It is Wednesday so just a few things to report and discuss. I have noted in recent weeks an upsurge in the Twitter noise about Modern Monetary Theory (MMT) and various statements along the lines that MMT economists are male chauvinists, mindlessly attack other heterodox economists because we are a religious cult, that we thrive on conflict, that only the US has a sovereign government and more. Quite amazing stuff. And these attacks are coming mostly from the so-called heterodox side of the economics debate although not exclusively. It is quite an interesting exercise to try to understand the motivations that are driving this social media behaviour. Things that would never be said face-to-face are unleashed with regularity these days. There appears to be a sort of self-reinforcing ‘echo chamber’ that this squad operate within and it seems to lead to all sorts of bravado that would be absent in face-to-face communication. None of the attacks seem to have any substance or foundation. They just reflect an insecurity with the way that MMT is creating awareness and challenging progressives to be progressive. And, they just make the Tweeters look stupid. I thought I would document some of the recent trail of nonsense to let you know what is going on in case you haven’t been following it. It is a very interesting sociological phenomena.
Last night in Britain (October 29, 2018), the British Chancellor released the – Budget 2018 – aka the 2018 fiscal statement (my terminology, to avoid triggering the flawed household budget analogy). The detailed analysis is being done by others and I haven’t had enough time to read all the documents produced by the Government and others yet anyway. But of the hundreds of pages of data and documentation I have been able to consult, the Government is trying to win back votes while not particularly changing its austerity bias. That is fairly clear once you dig a little into the outlook statement produced by the Office of Budget Responsibility (OBR). The Government’s strategy is also unsustainable because it continues the reliance on debt accumulation in the non-government sector, which will eventually hit a brick wall as the balance sheet of that sector becomes overly precarious. Nothing much has been learned from the GFC in that respect. The Government can only cut its debt by piling more onto the non-government sector. Second, the response of the Left has been pathetic. The Fabians, for example, has put out a document that uses all sorts of neoliberal frames and language, making it indistinguishable from something the mainstream macroeconomists would pump out – the anathema of the constructs and language that the Left should be using. There is a reason the political Left has fallen by the wayside over the last 3 or so decades. And their penchant to write and speak like neoliberals is part of the story.
Last Friday (October 26, 2018), the US Bureau of Economic Analysis published their latest national accounts data – Gross Domestic Product, 3rd quarter 2018 (advance estimate) , which tells us that the annualised real GDP growth rate for the US remains strong at 3.5 per cent (down from 4.2 per cent in the June-quarter 2018). Note this is not the annual growth over the last four-quarters, which is a more modest 3 per cent (up from 2.9 per cent in the previous quarter). As this is only the “Advance estimate” (based on incomplete data) there is every likelihood that the figure will be revised when the “second estimate” is published on November 28, 2018. The US result was driven by a growing household consumption contribution (2.7 points) with the personal saving rate falling by 0.4 points. Further, the government spending contribution was also strong (0.6 points up from 0.4) with all levels of government recording positive contributions. Real disposable personal income increased 2.5 percent, the same increase as in the second quarter. While private investment was strong it was mostly due to unsold goods (inventories). Notwithstanding the strong growth, the problems for the US growth prospects are two-fold: (a) How long can consumption expenditure keep growing with slow wages growth and elevated personal debt levels? Most of the consumption growth is coming because more people are getting jobs even though wages growth is flat. (b) What will be the impacts of the current trade policy? It is a work in progress.
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. The quiz tests whether you have been paying attention or not to the blog posts that I post. See how you go with the following questions. Your results are only known to you and no records are retained.
This week’s theme seems to be the about how the so-called progressive side of the economic and political debate keeps kicking ‘own goals’ (given a lot of this is happening in Britain where they play soccer) or finding creative ways to ‘face plant’ (moving to Europe where there is more snow). Over the other side of the Atlantic, as America approaches its mid-term elections, so-called progressive forces who give solace to the New Democrats, aka Neoliberal Democrats are railing against fiscal deficits and demanding that the left-liberals in the Democratic Party be pushed out and that the voters be urged to elect candidates who will impose austerity by cutting welfare and health expenditure and more. And then we have progressive think tanks pumping out stuff about banking that you would only find in a mainstream macroeconomic textbook. This is the state of play on the progressive side of politics. The demise of social democratic political movements is continuing and it is because they have become corrupted from within by neoliberals. And then we had a little demonstration in London yesterday of the way in which the British Labour Fiscal Rule will bring the Party grief. The Tories are just warming up on that one.
One of the themes that has emerged in the discussions of the British Labour Party Fiscal Credibility Rule (which should be renamed the Fiscal Incredulous Rule) is when is the right time for a political party to show leadership and start educating the public on new ideas. The Modern Monetary Theory (MMT) project has been, in part, about educating people even if our ideas have been strongly resisted by the mainstream. The mainstream (New Keynesian) paradigm in economics is degenerative (meaning it has little empirical validation) and eventually it will fade into historical obscurity. For many of us that cannot come quickly enough. The defenders of the Rule argue that progressive politicians have to tread carefully or else the amorphous financial markets will turn on them and destroy their initiatives. The problem is that by kowtowing to the City or Wall Street, the progressive political forces become captured and redundant. Witness the electoral demise of social democratic parties over the last several decades. The conditions are ripe (see below) for a courageous head-on attack on these financial market elites and educate the public so that they allow elected governments to legislate for all rather than serving the interests of the elites, which has become the norm over the last several decades. The problem is that progressive political forces are also taking advice from mainstream economists who use the tools of neoliberalism. The upshot is that progressive political leadership is absent but desperately required.
Over the last weekend, it seemed that we had a return of the Spanish Inquisition with a prominent British academic, who by his own words designed the fiscal rule that British Labour has unwisely adopted, repeatedly demanding that MMT Tweeters confess to knowing that I was completely wrong on my interpretation of the fiscal rule. It is apparent that my meeting with the British Shadow Chancellor in London recently and my subsequent discussion of that meeting has brought the issues relating to the fiscal rule out into the open, which is a good thing. It is now apparent that British Labour is still, to some extent, back in the 1970s, carrying an irrational fear of what financial markets can do when confronted with the legislative authority of a sovereign government. I am not a psychologist so I cannot help them heal that irrational angst. But the claims that I misunderstood the fiscal rule – which are being repeated daily now by the fanboys of the rule are just ludicrous. The rule is simple. And it will bring Labour grief politically. Rolling windows or not!
The weekend before last I was in Germany (and Bavaria) at the same time as the – Bavarian state election. The results for the SPD (Social Democratic Party) were disastrous losing 20 seats (down from 42) and gaining only 9.7 per cent of the vote (down from 20.6 per cent). The Greens came second, winning 20 extra seats (to 38) and 17.5 per cent of the vote (8.6 per cent last election), while the neo-fascist AfD party, which did not contest the last election, came in fourth, gaining 22 seats (10.2 per cent of the vote). There is a growing fear that the AfD and its counterparts across Europe will grow further and push Europe back into its dark fascist days. One would not conclude that from the Bavarian voting patterns. Further, to construct what is going on in Europe as a right-wing counter to a ‘social democratised’ Europe, which is a common narrative among the Europhile Left is seriously missing the point. The social democratisation of Europe has been in retreat for decades under the onslaught of a very sophisticated campaign from the elites on the Right and often it has been the traditional Left political parties that have pushed the neoliberal agenda more vigorously than the conservatives. The AfD is a sideshow in this deeper take over of our democracies by capital. Root and branch change is needed not a few ‘reforms’ around the edges to make the Eurozone less of a disaster for workers than it currently is.