The Federal Reserve Bank of America has been publishing a new indicator – the Labor Market Conditions Index (LMCI) – which is derived from a statistical analysis of 19 individual labour market measures since October 2014. It is now being watched by those who want to be the first to predict a rise in US official interest rates. If the latest data from the LMCI is a guide to potential interest rate movements then they won’t be rising any time soon. I updated my gross flows database today and also the job openings and quits database. The gross flows analysis suggests that while there has been improvement in the US labour market in the last year, in recent months that improvement is slowing.
There was an interesting – Letter to the New York Times – last week (August 3, 2015) from an Irish academic (Stephen Kinsella) in response to an Op Ed by the German economist Hans-Werner Sinn (July 24, 2015) – Why Greece Should Leave the Eurozone. I found it interesting because for the last few weeks, since the latest – Irish national accounts data (July 30 2015) showed Ireland to be the fastest growing Eurozone nation I have been investigating what has been going on. The Op Ed by Sinn did not appear to accord with the data that I was examining. The subsequent ‘Letter’ confirmed that. The bottom line is that Ireland is not an example of a “supply-side” internal devaluation inspired recovery. In fact, it is an example of a straightforward “Keynesian” quantity adjustment aided by Ireland’s very open economy and the fact that is has been favourably disposed to growth elsewhere supported by on-going fiscal deficits.
Here are the answers with discussion for yesterday’s quiz. The information provided should help you understand the reasoning behind the answers. 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 and I end this week feeling infinitely better (how would I measure that?) than this time last week. The human capacity is pretty phenomenal. This week the Productivity Commission of Australia released its draft report on how to reform the Australian industrial relations system – Workplace Relations Framework (11.7 mbs). The Productivity Commission grew out of the old Tariff Board (then Industries Assistance Commission) and so administered the trade protection policy of the Federal government in the C20th. As ideological preferences changed, it morphed into its current guise, which is to give advice to government on how to deregulate, privatise, outsource and other trash the conditions of workers. As we awaited this current report, the only interesting question was not what they would recommend but what spurious route and flaky evidence they would call upon to attempt to justify their inevitable embrace of more deregulation and wage cutting in the labour market. As it turned out, the Commission disappointed. They couldn’t even find enough flaky evidence to support their conclusions so in the best traditions of the right wing they just offered up the tripe without any coherent argument and then managed to fit all that into a 1001-page tome. I imagine there is low job satisfaction in that part of government having to come up with this sort of nonsense and pretend you do serious work.
Today’s release of the – Labour Force data – for July 2015 by the Australian Bureau of Statistics shows that the Australian labour market improved this month with both positive employment growth and rising participation. Unemployment increased as did the unemployment rate because of the surge in participation. Teenagers gained some traction in employment growth this month but their situation remains parlous. As explained below, this month’s estimates should be heavily discounted given the population estimates the ABS use to scale its sample data are clearly overly optimistic. The data tells me that the economy is not going backwards and may be on the slight improve over the last few months. But with the forecasts for rather dire investment cuts by firms it is clearly too early to call an end to the very poor performances revealed over the last 36 months or so.
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.
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.
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.
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.