Seattle workers better off after significant minimum wage rise

I recently wrote about minimum wage principles in relation to a progressive manifesto and the desire to reduce income inequality, which has risen sharply in the neo-liberal era where mainstream ‘free market’ economics has been the dominant narrative. Please see – Reducing income inequality – for that discussion. That blog considered some evidence that refutes the mainstream economics mantra that implementing minimum wages undermines the employment opportunities for low-wage workers. The standard lie that is rammed down the throats of economics students is that whenever governments impose minimum wages the market retaliates and minimum wage workers are worse off as a result. There are layers of erroneous concepts embedded in that orthodoxy, which I have dealt with many times before. But a significant point is that the real world is doing a good job to expose the lies of the ‘competitive’ model without recourse to any deep theoretical debates about whether ‘marginal productivity’ can be identified (it cannot), or whether the labour demand curve is downward sloping (it isn’t), which also includes a debate about whether productivity declines with extra employment (it doesn’t!). An interesting research paper released July 2016 by researchers at the The Seattle Minimum Wage Study Team based at the University of Washington in Seattle – Report on the Impact of Seattle’s Minimum Wage Ordinance on Wages, Workers, Jobs, and Establishments Through 2015 – provides further evidence to contest the veracity of the mainstream economics myths.

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Growth outlook deteriorating – and don’t blame the Brexit vote

Last week, National Accounts data for the June-quarter 2016 was published for the US and the Eurozone and we learned that the next slowdown is happening now, even though neither economy has yet fully recovered from the last downturn (the GFC). Data from the UK is similarly poor, which suggests to me that the Brexit hoopla (where everything bad is blamed on the Exit vote success) is misplaced. In the case of the US, there is now a marked slowdown underway and the growth rate has been in decline since the March-quarter 2015. Private consumption expenditure remained strong and there was a substantial decline in the personal saving ratio as households spent a much higher proportion of their disposable incomes to fund their growing consumption. The other standout result was the decline in Private capital formation (investment), for the third consecutive quarter and the fact that its rate of decline is accelerating signals a lack of confidence in the medium-term outlook by business firms. The government sector also undermined growth in the June-quarter 2016. With inflation still well below the implicit central bank target rate (2 per cent) and growth is faltering the outlook suggests that the federal government will need to increase its discretionary fiscal deficit to stimulate confidence among business firms and get growth back on track.

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Brainbelts – only a part of a progressive future

Last week, the US Republican Party held an extraordinary convention in Cleveland, an old rustbelt manufacturing town. I say extraordinary because I guess you have to be American to understand how grown adults can systematically humiliate themselves for several days with the rest of the world looking on wondering WTF was going on! Anyway, just down the road from Cleveland is Akron, Ohio, which is being held out as a model for the new era of prosperity in advanced nations. I caution against believing that hypothesis. It was proposed in a book I have just finished – The Smartest Places on Earth – written by two Dutch writers (published 2016). It carried the subtitle “Why Rustbelts are the Emerging Hotspots of Global Innovation”. I do not recommend anyone purchase it even though it is getting rave reviews around the place. I see it as a sort of replay of the 1990s ‘New Regionalism’ mania that emerged as part of the Third Way movement, which the now discredited Tony Blair promoted as the entrepreneurial solution to turn regions into sub-national export centres to replace the ‘nation state’, that had been (according to the narrative) rendered powerless and irrelevant by globalisation. The book introduces the notion of the “Brainbelt”, which the authors claim are revitalising the “former rustbelt areas” and “bringing new competitiveness to the United States and Europe” – a sort of counter-strategy to foil the jobs lost to the low-cost nations such as China and the Asian economies in general. The problem is that the growth strategy seems to leave the worker behind!

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US labour market – some improvement but still soft

Last week (June 8, 2016), the US Bureau of Labor Statistics published the latest – Employment Situation – June 2016 – and the data shows that “Total nonfarm payroll employment increased by 287,000 in June, and the unemployment rate rose to 4.9 percent” on the back of rising labour force participation. The Household Survey measure showed that employment grew in net terms by 67 thousand (0.04 per cent), which presents a more modest picture than the media reports, that focus on the payroll data, are portraying. Clearly, the 287,000 net jobs added according to the payroll data is a lot better than the 11,000 added according to the same measure in May 2016 (which was revised downwards from 38,000). Further, hours and earnings data suggests a fairly moderate labour market outlook rather than any boom conditions. Broad measures of labour underutilisation also indicate a worsening situation. Underemployment (persons employed part time for economic reasons), which had risen sharply in May (by 468,000) fell by 587 thousand in June, which along with the rising participation rate (a fall in the discouraged workers by 36 thousand), suggests a better state of affairs that was anticipated in May. It remains to be seen whether this renewed jobs growth reduces the bias towards low-pay jobs – which I most recently examined in this blog US jobs recovery biased towards low-pay jobs continues.

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ECB research shows huge output gap and need for fiscal expansion

Last week, I reported on some claims by Australian private sector economists that the Australian government was deplete of policy tools (“run out of ammunition” was the cute term used among these self-serving characters) and would not be able to handle the Brexit fallout – see When journalists allow dangerous economic myths to pervade. It was obvious that the statements were nonsensical and only reflected the dangerous neo-liberal ideology that discretionary fiscal policy should be constrained to the point of being not used! In the last week, some major central bankers around the world have given speeches which suggest they also understand that fiscal policy has come to the fore and provide some certainty to the world economy. The latest estimates from the ECB of the Eurozone output gap certainly provide the evidence base to justify a major expansion of fiscal deficits across the Eurozone. The research is suggesting that there is a significant output gap which is evidence of insufficient aggregate spending rather than any structural shifts in potential GDP. I guess they are warming the Member States for more expansionary action although the message is very clear – the European Commission has to abandon its austerity mindset and provide some old-fashioned deficit stimulus – quick smart!

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Bias toward low-wage job creation in the US continues

Last Friday (June 6, 2016), the US Bureau of Labor Statistics (BLS) released the latest – Employment Situation Summary – May 2016. I analysed that data release in this blog – The US labour market continues to weaken. The message from the data is that while the unemployment fell to 4.7 per cent, employment growth is virtually non-existant and the unemployment rate fell to 4.7 per cent only because the participation rate fell by 0.2 percentage points (in other words, hidden unemployment rose as people dropped out of the labour force). The sharp slowdown now evident in the US labour market has meant that the US Federal Reserve Bank will have to rethink their so-called interest rate normalisation strategy. In the downturn that began in January 2008, there were 8.7 millions jobs lost (up to December 2009) and 86 per cent of them were in sectors that paid above average weekly earnings. Since the recovery began in January 2009, the US labour market has added 14.1 million jobs (in net terms). The question this blog explores is whether these jobs have been predominantly low paid jobs or not. I found that the jobs lost in low-pay sectors in the downturn have more than been offset by jobs added in these sectors in the upturn. However, the massive number of jobs lost in above-average paying sectors have not yet been recovered in the upturn and do not look like being so, given the labour market is slowing again. In other words there is a bias in employment generation towards sectors that on average pay below average weekly earnings.

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The US labour market continues to weaken

Last week (June 3, 2016), the US Bureau of Labor Statistics published the latest – Employment Situation – May 2015 – and the data shows that “nonfarm payroll employment changed little (+38,000)” in May, while the “unemployment rate declined by 0.3 percentage point to 4.7 percent”. The lack of net job creation has been described as a ‘bombshell’ and commentators are claiming it will put an end to any interest rate rise ambitions that the US Federal Reserve Bank might have harboured for this month. Additional poor indications came from the falling participation rate, which fell by 0.2 percentage points and “has declined by 0.4 percentage points over the past two months”. In other words, given the parlous employment growth, the unemployment rate would have been much higher had the supply contraction not occurred. Broad measures of labour underutilisation also indicate a worsening situation. Underemployment (persons employed part time for economic reasons) rose sharply by 468,000 in May. In the recovery, there was a bias towards low-pay jobs – see blog US jobs recovery biased towards low-pay jobs – now there is a dearth of new jobs being created.

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The US government view of the 1976 sterling crisis

This blog continues the discussion of the British currency crisis in 1976. Today we discuss the way the US government was constructing the crisis. They had previously seen Europe in terms of military and political threats and had clearly developed a range of interventions in Europe (NATO, military bases etc) in response to their fear of Communism. But, it was clear that the US began to believe that the on-going financial turmoil that accompanied the OPEC oil shocks at a time when the world was trying to adjust to the collapse of the Bretton Woods system (and the Smithsonian agreement reprise), was undermining what they called their “assumptions of political stability” and increasing, in their paranoiac minds, the threat of the spread of communism. They considered that the IMF would have to be ‘steered’ to take a larger role in this period of turmoil to restore financial stability – a precondition for political stability (in their eyes). And if they couldn’t directly order the IMF to act in the perceived interests of the US government, then they would do it informally – through “‘conversations’ rather than meetings”. It is a very interesting period because the US clearly wanted to use the IMF to influence “the future shape of the political economy of Great Britain”. The ‘crisis’ was, in effect, manufactured to give those ambitions ‘ground cover’. At least, that is one plausible perspective of what happened in 1976.

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The Wall Street-US Treasury Complex

Today I am in Barcelona, Spain after travelling from Trujillo (in the western part of Spain). Today’s blog continues the analysis I have been providing which aims to advance our understanding of why the British government called in the IMF in 1976 and why it fell prey to a growing neo-liberal consensus, largely orchestrated by the Americans. Yesterday, we analysed the way in which the IMF reinvented itself after its raison d’être was terminated with the collapse of the Bretton Woods fixed exchange rate system. Today’s part of the story, is to trace the growing US influence on the IMF and the way it manipulated that institution to further its ‘free market’ agenda on a global scale. We will consider what Jagdish Bhagwati called the “Wall Street-Treasury complex”, which referred to the way in which financial market interests in the US combined with (pressured) the US Treasury Department to advance the myth that liberalisation of global capital flows would deliver massive benefits in the post-1971 period after the convertible currency, fixed exchange rate system collapsed.

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The metamorphosis of the IMF as a neo-liberal attack dog

Today I am in Granada, Spain having an interesting time. Nothing public to report. I will be here until Thursday morning upon which I travel back to Madrid and the public events begin (see below). Today’s blog continues the analysis I have been providing which aims to advance our understanding of why the British government called in the IMF in 1976 and why it fell prey to a growing neo-liberal consensus, largely orchestrated by the Americans. The current book I am finalising with my Italian colleague Thomas Fazi, is tracing the way in which the Right exploited the capacities of the ‘state’ to advance their agenda and how they duped the Left into believing that globalisation had rendered the nation state powerless. There were several turning points in this evolution, and one of those key moments in history, was the assertion by British Labour Prime Minster James Callaghan on September 28, 1976 that Britain had to end its ‘Keynesian’ inclinations and pursue widespread market deregulation and fiscal austerity has been taken to reflect a situation where the British government had no other alternative. His words have echoed down through the years and constituted one of the major turning points in ‘Left’ history. Successive, so-called progressive governments and politicians have repeated the words in one way or another. The impact has been that they have forgotten that their were options at the time that the British government rejected, which would have significantly altered the course of history. Today, we consider the role way in which the IMF reinvented itself after its raison d’être was terminated with the collapse of the Bretton Woods fixed exchange rate system. The next part of the story will examine the growing US influence on the IMF and the way it used the IMF to further its ‘free market’ agenda on a global scale.

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