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.
Its my Friday lay day blog. The aim is to write less here and more elsewhere. I don’t always succeed. Today I have a day full of meetings. One was with the Australian Productivity Council about the viability of establishing a majority-Australian owned motor car industry. I will have more to say about this on another day but the idea is interesting if not compelling. I noted the faked fake is a fake (‘Fingergate’). The tension in Brussels is rising and the position appears to be unchanged. The hardliners lecturing Greece about the need for more reforms. The Greeks claiming they will not reimpose austerity even though they currently are. And it is all leading in one of two directions – capitulation of exit. But closer to homefor a while. The press are zeroing in of the offensive barbs about Holocausts and Goebbels that our Prime Minister keeps using to slur his political opponents, which really, despite all the mock shock and hurt from the recipients, only serve to slur the deliverer and make him look like an idiot. But his other ‘foot-in-the-mouth’ moment came on March 10, 2015, when the Prime Minister, in an attempt to make himself look tough to shore up his waning political support, claimed that indigenous Australians were making “lifestyle choices” by residing in remote communities and live on income support. He was supporting the West Australian state government’s decision to ‘close’ down 150 remote communities and force the residents into larger settlements to ‘save money’. The policy is wrong at the most elemental level and reveals not only an ignorance about economics but also a total lack of understanding of the cultural and anthropological history of our nation.
The British Chancellor George Osborne told the British people during his fiscal presentation yesterday that the “The sun is starting to shine – and we are fixing the roof”, which was code for the age of austerity is over. The problem with that narrative is that the sun over Britain is pretty weak, has been shining since 2012 when the British government deferred its austerity push when the nascent economic recovery it inherited tanked after its first fiscal exercise in June 2010. The strategy then was clear – they kept the fiscal deficit at relatively high levels (even if some of the shifting of expenditures etc cause inequities and undermines the prosperity of certain cohorts). Those deficits have supported growth over the last several years. But growth has also come from the stimulus the government gave to the housing sector (not the construction of houses but the churning of existing stock) in the 2012 and 2013 Fiscal Statements (aka the ‘Budget’). That growth strategy is ephemeral because the household sector can only absorb so much extra debt given its already highly indebted state. Overall, the fiscal narrative in Britain put out by the Conservatives is a lie. They have not created a nation of “Makers” and growth has not come from austerity. If you want to see what austerity does just look across the Channel to Italy, France, and, of course Greece. The UK has not demonstrated that austerity is a stimulus to growth.
Its sad when politicians lie just to get political points as they face declining popularity. We saw last week that the Australian Prime Minister started attacking indigenous Australians for living in areas that they have occupied, one way or another, for somewhere up to 80,000 years. He claimed these settlements were “lifestyle” choices and people could no longer expect government support if they wanted to indulge in such choices. 80,000 years for a culture that has a deep connection with the ‘land’ is quite story compared to the Anglo settlement in Australia of 226 years for a culture that connects via iPhones! The PM was playing into the hands of the racist Australians who think the indigenous population here are skivers and drunks and should get no state support. They ignore that this cohort is one of the most disadvantaged peoples of the World. In the last few days, the PM has been lying about the state of government finances and pledging to that “the government will have the budget back in balance within five years”. There was no mention of what this might imply for the real economy. I am surprised that the conservatives haven’t learned from the previous Labor Government who made continual promises of surpluses but failed each time – largely because they didn’t understand that they cannot control the fiscal outcomes no matter how hard they try. And when they do try and run against the spending desires of the non-government sector, they just cause havoc and damage and fail to achieve their goals anyway. Stupid is not the word for these sorts of promises.
There was an article published by a Spanish research group (aligned with the University of Navarro) last week (March 14, 2015) – Spain’s Labor Market grows more dynamic – that reports on a special survey (150,000 respondents in 800 Spanish firms) which purports to show that the “labour mobility maintained its upward march to reach 18.8 per cent in the second half of 2014”. That is, within the sample “nearly one in five workers changed jobs during the period”. The results are unable to confirm whether the increased mobility is the result of better “efficiency” in matching workers to jobs or “higher job insecurity or staff turnover linked to lower retention rates and less training for short-term hires”. There is a world of difference between these alternatives. They also find that job creation rates are still low and falling and only 1.5 per cent higher than job destruction rates leading to the conclusion that “job creation remains tenuous”. I decided to look at another source of data which can shed light on the state of the Spanish labour market – the so-called Gross Flows data, which tracks quarterly movements (in Spain’s case) between the major labour force categories – employment, unemployment and inactivity. The results do not suggest that the Spanish labour market has improved much.
Back in October 2009, the US unemployment rate had climbed to 10 per cent (its seasonally adjusted peak in the recent recession), the fiscal deficit was around $US1.4 trillion (9.8 per cent of GDP), which was the largest since the end of the Second World War (1945) 9.9 per cent of GDP and federal spending rose by 18 per cent with about 50 per cent going to bail out the banks. Meanwhile the US Federal Reserve ramped up its so-called quantitative easing (QE) program and its balance sheet expanded rapidly (as its purchase of government bonds accelerated). A lot of mainstream economists and conservative politicians at the time predicted an economic maelstrom – higher interest rates, an acceleration of inflation in the US and the inevitability of higher taxation. The trends in other nations were similar – higher deficits as the unemployment rates rose and the same shrill predictions of doom from the mainstream. None of the predictions came to be. But what is interesting is that the behaviour of long-term inflationary expectations in the US is now quite different to Europe. The most likely reason is that market participants now consider the drawn out recession and stagnation in the Eurozone to be the result of manifest policy failure and do not consider QE will do anything to alter that. In the US, the policy framework – fiscal stimulus to growth and benign QE appears to be more credible.
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.
Its my Friday lay day blog where I plan to write less here and more elsewhere. Today, a brief discussion of two interesting articles that I read recently. The blog title – Faut-il donc haïr l’Allemagne? (must we hate Germany?) – was the question posed recently by the French economist – Jacques Sapir – as a reaction to the way Germany (particularly its Finance Minister) handled the Greek request for less austerity and more flexibility in the recent Eurogroup encounters. His February 20, 2015 article (in French) – Haïr l’Allemagne? – concludes that the actions of Angela Merkel and Wolfgang Schäuble towards Greece have “repeated the sins” (“Les péchés répétés”) of the past and opened up old wounds that will further undermine the democracy in Europe. Sapir concludes that “Alors, disons-le, cette Allemagne là est haïssable”. What does that mean?
Today’s release of the – Labour Force data – for February 2015 by the Australian Bureau of Statistics shows that the Australian labour market remains weak. While employment growth was modest the unemployment rate only fell by 0.1 percentage points as a result of a declining participation rate. Employment growth remains well below the underlying population growth with the result being an upward bias in the unemployment rate. The falling participation rate reflects a rising hidden unemployment rate as workers have given up looking for work. The broad ABS labour underutilisation rate – the sum of unemployment and underemployment – will now be heading towards 16 per cent (it is published in next month’s release). While the Australian Treasurer might deny that the teenage labour market is in crisis, the data tells a different story.The teenage labour market is in a parlous state and requires an urgent policy problem that the Federal government refuses to recognise or deal with. They are so obsessed with cutting fiscal deficits and shoring up the position of the Prime Minister and Treasurer that they cannot see the future damage they are causing as a result of the appalling state of the youth labour market and the weak labour market in general.