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.
We all know what the – Bandwagon effect – is. There is a lot of research literature in social psychology trying to understand why people who believe one thing one minute, suddenly ditch that belief system and appear to be proponents of a new belief system, often, in total contradiction to their previous views. The effect is related but distinct from the Groupthink phenomenon which I have written about extensively in relation to the way mainstream economics has maintained a hold on the public debate despite being unable to explain anything useful. Whatever the underlying explanations – social norms, conformity pressures, information cascades and the rest of it – the ‘Bandwagon effect’ is rampant at the moment among economists. It appears that everyone has become an expert on Modern Monetary Theory (MMT) and want to drop the term into their Op Eds, media articles etc despite, in many cases, writing in the not to distant past, ridiculous mainstream articles that are the anathema of MMT. I give those who are jumping on the bandwagon no credit at all. The reason is that these sort of shifts are dangerous. They typically misrepresent our work and attempt to interpret it within the old paradigm, which just leads to the general public, especially where the commentator has a high public profile, being mislead … as usual. Everyone, apparently is an MMTer now. But from what they say we know that is not the case. And just as this cohort swing to save face in what is a glaringly obvious empirical rejection of all the mainstream predictions and theoretical constructs, they will swing again and start talking about ‘budget repair’ and ‘inflation’ and ‘debt burdens on our grandchildren’ when the dust settles and the elites push to regain their dominant position. We should not be lulled into creating liaisons that are not sustainable or based on a true shift in view.
It is Wednesday and just a collection of snippets today. I am trying to finish a major piece of work and so that is what I am mostly doing today. And learning to program Geojson formats in R, so I can overcome the decision by Google to abandon their fusion table facility, which my research centre has relied on for some years to display map layers. And I have some press interviews to deal with. But today we consider the claim by the Financial Times editorial the other day that “Radical reforms are required to forge a society that will work for all”. It was an extraordinary statement from an institution like the FT to make for a start. But it reflects the desperation that is abroad right now – across all our nations – as the virus/lockdown story continues to worsen and the uncertainty grows. But I also think we should be careful not to adopt the view that everything is going to change as a result of this crisis. The elites are a plucky bunch, not the least because they have money and can buy military capacity. Changing the essential nature of neoliberalism, even if what has been displayed by all the state intervention in the last few months exposes all the myths that have been used to hide that essential nature, is harder than we might imagine. I think hard-edged class struggle is needed rather than middle-class talkfests that outline the latest gee-whiz reform proposals. The latter has been the story of the Europhile progressives for two decades or so as the Eurozone mess has unfolded. It hasn’t got them very far.
I did an extended interview over the weekend and during that interchange it became obvious that when a newcomer encounters the concept of the – Job Guarantee – for the first time, they may only see it in a narrow way, as a job creation program and fail to see it the way that the concept was developed as an integral part of Modern Monetary Theory (MMT). When I started talking about the era in which I had first started thinking about using buffer stocks to maintain full employment, it became obvious that the sort of considerations that went into the concept of the buffer stock employment model (the Job Guarantee) had not been fully appreciated by the interviewer. That is no criticism. It is just an observation and a reflection of how long we have been pushing this MMT barrow. At the moment, all the talk is of ‘flattening the curve’ and that is exactly the function that I saw for the Job Guarantee as I toyed as a young postgraduate student and nascent academic with new ways of thinking about macroeconomics that would fight the Monetarist scourge that was dominating in the late 1970s. It was a different era and the challenges from a economic theory perspective were different. I think it is important to understand this context because, as the interview demonstrated, new ‘light bulbs’ go off when the concept of a Job Guarantee is put within the historical exigencies that were dominating when I came up with the idea. So the Job Guarantee flattened the curve long ago – the Phillips curve and that was, in my view, a highly significant development in the context of macroeconomics and makes MMT very different (in addition to a lot of other aspects). Unfortunately, while we knew how to flatten the curve back then, the Monetarist viral infestation continued and we have suffered the shocking consequences ever since.
On April 3, 2020, the US Bureau of Labor Statistics (BLS) released their latest labour market data – Employment Situation Summary – March 2020 – which shows a deteriorating labour market situation due to the coronavirus crisis. However, as I explain below, the data released was drawn from samples that went up to March 12 (establishment survey) and March 14 (household survey), and so doesn’t fully capture the extent of the unfolding catastrophe. More recent data released by the US Department of Labor (unemployment insurance claimant data) doesn’t leave anything to doubt. In the last two weeks of March 2020, 9.955 million workers registered unemployment insurance claims (6.6 million in the last week). If we consider that shift, then the US unemployment rate would be around 9.8 per cent by the end of march and rising. All the aggregates are demonstrating dramatic shifts. The employment-population rate fell by 1.1 points to 60 per cent, which is the largest monthly fall since the sample began in January 1948. The U6 measure of broad labour underutilisation increased by 1.7 points to 8.7 per cent. This is the largest monthly rise in this measure since it was first published in January 1994. The situation will get worse.
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.
Last Thursday (March 26, 2020), the European Council met to discuss the way in which the European Union would deal with the coronavirus crisis. Not much happened. Well that is not exactly true. A lot happened in the sense that even when faced with the worst health crisis in a century that is already devastating the populations in Italy and Spain and creating economic havoc throughout, the leadership split along familiar lines and failed to come up with any solution. There was a lot of talk about solidarity and all the buzz words that the European leadership frequently outputs in their wordy statements. But very little action and lots of acrimony, division and back to form behaviour. My view is that the Member States should now just do whatever they consider it takes to bolster their health systems and protect their economies, which will involve significant fiscal deficits (multiples of the allowable limits under the Stability and Growth Pact), and trust that the ECB’s unlimited bond buying spree will back them. And when the Brussels technocrats start talking about Excessive Deficit Mechanisms and the rest of the blather, they should just show them the door. And if push comes to shove, they just should exit the whole rotten structure. But now is the time for defiance and disobedience. Now is the time that democracy fought back and told the elites to be quiet.
Today is Wednesday and I have been tied up a lot with various meetings – all on-line these days. I don’t enjoy them as much as face-to-face, given that I spent a considerable part of each day in front of my computer or with my head in books and so the human contact is a welcome variation. But needs must, as they say. Anyway, just a few snippets today, being Wednesday. I can say that in between all this Zooming and writing, I have now nearly put together a complete on-line learning system which I am now trialling. This will be the support platform for – MMTed – which I hope to make operational sometime in the coming months. One of the issues that I touched on yesterday, which is now starting to crawl out of the slime, is the “what will happen to all the debt when the crisis is over” story. And, it is not just a narrative being promoted by the Right or the conservatives. The Federal Labour Party spokespersons and those hanging around the edges have started to push the narrative. As the Prime Minister told us the other day in relation to the people who are panic buying “Stop it! It’s Ridiculous!” I think he was actually talking about those (morons) who are starting the deficit hysteria before the deficits have even actually risen much. For their own health, I urge them to “stop it”. Imagine how apoplectic they are all going to be once the deficit goes to 10 per cent or more and the RBA is buying up all the debt. My god.
The buzz-word at the moment in Australian government and policy circles is ‘hibernation’ – the government is hoping, that the economy can behave like a crocodile and find some ‘river bank’ and have a ‘good sleep’ until the pandemic is over, at which time, it will burst forth into a new growth phase and unless the virus mutates into something worse in the meantime then all will be well. Their policy interventions to date – while they have been like dragging a chain as their conservative instincts are being dragged very quickly into the demands and realities of real world macroeconomics, which is different to the nonsense that is taught by mainstream economists in our now depleted universities – have been crafted to ensure nothing important changes in a structural sense in our socio-economic lives. The problem is that the existing system, which they are hoping to put into hibernation for a while, is putrid to the core and needs major changes if we are to achieve a socio-ecological transformation. Remember the failings of neoliberalism? Remember climate change? Remember the poles melting? Remember the engineered cuts to workers who rely on penalty rates at weekends to maintain a sense of material prosperity? Remember the 13.7 per cent labour underutilisation rate? Remember the failed public transport and energy sectors, privatised and lacking in investment? Remember the financial markets that were exposed by the recent Royal Commission as corrupt, inefficient and downright dangerous to the our material and psychological prosperity? We don’t need a hibernation. We need the Government to take advantage of the dislocation that is currently occurring to make some basic changes. Like wiping out the gig economy. Like … read on. At present, the stimulus interventions, which are mostly about saving capitalism from itself. We should be demanding much more.