Welcome to the It’s almost Xmas Billy Blog Saturday Quiz. The quiz tests whether you have been paying attention over the last seven days. See how you go with the following questions. Your results are only known to you and no records are retained.
I am now using Friday’s blog space to provide draft versions of the Modern Monetary Theory textbook that I am writing with my colleague and friend Randy Wray. We expect to publish the text sometime in 2013. Our (very incomplete) textbook homepage – Modern Monetary Theory and Practice – has draft chapters and contents etc in varying states of completion. Comments are always welcome. Note also that the text I post here is not intended to be a blog-style narrative but constitutes the drafting work I am doing – that is, the material posted will not represent the complete text. Further it will change as the drafting process evolves.
The Governor of the RBA appeared before the House of Representatives Standing Committee on Economics yesterday (December 18, 2013). He told the Committee that the economic growth that we experienced leading up to the crisis in 2008 was unlikely to be repeated but his assessment was largely ideological in nature – in the sense that he implicitly eschewed a fundamental re-appraisal of the policy structures in the economy and the way in which national income is distributed. He thus rejected (tacitly) a return to fiscal activism claiming the public “debt dynamic” militated against that. He admitted the limits of monetary policy as an expansionary force. And he implicitly ignored the fact that the on-going failure of real wages to keep track of productivity growth meant that if household consumption expenditure was to grow it would see a return to increasing private debt to unsustainable levels, as occurred in the decade leading up to the crisis. He acknowledged that households were much more cautious now given the heavy debt levels they were carrying but didn’t acknowledge that this meant that the fiscal surpluses of that era were also unsustainable and that deficits were needed to offset the drain from the external deficits and the cautiousness of the private domestic sector. The journalists thus published all the wrong headlines and stories and the public is none the wiser. We remain locked into a neo-liberal option set that will deliver sub-trend growth and rising unemployment. The Governor even had the audacity to say that the unemployment rate (at 5.8 per cent) was low by historical standards, which in itself is false (depending on where history starts) and ignores the fact that our broad labour wastage exceeds 15 per cent of the willing labour force at present.
I have been travelling today a lot and so haven’t had much time to write. I have been reading early (1970s and 1980s) documents in recent days relating to the debate that preceded the establishment of the Eurozone. I have read them before, at the time they were released in many cases, but they provide a salutary reminder of how the political and economic reality in Europe diverged with catastrophic consequences for millions of people that live there. There was ample analysis and supporting evidence in the late 1970s to tell us that the creation of a common monetary union in the form that was eventually agreed in the 1990s would fail. But even now, with that failure for all to see, the same dynamics that predicate against any reforms that might create a strong federal fiscal capacity, are present in the discussions surrounding the creation of a Single Supervisory Mechanism to regulate banks and protect their depositors. The Germans, exhibiting all their irrational paranoia about inflation, are using their political weight to influence the design of the banking policy and the likely outcomes are looking decidedly deficient. They are doomed to fail if subjected to a stern test.
The new Australian federal government released its – Mid-Year Economic and Fiscal Outlook – today and this gave the media something to salivate about and led to sensationalist headlines and presenters oohing and aahing about impending meltdowns and unsustainable government spending and the rest of it. But in terms of actual detail all it really told us was that the government deficit is higher than expected. The issue of focus should have been the expectation rather than the reality – why did the Treasury expect it to be lower given they had overseen an unprecedented fiscal contraction in 2012-13 which reduced economic growth and undermined their tax base? Why didn’t the press focus on that and ask the new Treasurer how cutting government spending now, as the economy is slowing and unemployment is rising is in any way responsible or good economics. Not a word. The message the citizens get is that Australia has a dire government deficit emergency that will undermine our welfare for years to come. The truth is that the deficit is undermining our welfare because it is too low. That is my headline.
Last week, the Holden Motor Car Company, a division of General Motors announced it was intending to close its Australian operations down in 2017 after having operated on a continuous basis in one form or another since 1856. The decision has led to outbreaks of nostalgia, worries about our national identity (since when has a national identity been tied up with a foreign-owned capitalist firm?), and calls for more government subsidies to the industry that has been in decline for years. The problem is that thousands of jobs are directly and indirectly impacted by the closure (although there are some years before the full brunt will be experienced) and that is an issue that the government has to manage through appropriate policy interventions. The real issue is that the current thrust of aggregate (macroeconomic) policy does not provide one with much confidence that the government will introduce appropriate responses to the closures. I offer some thoughts by way of an introduction in this blog.
Here are the answers with discussion for yesterday’s quiz. The information provided should help you work out why you missed a question or three! If you haven’t already done the Quiz from yesterday then have a go at it before you read the answers. I hope this helps you develop an understanding of modern monetary theory (MMT) and its application to macroeconomic thinking. Comments as usual welcome, especially if I have made an error.
Welcome to the Billy Blog Saturday Quiz. The quiz tests whether you have been paying attention over the last seven days. See how you go with the following questions. Your results are only known to you and no records are retained.
I am now using Friday’s blog space to provide draft versions of the Modern Monetary Theory textbook that I am writing with my colleague and friend Randy Wray. We expect to publish the text sometime in 2013. Our (very incomplete) textbook homepage – Modern Monetary Theory and Practice – has draft chapters and contents etc in varying states of completion. Comments are always welcome. Note also that the text I post here is not intended to be a blog-style narrative but constitutes the drafting work I am doing – that is, the material posted will not represent the complete text. Further it will change as the drafting process evolves.
Today’s release of the – Labour Force data – for November 2013 by the Australian Bureau of Statistics confirms that the new government needs to substantially alter the macroeconomic policy settings in favour of stimulus to address the virtually zero employment growth and the upward trend in unemployment. We learned today that employment growth failed to keep pace with the underlying population growth and as a result unemployment rose to 5.8 per cent (with participation constant). Hours of work also fell. The actual extent of labour underutilisation is significantly higher than indicated by the unemployment rate, given that the participation rate is well down on its most recent peak and underemployment is at 7.6 per cent. With the new government biased towards “market outcomes” the current austerity mindset will ensure the labour market deteriorates further.