Posts about monetary policy

The inflationary episode is being driven by profit gouging and interest rate hikes won’t help much

I have read an interesting reports in the last months that demonstrate there is a shift in thinking about inflation – away from the tired narratives that attempt to implicate excessive government spending, poorly contrived monetary policies (particularly quantitative easing) or drag in the usual suspect – excessive wage demands from workers. All of the usual narratives are very convenient frames in which those with economic power can extract more real income at the expense of the rest of us, who have little economic power. At least, we have been indocrinated to think we have no power. But, of course, if we could overthrow the whole system of capital domination if we were organised enough but that is another story again. Back to the inflation framing. While it was possible to argue that distributional struggle between workers (organised into powerful unions) and corporations (with obvious price setting power in less than competitive industries) was instrumental in propagating the original OPEC oil shock in 1973 into a drawn out inflationary episode, such a narrative falls short in 2022-23. The workers are largely disorganised and compliant now. The new thinking is starting to focus on the role of corporations – one term that is now being used is ‘greedflation’ – to describe this new era of profit gouging and its impact on the inflation trajectory. That shift in focus is warranted and welcome because it highlights the imbalances in the capitalist system and just another way in which it is prone to crises.

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Former Bank of Japan governor challenges the current monetary policy consensus

In the latest IMF Finance and Development journal (March 2023), there is an interesting article by the former governor of the Bank of Japan, Masaaki Shirakawa – It’s time to rethink the foundation and framework of monetary policy. It goes to the heart of the complete confusion that is now being demonstrated by central bank policy makers. With their ‘one trick pony’ interest rate attacks on inflation, not only have they been inconsequential in dealing with that target (the so-called price stability responsibility), but, in failing there, they have undermined the achievement of the other central bank target (financial stability) and probably worsened the chances of sustaining the third target (full employment). Sounds like a mess – and it is. We are witnessing what happens when Groupthink finally takes over an academic discipline and the policy making space. Blind, unidirectional policies, based on a failed framework, steadily undermining all the major goals – that is where we are right now. And not unsurprisingly, those who have previously preached the doctrine are now crossing the line and joining with those who predicted this mess. And, as usual, the renegade position is somehow recast as we knew it all along’ when, of course, they didn’t. When you get to that stage, we need music – and given it is Wednesday, I oblige at the end of this post.

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The way private banks in Australia screw their communities

Today, I am over committed and have to travel some, and, luckily, we have a guest blogger in the guise of Professor Scott Baum from Griffith University who has been one of my regular research colleagues over a long period of time. He indicated that he would like to contribute occasionally and that provides some diversity of voice although the focus remains on advancing our understanding of Modern Monetary Theory (MMT) and its applications. Today he is going to talk about the current concerns about the provision of regional banking services.
Anyway, over to Scott.

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The current inflationary period is not remotely like the 1970s

In the light of recent debates about whether we are back in the 1970s, where the only ostensible similarity is that inflation has accelerated over the last year or so, I dug into my data archives to remind myself of a few things. One of the problems with dealing with official data is that it gets revised from time to time and time series become discontinuous. So the labour market data for Australia tends to start in February 1978 when the Australian Bureau of Statistics moved to a monthly labour force survey. Researchers who desire to study historical data have to have been around a while and have saved their earlier data collections (such as me). But it is often impossible to match them with the newer publicly available data. You will see in what follows how that plays out. But, I was also interested to return to the past today after the ABS released their latest – Industrial Disputes, Australia – data (released March 9, 2023), which shows that disputes remain at record lows. So in what follows I show you how far removed the current situation is from what happened in the 1970s and this renders the narratives from our central bankers a pack of lies.

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RBA is engineering one of the largest cuts to real disposable income per capita in our history

Yesterday (March 7, 2023) two big things happened. The first is that I got a lovely bunch of sunflower blooms for my birthday present. Which was ace. The second, the RBA Board wheeled out the governor to announce the 10th consecutive interest rate rise even though inflation has been falling for several months. The RBA has now become preposterous and the Government should definitely terminate the tenure of the Governor in September when his term is up for renewal. In the meantime, it should clean the RBA Board out, or introduce legislation that says each member including the governor gets the real disposable loss that they are imposing on the worker deducted in percentage terms from their own salaries. A further deduction would be made (quantum to be determined) for each percentage point the unemployment rate rises. That might give them pause for thought. The music segment will definitely lift your spirits after reading through the following gloom.

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German Bundestag body’s MMT overview exposes the hidden agenda – the population simply can’t be allowed to understand MMT

The Scientific Advisory Department of the Deutscher Bundestag recently (January 27, 2023) released a discussion paper – Modern Monetary Theory – An overview – which really exposes what all the opposition to our work is about. Initially, I was interested to learn from the discussion paper that I was a US economist after thinking all these years that I was Australian by birth and citizenship. Perhaps that error tells you something about the quality and depth of the research effort that the authors undertook. The paper recognises that Modern Monetary Theory (MMT) is “an economic school of thought that has existed for around 25 years” but is hazy on the provenance, ignoring that at the beginning there was Warren Mosler, Randy Wray and myself. Rather interestingly, the discussion paper claims that there is no disagreement among the mainstream as to the theoretical and conceptual elements of MMT. So the mainstream all agree with us now! That is quite an admission. But, as one gets further into the discussion, it becomes obvious that the authors miss the point when they start talking about MMT policies. What their critique of MMT illustrates is that the real antagonism to our ideas is that they might open up wider policy options to the public than the political process cares to admit. Or, in other words, the real problem is that an understanding of MMT exposes the TINA mantra – that allows governments to maintain policies that advance the interests of the few at the expense of the many – as wanton neglect of the responsibilities of government. That exposure, if sustained, would alter the whole policy terrain and challenge the hegemony of the elites. That is what the opposition to MMT is about.

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Inflation has probably peaked in Australia – yes, it was a transient episode

Given yesterday’s extensive National Accounts analysis replaced my usual Wednesday blog post, I am using today to discuss a range of issues and provide a musical interlude into your lives for peace. Yesterday’s bad National Accounts data release took the headlines away from another data release from the ABS yesterday – the monthly CPI data results. Inflation is falling in Australia and has probably peaked. The RBA still thinks it is going to hike rates a few more times. As more data comes out, their cover (justifications) are evaporating by the day and it is becoming obvious that they are pushing rates up because they want to reclaim the territory as the ‘boss’ of macroeconomic policy irrespective of the costs and hardships they impose on lower-income Australian families. Shocking really. I also look at the new RadioMMT show which launched last week. And the debate about Covid continues but the evidence is being distorted badly by those who continue to claim it was all a conspiracy to bring us to heel. And then some music.

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RBA appeal to NAIRU authority is a fraud

The mainstream press is now seeing through the Reserve Bank of Australia’s behaviour, which I take as a sign of progress. For example, there was an article on the ABC News Site yesterday – Reserve Bank accused of ‘economic gaslighting’ as wages growth misses forecasts, again. I noted yesterday that the latest evidence contradicts the RBA’s claims that wages are growing too fast and provide it with a rationale for further interest rate increases, despite the inflation rate falling over the last several months, and real wages declining by more than has ever been recorded. Last week, the RBA Governor and his staff appeared before a parliamentary committee to justify thee rate hikes. We learn a lot from the session – none of it good. The basic conclusion is that the RBA thinks they can hoodwink our politicians into believing that their is a ‘technical authority’ based in statistics for their actions, when in fact, no such authority exists.

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Real wages in Australia continue to plunge but the RBA still falsely claims that wage pressure justifies interest rate hikes

The RBA governor has consistently sought refuge in claims that wage pressures in Australia are building and justify the central bank rate hikes – 9 consecutive increases since May 2022. The RBA has chosen to seriously mislead the Australian public on this issue and when confronted with publicly-available data that justifies that conclusion they claim they have unpublished data that shows a wages problem that is pushing inflation. They won’t publish that data, just as they won’t tell us what their secret meetings with bank traders a few weeks were about, except we saw profit taking from the banks increase immediately after the meetings. Today (February 22, 2023), the Australian Bureau of Statistics released the latest – Wage Price Index, Australia – for the December-quarter, which shows that the aggregate wage index rose by 0.8 per cent over the quarter and 3.3 per cent over the 12 months. Last week, we learned that employment growth had declined for the second consecutive month, while real wages continue to contract. Says a lot about mainstream employment theory that predicts real wage cuts will increase employment. This is the seventh consecutive quarter that real wages have fallen. There can be no sustained acceleration in the inflation rate arising from wages growth under these circumstances. Further with the gap between productivity growth and the declining real wages increasing, the massive redistribution of national income away from wages to profits continues. 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. None of this offers workers a better future. Further, the conduct of the RBA in this environment is contributing to the damage that workers are enduring. While corporations continue to gouge profits, the RBA, like the schoolyard bully, has singled out some of the most disadvantaged workers in our society (low income earners paying of housing loans) and using them in their relentless push of mainstream ideology. This is a huge problem.

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RBA governor thinks massive bank profits are good while he wants unemployment to rise

It’s Wednesday and a lot is going on. The RBA governor appeared before the Commonwealth Senate Estimates Committee today and demonstrated what a troglodyte he is, defending massive bank profits and deliberately trying to cause unemployment. Meanwhile, US data shows that inflation has peaked and is now falling. The pace of the deceleration is picking up. Meanwhile – MMTed – is active and our 4-week course began today (see details below) and we are helping a new radio show to launch next week – Radio MMT. And we cannot go a Wednesday without some great music. All in a day.

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