The urban impact of the failure of austerity

I use the descriptor ‘failure’ in a selective way, although it is probably the meaning that that vast majority of citizens would ascribe to the term. In this context, I’m thinking that successful policy improves the lives of the most disadvantaged citizens in a region. A small minority of people might think of success in terms of how rich the top end of the distribution becomes (in wealth or income). Yesterday (January 25, 2016), a UK research group, the Centre for Cities released their latest – Cities Outlook 2016 – which is a comprehensive analysis of how the larger cities in Britain are performing across a variety of indicators. In this release, the theme was centred on the claim by the British Chancellor that his policy design was intending to produce a “higher wage, low-welfare economy in Britain”. The report suggests the British government has failed and that “almost half of lower wages, and higher welfare, than the national average” and “welfare spending since 2010 has grown at a much faster rate in high-wage cities”. I’ve also been trying to disentangle the impacts of deindustrialisation on urban spaces, which began in the 1980s, from the more recent impacts of policy austerity, driven by misguided understandings of the capacities of currency-issuing governments. I want to address the claim from the Left, that the shifting patterns of capitalist production across regional spaces, is inevitable and undermines the capacity of cities to prosper. The shifting patterns might be inevitable but the conclusion that is drawn about the options available to cities are largely incorrect.

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US labour market appears to be marking time

Last week (December 8, 2015), the US Bureau of Labor Statistics published the latest – Employment Situation – December 2015 – and the data shows that “Total nonfarm payroll employment rose by 292,000 in December, and the unemployment rate was unchanged at 5.0 percent”. The BLS noted that they had revised their estimates of the change in total non-farm payroll employment for October up by 9000, and the estimates for the change in November up 41,000. In other words, “employment gains in October and November combined worth 50,000 higher than previously reported”. The BLS also note that “over the past 3 months, job gains of averaged 284,000 per month.” This information was widely interpreted as a strong result with the employment growth spread across several industries and services. Construction employment was also strong for the third consecutive month. However, other indicators suggest a more static picture. Broad measures of labour underutilisation indicate no significant improvement in the latter part of 2015 in the US labour market. Further average hourly earnings were static and of not risen as strongly as in previous recoveries. The participation rate was unchanged at 62.4 per cent and remains well below previous peaks. As I have shown before, despite the robust employment growth, there is a bias towards jobs at the lower end of the pay distribution (see blog – US jobs recovery biased towards low-pay jobs.

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Mental illness and homelessness – fiscal myopia strikes again

Yesterday, as I was going about my business in San Francisco, I passed a man lying in the gutter outside the Westfield Centre on Market Street (the swish multilevel shopping complex with some expensive label stores), who was poorly dressed, given the weather (cold) and was clearly having some sort of episodic fit. The street was packed with Sunday shoppers most of whom were well-heeled. I asked the person I was with whether we should ring 000 to get some sort of professional help for the man and he told me that it would be futile because they wouldn’t come out anyway. It was not an isolated incident. Throughout the city the extent of homelessness and the public nature of mental illness is stark. There are choruses of shouts, anguished cries, megaphoned self-dialogues emanating from almost every street corner, doorway, alleyway, train station and whatever. People who should be in care, suffering and crying out. For the richest country in the world to tolerate this degree of human rights violation is almost unimaginable. While the Australian health system is far from perfect, our mentally ill citizens are much better cared for in state facilities and are not left on the street, homeless, suffering from a variety of obvious physical and mental maladies – and basically abandoned by the system. There are some who escape the net and wander the streets of our cities, but, in general, we do not accept that the mentally ill should be left to their own devices. It tells me that any American claim to greatness is a pitiful, self deceit. This is a heartless society where citizens who are most in need of state support are the least able to access it.

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Central bank propaganda from Minneapolis

My blog in the next week or so will be possibly rather holiday-like given the time of the year and the fact that I have rather a lot of travel and related commitments to fulfil over that period. So I will be pacing myself to fit it all in. Today, a brief comment on an article that appeared in the December 2015 issue of The Region, a publication of the Federal Reserve Bank of Minneapolis – Should We Worry About Excess Reserves (December 17, 2015). It is that one of those articles that suggests the author hasn’t really been able to see beyond his intermediate macroeconomics textbook and understand what is really been going on over the last several years.

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There was no reason for the US to raise interest rates

Last week (December 16, 2015), the US Federal Reserve Bank raised its policy interest rate by 25 basis points (1/4 percentage point) for the first time since 2005. In its – Opening Statement – the Federal Reserve chairperson said that the decision reflected the Bank’s judgement that there had been “further improvement toward our objective of maximum employment” and that it “was recently confident that inflation would move back to its 2 per cent objective over the medium term”. They did, however, acknowledge that “some cyclical weakness likely remains” and referred to the significant drop in labour force participation, the rise in underemployment, and the almost non-existent wages growth. Taken together, it was a strange decision to take given that the labour market is still a long way from where it was pre-crisis (unemployment has been replaced by underemployment and non-participation) and that the price level inflation is well below their two per cent target (even taking into account the extraordinary drop in energy prices).

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US jobs recovery biased towards low-pay jobs

Last Friday (December 4, 2015), the US Bureau of Labor Statistics (BLS) released the latest – Employment Situation Summary – November 2015 – which showed that “Total nonfarm payroll employment increased by 211,000 in November, and the unemployment rate was unchanged at 5.0 percent”. According to the press reports the data was above expectations and will probably help the US Federal Reserve Bank decide to increase the policy interest rate when it next meets on December 15 and 16. The revised data for September and October also indicated that the US economy had added (net) employment above what had originally been reported. On average, the US labour market has added 237,000 net jobs per month over the last 12 months. What I was curious about was whether these were predominantly low paid jobs or not. I found that the jobs lost in low-pay sectors in the downturn have more than being 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. In other words there is a bias in employment generation towards sectors that on average pay below average weekly earnings.

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Friday lay day – Eurozone, lessons have not been learned

It’s my Friday Lay Day blog and my head is firmly in the 1960s and being helped along by music from the early 1970s. I’m currently trying to trace the evolution of intellectual ideas in the French Ministry of Finance as it gained ascendancy in the late 1960s over the Planning Ministry, which was Keynesian in outlook. It is no easy task. The current situation in Europe is approaching laughable in a sort of tragic sense, given the millions of people who are unnecessarily unemployed as a consequence of the incompetence and folly of the political class. The latest manifestation of this folly was the Monetary Policy decision released by the European Central Bank yesterday (December 3, 2015) which was met with derision from commentators and the financial markets responded by pushing the value of the euro up, which will further exacerbate the ECB’s claim that it wants to increase the inflation rate.

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Time for George Osborne to expand discretionary deficit spending

The British Office of National Statistics released the latest – Public Finance, October 2015 – last week (November 20, 2015), which showed that the British fiscal deficit has grown by around 16 per cent in the past 12 months and is around £2.2 billion higher than was forecast by those who care to forecast such things. The hysterical press reaction was quite amazing. For example, the so-called progressive UK Guardian described the results as “shock UK deficit figures” and said that the recorded deficit was the “worst … for six years”, despite the fact that any informed dialogue about fiscal balances would eschew the use of terms ‘worst’ or ‘better’ to describe such outcomes. Meanwhile, the US press went haywire with claims of a scandal of what effectively amounts to the government hiding revenue from itself. Quite amazing.

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The massive Eurozone real income losses continue to mount

Eurostat released the third quarter National Accounts data for Europe on Friday (November 13, 2015) – GDP up by 0.3% in the euro area and by 0.4% in the EU28 – which showed real GDP growth slowing in the Eurozone (down from the slug-like 0.4 per cent) and nations such as Finland and Estonia (one of the previous ‘poster children’ for austerity) heading into basket-case territory. Finland contracted by a sharp -0.6 per cent in the Third-quarter 2015 and has been in recession since the Estonia contracted by 0.5 per cent as did the beleaguered Greece. Portugal stagnated at zero growth. The so-called European recovery is looking distinctly wan! As at the third-quarter 2015, the Eurozone as a whole as still not reached real GDP levels equal to the peak in the March-quarter 2008. The overall 19 economy monetary union is still smaller than it was before the crisis began some 7.5 years ago. But to envisage how large the losses are of the failure of the policy makers to quickly restore growth, we have to also estimate where the Eurozone economy would have been had the GFC not occurred and pre-GFC growth rates were maintained. Then we have staggering losses of national income to consider across the failed monetary union. A very damaging folly has been inflicted on the people of Europe as a result of the neo-liberal Groupthink that dominates policy making.

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European Commission forecasts – a denial of their only effective policy tool

In Greece, the national unemployment rate has been around (or higher) than 25 per cent since 2013 so it is little surprise that mortgage defaults has spiralled and people are selling of family heirlooms to wealth antique dealers in Switzerland to cover daily costs. A Geneva-based dealer told the Financial Times in June (Source) that “For buyers there are opportunities that only come along when there’s a real economic upheaval . . . in Greece it hasn’t happened since the second world war”. So the vultures are enriching themselves as a result of peoples’ misery. Its the market! No it isn’t. Its an incompetent government looking after themselves and allowing their citizens to go down the drain. Just yesterday, the Greeks have agreed to tougher foreclosure measures (as part of the bailouts) which will see impoverished Greeks lose their last vestige of dignity – their homes. And the latest European Commission – Autumn Economic Forecasts – (released November 5, 2015) portend a very sorry future for Greece and the Eurozone generally.

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