RBA loses all credibility with further interest rate increases

Yesterday, the Reserve Bank of Australia lifted the interest rate target for the ninth consecutive time (they didn’t meet in January) claiming that they had to do this to stop inflation accelerating and restoring price stability. Except inflation already peaked in the March-quarter 2022 as a result of the driving factors abating. Further, none of the major driving factors are remotely sensitive to domestic interest rate movements. The RBA’s excuse is that there are dangerous domestic demand pressures that need to be curtailed. Except the evidence for that claim is lacking. Most of the demand measures are in retreat. So what gives? Well there is a massive income redistributing being engineered by the RBA from poor to rich and if they keep going unemployment will certainly rise, in part, because the lame Australian government is claiming it has to engage in fiscal restraint to ensure the RBA doesn’t hike rates even more than they are. It would be comical if it wasn’t damaging the prosperity and solvency of tens of thousands of the most vulnerable Australians. Disgraceful.

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Investigation into BBC bias misses the point really

This week, the British Broadcasting Corporation (BBC) released the results of an independent review into its coverage of economic matters – Review of the impartiality of BBC coverage of taxation, public spending, government borrowing and debt – which was completed in November 2022. The problem is that the Investigation conducted by this Review, while interesting and providing some good analysis, misses the overall source of the bias that our public broadcasters have fallen into. The problem is not that they might be favouring political positions of one party or another. Rather, the implicit framing and language they use to discuss economic matters is largely flawed itself. And the journalists who uncritically use these concepts and terms just perpetuate the fiction and mislead their audiences.

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British voters depressingly caught between a rock and a hard place

Britain is now in a very undesirable state. The governing Tories are bereft of any sensible ideas and likely to lose the next General election in 2024 to Labour, who are promising to be the party of ‘sound finance’, which means they will be incapable of dealing with the challenges that face the nation in a highly volatile world and will likely end up losing popularity and ceding government back to the Tories. And just as in 2010, the Labour reputation will tarnished and they will be lost again for another sequence of elections. That sort of future prospect is not inspiring is it. Caught between a rock and a hard place.

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Military spending binge is working to keep economies growing

Its been around 9 months since the central banks of the world (bar Japan) started to push up interest rates. And still there are no firms signs that a recession is impending. There are some signs of a growth slowdown but that is not uniform across the globe. The US seems to be continuing to grow. While that suggests that monetary policy is less effective than the mainstream economists claim – which is no surprise to non-mainstream economists who have long understood that fiscal policy is the tool of choice for counter-stabilisation, there are other offsetting factors that are at play here. Governments around the world have seriously ramped up their fiscal outlays over 2022 on military procurements as the perceived threat from Russia and China has been magnified by military generals and their mates in the big US weapons corporations, who have taken the opportunity to get make massive extra profits. The power of the military-industrial complex (MIC) is long-standing and well understood. It explains why all the usual disaster scenarios that accompany increasing fiscal outlays by governments haven’t attracted much criticism. Too many elites benefit from the military binge. But the fiscal expenditure also helps to counteract any spending contraction by households who are negatively impacted by interest rate increases.

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The Eurozone fictions continue to propagate

There was a Financial Times article recently (January 8, 2023) – Monetary independence is overrated, and the euro is riding high – from Martin Sandbu which strained credibility and continues the long tradition of pro-Euro economists attempting to defend the indefensible – fixed exchange rate, common currency regimes. He claims that the Euro is a better system in the modern era for dealing with calamity than currency independence. However, as I explain below, none of his arguments provide the case for the superiority of the Eurozone against currency-issuing independence. Currency-issuing government can certainly introduce poor policy – often because the policy makers refuse to acknowledge their own capacity and think they have to act as if the nation doesn’t have its own currency. But the negative consequences that flow from testify to the poor quality of the polity rather than any disadvantages of the currency independence. The Euro Member States are being bailed out by the central bank and if that stopped the system would demonstrate the inherent dysfunction of its monetary architecture and nations would fail.

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Japan and the World Economy through the lens of MMT – video presentation

Today, I make available a video session that I recorded in Japan while I was working there in the latter part of this year. It sets out a range of interesting topics that form, in part, the research program that my colleagues and I at Kyoto University have mapped out to work on in the coming year. I hope that by the end of 2023 we will have advanced this program and perhaps will be able to stage some sort of event (Covid permitting) in Japan later next year to spread the knowledge.

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The monetary institutions are the same – but culture dictates the choices we make

In discussions about the significant differences that we have observed over the last 30 odd years between the conduct of economic policy in Japan and elsewhere, the usual response from mainstream economists, when challenged to explain the outcomes in the former nation, is that it is ‘cultural’ and cannot be applied elsewhere. I always found that rather compromising because mainstream economics attempts to be a one-size-fits-all approach based on universal principles of maximising human behaviour. So, by admitting ‘cultural’ aspects to the discussion, this is tantamount to admitting that the ‘market-based’ micro founded approach to macroeconomics is incapable of explaining situations. That is the first black mark against the veracity of mainstream theory. But when one prods further, it becomes clear that the term ‘culture’ is fairly vacuous and blurred in this defense of the mainstream framework. I respond by pointing out that essentially the monetary system dynamics in Japan are identical to the way the system works elsewhere. The institutions might have subtle variations but essentially the operations are so similar that the ‘culture’ bailout doesn’t help resurrect the appalling lack of predictive accuracy when it comes to examining the macroeconomics of Japan. Cultural aspects, however, are crucial to understanding the differences. The trick is understanding how these monetary and fiscal institutions are managed. This is where the cultural aspects impact. And, while I have learned a lot about Japanese cultural nuances, some of the more important ‘cultural’ drivers are transportable to any nation – if only we cared enough and valued people in the same way.

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The transitory inflation conjecture gains even more data credence

Yesterday (November 30, 2022), the Australian Bureau of Statistics released the latest – Monthly Consumer Price Index Indicator – which is a new data series that the ABS has introduced to augment the quarterly CPI index release. Regular readers will know that I have considered this period of inflation to be transitory, which means that it is likely to dissipate rather quickly once the driving factors abate. It doesn’t mean that those driving factors are necessarily short-term in horizon. They might persist. But the important point is that second-round propagating mechanisms such as the wage-price distributional battle over markups are not present as they were in the 1970s, which is why that episode had a life of its own once the initial oil price supply shock adjustment was made. The other significant aspect of my assessment is that this current inflationary period does not indicate excessive fiscal support nor does it justify central banks hiking interest rates. The drivers at present are originating from the supply-side (pandemic, long Covid, OPEC+ and the Ukraine situation) and are not sensitive to any degree to interest rate changes. I have received a lot of criticism for holding this view. The Modern Monetary Theory (MMT) is dead crowd constantly E-mail me or try to push acrid comments on this blog telling me to get another life or end my existing one. The problem for them is that the latest data from around the world is telling me that this period of inflation is peaking as the supply drivers start to wane.

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IMF continue to demonstrate their neoliberal biases

The IMF published a new blog the other day (November 21, 2022) – How Fiscal Restraint Can Help Fight Inflation – which demonstrates that the organisation is still stuck in a New Keynesian world and despite all the empirical dissonance that has been building over the last decades to militate against that economic approach, little evolution in thinking is apparent. The battle to dispense with the mainstream approach is going to be harder and longer than many thought.

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