If Africa is rich – why is it so poor?

When I was a student, that is, formally studying for degrees rather than the constant-learning approach which makes us permanent students, I was very interested in development economics and have carried that into the career phase of my work, including doing commissioned work for international agencies in Africa and Asia. One of the things I have come up against in that work has been the question of why are the nations in Africa, for example, so poor, when it is obvious to all and sundry that they possess massive resource wealth. My student days introduced me to dependency theory, which provided a solid framework for understanding the nature of underdevelopment. It stood in contrast to the mainstream development theory that was presented in most textbooks and which we would now call the neo-liberal approach. That approach is publicly enunciated by the IMF and the World Bank as if it is reality. In fact, it is a chimera! The framework of development aid and oversight put in place by the richer nations and mediated through the likes of the IMF and the World Bank can be seen more as a giant vacuum cleaner designed to suck resource and financial wealth out of the poorer nations either through legal or illegal means, whichever generates the largest flows. So while Africa is wealthy, its interaction with the world monetary and trade systems, leaves millions of its citizens in extreme poverty – unable to even purchase sufficient nutrition to live. It is a scandal of massive proportions and should become the target of all progressive governments (as they emerge).

Read more

The Weekend Quiz – June 17-18, 2017 – answers and discussion

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.

Read more

Australian labour force data – improvement but no positive trend yet emerging

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.

Read more

When economists ignore the elephant called reality and applicability

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.

Read more

Stuart Chase – a visionary ahead of his time

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.

Read more

US labour market – poor results – not close to full employment

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.

Read more

The Weekend Quiz – June 10-11, 2017 – answers and discussion

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.

Read more

Income shifts towards profits – a repeating destructive phenomenon

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.

Read more
Back To Top