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

Manufacturing employment trends in Australia

I have been looking at industry employment data today for Australia, in particular, the behaviour of the manufacturing industry, which has attracted considerable press attention in the recent period as a result of announcements of substantial job losses being linked to exchange rate movements and high interest rate spreads between Australia and the rest of the world. What follows is a discussion of various features of the change in manufacturing employment over the last few decades which is a precursor to some very detailed work I am doing on shifts in industry employment (reasons, implications etc). These shifts are not unrelated to the major macroeconomic policy settings (fiscal and monetary) which are currently stifling economic activity at present. These aggregate effects manifest in disaggregated ways through such things as the composition of employment by industry. That is what I am looking at today.

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The pantomime continues – Australia’s debt ceiling

The opening paragraph read “National debt will continue to balloon throughout the first term of the Coalition government, despite harsh spending cuts to be identified by a Commission of Audit, a crackdown on public service jobs, and a promise that government would be smaller”. Of-course, the journalist meant to say “because of” rather than “despite” but his neo-liberal keyboard thwarted his better understanding. The article was about the debate now in full swing about our debt ceiling. That’s right, suddenly, Australia has a debt ceiling debate. As if the nonsense in the US wasn’t enough. We had to show the world how stupid we are as a nation by having our own ceiling and then spawning a debate about, which then sees salivating journalists chasing politicians around asking them all sorts of questions about increasing it etc. None of the above has any foundation in economics yet will lead to poor policy choices being taken which will undermine social and economic prosperity. What a vacuous world politics and the industry that is fed by it really is!

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Chained-CPI COLAs – another conservative smokescreen

The conservatives are always dreaming up new attacks on the most disadvantaged people in our societies. in the US, the front line of the war on the poor is the on-going attacks on the Social Security system. As I’ve noted in the past this entire debate is based upon the around the’s claim that the system can go broke. I dealt with that issue in these blogs – Social security insolvency 101 and The time has come to tell the American people the truth – among others, and I won’t repeat the points. They are clear – the US Social Security Trust Funds are just elaborate accounting smokescreens that ultimately mean nothing if one comprehends the financial capacity of the US government. They represent a case of a government creating a farcical structure to administer some program and then elevating the structure to a false level of importance that actually leads them to introduce policies which undermine the initial purpose of the program – and all without any basis. The determinants of future standards of living will be the availability of sufficient real goods and services of an acceptable quality. If they are available the US government will be able to purchase them with the stroke of a computer key. But because the conservatives have everyone thinking the funds will go broke, they can then force ridiculous time-wasting concepts into the public debate. One such attack is the proposal to use Chained-CPI measures as the Cost-of-Living-Adjustment (COLA) index in social security pensions.

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Japan will (yet) run out of money. Never!

A regular occurrence is the prediction of doom for Japan. Some minor upturn in Japanese government bond yields or a movement in some other irrelevant financial statistic relating to the Japanese public sector sends the financial press into apoplexy. The latest signal of impending bankruptcy being bandied about relates to the rising trend in foreign holdings of short- and longer-term Japanese government debt. This trend is explained by financial markets moving into less risky assets (in this case, Japanese government bonds) as uncertainty in other markets, for example the Eurozone, remains. However, the narrative then goes that eventually these purchasers will refrain from buying Japanese government debt and with the funding from the savings of the ageing domestic population drying up, the Japanese government will run out of money. Policy response? Cut fiscal deficits immediately through a combination of tax rises and spending cuts. All of which is nonsense and if the Japanese government follows the advice – there will be a 1997-style recession and public debt ratios will just rise faster than they are at present. It is better that we now all turn to the sport’s section of whatever news you read and relax.

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We do not reap the seeds we sow – someone else sowed them long ago!

In 1944, Swedish economist Gunnar Myrdal published his famous 1,500 page work – An American Dilemma: The Negro Problem and Modern Democracy, which documented the conflict in American society driven by what he called the “American Creed”, which is about the “ideals of equality and liberty” and the obvious “moral lag in the development of the nation”, which at the time was referred to as “the Negro problem”. More recently, a book by American academic Nancy DiTomaso – The American Non-Dilemma – challenges the earlier notion and argues that whites in America are able to exploit racial inequality without doing “bad things” to blacks. Both works are interesting, but the more recent work fits with my current research because it introduces a new conflict, albeit unwittingly, that centres on whether you reap the seeds you sow.

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If you can have full employment killing Germans …

At the weekend I watched Ken Loach’s latest film (documentary) – The Spirit of ’45 – which was a classic – interesting and disturbing. After watching it I cannot understand how anybody could not achieve a score somewhere well into the south-west quadrant of the – Political Compass. It emphasised how societal values have changed and undermined the collective will that emerged in the early Post World War 2 period which garnered the political process into delivering structures that would never again see the mass unemployment and hardship that the Great Depression created. It was a hopeful period and politicians reflected that hope and acted as a mediating force in the underlying class conflict between workers and capital. The film traces how that “spirit” has broken down and what is required to once again make economies work for people rather than subjugating the needs of people to the economy – which really means allowing a small proportion of people to extract the benefits arising from the hard work of the rest of us. The film influenced today’s blog.

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Living in the Land of Smoke and Mirrors – aka La-La-Land

Australians have a history of being prone to a syndrome, which social anthropologists refer to as – cultural cringe. It’s a very nasty condition an “internalised inferiority complex which causes people in a country to dismiss their own culture as inferior to the cultures of other countries”. Not very attractive. Some might say it is a “fundamental element of Australian self-identity”. I don’t intend to write about that though – just observe that it exists and explains why scores of Australians have to “go overseas” and then come back again before recognition is forthcoming (for example, do PhD programs abroad when there is no evidence that they are better). Anyway, this syndrome revealed itself again this week when our politicians clearly felt they were being too sane and so decided to follow the lunacy of the politicians in the US and beat up our own little debt ceiling crisis. It just confirms that we are all living in the Land of Smoke and Mirrors and the Martians are embarrassed for us.

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Currency sovereignty is what matters

There is a literature emerging that suggests that a Eurozone nation would be no better off with its own currency then and is within the monetary union. The claim is that these nations have not performed any worse than nations outside the Eurozone during the current crisis. A recent paper by an American economist (Andrew Rose) – Surprising Similarities: Recent Monetary Regimes of Small Economies – is being used as the authority to support this claim. The intent is clear – to deny that the Eurozone as a monetary system is inferior to systems where the nation issues its own currency and sets its own interest rates. However, these studies skate over the currency sovereignty issue and cast the differences between nations in terms of exchange rate arrangements or whether their central bank targets inflation or not. The real issue is whether the monetary system is characterised by the government facing a financial constraint or not in its spending – that is, whether it issues its own currency, sets its own interest rates and resists issuing debt in a foreign currency. Once you consider those basic aspects of the monetary system then it becomes obvious that the Eurozone nations as a whole have performed worse than other advanced Non-Eurozone nations which have enjoyed more fiscal flexibility.

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Close the borders – gangs of benefit cheats are coming!

So the American conservatives wimped out again after a month or so of mindless bluster and hot air. The only problem is that their posturing, in itself, causes damage to the economy. It’s interesting that the conservative economists keep harping on about their belief that the existence of a budget deficit causes uncertainty among private firms who are then reluctant to invest because they fear higher tax rates to pay back the deficit. While this flawed narrative is not theoretically robust, defies history, and is empirically bereft, uncertainty is a problem for firms and the ridiculous behaviour of the American conservatives in the Congress in recent times has dramatically increased it. The world is moving now into a second phase of the retrenchment of the state. The first phase required the neo-liberals to redefine the crisis, which was clearly an issue of excessive private debt, as crisis of sovereign debt. They have been successful in achieving this step. Our ignorance and obsequiousness has allowed this mindless narrative to dominate the public debate. The second phase is now well underway way where the victims of the austerity become the focus of attention for the Conservative politicians. The unemployed are vilified as lazy and welfare cheats (their benefits are targeted – for example, in Ireland now); single mothers are accused of strategic pregnancies; and the old furphy – benefit migration – is wheeled out into the public debate to engender an increasing resentment of the presence of ethnic minorities who is simply trying to do what all of us want – to improve the lives of their families and themselves. All of these campaigns are designed to divide and conquer the populace, segment this into conflictual factions (“them and us” mentality), and justify further unwarranted cuts to government spending.

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How to fail a simple macroeconomics examination

In the opening sequence of the HBO series, Newsroom, the anchor is participating in a public forum at an East coast US university (in Boston). During the Q&A, he is asked by a student (“a sorority girl”) in the audience, who is suitably bright-eyed and full of American blather, “Is America the greatest country in the world?” He initially blusters but the convener of the forum pushes him for a “human moment” and what follows is 3 classic minutes of TV, starting with “its not the greatest country in the World, Professor, that’s my answer” and concluding with “So when you ask what makes us the greatest country in the World, I don’t know what the fuck you are talking about. Yosemite?”. He then said among other things that “We used to be …”, “we stood up for what was right”, “we waged wars on poverty, not poor people”, “we aspired to intelligence, we didn’t belittle it” and more. The latest shenanigans in the US Congress where the GOP representatives have become a mindless rabble is certainly testimony to the sort of things the mythical Newsroom anchor was talking about in the series. The Sydney Morning Herald article (October 16, 2013) – US shutdown stalemate enters realm of the absurd – reports on how the GOP reps do not “agree either on tactics or strategy” and Boehner announced to the press that there had been “no decisions about what exactly we will do”. This is one day before the lunatic right-fringe of their party is intent on causing mayhem. My prediction – some ridiculous deal will be done and the US government will not default. We will see. But today I am providing a little glimpse into examination processes by using what might have been a first-year answer to an examination question to highlight some important points. I hope you enjoy the little window into life at a university.

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