive analysis of how the larger cities in Britain are performing across a variety of indicators. In this release, the theme was centred on the claim by the British Chancellor that his policy design was intending to produce a “higher wage, low-welfare economy in Britain”. The report suggests the British government has failed and that “almost half of lower wages, and higher welfare, than the national average” and “welfare spending since 2010 has grown at a much faster rate in high-wage cities”. I’ve also been trying to disentangle the impacts of deindustrialisation on urban spaces, which began in the 1980s, from the more recent impacts of policy austerity, driven by misguided understandings of the capacities of currency-issuing governments. I want to address the claim from the Left, that the shifting patterns of capitalist production across regional spaces, is inevitable and undermines the capacity of cities to prosper. The shifting patterns might be inevitable but the conclusion that is drawn about the options available to cities are largely incorrect.

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Exchange rate movements and exports

There was an article a few weeks ago purporting to show that public deficit expansion (increased net public spending) has never worked. I won’t link to the article because I would not want the Magazine to get any advertising revenue via my blog and also because, frankly, the article is one of those reinvent history efforts – along the lines of when the facts do not align with theory the way forward is to just make up some new facts and deny what actually happened. But one of the examples use to justify the claim “Keynesian deficit spending … over and over again … has not worked” is the Ireland and Denmark experience in the 1980s when these nations “reduced their government budget deficits, which according to Keynesian theory should have depressed the economy. But on the contrary, the economies did particularly well”. This example is often used these days to justify the claim that deficit spending does not promote growth and fiscal austerity does not damage growth. However, no ‘Keynesian’ theory I know suggests that cutting the fiscal deficit will ‘depress’ the economy. It all depends … and that is what this article (like all the others that use this example) fails to recognise or admit. It bears also on current events in Canada and Argentina, which are demonstrating some other interesting facets of macroeconomics.

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The government really is instrumental in creating growth

Sometimes one reads a press article that is so obviously misleading that it is hard to know where to start with it. But perhaps the conclusion is the best place to start sometimes. Such is the case of a Bloomberg article (January 15, 2016) – What #ResistCapitalism Gets Wrong – written by American academic Noah Smith. Basically, the article attempts to attribute all of the post-Second World War prosperity to the “free market economy”, which he says is “a term many use synonymously with ‘capitalism'”. By the end of the article we learn that in fact that prosperity does not come from ‘free market’ liberalisation and that strong governments are essential for growth and reductions in inequality. The “boring old mixed economy” where, in Noah Smith’s words “government really is instrumental in creating growth”. Start with the conclusion and read backwards is my advice in this case.

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Europe’s future is bleak with an ageing population and policy failure

I read an interesting article that was published on December 18, 2015 by the Center for Global Development, which is one those centrist-type research and advocacy organisations that lean moderately to the right on economic matters. The article – Europe’s Refugee Crisis Hides a Bigger Problem – discusses what it considers to be “three population related crises”, two of which at the forefront of public attention (because they are moving fast) – the “refugee crisis” and the “terrorism crisis”. The third is “Europe’s slow moving and in inexorable ageing crisis”, which is largely being ignored in the public debate. The article provides a basis to link the three crises together – in the sense that “Europe actually needs millions of migrants a year to mitigate its ageing crisis”. While I have some sympathy with the article, there are many omissions that reflect the bias of the author. Two major issues – mass unemployment and productivity growth are ignored completely. The emphasis in the article is on whether the public sector can afford not to bring in more people to offset the ageing of the EU28 population. That emphasis discloses the bias of the author and diminishes the strength of the article.

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Currency-issuing governments have unlimited financial resources to fight recession

The elites are gathering for another junket aka the World Economic Forum, in the frosty, but salubrious surrounds of Davos this week (January 20-23, 2016). The Monday morning temperature there is forecast to be -22°C. According to the Forum’s homePage – Searching for the 21st century dream at Davos – the delegates are going to be reimagining life under the theme “Mastering the Fourth Industrial Revolution”, which is spin for eating a lot of gourmet food, drinking a lot of expensive wine, and, denying the presence of the very large elephant in the conference venue. I suppose it is easy for them to live in denial when the sort of policy regimes they have influenced have categorically failed and will continue to do so with the result that millions remain unemployed and poverty rates are rising. Apparently, the elites have to “‘defetish’ … dialogues about future technologies” and the “onset of a new era of ‘limits’ is a chance we must not miss to imagine and engineer the futures we want”. Here is some gratuitous advice to the elites – forget the robots; forget worrying about the so-called “inflection point … where social, economic and political crises meet rapid technological change, where progress feels like disruption, not promise”; and, instead, more fully understand why this obsession with “a new era of ‘limits'” (by which they mean fiscal limits on governments) has sidetracked any hope of progress and deliberately disrupted people’s lives in a way that dwarf the impacts of technological change.

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The mass consumption era and the rise of neo-liberalism

I was having a talk with a friend in San Francisco last Monday about globalisation and the capacity of the state, which is the topic of the upcoming book I am working on (manuscript due around May 2015). He made the comment that globalisation had meant that the state can now only do bad and can no longer do good. I asked him whether he was talking about globalisation (the international nature of finance and supply chains) or neo-liberalism (free market economics) and he said “neo-liberalism is a disease – that is the problem and since the 1970s it has meant the state is restricted to doing bad”. The point I was digging at was that progressives often conflates the two concepts which then leads to flawed conclusions about what the state can and cannot do. Further, when he talked about the state doing bad he was really talking about the impact on the average person and those who are disadvantaged. He wasn’t talking about the so-called top-end-of-town, which have without any question done very well since the 1970s. And that is my next point – the state hasn’t gone way or been rendered impotent by neo-liberalism as many on the Left believe and angst over. As the currency issuer it is still very powerful. It just serves the interests of a different cohort now relative to the cohort it served during the full employment period that followed the Second World War. In doing so, it has shifted from being a mediator of class conflict to serving the interests of capital in its battle to appropriate ever increasing shares of real income from labour. That is a wholly different narrative to the one that emerges when globalisation is conflated with neo-liberalism – as if they are parts of the same process.

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Mental illness and homelessness – fiscal myopia strikes again

Yesterday, as I was going about my business in San Francisco, I passed a man lying in the gutter outside the Westfield Centre on Market Street (the swish multilevel shopping complex with some expensive label stores), who was poorly dressed, given the weather (cold) and was clearly having some sort of episodic fit. The street was packed with Sunday shoppers most of whom were well-heeled. I asked the person I was with whether we should ring 000 to get some sort of professional help for the man and he told me that it would be futile because they wouldn’t come out anyway. It was not an isolated incident. Throughout the city the extent of homelessness and the public nature of mental illness is stark. There are choruses of shouts, anguished cries, megaphoned self-dialogues emanating from almost every street corner, doorway, alleyway, train station and whatever. People who should be in care, suffering and crying out. For the richest country in the world to tolerate this degree of human rights violation is almost unimaginable. While the Australian health system is far from perfect, our mentally ill citizens are much better cared for in state facilities and are not left on the street, homeless, suffering from a variety of obvious physical and mental maladies – and basically abandoned by the system. There are some who escape the net and wander the streets of our cities, but, in general, we do not accept that the mentally ill should be left to their own devices. It tells me that any American claim to greatness is a pitiful, self deceit. This is a heartless society where citizens who are most in need of state support are the least able to access it.

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British floods demonstrate the myopia of fiscal austerity

Last year (June 10, 2015), I wrote a blog – The myopia of fiscal austerity – which in part recalled my experiences as a PhD student at the University of Manchester during the Thatcher years. I noted that during my period in the city there were two major failures of public infrastructure – first, a rat plague due to spending cuts that had led to the reduction in rat catchers/baiters who had worked on the canals that go through Manchester; and, second, widespread collapses in the Manchester underground sewers which caused effluent in the streets, traffic chaos and long-term street closures. Major inner city roads were closed for a good 6 months while repairs were rendered. The reason – cut backs in maintenance budgets. The repairs ended up costing much more than the on-going maintenance bills. That experience brought hometo me the myopia of austerity. While the austerity causes massive short-term damage, it is clear that it also generates a need for higher public outlays in the future as a response to repairing or attending to the short-run costs. The problem wasn’t confined to Manchester. Margaret Thatcher’s destructive reign undermined public infrastructure throughout Britain. It seems that the Conservative British government is repeating history, this time the impacts are significantly more severe in human and property loss. In early December, the North-West of England experienced devastating floods. Areas south of Carlisle down through Lancaster were inundated with floodwater, which destroyed houses washed away bridges and claimed human life. On November 5, 2014, the British National Audit Office released a report – Strategic flood risk management – which warned the British government that “current spending is insufficient to meet many flood defence maintenance needs”. Now the repair bill will be many times the claimed expenditure that was cut in the name of fiscal austerity.

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Bernie Sanders on the right track but need to address the main game

On December 23, 2015, the Democrat Presidential candidate Bernie Sanders published an Op Ed – Bernie Sanders: To Rein In Wall Street, Fix the Fed – which, correctly, in my view, concluded that Wall Street (taken to be the collective of banksters wherever they might be located) “is still out of control” and policy reform has done little to alter the “too big to fail” problem that was identified in the early days of the GFC as one bank after another lined up for government assistance. Larry Summers replied to the Op Ed in his blog – The Fed and Financial Reform – Reflections on Sen. Sanders op-Ed – challenging several of the proposals advanced by Sanders. The problem is that the progressive voice of Bernie Sanders labours under some basic misconceptions about how the monetary system operates and therefore plays into the hands of those who have created the mess. Conversely, Summers clearly understands basic elements of the monetary system but continues to advocate policies which avoid addressing the main issue – the power of the financial markets.

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Benefit tourism – another neo-liberal fallacy

One of the tools that right-wing elements use to control the public debate about government spending and to justify their attack on public deficits is migration. There are many aspects to this public manipulation that invokes raw fear, ignorance and prejudice among the population. One of the elements, which plays on job insecurity and the range of fiscal myths that characterise the neoliberal era, is the claim that so-called ‘benefit tourism’ is rife and if left unchecked will bankrupt national governments and lead to higher burdens on ‘taxpayers’. So we are often told that migrants from poorer nations move to access welfare benefits that are superior to those offered by their own nations and that these movements are parasitic in nature and do not advance the interests of the host country citizens. Last week (December 10, 2015), the Irish-based EU organisation, the European Foundation for the Improvement of Living and Working Conditions (Eurofound) released a report – Social dimension of intra-EU mobility: Impact on public services – which examines “the extent to which mobile citizens from central and eastern European Member States … take up benefits and services in nine host countries” by “mobile citizens from 10 central and eastern European Member States” (the so-called EU10 mobile citizens). The Report should be read by all those who wish to contribute to this debate or understand what the facts are. Essentially, the Report finds that mobile citizens from poorer nations have lower take-up rates of welfare support in host countries than natives. That really should be the end of the ‘benefit tourist’ assertions. But then most of these public debates are not based on evidence or logic.

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