Australia – wages growth flat and purchasing power of workers is plummeting to new depths

All eyes have been waiting for today’s release (August 17, 2022) of the – Wage Price Index, Australia – by the Australian Bureau of Statistics for the June-quarter, given that the Reserve Bank of Australia has been claiming wage pressures are becoming threatening and using that as a cover for unnecessarily pushing up interest rates. Prior to pushing up interest rates over the last several months, the RBA had been signalling that they would not move on interest rates until there was a concerted increase in wages growth, which has been at record low levels for some years now. On the back of that information, many new entrants to the housing market ran up massive mortgage debts and now feel dudded by the central bank. Whatever, information on wages the RBA is privy too is not gelling at all with the official data, which continues to show that wages growth remains flat (hasn’t moved in three months) and at record low levels. The is no acceleration. Wages growth is not driving the inflation trajectory. Workers are enduring massive real wage cuts and the RBA has made that worse by pushing up mortgage rates for those exposed. The business sector, as a whole, thinks it is clever to always oppose wages growth and the banks love that because they can foist more debt onto households to maintain their consumption expenditure. But the reality is clear – there can be no sustained recovery for the economy post Covid without significant increases in the current rate of wages growth.

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Low US unemployment does not negate the conclusion that the US economy is now in recession

The US Bureau of Economic Analysis published the latest US National Accounts data last week (July 28, 2022) – Gross Domestic Product, Second Quarter 2022 (Advance Estimate) – which showed that the US economy is now in technical recession – two consecutive quarters of negative GDP growth. After recording a contraction of 1.6 per cent in the March quarter in real GDP, the advance estimates for the June quarter show a further contraction of 0.9 per cent. Many commentators are, however, denying the recession narrative because they are pointing to the low unemployment rate (of 3.6 per cent). It is true, that the GDP figures are often revised and when the final, second-quarter estimates are available, they might record positive growth. But there is a puzzle emerging. We have long held the view (based on Okun’s Law – see below), that when GDP growth declines, the unemployment rate rises. This is a long-held stylised fact that has until Covid stood the test of time. But Covid has changed things and at present the US (and other nations) are experiencing a major slowdown in the growth of their working age population as a result of quite alarming rises in long-term disability as a result of the enduring impacts of Covid infections (and repeated infections). That has meant that unemployment rates are lower than they otherwise would have been as a result of worker shortages. On the one hand that is good for the employed. But, on the other hand, it is disastrous for workers who are now disabled. So the meagre fact that unemployment is low does not negate the conclusion that the US economy is now in recession, which has been deliberately created first by a massive fiscal contraction, and then, by the irresponsible conduct of the Federal Reserve Bank.

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We should celebrate the ‘work from home’ phenomenon

We will have Wednesday on a Thursday this week, given my detailed analysis of Australia’s inflation data release yesterday. So today I write less here to write more elsewhere and finish with some of the greatest guitar playing you might ever hope to hear. My topic today is the issue of the ‘work from home’ phenomenon, which is one of the better things Covid has produced. I explain why. But I also realise a lot of commentators view the phenomenon negatively. Some on the Left allege it just means the ‘woke’ class have abandoned the low-paid workers to Covid, while those on the Right are aghast because they realise that, at least, some workers have more ‘control’ over their working lives. My view is that we should celebrate the fact that some workers are happier. I don’t accept the argument from the ‘Left’ commentators that every worker should be miserable if every worker cannot be happier.

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Mask mandates should be reintroduced to stop our rising death rate

Today is Wednesday and as usual I feel as though I can roam a bit freer than usual. Today I have some great music but also my latest views on sustainable urban development and the hot topic in Australia at the moment of whether or not the Australian government should reintroduce mask mandates in certain settings given that Covid is rapidly accelerating and our death rate is now at unacceptably high levels and rising. There is a lot of guff on Twitter etc about the oppression of these sorts of restrictions. But wearing a mask is a simple way to protect oneself and those around us. It is hardly a symbol of authoritarianism and conspiracy to destroy our freedom. I see it as basically a civic responsibility. I am in a very small minority though. As usual. Tomorrow I will get back to economics.

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The global poly crisis is the culmination of the absurdity of neoliberalism

We are used to segmenting destructive episodes as crises – the Mexican debt crisis in 1982, which gave way to the Latin American debt crisis in the 1980s, the East Asian financial crisis of 1997-98, then the Global Financial Crisis in 2008 and beyond, then the pandemic crisis since 2020. Meanwhile, firefighters are dealing with major fires from Portugal, France to Crete; Britain is about to experience 40 degrees Centigrade; Australia is dealing with a sequence of massive floods; corporations are gouging profits and pushing inflation, which is provoking policy makers to take it out on the most disadvantaged in our societies, with no logical link between the policy and the perceived problem, other than deep recessions stop the gouging; nations considered to be ‘middle income and rising’ are now lining up behind Sri Lanka to see who will be the next to basically collapse into anarchy, unable to feed its population; housing shortages are causing havoc almost everywhere; the quality of employment has declined dramatically (job security, worker agency, etc) and the trade unions are a pale imitation of what they used to be; politicians are more self-serving than ever; and people are still dying in the thousands everyday from the pandemic but our leaders insist we are now ‘living’ with Covid (more like dying with it). The reality is that all these events are linked and part of what some might call a poly crisis. Capitalism has failed and the institutions we created to tame the raw-profit greed of capital – the state, trade unions, etc – have also been compromised to such a degree that they, either are no longer effective or work as agents of capital rather than mediating the labour-capital conflict. A poly crisis requires fundamental change. But, such is the dominance of the mainstream, which has created this crisis, that all we get is more of the same. That means the ultimate solutions will be more painful and destructive and lead to conflagration as this period of human civilisation collapses.

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Federal Reserve Bank researchers openly acknowledge the inevitability of recession

It’s Wednesday, and so I have some shorter analysis on a range of matters today. First, some discussion of a technical paper from the US Federal Reserve researchers, which makes it clear they think that the interest rate hikes have a high probability of causing a recession. Second, we analyse some Russian data which suggests the sanctions are having the opposite effect to that intended. Third, I consider the stupidity of the new Australian government which is now falling into the ‘we have too much debt’ to even provide basic health care trap. And, I comment on a State Government that is now openly ignoring its professional health advice because the corporate sector told them to. And if all that wasn’t depressing enough, some music that focuses our attention of the vicissitudes of colonial might. All in a day.

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RBA aims to cut policy stimulation by adding to it

It’s Wednesday, and we have some analysis and news and then my music segment for the week. Yesterday, the Reserve Bank of Australia (RBA) stunned the nation by pushing up interest rates by 0.5 points, claiming it was the responsible thing to do given that inflation was higher than expected. They then outlined all the factors driving inflation – none of which are going to be responsive to interest rate rises. Further, when one dissects the way in which interest rate rises work through distributional effects and effects on business costs, it is not clear that increasing rates will not just add to the stimulation rather than reduce it as the RBA claims. Next, we Fact Check the Fact Checkers and after all of that we have some Tupelo Blues, to restore some sense of decorum.

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The Covid trade-off between health and the economy did not exist

With yesterday’s detail CPI analysis, I am transferring the news/music blog post that normally appears on a Wednesday to today. This morning, I read the newly published report from the UK-based – Institute for Public Policy Research – Health and prosperity: Introducing the Commission on Health and Prosperity (released April 27, 2022) – which provides a sobering (to say the least) evidence base for how the pandemic has impacted on Britain’s health system and labour market. As more evidence comes out from the experience of the last 2.4 years, I wonder when those who demanded nations learn to live with the virus – by basically denying its existence – will reflect on the folly of their laissez-faire positions.

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Deliberately creating mass unemployment now would be the work of vandals and New Keynesians

Last week, the New York Times published the latest Paul Krugman article on inflation (which is behind its paywall). It is syndicated elsewhere and you can access it here at The Berkshire Eagle (April 13, 2022) – Paul Krugman: Inflation is about to come down – but don’t get too excited. I wondered whether the author had offered his services cheaper to the NYTs and elsewhere given his concern for inflation, and, apparently, his assertion that wages are a critical factor in sustaining it. What this article highlights is mainstream New Keynesian macroeconomics – the dominant paradigm in our teaching, research and policy circles. What it also highlights is how different the mainstream is to Modern Monetary Theory (MMT), despite characters like Krugman and his fellow New Keynesians trying to tell the world that there is nothing particularly different about MMT and the way they do economics. It also provides another chance for me to add nuance to the Job Guarantee.

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The rising incidence of Long Covid and its labour market impacts

I have written about the so-called – Great Barrington Declaration – before. The Great Barrington reference is just the name of the town where the letter was drafted and signed during a conference and bears no inference of greatness – far from it. I was also disappointed that some Left commentators fell under the spell of the anti-restriction, lockdown, vaccine lobby that the GBD represented. What transpires is that we now have an increasing body of evidence that suggests the main assumption of those behind the GBD – that herd immunity would be reached by an open slather approach to Covid (with some protections for the vulnerable) – has not been realised. Specifically, the idea of vulnerability was poorly constructed because it didn’t foresee the increasing incidence of Long Covid. The evidence now coming out by credible researchers is that we are mostly all vulnerable to long-term debilitating effects of a Covid infection and the jury is still out on how bad this will turn out to be. And, while it is clearly a medical issue, it is also causing havoc in labour markets, with increasing numbers of workers not being able to work to full potential or at all. And with the fiscal support for incomes now largely gone, that spells trouble for low-income workers. It is also a factor that will prolong the current inflationary episode.

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