Dr Die Schwarze Null still not thinking beyond more austerity

Project-Syndicate recently published the latest Op Ed (April 16, 2021) from former German finance minister and current President of the German Bundestag, Wolfgang Schäuble – Are We Risking a Debt Pandemic?. He is the person who personified the so-called ‘die schwarze null’ (Black Zero) while finance Minister. His conduct as finance minister was an instrumental element in extending the GFC across the Eurozone. He is still influential in European politics and his latest Op Ed makes it clear that the austerity mindset is still alive and well despite the current relaxation of the Stability and Growth Pact rules during the pandemic. The problem is that if Europe reverts back to that mindset, the essential changes to the monetary union that are necessary to make it viable will never be discussed. It will be just more of the same. And that same is pretty ordinary for the common folk across the EMU.

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The Weekend Quiz – April 17-18, 2021 – 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.

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Australian labour market – recovery continues but storm clouds on the immediate horizon

The latest data from the Australian Bureau of Statistics – Labour Force, Australia, March 2021 – released today (April 15, 2021), shows that the Australian labour market continues to recover – and while the recovery had stalled a bit over the latter part of 2020, the March result builds on the strong February result. Employment increased by 0.5 per cent (70,700) in the month and unemployment fell by 27,100 to 778,100 persons. As a result the unemployment rate fell by 0.2 points to 5.6 per cent, even though participation rose by 0.2 points. Overall, a good outcome. The main uncertainty now is that the recovery to this point has been dependent on government fiscal support, which ended in March 2021. Given the labour market is still quite a margin from where it was in March 2020, the idea that the government would withdraw its fiscal support is not a compelling option. We will see the first results of the fiscal withdrawal in the next month’s data and I expect things to not look as rosy as they are this month. Further, undertainty has now entered the equation as a result of the vaccination bungling by the federal government. We will see how that plays out in the coming months. Overall, the recovery is still too slow and more government support by way of large-scale job creation is needed.

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Either the Eurozone as we know it is dead or Italy goes out – latest research

It’s Wednesday and my snippet day, which just means I don’t write as much so that I can write more elsewhere. But today, I summarise some research that has just been released which seeks to assess the sensitivity of the commitment by the Italian population to the euro to tolerating further austerity. The research finds that if the technocrats start forcing Italy into austerity measures via a return to the Excessive Deficit Mechanism (and enforcement of the Stability and Growth Pact fiscal rules) then the majority will prefer to leave the Economic and Monetary Union. The majority are happy to retain the euro but only if there is no austerity and structural reforms imposed on the nation. This is a big swing in public sentiment and will give the neoliberals in Brussels one huge headache. Either their neoliberal monetary union is done, or they will face instability from one of the largest euro economies.

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The cat is progressively getting out of the bag – Part 2

This is the second and final part of my discussion of the – Economic Affairs Commitee (House of Lords) – hearings into – Quantitative Easing: Committee to examine whether inflationary fears justified, the future of QE, and the merits of ‘helicopter money’ approaches. In Part 1 we learned that statements made by notable central bank governors (or equivalent) to the public about what they are doing are highly questionable given the evidence given by two prominent witnesses to the House of Lords enquiry. The evidence doesn’t just refer to matters pertaining to the UK. We learned that it is obvious that large-scale government bond buying programs by central banks are funding fiscal deficits despite the denial from the central bank officials. In this Part, we find more revealing statements by the witnesses further suggest that the central bank officials, including those from the Reserve Bank of Australia governor, are, at best misleading. At worst – use your own words.

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The cat is progressively getting out of the bag – Part 1

Remember on February 3, 2021, when the RBA governor Philip Lowe spoke at the National Press Club in Australia and told the audience that the Reserve Bank of Australia is not funding the federal government deficit, either in part, or, in full. This was in response to being asked whether the current situation that sees the RBA buying large swathes of government bonds are in any way consistent with Modern Monetary Theory (MMT). Well, since he gave that speech and answered questions from Australia’s journalists, a very interesting session was held by the – Economic Affairs Committee (House of Lords) – in London as part of the Committee’s investigation into the ins-and-outs of Quantitative Easing (QE). And some very revealing statements were made in those hearings which the RBA governor might reflect on. They rather directly challenge the veracity of his public statements about MMT in recent years. They also expose the way in which public officials tell the public they are not doing A but B, while doing exactly A. The cat is progressively getting out of the bag.! This is Part 1 of a two-part series explaining how the cat is escaping.

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The Weekend Quiz – April 10-11, 2021 – 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.

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Latest IMF data helps us see how political choices impact on health and economic outcomes

The IMF recently updated their – World Economic Outlook database – April 2021 – which allows for quick cross country comparisons. Some of the data series are suspect (like structural deficit estimates) for reasons that I have explained before, but many of the national accounts series are useful. I have been doing work on the relative responses to the pandemic and the impact on economic performance as well as researching the next chapter of one of the current book chapters. So today, I just present some interesting graphs and calculations. Nothing deep but the figures then provoke some deep thinking. The lessons are pretty clear: Covid elimination strategies protect health and the economy better; Austerity is highly damaging; and there is a massive shift in the world order going on and we should be learning from that. And all of the trends I examine are ultimately the result of political choices. That is the important point to keep in mind.

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