When progressives become neo-liberals and create a Trump

When you have a madman sounding, well “presidential” (according to the obsequious US press) what would you expect a Democrat politician to say in response? Yes I am talking about the Democratic response to the speech given by the US President on February 28, 2017 to the joint session of the United States Congress. The last thing I would want is for the response to begin with a report card on how the responder was fiscally responsible because he had achieved fiscal surpluses during the GFC. But then this is the Democratic Party circa 2016 we are talking about. The Party that lost an unlosable election to a showman who is sparing of the truth. This is the Democratic Party that having just lost an election because its candidate was seen as part of the neo-liberal establishment that has brought grief on millions of Americans, decides to replace its administrative head with another neo-liberal corporatist. But this problem is not uniquely American, although Americans do like to think they are unique. All around the world, political parties who should be defending workers and the poor have morphed into right-wing look-a-likes preaching fiscal rectitude (they would do it fairer) and cuts to public services and all the rest of it. They have so let down their natural constituents that real right-wingers preaching hate against immigrants and refugees and the like have seized the political initiative and taking votes from them. Trump is a sort of hybrid of that. Until the Left abandons its notions that fiscal responsibility does not mean running fiscal surpluses as a matter of course, it will continue to lose ground. And, we will all be worse off as a consequence.

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US labour market deteriorating – the losses from GFC will be long-lived

In September 2016, I assessed that – The US labour market is nowhere near full employment. This was in the context of an increasing number of commentators claiming that the US economy had already returned to full employment. The IMF World Economic Outlook is also estimating that the output gap in the US (actual relative to potential) has turned positive (meaning the US is beyond full employment). By way of contrast, the Congressional Budget Office considers the US had an output gap of around 0.9 per cent (actual below potential) in the December-quarter 2016. The facts point to even higher output gaps. The current BLS data release – Employment Situation Summary – January 2017 – has not altered my view. It showed that total non-farm employment from the payroll survey rose by 227,000 and the unemployment rate remained “little changed” at 4.8 per cent. But from the perspective of the labour force survey (Current Population Survey), total employment fell by 30 thousand. See below for an explanation of that paradox. The point is that employment still remains well below the pre-GFC peak and the jobs that have been created in the recovery are biased towards low pay. Additional research reveals that the losses from this sluggish economic performance will be long-lived and undermine the prospects of future generations. Fiscal austerity is bad for our grandchildren! In general, the problem is less job creation as quality of the work being created and the capacity of US workers to enjoy wage increases.

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Greece still should exit and escape the grip of the vandals

Greece is back in the news as the IMF, the Germans and the European Commission slug it out pretending to talk tough and propose solutions to the Greek tragedy. There is no solution of course. All the debate about whether the primary surplus target should be 3.5 per cent of GDP (European Commission position) or slightly lower (IMF position) is just venal hot air. Anybody who knows anything and isn’t protecting their past mistakes would assess that a fairly large and sustained fiscal deficit is required in Greece to rebuild some of the lost capacity and to provide an inkling of hope to the youth who are facing a lifetime of diminished prospects as a result of the decisions the adults around them took. All the talk about ‘deficits mortgaging the grand kids future’ – sick. The austerity has meant the grand kids might not ever emerge given the constrained circumstances their would-be parents will face as they progress through adulthood. The reality remains – firmly – Greece should exit the Eurozone, convert any outstanding liabiliites into a new currency at parity, and stimulate its domestic economy with expansionary fiscal policy. It should continue to impose capital controls. As part of the stimulus, it should introduce an unconditional Job Guarantee at a decent wage to provide a pathway back into employment for the many that the Troika have rendered jobless.

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The Italian elites knew all along that the Eurozone would be a disaster

There is often a discussion about whether politicians and government officials introduce policy changes that end up being damaging to the well-being of the people are ignorant or wilful. It is sometimes hard to discern what the agendas are and who knows or understands what. The release of the US Central Intelligence Agency’s declassified report – Economic Intelligence Weekly Review 9 November 1978 – tells us a lot about the deliberate deception that goes on where the citizens are kept in the dark and the politicians deliberately make decisions that they know are not in the best interests of the nation. The questions then are why do they do that and what can citizens do about it? In the case of Italy – and the decision to enter the European Monetary System (EMS) in 1978, which was the precursor to the Eurozone, the motivations are fairly apparent. They knew that the EMS would not be in the best interests of Italy from an economic standpoint but were lured by the ‘European dream’. This is the idea that ‘Europe’ (by which we mean the formal European Union) is a representation of political stability and sophistication. The southern European states never felt part of ‘Europe’ and considered that their own political stability and oversight of corrupt politicians would improve if they went along with any idea proposed by the European Union. Italy had been a foundation state but still doubted their own legitimacy. The neo-liberals that were taking over the European integration process by the late 1970s sold this line to subtlety coerce these nations into joining up. It worked. But the polity and the technocrats knew all along that entry into the EMS and later the Eurozone was not in Italy’s best economic interests.

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Back to the future – employment freezes – they only degrade services

A report in the The Washington Post (January 23, 2017) – The Trump administration just told a whopper about the size of the federal workforce – caught my attention earlier this week because it cut across some work I had been doing on public employment. The headline is self-explanatory – the accusation was that Sean Spicer lied in his first press briefing following the inauguration of the new President. The reporter in question (Christopher Ingraham) promoted his article with a Tweet and accompanying image which was then circulated widely on the Internet. The graph is what attracted my attention given that I rarely read the Washington Post, since it sold pages to the likes of Peter Peterson and allowed propaganda to parade as news. In this case, the problem was that the graph provided was highly misleading and didn’t refute anything that Sean Spicer had said about US federal government employment. Spicer had lied. But the Washington Post tweet didn’t prove that. This failing highlights an often-made confusion in the public – the difference between proportions and levels and the way graphs can lure us into wrongful conclusions. The sort of puzzle that young students in statistics are taught to work through. The other point is that employment freezes degrade public services and end up not saving cash anyway.

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The (neo-liberal) Third Way infestation continues

“Fresh thinking delivered to your inbox – Subscribe”. That is the message on the homepage of Third Way an American think tank (aka conservative propaganda machine) masquerading in the public space as a “centrist think tank”. The problem is that this particular ‘think tank’ does not seem to do much fresh thinking, if thinking at all. According to the Politico article (January 17, 2017) – Democratic Party rethink gets $20 million injection – largely aimed to reestablish the narrative that allowed Bill Clinton and then Barack Obama to be elected as President. In part, this initiative is to head off the likes of Bernie Sanders and Elizabeth Warren (neither who are mounting what I call a fully progressive agenda anyway) and claw back the voters who abandoned the unelectable (my judgement) Hillary Clinton in favour of the (shouldn’t have ever been elected) Donald Trump. The narrative that the Third Way organisation has been engaged in for years is hardly fresh. They attack fiscal deficits and call for retrenchments of pension entitlements and public health care funding, they oppose single payer health care and, thus, favour pumping billions of public funds into private insurance companies who offer inferior services, and are strong advocates of the deeply flawed Trans-Pacific Partnership. There is nothing progressive about this group nor fresh. They are mainstream central and the fact they are spearheading a Democratic Party initiative to win back political support tells me that the Party has learned next to nothing from last November’s Presidential election.

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The Obama legacy

I heard some of President Obama’s Farewell Address on the radio yesterday and read the transcript later. Early on, the crowd started chanting “Four More Years” and at that point I concluded they were blind too the reality before them. Obama’s legacy and the legacy of the Democratic period in office is Donald Trump. But it is much more than that. It was full of American exceptionalism, which those from the outside just brush off as the usual hype from a nation that is close to being a failed state but just has more guns and ammunition than anyone else. Press those E-mail send buttons now, I have the full fire suit on – as always. I get more hate E-mails from Americans who profess to love freedom and liberty than any other nation. At any rate, if I was departing what has been a failed Presidency when judged in progressive terms, I would have gone quietly. The ultimate Obama legacy is the Trump presidency. The embrace of the Clinton divine right to rule helped get Trump across the line but the damage was done earlier and Obama only consolidated the failure of Democratic party to offer an alternative to the rabid neo-liberalism of its opponents. The first problem is that the Democratic Party has long ceased being a voice for progressive policies. It masquerades as a progressive party. Obama adopted that masquerade and when one puts together a report card, he gets a failing grade on so many fronts, a few of which lie within my expertise, that I discuss below.

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Paul Krugman’s ideas are part of the problem

It was always going to happen. Several prominent New Keynesians both in the US and the UK have been hiding behind a smokescreen they erected during the Global Financial Crisis to allow their readers to form the view that they were not part of the problem. That they were different from the more rabid anti-deficit economists and that they had a deep understanding of why the crisis occurred and what the solutions were. For a while they masqueraded under the aegis of promoting the discretionary use of fiscal deficits (increasing them nonetheless) to stimulate growth in output and employment. They were seen by many who have a lesser understanding of economics as being progressive economists. The British Labour leader even had some of them on his inner advisory team. But the masks can only stay on so long. Yesterday, one of the most prominent of these characters, Paul Krugman came out! He is not progressive at all. He is a New Keynesian with all the IS-LM baggage that they cannot let go of. In his New York Times article (January 9, 2016) – Deficits Matter Again – he well and truly shows his colours. And they (to speak American) ain’t pretty!

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Foreign sales of US government debt are largely irrelevant

Happy New Year to all readers. I will not write much today (to reflect to on-going holiday spirit!). But, there was an article in Bloomberg media (December 30, 2016) – Beware the Foreign Exodus From Treasuries – stirring up fear about the recent sales of foreign-held US government debt. I guess it was a slow news day or something because there is very little in the story that is relevant to assessing whether the US government can run an appropriate fiscal policy stance. The fact is that the foreign sales of US government debt are largely irrelevant for the US government’s capacity to maintain its net spending program. The sales are in US dollars and only the US government itself issues those dollars. To think that a foreign purchaser of a US Treasury debt liability are ‘providing dollars’ to the US government is to completely misunderstand the nature of the transaction. This blog considers the current data and explains how to think correctly about these matters. The question that financial commentators really should be asking is why should the US government extend that corporate welfare (risk-free bonds with income flow) to domestic bond-buyers and foreign governments/private investors. There is no financial reason (in terms of facilitating fiscal policy) for the bond issuance. It is just a form of welfare spending which helps the top-end-of-town.

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All net jobs in US since 2005 have been non-standard

The Australian labour market has been characterised over the last 12 to 24 months by the dominance of part-time employment creation with full-time employment contracting. Over the last 12 months, Australia has produced only 84.9 thousand (net) jobs with 107.2 thousand of them being part-time jobs. In other words, full-time employment has fallen by 22.2 thousand jobs over the same period. This status as the nation of part-time employment growth carries many attendant negative consequences – poor income growth, precarious work, lack of skill development to name just a few disadvantages. Further, underemployment has escalated since the early 1990s and now standard at 8.3 per cent of the labour force. On average, the underemployed part-time workers desire around 14.5 extra hours of work per week. If we look at the US labour force survey data quite a different picture emerges, which is interesting in itself. Does this suggest that the US labour market has been delivering superior outcomes. In one sense, the answer is yes. But recent research based on non-labour force survey data (private sampling) suggests otherwise. That research finds that “all of the net employment growth in the U.S. economy from 2005 to 2015 appears to have occurred in alternative work arrangements.” That is, standard jobs have disappeared and are being replaced by more precarious, contract and other types of alternative working arrangements. The trend in the US has not been driven by supply-side factors (such as worker preference) but reflects a deficiency in overall spending. Not a good message at all.

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