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 commented on Tuesday’s RBA interest rate rise. I wasn’t complementary. In the last two days, more data has been released since the decision, which further suggests that the RBA erred. It also suggests that part of the housing problem everyone is focused on is not due to lax monetary policy, which is the mainstream mantra, but is, rather, due to flawed tax policy. So, we have seen housing loan demand in decline and building approvals plummetting in the last month, a sign that the housing market, especially for owner-occupiers is in decline. Further, the growth in retail sales was only 1.6 per cent, and while mainstream economists are pointing to the rapid growth over the 12-month period (9.4 per cent March to March), they ignore the fact that the the March 2022 observation shows a decline on the previous month. The RBA statement yesterday did not mention housing at all, even though its decision has already pushed up mortgage rates in an already declining market. All they seem to want to do is cause massive damage to low income workers through even lower real incomes and rising unemployment and underemployment. There are fiscal options that should be pursued right now but the policy makers appear blind to them.
So, I was wrong. I thought the Reserve Bank of Australia (RBA) would hold the line on interest rates this month after telling all and sundry that they would be waiting until there was evidence of accelerating wages growth. They also lured thousands of first-home buyers into a hot property market on that promise, allowing the commercial banks to push mortgage debt onto these borrowers, sometimes at rates of six times the borrower’s income (massively overindebted in other words). The RBA also watched as household debt reached record levels and know that hundreds of thousands of borrowers are now on the margin of solvency. And all this was going on while the RBA promised the borrowers that they would not push up rates until that wages growth was evident. So far, there is no evidence of accelerating wages growth. There is lower unemployment, but that is mostly due to the fact that our external border has been closed for two or more years and labour supply growth has been static. That has now changed. I also thought the RBA was resisting the greedy push from the banks to increase interest rates and redistribute income from the struggling households with huge mortgages to the shareholders of the banks, who are well heeled, if anything. And I thought the RBA understood finally that the current inflationary surge has nothing much to do with excess spending in the economy. But I was wrong. Stupidity prevails.
Apparently, the Left/Right Paradigm is dead. This narrative keeps coming back. In the 1980s, when governments, coopted by corporate lobby groups, went on a privatisation spree, which transferred billions of dollars worth of public assets into the hands of private wealth holders, and enriched lawyers, management consultants etc into the bargain, we were told that we are all capitalists now because our pension funds bought the assets. Joke. Anyway, I keep reading and being told that there is no longer any meaningful distinction between Left and Right, with both falling into the hands of totalitarian discourse. Even so-called progressives advocate that the traditional Left should partner up with the traditional Right (and far Right) to keep ‘centrists’ out of power or to stop governments taking basic actions to protect public health. It is the ultimate victory for the neoliberals to have persuaded the Left that they have more in common with the Right than ever before. This is another example of how duped the Left has become.
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.