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

Wrong is still wrong and should be disregarded

It is a public holiday in Australia today and I am not working a full day. But I have been collecting some items from the past five or so years which I am weaving into the text book that Randy Wray and I hope to have out in the coming year. When academics or others comment on public affairs it is clear that our commentary is to a certain extent time-dependent. The language we use, the topics we focus on and the conclusions we draw. So some things that are written sound quaint when we go back to them after some years. I hoard information and occasionally I access my databases to see who said what in some year and compare it to what might have happened in the interim and then what the same person might be saying in retrospect. It is an interesting exercise and when applied to my own profession reveals some amazingly nonsensical predictions or assessments. The global crisis has provided a major event to test many of the assessments made prior to the crisis. The most surprising thing is that the same sort of assessments made prior to the crisis that were demonstrated to be entirely false are still being made and still influencing policy design. But the most robust assessments have withstood the crisis and remain relevant today. I include the developments in Modern Monetary Theory (MMT) in this latter category. Mainstream macroeconomics was largely wrong before the crisis and is wrong now (for the same reasons) and should be disregarded.

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Some hard truths for 2012

Some new research has given me hope that the politicians will soon be in a position to use the fiscal tools at their disposable to solve the economic crisis. We might call it the pigeon recovery. The ABC News reports that Pigeons can count and so I propose we round up a bunch of them from some of those nice European buildings ship them (humanely) to Brussels and the Eurotower and let them count up the unemployment numbers (well they might have to go to Eurostat in Luxembourg). Then they could calculate the real GDP and income losses and by way of a new Google Pigeon-to-English translator convey to the politicians the urgency of the situation and that jobs are created when people or governments spend and that income is created as a consequence and people become more prosperous. Then some homing pigeons could fly some Modern Monetary Theory (MMT) material to the offices of the politicians to give them something to read instead of the latest nonsense from the IMF or some other institutions that have forgotten that unemployment matters and financial ratios are of limited relevance. Once the pigeons have done their work – the Euro leaders will sit down and realise that an orderly break-up of the monetary union is the best long-term strategy for all of them. Speaking of which here are some “hard truths” for 2012.

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A dose of truth is required in Europe

I was going to write about the True Finns today to report some research I am doing at present aimed at exposing how the “left” political parties have ceded legitimate progressive issues to fringe parties who then meld reasonably sensible economic issues with offensive social and cultural stances to create a popular but highly toxic political force. The True Finns who gained 19 odd per cent of the vote in the April 2011 national election exemplify this trend. The Euro crisis is accelerating the growth of the popularist political forces in Europe who are anti-Euro (pro-nationalist) and who will not (I suspect) tolerate the Euro elites impinging on national affairs and imposing a decade or more of enforced austerity. There are political movements/parties all over Europe now (for example, Vlaams Belang, Le Pen, Lega Nord etc) which fit this mould. It would be far better for the mainstream progressive parties around Europe to take the initiative and retake control of the policy debate on what should be bread-and-butter issues for the left. Sadly, these mainstream left parties have become totally co-opted by the neo-liberal agenda and speak the same economic voice as the conservatives. The problem then is that the public debate is distorted by untruths which further reinforce the malaise. A dose of truth is required in Europe.

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Mainstream macroeconomics textbooks do not impart knowledge

I have spent most of today working on a Chapter for the upcoming macroeconomics textbook that I am writing with Randy Wray (UMKC). It is a difficult task getting the balance between the content and the pedagogy more or less correct. One has to be interesting but not simplify to the point of distraction. Moreover one has to seek to impart knowledge. Which then takes one down the epistemological path as to what constitutes knowledge. How much simplification is too much? How much abstract modelling is feasible? Questions like that. But an overriding objective is to ensure that students who are using the book receive an education which means they should expand their critical faculties based on an expansion of knowledge. One of the worst aspects of my profession is that the vast majority of textbooks that students are forced to learn from do not advance these objectives. Whatever else one might conclude about their presentation etc, they mostly can be reduced to being considered as propaganda instruments. Most of them tell outright lies about the way the monetary system operates. The current crisis and the unusual policy interventions (particularly those employed by the central banks) have brought these lies into stark relief. We can conclude that mainstream macroeconomics textbooks do not impart knowledge they are dogma.

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If a government won’t create jobs, it must provide income support

You can sense the fear in people’s lives at present as the economic crisis seems to be worsening and various so-called opinion leaders are telling us we are in danger of lapsing into a depression like the 1930s unless there is drastic action taken by governments. For example, the IMF’s latest salvo. Then you hear them say that the action necessary is more fiscal austerity. And you know it will definitely get worse. My own superannuation fund sent us letters last week suggesting that they are in danger of being unable to meet their liabilities and benefits – current and future – will likely be cut. How much? Fear tells us a lot. Action: all those retiring will take lump-sums and invest in cash – eliminating the risk but solidifying the cuts and – further undermining the viability of the fund. That what is happening everywhere. A moment’s reflection tells us that this fear is being deliberately created by the elites who are elected by us to advance our best interests. These elites are using fear – and deliberately perpetuating falsehoods to keep us ignorant – in order to usurp democracy and take control of the wealth creation processes so they can tilt the field further in their favour. This crisis could be over in a few weeks or months with appropriate policy interventions. It has now dragged on for years. That is because it is taking the elites that long to organise their on-going coup.

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Australian industry employment trends and fiscal stimulus

I am continually distracted by the daily entertainment from Europe – who could have written such a script? – bumbling from one disastrous “solution” to another, accusing each other of various sins, trying to rope Britain into their incompetence (although the latter doesn’t need any help in that department) etc. But the comedy ends as soon as the human element is considered. How long the citizens will remain docile is the big question. I had an interesting meeting the other day about a joint research project I am becoming involved in which will encompass that sort of enquiry including what has happened to the “left”. Anyway, today’s blog is a bit more pedestrian. I have been asked a lot recently by journalists and radio interviewers about the flat employment growth in Australia at present in the context of our so-called “once-in-a-hundred-years” mining boom. The mining industry has been so successful at self-promotion that people forget it only accounts for 2.1 per cent of total employment (a minuscule proportion). Anyway, the ABS released the detailed quarterly employment data for November 2011 yesterday which contains industry breakdowns. So I went digging this morning to bring my analysis up to date. Lesson: fiscal stimulus works and the Australia labour market is changing.

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UK labour market – when “stabilising” means outright deterioration

The British Office of National Statistics released their Labour Market Statistics for December 2011 yesterday and it showed that employment continues to collapse in the UK and unemployment rises. I was at the airport this morning and heard a commentator invoke the words of Albert Einstein. They are very apt in this current economic climate – “The significant problems we face cannot be solved at the same level of thinking we were at when we created them”. The British Employment Minister gets empirical evidence that the Government’s economic strategy is causing massive damage to the economy (who would have thought) and told us that the collapse in employment and vacancies, the rise in unemployment and the record levels of youth unemployment are signs that the “labour market is stabilising”. The UK nor Europe nor anywhere will get out of this mess using the sort of thinking that created the crisis in the first place. Until we work that out and attack this political evil millions are heading for poverty.

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100 per cent forecast errors are acceptable to the IMF

Imagine you had a headache and some economist tells you that you can cure the headache by bashing your head against a wall. So you duly bash your head against the nearest brick wall and not only does it hurt (perhaps drawing blood depending on the severity of the blow) but you note the headache is now worse. The economist then concludes you didn’t bash your head hard enough and instructs you to stick to the “rule” and give it another try – only this time go harder. Blood is now flowing, the head is traumatised and the headache gets even more unbearable. Welcome to Greece which is being bullied by the Troika (EU, ECB and the IMF) in a similar way. The latest IMF medium-term forecasts for Greece reveal a staggering failure by that institution to understand causality and the impacts that their austerity programs have on real economies. Without a blush, the IMF presented the world yesterday with revised forecasts for Greece which reveal their previous forecasts will be around 100 per cent wrong over just over a 6-month horizon. That sort of error is beyond any accepted professional standards. The IMF’s response – bash your head even harder.

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When markets fail

A repeating narrative during this crisis is that fiscal austerity is required in order to satisfy the “markets”, that amorphous collective of bond traders, gamblers, speculators, crooks and whatever else. The regular threats coming from the ratings agencies (those crooks who lied to investors in order to make profits via cosy deals with the originators of the “assets”) reinforce the idea that markets are the “regulators” of good judgement. Economics students are taught that one of the imperatives of government is to deregulate in order to allow the market signals to be clear and strong so we can act in accordance with the “markets” judgement of prudence. It is a paradigm built on a myth. Markets fail and easily become corrupted and arenas where criminals dominate. The signals they send are also deeply flawed and should not be acted upon. One of the lessons of this crisis is that our agents – the governments we elect – have to make markets work for us not the other way around. When markets fail to establish benchmarks that we do not consider to be in our best interests then it is time to reform them.

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A journey back in time

A bit of a different blog today. I was rummaging through some boxes of papers today in search of some “non-digitised” notes which I wanted to consult as part of the development of our macroeconomic textbook, which Randy Wray and I hope to get out sometime next year. I came across some old drafts of papers I wrote in the early 1990s which had handwritten annotations etc. The old way of doing things. I thought it was interesting to compare the final published version of one such paper with the unpublished draft. That is what this blog is about – looking back to an article I wrote in 1993 (“Demystifying the Deficit”). A little journey back in time – but with alarming overlaps with what is going on today.

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