Posts about monetary policy

Introduction – The Last Colonial Currency: A History of the CFA Franc – Part 1

I have been commissioned to write the Introduction (Preface) to the upcoming book – The Last Colonial Currency: A History of the CFA Franc – by Fanny Pigeaud and Ndongo Samba Sylla, which is an English version of the original 2018 book, L’arme invisible de la Françafrique. It will soon be published by Pluto Press (UK) – as soon as I finish this introduction. The book is incredibly important because it shows the role that currency arrangements play in perpetuating colonial oppression and supporting the extractive mechanisms that the wealthy have used for centuries to further their ambitions. It also resonates with more recent neoliberal trends where these extractive mechanisms, formerly between the colonialist (metropolis) and the occupied peripheral or satellite nation, have morphed into intra-national urban-regional divides. I am very appreciative for the chance to write this introduction for these great authors. This is Part 1. Part 2 follows tomorrow. And then you can all rush out and purchase the book.

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How to discuss MMT without discussing it – BIS style

On October 13, 2019, the Bank of International Settlements published a paper – Exiting low inflation traps by “consensus”: nominal wages and price stability – (which was based on a speech one of the authors was to make in late November at a conference in Colombia). The reason I cite this paper is because it talks about Modern Monetary Theory (MMT) – in pejorative terms, without really knowing what MMT is. But the most interesting aspect of it was the admission that the mainstream theory that they use to set up the ‘straw person’ they tear down cannot explain real world events. The BIS unwittingly admits that the mainstream macroeconomics really is adrift and the analytical frameworks that arise from it (DSGE etc) are incapable of explaining real world developments. So I thought that was worth documenting.

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Discredited academic dinosaurs continue to seek relevance

As many mainstream macroeconomics try to reinvent themselves after their reputations were trashed during and in the aftermath of the GFC, some are still trying to stay relevant by recycling the usual trash about deficits, public debt and bond yields that defines the New Keynesian orthodoxy in macroeconomics. That approach has been emphatically exposed as fake knowledge by the fact that none of the predictions that can be derived from that framework have proven to be accurate. On December 9, 2019, the UK Guardian took a rest from imputing anti-semitist motives to Jeremy Corbyn and published a sort of dinosauric-type article from Kenneth Rogoff – Public borrowing is cheap but ramping up debt is not without risk. Yes, the same character that claimed during the crisis that there was a public debt threshold of 90 per cent of GDP, beyond which, governments would face insolvency. When it was discovered the spreadsheet they had used to come up with that conclusion had been incompetently (or fraudulently) manipulated and that the actual data did not show anything of the sort, Rogoff should have slunked off and shut his mouth forever. But that is not the way these characters operate. Memory is short. Their position as an agent for their elites is well paid. And so they keep recycling the nonsense. Eventually, their influence will decline. But as Max Planck noted in 1948 “Die Wahrheit triumphiert nie, ihre Gegner sterben nur aus”, which has been reduced to ‘science advances one funeral at a time’, which is not a verbatim translation but an accurate depiction of how change is slow to come to the academy.

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Q&A Japan style – Part 5b

This is the final part of a two-part discussion about the consequences of a currency-issuing government exercising different bond-issuing options. The basic Modern Monetary Theory (MMT) position is for the currency-issuing government to abandon the unnecessary practice of issuing debt (which is a hangover from the fixed exchange rate, gold standard days). Currency-issuing governments should use that capacity to advance general well-being and providing corporate welfare to underpin and reduce the risk of speculative behaviour in the financial markets does not serve any valid purpose. However, when we introduce real world layers (politics, etc) we realise that some pure MMT-type options are not possible. This question introduces just such a case in Japan. Given the political constraints, we are asked to choose between two options for central bank conduct, when the government does issue debt: (A) Buy it all up in the secondary bond markets. (B) Leave it in the non-government sector. In this final part, I go through some of the considerations that might influence that choice.

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Q&A Japan style – Part 5a

This is a discussion about Modern Monetary Theory (MMT) and the bond-issuing options for a currency-issuing government such as Japan and Australia. We will consider the three options that such a government has and discuss each from an MMT perspective. What an MMT understanding allows is a thorough appreciation of the consequences of each option. The conclusions we reach are quite different from those presented in mainstream macroeconomics, mostly due to the fact that we do not consider the bonds to be necessary to fund government spending beyond tax revenue and construct the operations of the central bank and the commercial banks to accord to the way they operate in reality rather than in the fictional world of the mainstream. This discussion also recognises the political dimensions of government rather than the technical way we often consider things in MMT. This is the first-part of a two-part answer which I will conclude on Thursday. Today, we consider the emergence of the so-called ‘reflationists’ in Japan who advocated large-scale, non-standard monetary policy in the late 1990s as a solution to the ‘Great Stagnation’ that had beset the Japanese economy.

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Interview with Asahi Shimbun in Tokyo – November 6, 2019

During my recent trip to Japan, where I made several presentations to various groups, including a large gathering in the Japanese Diet (Parliament), I received a lot of press interest, which is a good sign. I am slowly putting together the translated versions of some of the print media articles. Today, I provide a translation (with my annotations) of an interview I did with the centre-left newspaper – Asahi Shimbun – on November 6, 2019 in Tokyo. This is a daily newspaper and is one of the largest of five national newspapers in Japan. It has an interesting historical past but that is not the topic of the blog post today. The article opened with a statement introducing Modern Monetary Theory (MMT) and then followed a Q&A format. I have expanded the answers reported in the paper to reflect the actual answers I gave to the two journalists during the interview and to a wider press gathering at an official press conference the day before in Tokyo.

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Puzzle: Has real wages growth outstripped productivity growth or not? – Part 2

Inspector Commissionaire Bill is back on the case today for Part 2 and the solution of the puzzle we posed in – Puzzle: Has real wages growth outstripped productivity growth or not? – Part 1 (November 20, 2019). The puzzle was relatively easy to understand. The RBA (Australia’s central bank) published analysis in its most recent – Statement on Monetary Policy (November 2019), which showed that since the early 2000s, real earnings per hour have been above hourly labour productivity. Yet, National accounts data and earnings-productivity data trends that I regularly publish show the opposite. So the puzzle is: How can the RBA say that workers enjoyed real wage increases above labour productivity growth in the early 2000s up to around 2012, when we know the wage share has been falling more or less over the entire period? In Part 1, we laid out the conceptual framework to help us understand what I am writing about today. The resolution is that both sides of the puzzle are correct in their own way. The issue comes down to measurement and this two-part series demonstrates, very powerfully, how perceptions that are shaped by the presentation of data (graph, tables, etc) rarely come to grips with the underlying methods used to construct the presentations. We have all heard the phrase – There are three kinds of lies: lies, damned lies, and statistics. By becoming more educated about how to use statistics, we can all break that nexus and deploy data more reasonably to advance our cases. That is what this two-part blog series is about.

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Puzzle: Has real wages growth outstripped productivity growth or not? – Part 1

I am currently working through the entire Commissaire Maigret detective series written by Belgian author author Georges Simenon. I read a lot as I travel around and I have 74 (out of 75) Maigret novels to read. But don’t let that fool you, I am already becoming familiar with Maigret’s forensic way of thinking (-:. So for the next two blog posts we will be conducting a forensic examination of data to solve a puzzle that appears to be confusing people. This is the sort of puzzle that people (like me), who are interested in data and have a penchant for spy and detective novels like to investigate. For others though, while the nuances might appear to be rather obscure, the importance of this sort of puzzle cannot be understated. Community perceptions are influenced by what I am talking about today. Policy decisions are taken. Industrial relations strategies are designed, implemented, and, in some cases, fought out with significant consequences. The data I am analysing today and tomorrow can provide information about the state of the economy. It can inform us of the way in which the economic is changing in structure over time. It can provide guidance to fiscal and monetary authorities as to the likely impact of policy changes. So, as you will see, ambiguity is not going to be very helpful. The data I am dealing with in this blog post explores the relationships between nominal wages, prices and productivity in the Australian economy. The principles established, though, apply to all economies. What I will show you is that the choice of how we choose to measure key variables can fundamentally alter the way we think and act. This is Part 1 of a two-part series. Now, if only I had a pipe to light! (Maigret joke for insiders).

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Q&A Japan style – Part 4

This is the final part of my four-part Q&A series arising from my recent trip to Japan. In this post, I answer just one question. The answer goes to the heart of the relationship between the national government (finance division) and the central bank and illustrates the complexity of reserve accounting. So it needs some background by way of education. Recall that these questions about Modern Monetary Theory (MMT) were raised with me during my recent trip to Japan. The public discussion about MMT in Japan is relatively advanced (compared to elsewhere). Political activists across the political spectrum are discussing and promoting MMT as a major way of expressing their opposition to fiscal austerity in Japan. The basics of MMT are now as well understood in Japan as anywhere and so the debate has moved onto more detailed queries, particularly with regard to policy applications. So as part of my current visit to Japan, I was asked to provide some guidance on a range of issues. In my presentations I addressed these matters. But I thought it would be productive to provide some written analysis so that everyone can advance their MMT understanding.

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Leopards do not change their spots

Only a short blog post today as it is Wednesday. My father, in fact, used to say that ‘leopards do not change their spots’, when referring to people who in one period behaved one way and then when sprung would pretend they were reformed. I was thinking about that when I noted that the queue to the magical reinvention door is getting longer by the day. This is the process, whereby a person, who previously advocated neoliberal macroeconomic policy interventions from the sidelines (as an academic economist or media commentator) and/or executed them from a position of power (say, as a Treasurer or Minister of Finance), starts attacking present day governments, who inherited their own fiscal surplus obsessions, and are, like they did themselves, driving their economies into the ground as a result of the same obsessions. Who is in the spotlight today? None other than the former Australian Treasurer, Paul Keating who was reported in the press this morning (October 30, 2019) – Paul Keating slams Liberal party ‘surplus virus’ (paywall) – as being critical of the current government for keeping the “Australian economy ‘idling at the lights'” as a result of “running Australia’s budget like a ‘corner shop'”. He urged the government to stimulate the economy with fiscal policy. Now before we get too excited, and this applies to all the goons who come out claiming they wanted fiscal stimulus all along, these characters typically blow their cover and reveal their true DNA when they reflect on their own track records on the subject. But it is an interesting, if not amusing, pastime watching these characters try to revise their CVs to look like they ‘knew it all along’ as they try desperately to retain relevance and get on the right side of history. We are not that stupid though.

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