Economics – Page 57 – William Mitchell

ECB deficit funding or persistent mass unemployment

Yesterday’s Statement from the US Federal Reserve Open Market Committee (FOMC) stated that the US economy is slowing and the “housing sector remaining depressed” and employment growth slow. The US central bank indicated that moderate growth would persist for the immediate future but that it was threatened by events overseas (read Europe). And over in Europe – the pressure is mounting on the ECB, which knows it must continue to work out ways to fund member states but is being constantly pummelled by the inflation-phobes in Germany (and elsewhere). The problem in Europe is not sovereign debt but a lack of spending. Even within the flawed European monetary system design, the ECB has the capacity to fund increased spending. Those who claim this would be disastrous have a strange view of the consequences of not doing that. This debate resonates with that between Keynes and the Classics in the 1930s. The former demonstrated categorically that without external policy intervention (for example, fiscal stimulus) economies tend to states of chronic mass unemployment with massive income losses (and other pathologies) being the result. Do the Euro leaders really want that state to evolve? They are at present doing everything they can to ensure it does.

The non-existent but remarkable austerity-depreciation mechanism

The conservative lobby (often dominated by Austrian school types) are increasingly running the narrative that neither monetary or fiscal stimulus can engender growth as nations wallow in stagnation. Their rejection of the use of fiscal stimulus – aka spending of one sort or another – would appear to be in denial of the basic macroeconomic rule – one person’s spending is another person’s income – or in a sectoral sense – government spending equals non-government income. Their arguments against monetary policy have some resonance with my own views. But, for example, is any one really going to argue that if the government hired all the unemployed and paid them a stable wage (in excess of any income support they might be receiving) that the shops would not experience rising sales, which, in turn, would stimulate rising orders to suppliers and increased production and higher growth. Are they really saying that all stimulus spending leaves the shores via net exports? While historical evidence is often cited, when one digs further it becomes clear that the evidential basis of the anti-government claims cannot be substantiated. And – the arguments reduces to a rather crude expression of their dislike of government activity.

Europe is really having a lost decade

I am sick of reading about Europe’s lost decade. For example, in the UK Guardian article (July 27, 2012) – Spanish recession to last until 2014, IMF warns – the economics editor Larry Elliot says that the IMF is “Predicting a lost decade of growth for the eurozone’s fourth biggest economy”. The lost decade terminology emerged to describe the experience of Japan in the 1990s after its spectacularly damaging property crash. But I think it is offensive to use the term in relation to the Eurozone crisis. We are not seeing a lost decade emerge Japanese-style. Rather, we are witnessing a self-imposed humanitarian disaster driven by the ideological arrogance of the Euro elites (aided and abetted by the OECD and IMF). The experience of Japan in the 1990s was nothing compared to what these elites are doing in the name of neo-liberalism. Journalists should stop making the comparison and, instead, call the current crisis in Europe for what it is.

British solution to unemployment – make them work for free

There was a story in the UK Guardian yesterday (July 29. 2012) – Million jobless may face six months’ unpaid work or have benefits stopped – that described how the failed neo-liberal British government is following the path that the conservatives followed in Australia in attempting to “manage” the unemployment that their flawed policy regime created. The Australian approach has failed dramatically and imposed considerable hardship on the most disadvantaged citizens in our midst. The same approach is unfolding in Britain and it to is already looming as a failure.

July 24, 2012
bill
Economics
18 Comments

Everyday the major financial newspapers and magazines provide Op Ed space to so-called leading economists. For the majority of the public, it is these Op Ed articles that provide their interaction with my profession. It is a pity. The majority of the reasoning presented by these characters, most who occupied senior positions in US academic departments, is spurious to say the least. The public is thus being poorly educated (to put it mildly) on a daily basis and this represents a major problem for our democracies. Voting in elections is one thing. But when citizens are voting based on faulty understandings that they have derived from these economists, then what is the value of a free vote? Today I consider the views of leading Princeton economist Alan Blinder – who is another macroeconomist who is blind to the way the economy works.

July 23, 2012
bill
Economics
27 Comments

I was asked today what the Modern Monetary Theory (MMT) position was on the new report about to be published by the – which reports trillions of dollars (and other currencies) being secreted in tax havens by the wealthiest citizens and the role that the top 10 banks have played in arranging these fund transfers. Progressives are clearly up in arms about the research findings and for good reason, especially if one holds equity to be a valid policy and national goal (as I do). But the way MMT analyses these trends is somewhat different. Once we get a good understanding of what the off-shoring of wealth and tax evasion actually means for domestic economies, it is clear that the progressive attacks often miss the point.

Europe – one step forward … but so many backward

I am in transit most of today and so have very limited time to write. An ECB Executive Board member, one Jörg Asmussen, gave a speech at the European Policy Centre in Brussels on July 17, 2012 – Building deeper economic union: what to do and what to avoid – where he admitted that the European policy leaders “had made mistakes in the way economic policies and governance were managed inside the monetary union”. I thought that was an understatement but credit for the admission. However, his speech was then steered towards “how best to” strengthen “(p)olicies and governance” – “(w)hat to do and what to avoid”. When he mentioned that the “six pack” and the Fiscal Compact constituted “significant progress” towards what to do and what to avoid I concluded he hasn’t learned much at all from the huge mistakes that the policy elites in Europe have made. The suggestion for a fiscal union is definitely a step forward but the way in which this idea is being constructed represents several steps backwards. The Europeans seem intent on extinguishing their democracies.

July 17, 2012
bill
Economics
15 Comments

Two things led to this blog today. First, the IMF has once again been lecturing the world on economic policy. In the Global Financial Stability Report and the World Economic Outlook Update – both released yesterday (July 16, 2012) the IMF has downgraded their growth forecasts again yet is hanging on to the myth that austerity is the path to resolution and that the deficit reductions underway are appropriately growth supporting. Doesn’t anyone in the IMF understand logic? One cannot on the one hand admit that growth is falling below previous forecasts yet on the other hand claim that policy which caused growth to slump is growth supporting. Second, Anna Schwartz died in New York on June 21, 2012. The two events can be linked.

Neo-liberals on bikes …

I had an interesting conversation with a lunch visitor today about Germany (he lived and studied there) and its role in the Eurozone crisis. Yes, we talk economics even at times of rest! We discussed some of the events leading up to the Euro crisis and the important role played by the so-called progressive political parties in Germany. The conservative Christian Democrats are sounding like lunatics at the moment with the “You will have austerity and enjoy it” mantras. The focus on their harsh and destructive stance supporting fiscal austerity has taken the spotlight off the real culprits – the SPD and the Greens. We should never forget the role that they played – over the period of the Gerhard Schröder’s federal government (1998-2005) – in creating the pre-conditions that have ensured the crisis will be long and very damaging. We should also remember that Green parties have developed a tendency to be “neo-liberals on bikes” as a means of gaining power. The problem is that once they are pedalling in that direction they lose the capacity to pursue truly green policies, which extend beyond the remit of having clean building codes and sound urban design.

Growth is lagging because spending is lagging – the solution is clear

A recurring theme in the press and one that I get several E-mails about a month is that a national government has “more space to net spend” if its past history of deficits and debt are lower than otherwise. This is also related to the acceptance by many so-called progressive economists that national government budgets should be balanced over the course of the business cycle – that is, it is fine to go into deficit when there is a downturn but the government should pay it back via surpluses when the economy is strong. Neither proposition has merit but serve as powerful buttresses for the continuation of the neo-liberal attack on government fiscal freedom and full employment. Government deficits have not caused the crisis. Growth is lagging because spending is lagging. If the non-government sector cannot sustain aggregate spending to ensure unemployment drops then there is only one sector left in town folks!