Correcting political ignorance and misperceptions

Apparently, voters hate fiscal deficits, associate them with squander and want them to be cut, so that nations can live within their means. Any attempt to run foul of that essential wisdom will come to grief. So all you ‘left’ types – yes, those in the British Labour Party that means you – forget your little grass roots rebellion and confirm to the austerity norm. The UK Guardian article (August 4, 2015) – Anti-austerity message will not win over UK voters, poll shows – reports on a poll conducted internally by the British Labour Party that allegedly “shows Britain’s voters do not back an anti-austerity message but instead believe the country must live within its means and make cutting the deficit its top priority.” If you believe that you would believe anything.

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Jeremy Corbyn must break out of the neo-liberal framing

Two articles in the UK Guardian this week summarise what is going on with the British Labour Party at present. The first (August 3, 2015) – Jeremy Corbyn’s supporters aren’t mad – they’re fleeing a bankrupt New Labour – refutes the notions propagated by the previously dominant ‘New Labour’ factions that the Left of the Party are in some way mad, deluded, or otherwise sick. Instead, it argues the Left are part of a new “grassroots political movement” reacting to the bereft nature of New Labour which is without a “clear vision, or a set of policies, or even a coherent distinct set of values”. The second article (August 3, 2015) – Corbyn’s economic strategy would keep Tories in power, top Labour figure says – provides proof of concept. It is written by the Shadow Labour Chancellor Chris Leslie and reflects an abysmal understanding of macroeconomics that only a deluded free-marketeer would dare suggest had anything to do with reality. The article demonstrates that the top echelons of the British Labour Party parliamentary wing are caught in the destructive neo-liberal Groupthink economics that not only caused the GFC but has also led to austerity being the norm for policy makers these days. And there is no doubt that it is a failed doctrine and not worthy of a progressive opposition. The new “grassroots political movement” is reacting sensibly to the intellectual carnage at the top end of their Party and lets hope it is triumphant and purges these ideas from Labour forever. But, first, it must break out of the neo-liberal framing that is pervasive in its first major statement.

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Long-term unemployment behaviour reflects austerity bias in Eurozone

The Economist Magazine, never one to resist the urge to promote flawed ‘free market’ analysis, does not seem to have learned any lessons from its erroneous coverage of the GFC. It the latest version of what has to be one of the worst-named columns ‘The Economist explains’ (given explanation usually requires knowledge to be imparted) – Why long-term unemployment in the euro area is so high (August 2, 2015), all the usual myths about the labour market are propagated and the obvious ignored because it doesn’t fit the ideological position of the magazine. It purports to ‘explain’ differences in the behaviour long-term unemployment in the Eurozone relative to the US (it is higher in the former) in terms of mobility and generosity of unemployment benefit payment regimes (lower and higher in the former). The real reason – a failure to generate sufficient employment growth as a result of different fiscal policy settings is not canvassed.

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Saturday Quiz – August 1, 2015 – answers and discussion

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.

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Friday lay day – Italy’s time to demonstrate leadership

Its my Friday lay day blog and I am limping into the weekend to rest up some more. There was an interesting article in the Washington Post (July 31, 2015) – Why Italy is the most likely country to leave the euro. This accords with the view I outlined in my book – Eurozone Dystopia: Groupthink and Denial on a Grand Scale – that a large economy such as Italy should demonstrate leadership in the Eurozone and pave the way for the weaker nations to restore their own growth. We would not have witnessed the torturous brutality that was dealt out to Greece recently if the Troika were dealing with Italy. The question is whether Italy is likely to provide that leadership. On July 22, 2015, Eurostat released the latest government debt data for the Eurozone which showed that – Government debt rose to 92.9% of GDP in euro area – which, of course is well above the 60 per cent threshold allowed for by the Stability and Growth Pact (SGP). In the last 12 months “fourteen Member States registered an increase in their debt to GDP ratio at the end of the first quarter of 2015, twelve a decrease and in Estonia there was no change.” In the last quarter, fifteen states increased their debt ratios. Greece shows up as having the highest debt ratio but the largest reduction over the last year. But the interesting thing about the data is that Italy has the second-large public debt ratio (at 135.1 per cent) and is among the nations with the largest increases. On the numbers, Italy is being left behind, stuck in recession with high unemployment and a rising public debt ratio which will surely bring it into conflict with the Excessive Deficit Mechanism before too long.

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British Labour must escape from its austerity lite prison

I imagine we have all been keeping an eye on the evolving sham that is the British Labour Party election contest. When former leader Tony Blair, who will be forever remembered as being George Bush’s ‘poodle’ when he took Britain into the illegal invasion of Iraq and left a destabilised region, came into the fray urging party members to get a heart transplant if they thought supporting Jeremy Corbyn was an option, things turned really nasty. There has been a plethora of attacks on Corbyn alleging he is part of a sinister, return-to-Soviet control type candidate, an hysterical communist who wants to take Britain back to the dark ages, and more. What it tells me is that the Tories fear Corbyn as a candidate and would prefer the austerity-lite options like Liz Kendell to become leader because they know she won’t cause much trouble. What worries me is that Corbyn articulates a progressive set of values but might not yet have the macroeconomic understanding to defend them against a media attack primed to vilify anything that is not right-wing. British Labour must escape from its austerity lite prison but to do that they have to surround Corbyn with people who understand how the monetary system operates.

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IMF on Greece – they haven’t learned from their mistakes

In the most recent take of the Greek crisis, the IMF seems to have come out as being the reasonable part of the Troika as a result of its last minute release of a document where it said that Greece’s debt position was unsustainable and that any longer-term settlement of the crisis would require “debt relief measures that go far beyond what Europe has been willing to consider so far”. But a closer reading of that report (July 14, 2015) – An Update of IMF Staff’s Preliminary Public Debt Sustainability Analysis – tells me that the IMF hasn’t learned very much at all from the disastrous and repeated mistakes they made that have deepened and prolonged the Euro crisis. They are still hanging on to the neo-liberal mantra that if only Greece had followed the ‘structural reform’ program fully it would now be out of crisis and not in need of debt relief. It is a pipe dream that only these neo-liberals can contrive when their whacky ideas are confronted with the reality of the monetary system.

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The damage of the Thatcher sea-change

When socio-economic historians reflect back in the decades to come, they will see the insanity that ruled the economic policy choices that have been taken in the last three or so decades more clearly than we seem to be able to discern as we live through the nightmare. They will conclude that arrangements such as the Eurozone was the work of lunatics who systematically undermined the prosperity of millions of people and polarised their societies as a consequence. There is no possible way that the Eurozone can be constructed as a successful monetary arrangement. The deeply flawed design of the common currency in Europe, was, in part, the product of the shift towards Monetarism and its microeconomic analogue (deregulation, privatisation, outsourcing etc) that surged back into dominance in the 1970s, after its main ideas had been thoroughly discredited and dismissed during the Great Depression. While Margaret Thatcher was not the first Monetarist government (that title goes to the government of President Giscard d’Estaing who appointed Raymond Barre as the Prime minister and Minister of Economy and Finance in 1976), her regime certainly influenced the spread of neo-liberal thinking among policy circles, particularly in the Anglo world. What is still not acknowledged is the damage done by that swing to so-called free-market policies, which would be better called pro-business capture given there was no real market forces unleashed, just an industry of parasitic, rent-seeking profiteers closely followed by the massive growth in the unproductive, wealth-shuffling financial sector. A recently released report (June 10, 2015) – The Macroeconomic Impact of Liberal Economic Policies – from researchers at the University of Cambridge lets us know more closely how damaging this period was and challenges the view that the best way forward is even more austerity and deregulation.

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