For years, students have been taught that fiscal policy is an ineffective policy tool to regulate fluctuations in national income derived from changes in spending and saving decisions in the non-government sector. This narrative justified the austerity purges that we have become accustomed to pre-pandemic. The elevation of the fiscal surplus to some desired goal has been instilled in our minds and we have voted to support governments that record these surpluses because we have thought they were being fiscally responsible. The GFC, and, more recently, the pandemic has helped undermine that narrative as people have realised that the only thing between them and hunger has been government spending. The ‘market’ hasn’t helped them. The evidence that government spending has reduced poverty and created opportunities for families that were not previously possible is strong. One such measure is the – Supplemental Poverty Measure (SPM) – which was first published by the US Census Bureau in 2011. This blog post records my notes on that data release.
Last Friday (March 4, 2022), the US Bureau of Labor Statistics (BLS) released their latest labour market data – Employment Situation Summary – February 2022 – which reported a total payroll employment rise of only 678,000 jobs and a rise in the participation rate. Fortunately, employment growth was strong enough to drive the unemployment rate down by 0.2 points to 3.8 per cent. The US labour market is still 2,105 thousand jobs short from where it was at the end of February 2020, which helps to explain why there are no wage pressures emerging. Real wages continued to decline. Any analyst who is claiming the US economy is close to full employment hasn’t looked at the data.
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.
Yesterday, I published a full analysis of the national account release in Australia, so today I am pretending it is my Wednesday ‘news’ blog with the music segment that seems to be popular. The news is all floods in Australia, death and destruction in the Ukraine and big talk (about 2 or more decades too late) from the Western governments. I note that the German government has confiscated a luxury yacht owned by some Russian ‘oligarch’ (don’t you just love their terminology) while stacks of other oligarch yachts are heading or are in the Maldives to avoid such a fate. Stupid question: if these oligarchs are so bad and their fortunes ill-gotten why have we waited so long to do something? Today we talk briefly about the resolve of the RBA to resist the gambling addiction of speculators in the financial markets. We also consider a discovery I made last week that top New Zealand economists seem to support Modern Monetary Theory (MMT), and then if that isn’t enough – some music.
Today (March 2, 2022), the Australian Bureau of Statistics released the latest – Australian National Accounts: National Income, Expenditure and Product, December 2021 – which shows that the Australian economy reversed the contraction in the September-quarter 2021 and posted an annual growth rate of 4.2 per cent. Covid lockdowns and restrictions caused the contraction and their abandonment allowed for growth to return. Growth was driven by strong growth in household consumption expenditure as public fiscal support declined and private investment expenditure went backwards. The change in the terms of trade was negative reflecting the rising import prices as supply constraints continue and demand rises. Overall, a good result but the next quarter will be much less robust (floods etc).
Recently (February 22, 2022), I received the latest E-mail update from the IMF blog advertising their new post – Should Monetary Finance Remain Taboo? – which obviously attracted my attention. One of the most deeply entrenched taboos in economics relates to central banks directly facilitating government spending without any other monetary operation. In an important sense, the characterisation of ‘monetary financing’ by the mainstream economists is erroneous and leads to all sorts of fictions that undermine sensible and responsible economic policy making. But, we can work through those fictions to discuss what the IMF is talking about. Importantly, they find that this taboo, which has been broken during the pandemic in many countries (although Japan has been leading the way for decades) does not lead to enduring inflation or a rise in inflationary expectations. Another major plank of mainstream macroeconomics gone. That is something to celebrate.