Latest instalment in Project Fear is not very scary at all despite the headlines

A short blog post today – being Wednesday. I am still catching up on things after being away for a few weeks. The British Institute of Fiscal Studies (IFS) offered its latest contribution to Project Fear this week with their claim that the fiscal response to a no-deal Brexit would “would send government debt to its highest level in more than half a century”. Sounds scary. Which, of course, was the intention. That is what Project Fear is about. Creating illusions of disaster to discipline the political debate in a particular direction. Nothing new about that. But the media, including the UK Guardian had lurid headlines such as – No-deal Brexit would ‘push national debt to levels last seen in 60s’ (October 8, 2019). But if you think about it the worst case estimates are hardly anything to worry about, even if we took the estimates seriously and were concerned about movements in public debt ratios for a currency-issuing nation (which I am not). Here are a few graphs so that all my British friends can come from under their bed covers and face the day with a smile as the No-Deal data gets closer.

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Is the British Labour Party aboard the fiscal dominance train – Part 2?

I am typing some of this on the train from Brighton back to London, after a day of speaking events in Brighton, where the British Labour Party conference is currently being held. I spoke at two events: (a) the GIMMS event on MMT and the Green New Deal and a video will be available soon; and (b) at an event alongside British Labour MP Chris Williamson, where were talked about how an Modern Monetary Theory (MMT) understanding can enhance the progressive policy cause and advance a transformation towards a ‘socialist’ (whatever that might be) state. It was great to see everyone at the events. The second event was attended by many people involved in the Labour Party itself and I hope that being exposed to new ideas will activate further grassroots resistance to the neoliberal system that undermines our material prosperity. So this two-part series is a reflection on the state of economic policy thinking within British Labour in the context of the paradigm shift that is going on now, around the world, in macroeconomic policy thinking. As I noted in – Part 1 – we are now seeing economists and policy makers, lining up, to tell us that a reliance on monetary policy has run its course and a new era of fiscal policy dominance is the only viable way ahead. That means that New Keynesian economics is over. That means that fiscal credibility rules that reflect an adherence to neoliberal constructs will need to be abandoned. And it seems that British Labour are lagging behind these major shifts that have been going on in economic policy thinking. Only Modern Monetary Theory (MMT) offers a consistent and credible path for Labour to make the shift into this era.

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Is the British Labour Party aboard the fiscal dominance train – Part 1?

As I type this (Sunday), I am heading to Brighton, England from Edinburgh. We had two sessions in Edinburgh yesterday (Saturday) and it was great to share ideas with some really committed people. We had to dodge a Hollywood closure of the streets (‘Fast and Furious 9 had commandeered the inner city to film a car or two swerving out of control or whatever, and I hope the city received heaps for the inconvenience to its citizens. But, with the direction now south, and tomorrow’s two events (more later), I am thinking the place of the British Labour Party in the progressive struggle. It doesn’t look good to me. The news overnight has been that the Party’s “head of policy and the author of the party’s last election manifesto” (quoting the Times today) has quit the Party claiming “I no longer have faith we will succeed”. The blame game starts and, as usual, Jeremy Corbyn’s leadership is in focus. The Times cartoon had the caption “They’ve got what it takes to form a government” with two ducks (in Brighton) looking at a sign against a wall saying “Labour Civil War Chaos”. What should we make of all this? My take is this: there is a clear paradigm shift going on in macroeconomic policy thinking. Every day (it seems) a new article pops up with someone claiming monetary policy has run its course and a new era of fiscal policy dominance is the only viable way ahead. That means that the central bank imprimatur on policy – determining whether such policy can continue to be effective and relying on interest rate adjustments etc as the primary counter-stabilisation policy – is over. That means that New Keynesian economics is over. That means that fiscal credibility rules that are neoliberal central are over. And that is why I think British Labour are looking poorly in the polls. They have taken advice from a number of characters who have pushed them into a ‘New Keynesian’ mindset and they are now ‘yesterday’s news’. They have missed the boat on these major shifts that have been going on. That is why they need a major shift in macroeconomic thinking. Only Modern Monetary Theory (MMT) offers a consistent and credible path for them to make that shift.

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UK productivity slump is a demand-side problem

I have recently had discussions with a PhD student of mine who was interested in exploring the cyclical link between productivity growth and the economic cycle in the context of the intergenerational debate about ageing and the challenge to improve the former. The issue is that sound finance – the mainstream macroeconomics approach – constructs the rising dependency ratio as a problem of government financial resources (not being able to afford health care and pensions) and prescribes fiscal austerity on the pretext that the government needs to save money to pay for these future imposts. Meanwhile, the real challenge of the rising dependency is that the next generation will have to be more productive than the last to maintain real standards of living and if austerity undermines productivity growth then it just exacerbates the ageing problem. My contention has always been the latter. That governments should use their fiscal capacity now to make sure there is a first-class education and training system in a growth environment to prepare us for the future when more people will have passed the usual concept of working age. This question also is hot at the moment in the Brexit debate in Britain and in this blog post I offer some empirical analysis to clear away some of the myths that the Remainers have been spreading.

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Progressive media criticising fiscal stimulus as a recession threatens – such is the modern Left

I have regularly noted how the UK Guardian, the so-called newspaper for progressives as opposed to The Times, which serves the Tories, has been a primary media instrument for propagating neo-liberal economic myths. It has also been part of Project Fear, which the Remainers thought would see the June 2016 Referendum resolved in their favour, and have ever since been moaning about the need for another vote – you know, democracy as long as it delivers what you want. But when the Tories outflank them by electing Boris Johnson who then determines he will take the intransigent European Union on by calling their bluff and pushing ahead with Brexit by hook or by crook, the Remainers scream about democracy being trampled and all the rest of it. And when the Johnson Tories announce that they will introduce a significant fiscal stimulus to head-off any possible non-government recessionary forces (which is sensible and responsible fiscal conduct), the Remainers open their beloved Guardian to find their favourite journalists raving on about how such a move is risky because it will ‘damage public finances’ and predicting, derisively, that the Government will have to break their ridiculous fiscal rules because of the scale of the stimulus required. This is par for the course for the Europhile Left these days – champions of neoliberalism.

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Spending equals income whether it comes from government or non-government

It is now clear that to most observers that the use of monetary policy to stimulate major changes in economic activity in either direction is fraught. Central bankers in many nations have been pulling all sorts of policy ‘rabbits’ out of the hat over the last decade or more and their targets have not moved as much or in many cases in the direction they had hoped. Not only has this shown up the lack of credibility of mainstream macroeconomics but it is now leading to a major shift in policy thinking, which will tear down the neoliberal shibboleths that the use of fiscal policy as a counter-stabilisation tool is undesirable and ineffective. In effect, there is a realignment going on between policy responsibility and democratic accountability, something that the neoliberal forces worked hard to breach by placing primary responsibility onto the decisions of unelected and unaccountable monetary policy committees. And this shift is bringing new players to the fore who are intent on denying that even fiscal policy can stave off major downturns in non-government spending. These sort of attacks from a mainstream are unsurprising given its credibility is in tatters. But they are also coming from the self-proclaimed Left, who seem opposed to a reliance on nation states, and in the British context, this debate is caught up in the Brexit matter, where the Europhile Left are pulling any argument they can write down quickly enough to try to prevent Britain leaving the EU, as it appears it now will (and that couldn’t come quickly enough).

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Germany is now suffering from the illogical nature of its own behaviour

Last week (August 9, 2019), the British Office of National Statistics (ONS) – GDP first quarterly estimate, UK: April to June 2019 – told us that the UK economy contracted by 0.2 per cent in the June-quarter 2019 after having grown by 0.5 per cent in the March-quarter. The UK Guardian pundits and the Remain cheer squad all screamed Brexit and were heard to be walking around in circles saying “see, we told you so”. Meanwhile (August 7, 2019), not far away (according to the Remain crowd’s much-loved gravity trade models), Germany’s Statistisches Bundesamt (Destatis) press release – Production in June 2019: -1.5% seasonally adjusted on the previous month – told a sorry tale. In annual terms, Germany’s industrial production has contracted by 5.2 per cent. We also learned that Germany is probably in recession. According to the Remain-logic, that must be Brexit too, n’est-ce pas? Meanwhile, just a bit further south, Italy is in turmoil. Obviously, Brexit uncertainty. I jest of course (well a bit). But in a real sense, this is all tied into Brexit in one way – and it is not the way the Remain camp would like us to believe. In fact, what I have in mind gives more weight to the Leave position and reflects on how intransigent the European Union elites are in dealing with the Member States.

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Apparently Brown could but Boris cannot – British progressive journalism at its worst

It is Wednesday and my blog post-lite day. A few topics – thugs in Britain. Mindless ‘progressive’ journalism trying to tell readers that while Gordon Brown could use fiscal policy tools (spending and taxation) to advantage to stimulate the British economy, Boris Johnson cannot. Piffle and the lies from the UK Guardian are getting more desperate by the week. And some notes on guns. Then a nice bit of guitar playing. Tomorrow, I will be extending my ideas on the Green New Deal.

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The British government can avoid a recession from a No-Deal Brexit

A shorter blog post today (Wednesday). On Monday (July 29, 2019), the British Social Metrics Commission published their – 2019 Report – which reveals (staggeringly) “that 4.5 million people are more than 50% below the poverty line, and 7 million people are living in persistent poverty” in Britain. So around 22 per cent of people in the UK are living in poverty. In this day and age, poverty is like polio – it is completely avoidable if governments adopt the right policy mix. Persistent poverty means that a people “are in poverty now and have also been in poverty for at least two of the previous three years.” In other words, the policy failure is persistent. As Britain approaches the October 31, 2019 deadline and, hopefully, finds itself free of the neoliberal, corporatist nightmare that is membership of the EU, it certainly needs to take action to insulate the economy from a possible downturn. The forecasts coming out of the Office of Budget Responsibility (OBR) are clearly negative but hardly catastrophic. They certainly do not match the hysteria that you read in the Guardian on a daily basis about the end of life as we know it in Britain. But the Government has the capacity to circumvent any downturn. The OBR assumes that facing a recession that the Government does nothing of a discretionary nature (stimulate via fiscal policy) to attenuate that event. What responsible government would not act? And why did the OBR not model some fiscal stimulus scenarios in the wake of the decline in non-government spending they estimate will follow a No-Deal? The reason, is, of course, that that would give the game away. They know that the Government can offset their predicted (though modest) downturn if it chooses. The Government could also go a long way to avoiding such a downturn, and, bring this horrendous (austerity-driven) poverty rate down rather quickly if it takes positive action. That is Boris Johnson’s challenge. And if he takes it up and succeeds then it is ‘goodnight’ Labour.

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When the Left disgraces itself

In Monte Python’s Life of Brian we were introduced to the “People’s Front of Judea”, which was “one of many fractious and bickering independence movements, who spend more time fighting each other than the Romans”. The segments featuring the Front were very amusing. It was humour but redolent of the sort of historical struggles that have divided the Left over the centuries. In Australia, the history of the Communist Party, for example, is one of many factions, splintering into new parties and leaderships after disputes about Bolshevism, then the Communist International and Stalinism, then the so-called “imperialist” war by the Allies against Nazism, then Krushchev’s revelations about the crimes of Stalin, then the Soviet invasion of Hungary, then the split between the Soviet Union and China and the rise of Mao, then the Soviet invasion of Czechoslovakia, and so on. This sort of division is mirrored around the world on the Left side of politics and struggle. I have been reminded of this history in recent weeks as the ‘war’ against Modern Monetary Theory (MMT) has been ramped up from so-called progressives. However, this ‘war’ seems different to the sort of internicine struggles that have historically bedevilled the Left. We now have all manner of strategies emerging, ranging from classic Association fallacies to ridiculous claims that MMTers perpetuate ‘anti semitic tropes’, and on to plain invention, a.k.a. straight out fabrications or lying. There is no real attempt to embrace the body of work we have created over the last 25 years. Quite the opposite – the ‘critics’ haven’t an original thing to say about the substance of MMT. They have instead decided to smear us with increasingly hysterical assertions. Which raises the interesting question for me – what is driving this aberrant behaviour? Fear, a sense of irrelevance, jealousy, Brexit, spite, … what? I have conjectures but no real answers.

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