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

The public sector and free information are essential for collective well-being

I have been in Sydney today for Day 1 of the Australian Society of Heterodox Economists’ (SHE) Conference. I always go down as a solidaristic gesture but I admit to not being fully engaged in some of the topics given there is an underlying hostility among many heterodox economist to getting the macroeconomics right before you delve into various microeconomics topics. I do not find it appealing to analysing demographic cohorts distinguished by sexuality, gender, race as if they are “independent” and can be understood without recourse to acknowledging their relationship to capital and without understanding the macroeconomic constraints that bear upon their decision-making environment. But during the day I was thinking about why societies voluntarily go along with state imposed restrictions on their freedoms which clearly entrench the disadvantage of individual members within these societies. I was thinking of this within the context of the choice nations have to exit the euro and the pressure being put on such nations to remain within the zone even though the status quo is devastating private well-being. I was also thinking about the forces that are working within the US to misrepresent the true nature of the financial crisis and allow government support for the elites who have committed gross fraud to override basic job creation support for the unemployed. I was also thinking about this in the context of the debate about the morality of WikiLeaks and the growing government attacks on that organisation.

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All macroeconomic policy should be accountable through the ballot box

It was the last day of the 12th Path to Full Employment Conference/17th National Unemployment Conference in Newcastle, which I host. The papers were interesting all day and I will report on some of them another day. But overnight, the big news was that the US Senate has finally succeeded in forcing the US Federal Reserve Bank to release details of more than 21,000 transactions it made as a reaction to the rapidly escalating global financial crisis. The lending rose to $US3.3 trillion at its peak and dwarfs the volumes involved in QE1 and QE2 amounts. This is relevant to a debate in the banking literature about the separation of monetary policy functions (setting interest rates) and the broader monetary interventions we have been witnessing in this crisis, which bear close similarity to fiscal policy functions. The question is which macroeconomic policy functions should be accountable to the ballot box. My view is all of them!

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CofFEE Conference 2010 – Day 1 Report with update

Today is the first day of the 12th Path to Full Employment Conference/17th National Unemployment Conference in Newcastle, hosted by my research centre. As host I am tied up in the event but here are some snippets. All of the presentations in the parallel sessions have been very interesting. I also note some economic news out from the Australian Bureau of Statistics today for October 2010 which provide more news that the Australian economy is growing only modestly. More tomorrow. UPDATE: Audio file now available.

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When you haven’t got a Plan B

The UK is still in the grip of a serious slowdown and the British government has begun its fiscal austerity program which will savage net public spending and cause wide spread job losses. But the Chancellor is still boasting that Plan A – scorch the economy – will be maintained and he has sought legitimacy for his position in the release by the UK Office for Budget Responsibility (OBR) of its Economic and Fiscal Outlook November 2010 yesterday (November 29, 2010). When one examines the OBR document in detail one could be excused for thinking it was a “colouring-in” exercise with a difference – you know, draw nice colourful bar charts to tell the story that you want based on assumptions that will not survive empirical scrutiny in coming months and years. The problem for Britain is that there does not appear to be a Plan B. It is all or nothing and while the “lab rat” nature of the policy experiment is intellectually interesting for researchers such as myself I don’t want to glean enjoyment from what will be the increased suffering of millions. Plan A will fail because the assumptions and projections are unrealistic. When you haven’t got a Plan B then that failure will be very costly.

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When miracles lose some shine

It is a fact that the Australian economy escaped recording a technical recession (2 consecutive quarters of negative real GDP growth), having recorded only one negative real GDP quarter (December quarter 2008 = -0.7 per cent). In that quarter, the first of large fiscal stimulus measures began and growth accelerated after that. The downturn, however, did push up official unemployment and underemployment and the legacy of the rationed employment and hours growth is that Australia currently has a broad labour underutilisation rate of 12.5 per cent. Aggregate policy (fiscal and monetary) is now tightening and is being justified by official statements that the economy is about to explode on the back of a very strong commodity boom (mining) and that we are close to full employment anyway. We are being told that unless policy tightens now inflation will break out. The problem with the official rhetoric is that a sequence of data releases is telling a different story. In the past few weeks we have seen exports falling, a weakening construction sector, flat credit demand, and yesterday, a very weak investment outlook. The outlook for next week’s September quarter National Accounts data is becoming increasingly pessimistic. In the meantime, unemployment rose in October. The justifications for the policy tightening are vanishing although I would argue they never were credible in the first place. The miracle Australian economy is a little less shiny at present.

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A rising public share in output is indicated

I have been thinking about changing industrial/sectoral shares today and how it bears on the way we construct macroeconomic policy (spending and taxation). At present, a major debate in Australia is how we are going to deal with the strong growth in the mining sector and the negative consequences this growth is having on other sectors that are not enjoying buoyant demand conditions. The mainstream response – to impose fiscal consolidation and tight monetary policy – is exactly the opposite response to what is required. But the discussion about sectoral change has further application in terms of the long-run movements in demography and shifting demand for health care and other age-related services. It generalises even further if we consider the growing need for environment care services. The upshot is that trends which will require a rising public share of total resource usage should not be seen as financial crises. Rather we should see them as part of the long process of structural transformation in our economies. Once we see it from that perspective, then the ideological nature of the ageing society debate is exposed. But first, Ireland …

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Education – a vehicle for class division

Yesterday I wrote, in part, about the way in which the term long-run is mis-used by the mainstream economists to assert “natural rate” theories, which essentially deny a role for government macroeconomic policy in stabilising the business cycle and reducing mass unemployment. I also get asked by readers (several times now) to provide some discussion of what were known as the Cambridge capital controversies in the 1960s and 1970s. They are related in fact to the notion of the long-run. These were rather esoteric debates which are now largely ignored by the mainstream despite the fact that the results of the debate showed, beyond any shadow of doubt, that the whole body of neo-classical distribution theory (that is, marginal productivity theory) is plain wrong. MPT was developed to justify the claim that capitalism delivers “fair” income distributions because everybody gets back what they put in. The Cambridge debates killed the legitimacy of those claims. But my profession continued oblivious because the results would have meant that a major part of the mainstream apology to capitalism would have to be jettisoned. Who understood the debates anyway? It was easy to just sweep the results under the carpet. I still plan to provide some commentary in this regard as I used to teach a course in capital theory covering these debates. But in thinking about them I started thinking of prior questions which also feed into a policy debate in Australia at present. It relates to educational outcomes and class.

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Money neutrality – another ideological contrivance by the conservatives

I have noted in recent weeks a periodic reference to long-run neutrality of money. Several readers have written to me to explain this evidently jargon-laden concept that has pervaded mainstream economics for two centuries and has been used throughout that history, in different ways, to justify the case against policy-activism by government in the face of mass unemployment. It is once again being invoked by the deficit terrorists to justify fiscal austerity despite the millions of productive workers who remain unemployed. I have been working on a new book over the last few days which includes some of the theoretical debates that accompany the notion of neutrality. There will also be a chapter in the macroeconomics text book that Randy Wray and I are working on at present on this topic. Essentially, it involves an understanding of what has been called the “classical dichotomy”. It is a highly technical literature and that makes it easy to follow if you are good at mathematical reasoning. It is harder to explain it in words but here goes. I have tried to write this as technically low-brow as I can. The bottom line takeaway – the assertion that money is neutral in the long-run is a nonsensical contrivance that the mainstream invoke to advance their ideological agenda against government intervention. It is theoretically bereft and empirical irrelevant. That conclusion should interest you! But be warned – this is just an introduction to a very complex literature that spans 200 years or so.

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NAIRU mantra prevents good macroeconomic policy

Today I have been working with various datasets (labour costs, long-term unemployment) and this blog provides some interesting aspects of what is going on at present. The blog should also be seen in the context of a speech made yesterday by the Deputy Governor of the Reserve Bank of Australia (RBA), Ric Battellino (a NAIRU devotee) to the Committee for Economic Development of Australia in Perth. His presentation was intending to justify the interest rate hikes that the RBA has been pursuing this year. He continued to assert the RBA line that the Australian economy is running out of spare capacity and so interest rate hikes are necessary. This is in the context of a sharp rise in the exchange rate which is deflationary, actual falls in the inflation rate (and well within their “target band”), more than 12.5 per cent of available labour resources remaining idle and long-term unemployment rising because employment growth can barely keep pace with labour force growth. Macroeconomic policy in Australia is severely distorted at the moment because of the dominance of monetary policy and the obsessions about budget surpluses. In summary, the NAIRU mantra is preventing good macroeconomic policy and the growing pool of long-term unemployed are carrying the burden more than most.

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The US Federal Reserve is on the brink of insolvency (not!)

Yesterday, parachute gangs from the ECB and the IMF were being dropped into various EMU nations whose only problem is that they are members of an unworkable monetary system and happened to get hit by a major demand shock. Today the IMF cavalry are apparently heading to Dublin for a “short, focused consultation”. Conclusion: Ireland is being invaded by hostile forces. I also read rumours overnight that Germans are refusing Euro notes not printed in the Bundesland. It is probably an outright lie of a similar quality to the many being spread by the deficit terrorists seeking to regain their “credibility” (an impossible mission) any way they can. In this context I get many E-mails from people each week telling me that I do not understand that the latest decision by the US Federal Reserve Bank “to flood the world with printed money” is putting it on the brink of insolvency! I also read that in a Bloomberg Business Week feature article today. And people believe this stuff. It is as much a lie as the fallacious stories recently about the US President’s Asian travel costs which the right-wing in the US (Beck, Limbaugh, Savage etc) perpetuated without scrutiny (see this analysis to see how this lie began). Anyway, rest easy … the US Federal Reserve cannot go broke!

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