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

The case of the financial commentator who turned into a banana

Today, I am writing about the mysterious case of the financial commentator who turned into a banana. It happened around 4.5 years ago and has left a disturbing trail of comedic predictions. The person in question still looks a little like he used to although he has clearly become a piece of fruit. Anyway, some further analysis will help us track down the culprit. In simple terms, the perpetrator is that familiar neo-liberal groupthink that we know so well. The commentator was so imbued with it that he turned into a banana. Read on, it is a terrifying tale.

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Bolivia – defiant and prosperous as a result

There was a UK Guardian article yesterday (October 15, 2014) – Evo Morales has proved that socialism doesn’t damage economies – that recounted the recent economic history of Bolivia. There has been growing awareness in the Western press of what has been happening there given that the President Evo Morales has been once again re-elected for a third time, against the opposition of the financial elites in the so-called ‘first world’. A New York Times article (February 16, 2014) – Turnabout in Bolivia as Economy Rises From Instability – also noted the way in which Bolivia resisted the GFC to become a growth powerhouse in Latin America. The experience of Bolivia is a classic case of what can be achieved if a nation defies the international elites (such as the IMF and Wall Street) and carves out a path using its fiscal capacity to increase social capital and public infrastructure. When a nation can increase the real minimum wage by 87 odd per cent in a span of 8 years and see unemployment fall and real per capita income head for the stars then you know the mainstream neo-liberal mantras are wrong. Bolivia defied them and has prospered.

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MMT – lacks a political economy?

There was a ‘Guest Editorial’ published on the UK site Renewal last week – Modern money and the escape from austerity – by one Joe Guinan, who lists himself as a Senior Fellow at The Democracy Collaborative and Executive Director of the Next System Project. He is a journalist by background. Renewal is a “A quarterly journal of politics and ideas, committed to exploring and expanding the progressive potential of social democracy”, so it would seem to be wanting to head in the right direction, which reflects my values. The article’s central message is that “Modern monetary theory destroys the intellectual basis for austerity but needs a more robust political economy”. It is a serious embrace with our ideas and it is welcome that Modern Monetary Theory (MMT) is entering the progressive debate in a thoughtful manner and being advanced by others than the small core of original developers (including myself) who, in turn, built the ideas on the back of others long gone. The problem is that I don’t necessarily agree with many of the propositions advanced in the article. Here are a few reasons why.

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Friday lay day – ABS funding should be appropriate and access free

Its my Friday lay day blog and my mini-topic today is a left-over from yesterday’s commentary on the latest Labour Force data from the Australian Bureau of Statistics. The last few months data has been very volatile and the ABS has finally admitted that their seasonal adjustment techniques have not delivered realistic estimates of employment (and hence unemployment). This matters because many sectors and people use the summary aggregate statistics produced by the ABS, such as the headline unemployment rate for all manner of purposes, some of which are more important than others. The Federal Treasurer’s response to the issue has been predictably asinine. This is a person who has cut the national statistical agency’s budget by more than $68 million in the last year. His solution – force a user-pays regime onto the ABS so that we will have to pay to access their data to work out what is going on in our nation. It has been done before by conservative Australian governments, in part to reduce the flow of information but also, more mindlessly, to ‘save’ money – in a currency that the government issues! That is how mindless neo-liberal bean counters get.

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The myopia of neo-liberalism and the IMF is now evident to all

The IMF published its October – World Economic Outlook – yesterday (October 7, 2014) and the news isn’t good. And remember this is the IMF, which is prone to overestimating growth, especially in times of fiscal austerity. What we are now seeing in these publications is recognition that economies around the world have entered the next phase of the crisis, which undermines the capacity to grow as much as the actual current growth rate. The concept of ‘secular stagnation’ is now more frequently referred to in the context of the crisis. However, the neo-liberal bias towards the primacy of monetary policy over fiscal policy as the means to overcome massive spending shortages remains. Further, it is clear that nations are now reaping the longer-term damages of failing to restore high employment levels as the GFC ensued. The unwillingness to immediately redress the private spending collapse not only has caused massive income and job losses but is now working to ensure that the growth rates possible in the past are going to be more difficult to achieve in the future unless there is a major rethink of the way fiscal policy is used. The myopia of neo-liberalism is now being exposed for all its destructive qualities.

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Non-government debt lessons are not being learned

There were two related articles in the Melbourne Age this weekend, a descriptive account of credit card debt vulnerability across Australian households – Default looms for millions of Australians (October 5, 2014), and an attempted analytical piece – If we are so wealthy, why are we in so much debt? (October 4, 2014). The latter is so intent on pushing an anti federal fiscal deficit angle that it fails to tie in the fact that its two central objects – the massive build up of private debt and the pursuit of fiscal surpluses are intrinsically related. The article attempts to rail against both without remotely understanding their connection. But that is what you expect from journalists who try to venture into areas they have lots of opinions but know little about.

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Direct central bank purchases of government debt

There was a recently published Federal Reserve Bank of New York Staff Report – Direct Purchases of U.S. Treasury Securities by Federal Reserve Banks – by Kenneth D. Garbade, which recounts the way the central bank in the US could purchase unlimited amounts of treasury debt by creating funds out of thin air and how that capacity was eventually constrained. The Report is an understated account of the way in which the conservative ideological forces eventually prohibited this capacity and forced the US government to only issue debt to the private sector. He shows that between 1917 and 1935, this capacity was used often “without incident” but as the conservative antagonism grew it was limited (in 1935) and then abandoned altogether in the early 1980s. The Report demonstrates there were no intrinsic financial reasons for abandoning this capacity.

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Strong public benefit from tertiary education in Australia

There was an interesting article this morning in the Fairfax press (September 29, 2014) – OECD figures show public benefits more than individuals from tertiary education – which used the recently released – Education at a Glance 2014 – to compare private and public (social) returns from tertiary education. The results are that private net returns outweigh social returns in the majority of nations but not for the UK, Australia, Japan and Korea. The results have implications for the debate about who should fund tertiary education – the private individuals (or families) of those undertaking it or the government. They also highlight that one should be somewhat protean in outlook and avoid falling into Groupthink.

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Time to ditch the export-led growth mania

Last week, the former head of the Australian Treasury, Ken Henry gave a speech at the Australian National University entitled – Writing a New Australian Story – which received considerable press coverage. His message has relevance to all advanced nations who are engaged in a war on their population via fiscal austerity and attacks on workers wages and conditions as a enhancing so-called international competitiveness and engendering an export-led recovery. He considers these things are fine but not as ends in themselves and successive Australian governments have forgotten that message and undermined our national prosperity as a result. He believes it is time to reorient the public debate to focus on the challenges ahead rather than be mired in single-minded goals that only help a small sector of our society. I agree with some of what he says but we reach the same conclusions from an entirely different body of economic understanding. I had a 4-hour flight today on my way up to the North of Australia and this is what I wrote on the journey to keep myself amused.

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G20 meetings and structure part of the problem

There are parallel universes operating when it comes to neo-liberal politicians attempting to deal with reality. The G20 Finance Ministers and Central Bank Governors concluded their weekend talkfest in Cairns yesterday and you might be excused for thinking there is a jobs glut across their economies. As an aside, fortunately, this pathetic lot of individuals were meeting about as far north as one can go on the Australian continent, which meant they were kept out of the civilised parts of the nation where the rest of us live. Given Australia is currently hosting the G20 this year, the event gave our buffoon of a Federal Treasurer the chance to bathe in the limelight and deliver the major press conference.

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