Wage rises are required – real wages must grow in line with productivity

There was an interesting article in the UK Guardian last weekend (March 29, 2015) – Why falling inflation is a false pretext for keeping wages low – which examined wage trends in the UK and the validity of the argument that “Falling inflation now provides employers with a pretext for keeping wage settlements low”. Employer groups never support wage increases and are continually trying to suppress real wages growth below productivity growth so that they can enjoy a greater share of national income. As part of my research to discover the nature of the ideological shift accompanying the emergence of Monetarism as the dominant policy paradigm I have been examining wage distributions. This is part of a book I will complete next year (fingers crossed) on the demise of the political left. In this blog we examine the shifting relationship between labour productivity growth and real wages growth since 1960. The results are illuminating and open up a broad research front about which I will write more as time passes.

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US and Eurozone inflationary expectations diverge

Back in October 2009, the US unemployment rate had climbed to 10 per cent (its seasonally adjusted peak in the recent recession), the fiscal deficit was around $US1.4 trillion (9.8 per cent of GDP), which was the largest since the end of the Second World War (1945) 9.9 per cent of GDP and federal spending rose by 18 per cent with about 50 per cent going to bail out the banks. Meanwhile the US Federal Reserve ramped up its so-called quantitative easing (QE) program and its balance sheet expanded rapidly (as its purchase of government bonds accelerated). A lot of mainstream economists and conservative politicians at the time predicted an economic maelstrom – higher interest rates, an acceleration of inflation in the US and the inevitability of higher taxation. The trends in other nations were similar – higher deficits as the unemployment rates rose and the same shrill predictions of doom from the mainstream. None of the predictions came to be. But what is interesting is that the behaviour of long-term inflationary expectations in the US is now quite different to Europe. The most likely reason is that market participants now consider the drawn out recession and stagnation in the Eurozone to be the result of manifest policy failure and do not consider QE will do anything to alter that. In the US, the policy framework – fiscal stimulus to growth and benign QE appears to be more credible.

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US labour market improving slowly – Eurozone falls further behind

Last week (February 6, 2015), the US Bureau of Labor Statistics (BLS) released its latest – Employment Situation Summary – which suggested that “Total nonfarm payroll employment rose by 257,000 in January, and the unemployment rate was little changed at 5.7 percent”. That is a relatively strong result and job gains were reported across all the major private sectors. Public employment continued to fall. The data has already been analysed to death within the media so I wanted to concentrate on some comparisons with other nations, which are quite interesting. Further, the BLS released the related – Job Openings and Labor Turnover – dataset yesterday (February 10, 2015), which allows us to dig deeper into the raw aggregate numbers to make better assessments of what is going on.

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US labour market – improving but warning signs still present

Last week (January 9, 2015), the US Bureau of Labor Statistics released the – Employment Situation – for December 2014. The data showed that “Nonfarm payroll employment rose by 252,000 in December, and the unemployment rate declined by 0.2 percentage point to 5.6 percent”, which suggests the US recovery is on-going. However, the participation rate continued to decline and the employment-population ratio has not showed much sign of recovery. There are two other ways of looking at the labour market, which are typically neglected by the mainstream press analysis, but which provide very useful information about the direction of the labour market. I updated my gross flows database today and also the job openings and quits database. I will consider the latter next week, but today the question is whether workers have a higher probability of gaining a job in the US now than in the recent past.

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Sachs v Krugman – No contest, Krugman wins

There was an interesting article written by one Jeffrey Sachs, whose only notoriety, despite his own self-promotion, is that he was the principle promoter of the ridiculous doctrine of – Shock Therapy – which systematically ruined the nations it was applied to under the aegis of IMF structural reform. The latest article (January 6, 2015) – Paul Krugman has got it wrong on austerity – published by the UK Guardian, is a direct attack on Paul Krugman. I have no interest in defending Paul Krugman (nor would he be interested in such a defense). Rather, my interest is that Sach’s intervention is one of a growing number of articles that claim that austerity has worked! An extraordinary new historical revisionism is underway. The conservatives always try to rewrite history to suit themselves. This is the latest version of that long-standing exercise and deception.

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The sham of central bank independence

Let it be noted that the Japanese government 10-year bond yield hit 0.33 per cent overnight. That tells you that all the scaremongering that has been going on over the last twenty years about hyperinflation, the Japanese government running out of money, the bond markets dumping the yen, and the rest of it were self-serving lies designed to advance a particular ideological position at the expense of the broader social well-being. A year ago, the yields were 0.88 per cent – so they are going in the opposite direction to that predicted by many mainstream economists, blinded by their irrelevant textbook theories about how markets work. In that neo-liberal textbook fairyland, the yields should be sky high now, inflation accelerating out of control and the government forced to admit it had run out of money. Get over it, it won’t happen because the real world doesn’t operate like that. Students of macroeconomics are continually being taught a myth, which is detrimental to their education and life experiences. Many turn into the future doomsayers and sociopaths in organisations such as the IMF, the European Commission and other like policy making institutions. They always rave on about the need for more central bank independence to insulate monetary policy from political decision-making as if that will foster the well-being of the population. The idea of central bank independence is a sham and in the last week there has been stark evidence to support that view.

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Central banks can sometimes generate higher inflation

I haven’t much time today with travel commitments coming up at later. But I filed this story away earlier in the week in my ‘nonsense’ list but with a note that it contained a lesson, which would help people understand Modern Monetary Theory (MMT). The demonstration piece was written by the UK Daily Telegraph journalist Ambrose Evans-Pritchard (December 15, 2014) – Why Paul Krugman is wrong – which asserts a number of things about the effectiveness of fiscal policy (or the lack of it this case) and the overwhelming effectiveness of monetary policy. Indeed, apart from trying to one-up Paul Krugman, the substantive claim of the article is that the difference between the poor performance of the Eurozone and the recoveries in the US and to a lesser extent the UK is not because of the fiscal policy choices each nation/bloc made. This is articulated in a haze of confusion and misconceived discussion. So here is the lesson.

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The Cyprus confiscation becomes the model for bank insolvency

I am still sifting through the documents from the recent G20 Summit in Brisbane to see what our esteemed leaders (not!) have planned as their next brilliant move to reinforce neo-liberal principles. One of the least talked about outcomes from the recently concluded G20 Summit in Brisbane were the agreed changes to the banking systems operating in the G20 nations. The dialogue started in the G20 Finance Ministers’ and Central Bank Governors’ Meeting in Washington in April 2014. Clause 8 in the official Communiqué covered the aim of the G20 “to end the problem of too-big-to-fail” and signalled the “development of proposals by the Brisbane Summit on the adequacy of gone-concern loss absorbing capacity of global systemically important banks (G-SIBs) if they fail.” The Brisbane Summit would consider these proposals. The aim was to “give homeand host authorities and markets confidence that an orderly resolution of a G-SIB without exposing taxpayers to loss can be implemented”. You won’t believe what they came up with.

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The loaded language of austerity – but all the sinners are saints!

The US National Institute of Justice tells us that – Recidivism is “is one of the most fundamental concepts in criminal justice. It refers to a person’s relapse into criminal behavior, often after the person receives sanctions or undergoes intervention for a previous crime”. You know murder, rape, theft, and the rest. According to the European Commissioner for digital economy and society and Vice-President German Günther Oettinger running a fiscal deficit above 3 per cent when you economy is mired in stagnation is a criminal act! This religious/criminal terminology is often invoked. German Finance minister Wolfgang Schäuble told the press before a two-day summit in Brussels in March 2010 on whether there should be Community support for Greece, that “an automatic system that hurts those who persistently break the rules” was needed to punish the “fiscal sinners”. This sort of language, which invokes metaphors from religion, morality and criminology is not accidental. Especially in Europe, where Roman Catholocism still for some unknown reason reigns supreme in society, tying fiscal deficits to criminal behaviour or sinning is a sure fire way of reinforcing the notion that they are bad and should be expunged through contrition and sacrifice. The benefits of fiscal deficits in circumstances where the non-government sector is saving overall are lost and the creation of the metaphorical smokescreen allows the elites to hack into the public sector and claim more real resources for themselves at the expense of the rest of us.

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Back to 1917 – the wealth distribution in the US

The current evolution of Capitalism is taking the world back to where it was in the early C20th, before trade unions were strong enough to protect workers’ rights, before central governments were willing to mediate the class struggle and step in to make sure workers had the means to enjoy the material prosperity that the system generated, before wages growth allowed workers to share in productivity growth and build a modicum of material wealth. There is no class struggle, Bill! How many times do I hear that now. It is just a convenient sop by those with a vested interest in promoting that view or who has been conned to believe that to be the case. Of course there is a class struggle. Industrial capital might be sharing the hegemony with totally unproductive financial capital and the robber barons of the C19th and early C20th are less prominent and the banksters and the politicians in their pay have replaced them, but don’t ever think that there is a massive conspiracy to undermine the welfare state and put workers back into an even more subservient position than before. Unemployment, part-time precarious work, tax evasion and all the rest of the scams are working a treat.

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