Here are the answers with discussion for this Weekend’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 Weekend Quiz, which used to be known as the Saturday Quiz! The quiz tests whether you have been paying attention or not to the blogs I post. See how you go with the following questions. Your results are only known to you and no records are retained.
The latest labour force data released today by the Australian Bureau of Statistics – Labour Force data – for May 2017 shows that employment rose by 42,000 on the back of a strong rebound in full-time employment (up 52,100), given last month’s contraction in full-time work. Unemployment fell by 18,600, which allowed the official unemployment rate to fall to 5.5 per cent. There was a slight uptick in the participation rate as job opportunities improved. Underemployment remained steady at 8.6 per cent and broad labour underutilisation remains high at 14 per cent with unemployment and underemployment summing to 1,837.4 thousand persons. The teenage labour market also deteriorated in May contrary to the overall improvement. It remains in a poor state.
I have sat through many economic seminars in my time where there is a sense of suspended reality necessary so the presenter can run through the exercise of bringing their latest research idea to the academic community. This suspended reality normally relates to the a priori assumptions made to condition the exercise and the framework within with the exercise is conducted. It typically involves ignoring the elephant in the room called reality and applicability. The ruse goes like this – assume a, b and c (where none of these assumptions capture the most important aspect of the object of study); then use these analytical tools (none of which reflect how the actual mechanisms being studied operate); and QED we show this. I no longer go to seminars like this – life is too short. An example of this sort of exercise appeared recently in summary form on VoxEu site (June 6, 2017) – Japanese frugality versus Italian profligacy? – written by an MIT academic. Perhaps the salient aspect is that the author was previously a Central Bank governor in Cyprus (2007-12) and a member of the Governing Council of the European Central Bank (2008-12). That experience may have led to his clouded judgement. But more so is the fact that he is a Friedmanite! One of them! That explains everything. The blindness. The failure to see the obvious. The neo-liberal ideology.
I recently re-read several books (well books), the first of which was published in 1932, and, the others published in the early 1940s, which were written by a relatively unknown American economist Stuart Chase. He not only wrote about economics but also ventured in the area of semantics (which is one reason I wanted to re-read the collection). As a economist and a social theorist, he was way ahead of his times. Much of his insights and ideas still have currency today, especially as it appears that an oppositional Left is finally starting to emerge from the wreckage of the conventional social democratic political parties and is in no small way due to the engagement of young voters in the political process who know that neo-liberalism is not the way of the future. Stuart Chase understood that the limits of the government’s spending capacity was defined by the available real productive resources and he also understood that the natural environment had to be accessed in a sustainable way. Very modern insights – 75 odd years ago.
On June 6, 2017, the US Bureau of Labor Statistics (BLS) released their latest labour market data – Employment Situation Summary – May 2017 – which showed that total non-farm employment from the payroll survey rose by just 138,000 in May. While the payroll data confirms an on-going deterioration in job creation, an examination of the Labour Force Survey data presents an even worse picture. The official unemployment rate fell from 4.4 per cent to 4.3 per cent, the lowest rate since May 2001. But the fall in unemployment of some 195 thousand persons was not a sign of strength. Total employment fell by 233 thousand but was a smaller decline than experienced by the labour force (down 429 thousand) on the back of a fall in the participation rate (0.2 percentage points). In other words, hidden unemployment rose while official unemployment fell as workers gave up looking for work in the face of declining employment growth. The estimate of employment change from the Labour Force Survey was also positive (156 thousand net jobs added). There is still a large jobs deficit remaining and other indicators suggest the labour market is still below where it was prior to the crisis. Which makes the claims by a number of analysts that the US jobs market is so strong that inflation is about to accelerate on the back of wages growth (which at present is largely non-existent). In other words, there are many assessments that the unemployment rate has reached the so-called NAIRU (Non-Accelerating Inflation Rate of Unemployment) below which accelerating inflation becomes inevitable. I doubt that assessment.
Here are the answers with discussion for this Weekend’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 Weekend Quiz, which used to be known as the Saturday Quiz! The quiz tests whether you have been paying attention or not to the blogs I post. See how you go with the following questions. Your results are only known to you and no records are retained.
This is an extension of yesterday’s blog on the Australian national accounts release (Australian economy was slowing fast in March-quarter 2017 and outlook negative and delves further into the income side of the results, which are, frankly, stunning. They also accord with general global trends which I have written about in the past, which are creating further income inequality and damaging stable damaging growth prospects. Yesterday’s data confirmed that over the last two quarters (at least) almost all of the income growth has been captured by profits, with real wages and salaries actually falling in the March-quarter 2017. No wonder the growth in consumption spending fell away in the first part of 2017. Does that matter? Well, a rise in the profit share undermines consumption spending. If consumption spending is weak, the opportunities for profitable investment in new productive capital decline. Economies that are growing strongly provide a fertile environment for private investment. Austerity-ridden economies undermine private investment. Economies where consumption is falling due to real wage suppression also do not provide a buoyant investment climate. Flat wages growth in Australia has seen the saving ratio fall back towards zero and households take on ever more debt burdens. The Household debt to disposable income ratio is now at record levels. The declining wage share and the resulting credit binge in many nations were clearly causal in creating the global financial crisis. The mainstream economists believed that the markets were efficient and that there would be no problems with placing an increasing proportion of real income into the hands of the Casino economy. They were wrong. And with the same trends now repeating – they will be wrong again.
Last week, we learned that private new capital expenditure had risen by 0.3 per cent in the March quarter but was still 9.3 per cent down on the March-quarter 2016 outcome. The forward-looking estimates for 2017-18 have also improved somewhat but still lies well below the expected outcome at the end of June 2017. So, perhaps the massive decline in private investment spending is abating somewhat. In the December-quarter 2016 National Accounts release, the ABS estimated that Today, the Australian Bureau of Statistics real GDP had risen by a strong 1.1 per cent which followed a negative 0.5 per cent outcome in the September-quarter 2016. The results were driven by strong household consumption growth (even as wages growth was negative), public investment and net exports (on the back of a massive shift upwards in the terms of trade). I said at the time that it was doubtful this was setting a new trend away from the sluggish growth that Australia had fallen into in recent years as a result of declining private investment and a government intent on austerity. And that assessment proved to be accurate when the ABS released the – March-quarter 2017 National Accounts data – today, which showed that real GDP had risen by just 0.3 per cent in the March-quarter 2017. Annual growth (last four quarters) was just 1.7 per cent around half the trend rate before the GFC. Net exports undermined growth by 0.7 percentage points, despite the improved terms of trade. Inventory accumulation added 0.4 percentage points, which indicates how unstable the growth profile was earlier in the year. Private and public consumption expenditure contributed 0.5 points, although the household saving ratio fell again indicating the tenuous nature of private consumption expenditure. Remember that the National Accounts are a rear-view mirror of where the economy was 3 months ago. But the overall trend is not terribly optimistic, especially with the government intent on cutting back its contribution to growth in the coming year.