Discussions about fiscal statements, analysis and controversies from an MMT perspective

German debt brake is bad economics and undermines democracy

It’s Wednesday and today I don’t comment on the US Supreme Court decision to embed criminal behaviour in the presidency (how much of a joke will the US become) or the Presidential debate, which has focused on the performance of Biden while, seemingly ignoring the serial lies told by the other contender. If these two are all that the US has to offer as the leader then what hope is there for that nation. We will shift focus today from the idiocy of the US to the idiocy of the German government and its fiscal rules. After a temporary suspension during the pandemic, the German debt brake is being applied again and reintroduces a rigidity into fiscal policy that makes it hard for the government to actually run the economy responsibly. By prioritising an arbitrary financial threshold between good and bad, the debt brake undermines the capacity of the government to address the decaying public infrastructure (also a victim of the past austerity) and meet the climate challenges ahead. Through its negative impacts on well-being in Germany, it has also generated the political space for the right-wing extremists to gain ground. Bad all round.

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I make a prediction about the relationship between US government debt and impending crisis

Over time we observe a pattern of idiocy in the financial press, where different fictions, dressed up as allegedly shattering propensities, are regularly cycled through in succession, each one getting headlines for a day or so, only to be replaced by the next sensationalised issue. So-called experts or corporate bosses are wheeled out and make horrendous predictions that one country or another is entering a catastrophe of its own making – too much government spending, too much debt, or some other policy position – is usually fingered as the culprit. None of the predictions ever come to pass and the media never follow up to reflect on why. They are too busy pushing out the next headline and the next issue, which, in turn, will be replaced by something else, and then something else, and so on, until the initial prophesy of dooms is recycled, despite failing dismally to engage with the real world when it was last aired. And this pattern has unfolded over decades. Who ever checks the veracity of the predictions? How does the reputation of these so-called experts survive continual failure? The problem is that most of us believe this fiction and elect politicians and accept poor economic policy based on the fictional world we live in. Anyway, I have a prediction … read on.

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British Labour Party once again tripping over their nonsensical fiscal rules

Regular readers will know that I am not enamoured with the British Labour Party leadership and its obsession with its so-called fiscal rule, which is really just a continuation of the rule that the Tory’s were supposedly running with. How can a self-styled progressive party (so-called) that is about to take over a nation that has been shattered by 14 years of the worst Tory rule that one can imagine, and which will require billions of pounds to be spent to even put a dent in the degradation in infrastructure, services, not to mention addressing the forward-looking challenges (health, climate, etc), claim that a fiscal rule that is biased towards austerity be appropriate? It beggars belief. By continuing with such rules, the Labour Party is ensuring that it will either fail to make much headway in redressing the damage and placing Britain in a better position to deal with the carbon challenges or will fail to meet the fiscal rules or both. It is recipe for not much. Pity the British people who have already endured the consequences of supporting, first Blair’s Labour, then the long hard years of the bumbling and incompetent Tories. In today’s post I want to highlight one aspect of the fiscal rule absurdity, and actually say that Nigel Farage is right about one thing, although not for the right reasons. Read on – a story of corporate welfare and fiscal fictions unfolds.

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IMF holds a religious gathering in Tokyo – to keep the troops in line

The IMF joint hosted a conference in Tokyo last week – Fiscal Policy and Sovereign Debt – and the continues its misinformation campaign on the ‘dangers’ of public debt. The conference claimed that it brought together ‘leading scholars and senior policymakers’ and upon examination of the agenda it was clear that there was very little diversity in the speakers. The organ started playing and all sessions sang from the same hymn sheet. That is how Groupthink works. Repeat and rinse, repeat and rinse, and, never confront views that are contrary to the message. Groupthink is about avoiding cognitive dissonance for fear that at least some of the ‘parishioners’ might lose the faith. The famous British economist, Joan Robinson likened mainstream economics to a branch of theology and these conferences that the IMF convene around the world are like evangelical crusades, to keep the troops in line so they can continue to keep all of us in line – for fear that we might all start seeing through the veil and discover the rotten core.

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Senior mainstream economist now admits central banks are not as independent as many believe

The UK Guardian published quite an odd article the other day (May 30, 2024) by Mr GFC Spreadsheet Fudge Man Kenneth Rogoff – Why policymakers are more likely to risk high inflation during periods of economic uncertainty – which essentially claims that economic policy has been conducted for several years by institutions that do not meet the essential requirements that are specified by the mainstream New Keynesian macroeconomic approach, upon which the institutions have claimed justification. If that makes sense. He now claims that the eulogised principle of ‘central bank independence’, which is a mainstay of the New Keynesian justification that macroeconomic counter stabilisation policy should be left to monetary authorities and that fiscal policy should play a supporting but passive role, no longer exists as policy makers have had to come to terms with multiple crises. Of course from an Modern Monetary Theory (MMT) perspective such independence never existed and was just a ploy to allow the governments to depoliticise economic policy making and thus distance themselves, politically, from the fall out of unpopular policy interventions. If it wasn’t the IMF to blame, then it was the ‘independent’ central bank for austerity and interest rate hikes and all the rest of it. Now we have a senior Harvard professor admitting it was a ruse and bemoaning the fact.

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Government debt fears – more fiction from the mainstream media

After all these years of trying, the insights provided by Modern Monetary Theory (MMT) still haven’t cut through. One doesn’t even need to accept the complete box of MMT knowledge to know that, at least, some of it must be factual. For example, how much brainpower does a person need to realise that a government that issues its own currency surely doesn’t need to call on the users of that currency in order to spend that currency? Even if we could get that simple truth to be more widely understood it would change things. But every day, economists and the journalists demonstrate a lack of understanding of how the monetary system actually works. Are they stupid? Some. Are they venal? Some. What other reason is there for continuing to use major media platforms to to pump out fiction masquerading as informed economic commentary? And the gullibility and wilful indifference of the readerships just extends the licence of these liars. Some days I think I should just hang out down the beach and forget all of it.

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ECB demonstrates that groupspeak is not dead in Europe – the denial continues

On February 10, 2024, a new agreement between the European Council and European Parliament was announced which proposed to reform the fiscal rules structure that has crippled the Member States of the EMU since inception. I wrote in this blog post – Latest European Union rules provide no serious reform or increased capacity to meet the actual challenges ahead (April 10, 2024) – that the changes are minimal and actually will make matters worse. Now the European Central Bank, the supposedly ‘independent’ bank that is meant to be outside the political sphere, has weighed in with its ‘two bob’s worth’ which is ‘sometimes modernised to ‘ten cents worth’) (Source), which would be overstating its value. Nothing much ever changes in the European Union. They have bound themselves up so tightly in their ‘framework’ and rules and jargon that the – Eurosclerosis – of the 1970s and 1980s looks to be a picnic relative to what besets them these days. The latest input from the ECB would be comical if it wasn’t so tragic in the way the policy makers have inflicted hardship on the people (many of them) of Europe.Today’s blog post is Part 1 of a critique of the ECB’s input into the Stability and Growth Pact reform process that is engaging European officials at present. It is really just more of the same.

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Australian government proves it can end poverty, but refuses to, and is deliberately pushing more people into that state

The Australian – Productivity Commission – was created in 1998 as a result of an amalgamation between the Industry Commission (established 1990), the Bureau of Industry Economics (established 1978) and the Economic Planning Advisory Commission (established 1983). As you will read below, its antecedents go back to 1921. The Commission is one of many government-funded institutions that have undergone structural shifts over time as their initial role becomes redundant, a redundancy that reflects the changing dominant ideology of the time. It is now the government’s principal ‘free market’ think tank that spews out predictable nonsense regularly – always ending with recommendations for more deregulation and less government intervention. Its latest offering was released on Monday (May 20, 2024) – A snapshot of inequality in Australia – which, in its own words, “provides an update on the state of economic inequality in Australia, reviewing the period of the COVID-19 induced recession and recovery” with a focus on women, older people, and First Nation’s peoples. It contains some interesting analysis but falls short because its fiscal framework, upon which it makes assessments about the data that is made available, is mainstream and assumes the Australian government has financial constraints. Once they adopt that fiction, then the scope for policy is limited and we end up not solving the problems discussed.

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The fiscal lunancy reaches peak levels this time of year

In the last week, as the Federal government comes towards next Tuesday’s annual fiscal statement (aka ‘The Budget’ although we don’t use that terminology around here, do we?) and the State Government’s are progressively delivering their own Budget Statements (they being financially constrained) we have witnessed the absurdity of the system of public finances that pretends the Federal government is a big household and that somehow monetary policy is the most effective way to deal with an inflation that is sourced in supply side constraints. Earlier this week, the Victorian government released a fairly shocking fiscal statement, which cut expenditure programs in many key areas such as health care (while the pandemic is still killing many people), public education, essential public infrastructure maintenance and upgrades, and more. Why? Because it built up a rather large stock of debt during the early years of the pandemic and is now in political jeopardy because the state debt is being weaponised by the conservatives who claim the government is going broke. Similar austerity agendas are being pursued by other state and territory governments although Victoria leads the way because it provided more pandemic support to offset the damage that the extensive restrictions caused. Meanwhile, the federal government is boasting that it is heading towards its second consecutive surplus, as unemployment rises, hours of work fall, and the planet requires massive investment to attenuate climate change. The madness compounds when we realise that around 85 per cent of all state and federal debt that was issued between March 2020 and July 2022 was purchased by the Reserve Bank of Australia – that is, effectively, by the federal government itself. If citizens really understood the implications of that they would never agree to the swingeing cutbacks in public expenditure and the user pays tax hikes etc, that have been justified by an appeal to the debt build up. Its just madness.

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COVID-19 myopia – it actually costs more to have no acute care protocols in place and more people die as a result

I regularly scan research output from disciplines other than economics that I think impacts on economic matters. On April 17, 2024, a new study from medical researchers at the Burnett Institute in Melbourne, working with staff at the Department of Health and Human Services, in Victoria published a pre-print in The Lancet – Admission Screening Testing of Patients and Staff N95 Masks are Cost-Effective in Reducing COVID-19 Hospital Acquired Infections – which continues to show that public health policy in Australia is failing and part of that failure is the myopia that ‘sound finance’ principles engenders. I have written before about this myopia where governments think they need to cut back on spending because they are ‘short’ of funding and end up having to spend more over time because the initial spending cuts cause massive (and predictable) problems. We have seen this phenomenon in many situations (several cases are cited below). This new research puts an end in my view to the debates about hospital and more general health practices in the Covid era and exposes how the lack of political leadership, a refusal to fund public education, and poor hospital practices – mostly due to alleged funding shortfalls – have turned Australian hospitals into death zones. And while the authorities are telling the public they are ‘saving taxpayers’ money’ the reality is that the pubic outlays to deal with the problems they are creating by this austerity will be multiples of what would be required to implement sound policy now and avoid those longer-term problems.

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