When a poet knows more than most economists

It is Friday and I have been reading poetry. Then I read some ECB statements and some Spanish government documents after some number crunching (not reported here). And as usual I conclude the elites in Europe still think they will bluff their way through a deteriorating situation – some 4 years or so after it began – and stick to their ideological precepts as if there is no tomorrow. The problem for them is that the rest of us including bond markets, households, private firms and banks don’t follow the script that the Troika have written. Madame Lagarde can strut around on her tax-free salary telling Greeks they should pay their taxes and that it was payback time but that does little other than to make her look poor while the situation worsens. The Spaniards, facing bank failure, crippling unemployment generally, and specifically, more than half of their 15-24 year-olds jobless and, presumably, becoming alienated and dislocated from mainstream ambitions, came up with a plan that might have eased their own problems (for a while). It seems that the plan would not violate EMU rules. The right-wing BuBa types however, obsessed with an imaginary fear that inflation is about to swamp the Eurozone and end life as we know it, responded as only they can – by posing a non-problem while leaving the real problem to deteriorate further. A poet and a playwright could not have come up with text portraying this level of paralysis and madness even if they had tried.

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Oh what a difference a President makes!

The world’s press is once again whipping up the “Greece to exit” frenzy and wheeling out all manner of mainstream economists who are issuing the most strident warnings that Greece needs the Euro and will walk the plank if it exits. Most of this is conservative hype. The reality is that while the exit would be immediately costly – the situation is currently so dire and the outlook so negative – that these “costs” have to be weighed against the almost immediate return to growth should the nation exit and default. Apparently, the Greek political elites (the President and the two main party leaders) are proposing that the recent election, which overwhelmingly rejected the Troika-led austerity, be ignored and, instead, a government of technocrats – all of whom will play ball with the Troika, be installed to rule the nation. The machinations of the neo-liberals never cease to amaze me. Greece should take a lesson out of the Iceland book. But then they had a President who seemingly cared about national interest.

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The fantasy Barro(w) is still being pushed

I read the latest “fiscal stimulus has not made a jot of difference” Op Ed from Harvard’s Robert Barro as a classic example of how mainstream economists manipulate data that few understand well to support a case that is the opposite of the facts. nd wondered why he bothers. My profession are experts at either denying that facts are facts (the “when all else fails” strategy – that is, if the facts are inconsistent with the theory then the facts are wrong) or using data selectively when they know most people interpret economic data in a superficial and intuitive manner that often leads to wrong conclusions. The Wall Street Journal article (May 9, 2012) – Stimulus Spending Keeps Failing – which carried sub-title challenge “If austerity is so terrible, how come Germany and Sweden have done so well?” was typical Barro. I realise he cannot perform a detailed data analysis in a standard Op Ed (which is one of the great advantages of blogs). But with the sparse word-limit available in an Op Ed, the writer should also stick to the facts and draw relevant rather than spurious conclusions from the facts presented.

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The ECB cannot go broke – get over it

CNBC’s Head of News, one Patrick Allen produced this article (May 10, 2012) – European Central Bank Leveraged Like Lehman – which several readers E-mailed to me suggesting that there was a problem that had to be addressed and would prevent the ECB funding member state deficit increases in pursuit of growth. The only problem I am afraid to say is the “author” doesn’t know much about the subject that he is writing about. This, sadly, in a general problem out there in commentary land. The article was in fact reporting the views of one Satyajit Das who gets a lot of airtime on national radio in Australia and elsewhere but perpetuates many of the mainstream myths about the way the monetary system operates and its limits and propensities. Das mixes factual statements (which I agree with) with causalities and reasoning (which I do not agree with). The journalists then build their stories based on an uncritical precising of so-called experts like Das and the myths then spread. Let us be absolutely clear. There is no meaningful comparison between the ECB and Lehman or any central bank and any private bank. Further, the ECB cannot go broke.

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Oh Ireland, if only you were growing

I regularly check the data for Ireland to see how she is going, given that the Irish government was the first to impose the austerity solution in early 2009 – that is, three years ago. I read yesterday that “of the countries that were in trouble, I would say Ireland looks as if it’s the best at the moment because Ireland has implemented very heavy austerity programs, but is now beginning to grow again”. That created some cognitive dissonance for me. Was I dreaming when I last looked at the Irish national accounts data? Surely, I hadn’t made a mistake when I concluded that the last two quarters of 2011 recorded negative growth as Irish exports slowed in the wake of the emerging double-dip recession in Britian? When I reviewed the data today, it seems that Ireland is still going backwards and people are becoming poorer. Claims that Ireland’s austerity approach provides a model for other nations to follow because it produces growth cannot be sustained from the data. But if only it were true … Oh Ireland, if only you were growing.

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Why the Eurozone is destined to fail

Last night I gave a keynote presentation in Melbourne at the – Can the Eurozone survive its Crisis? – which is hosted by the Monash University European Union Centre. The event was well attended and the chaired by the Ambassador and Head of Delegation of the European Union to Australia and New Zealand David Daly. He closed the night by saying that we shouldn’t judge the Eurozone because it is a “work in progress” and the elites are on the case. The question of-course, is – how long must the millions of unemployed and disadvantaged wait? How many more well-catered for Summits in Brussels must the citizens tolerate? The discussant for my paper was a free market self-confessed right-winger who ended up agreeing that the Eurozone is doomed. Along the way he demonstrated a lack of understanding of basic economics and eventually had to raise Weimar as his major attack on government spending. Apparently, he also thought full employment was undesirable. A picture of Von Hayek appeared at one point. The other panel member was Dr Natalie Doyle who is currently acting as the Head of the Centre and an authority on European culture and politics. I have been travelling today and so have had little time to write. But I thought I would just share a few things with you that arose from last night’s seminar.

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Fiscal austerity obsession – that’s a dud policy!

I have been reading the latest report from the International Labour Organization (ILO) – World of Work Report 2012 – which documents the disastrous trends in employment that are expected as fiscal austerity grinds economies into the ground. The ILOs Social Unrest Index has risen in 57 out of 106 nations and negatively related to employment fortunes. The ILO also found that “deregulation policies … fail to boost growth and employment” and “there is no clear link between labour market reforms and employment levels”. They conclude that the “austerity trap” is destroying jobs and that concerted effort is needed to ensure that “wages grow in line with productivity” and that there should be a “coordinated increase in the minimum wage”. I will analyse this report in more detail another day because it is schizophrenic in approach reflecting the struggle within the ILO between the neo-liberal influences that have grown over the last few decades and the more balanced labour market understandings that come from a thorough understanding of the importance of labour market institutions and government oversight and a keen appreciation of the empirical dimensions. But today I am going to briefly reflect on an extraordinary interview – Former Reserve Bank Governor bemoans state of politics and inequity – on the ABC current affairs program – 7.30 – last night, where the former RBA governor let fly at budget surplus obsessions and demanded more expansionary fiscal and monetary policy interventions at a time when demand is faltering and growth falling. And some other snippets appear afterwards.

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Cancer is bad but budget deficits are generally good

The US Bureau of Economic Analysis released the first-quarter 2012 National Accounts data for the US last week (April 27, 2012) – see the News Release which showed that the US economy has slowed in the last three months, largely due to a decline in the government contribution. Annualised Real GDP growth was 2.2 per cent down from 3 per cent in the December 2011 quarter. The economy is now growing under trend and the signs are not good. If the politicians actually get around to imposing austerity then the US economy will join the UK in its race to the bottom with the other competitor being the Eurozone. The latest news from the Eurozone is that Spain will become the epicentre of the crisis in the coming weeks/months. Greece is yesterday’s news and the continuing deterioration of the Spanish economy – one considerably larger in importance than Greece – is focusing minds. The problem is that the reaction of the Euro elites is to inflict more austerity onto Spain which will – as night follows day – cause the situation to worsen. But still we read from leading US government officials that budget deficits are like cancer and will destroy countries “from within”. The only thing I can say about that astounding demonstration of ignorance is that I cannot think of a situation where cancer is good. But generally, budget deficits generate benefits to the nation that is enjoying them.

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Are the Euro bosses going all growth on us?

I am still in Darwin today and have limited time to write. It seems, however, that the Euro bosses have gone all growth on us. For non-English speakers – going all growth on us – is terrible slang meaning are they becoming enamoured with the idea that growth is important. Apparently, austerity is “so yesterday”, if not “last week” and the mantra is now about “growth compacts”. Forget the fiscal compact which most of the EU states have signed up for which if realised will drive their economies into the ground so harsh are the proposed rules on budgets and public debt. Now there is a growth compact proposal – which Mario has suggested Europe follows. Angie is right in behind him – has Madame Austerity – has gone all growth on us too?. It has been a bad week for the Troika (IMF, ECB, EU) – what with the UK now officially in a double-dip due to the deliberate strategy of its government (emulating the EMU) and across the Channel, the impending success of François Hollande is now becoming obvious. Merkoz will now have to morph into Mollande. And while on “olland”, the Dutch government also collapsed as a direct result of the backlash over the fiscal austerity. Apparently, the likely new French president is not particularly keen to join the fiscal austerity conga line although all his public statements to date would suggest he is committed to the SGP principles. So what is this all about? Are the Euro bosses going “all growth on us”? Answer: there will be no “growth compact” other than in the title of some EU Summit paper. The growth spin is mounting but the EU elites remain firmly wedded to doing everything they can to undermine growth.

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The UK government in a race with the Eurozone to ruin their economies

I am in Darwin today – right in the North of Australia. This is the frontier of Australia and merges our nation with Asia to the north. The dry season has just started and so the tropical weather today is glorious – warm and sunny and dry! It is a 6 hour flight from Newcastle and a remote part of our nation despite Darwin being one of our capital cities. But the world is not very far away from anywhere these days in terms of information access and so it is hard to avoid reading the latest data from around the world and analysing it. The news from Europe over the last 24 hours is shocking and the responses by leading politicians is worse. Just as the British Office of National Statistics was announcing that the UK has achieved a double-dip recession for the first time since the 1970s – an achievement that the Government will no doubt erroneously claim is the work of others – Bloomberg published a story (April 25, 2012) – Merkel Pushes Back Against Hollande Call to End Austerity Drive which tells you how far out of touch with reality the Euro leadership is. The UK government is working as hard as it can to undermine its own economy so it can catch up with the Eurozone economies in the race to the bottom of the slime. It beggars belief really. When will the citizens revolt?

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