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Two diametrically-opposed approaches to dealing with inflation – stupidity versus the Japanese way

Well things are going to get messier with the decision yesterday by the OPEC+ cartel to significantly reduce the oil supply and push up prices. On the one hand, when OPEC was first formed and pushed prices up, while there was significant disruption to oil-dependent nations, the substitution that followed (home oil heating abandoned, larger cars replaced by smaller cars, etc) was ultimately beneficial. So given that we need less cars on roads and less kms travelled by cars, one might consider the move to be fine. But given the way the central banks and treasury departments around the world are behaving at present, the short term impacts of the OPEC+ decision will be very damaging. How citizens endure whatever extra inflationary pressures that might emerge will depend on the fiscal and monetary policy responses. We have two diametrically opposed models: the one that most nations are following (hikes and austerity) versus the Japanese approach. I explain the difference below and predict that the latter will deliver much better outcomes for the people.

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RBA tom foolery continues while spending continues unabated

It’s Wednesday where I examine in short a few items that came to my attention in the last week and then retreat into the music segment. Yesterday, the Reserve Bank of Australia raised interest rates for the sixth time since May 2022. This time the increase was 0.25 per cent and the current cash rate target is 2.6 per cent. The below-expected increment has been hailed as the first central bank to ‘turn’. It tells me the RBA is now scared it has gone too far in its ridiculous show of power. It is also obvious that spending is not really responding yet to the RBA move which means that they have no real idea of what the impact of their shift in rates has been. That is the problem with relying on monetary policy as a counter-stabilising tool – it works (if at all) with long lags and by the time you see any impact it might be too late.

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Learning while on the job …

For the past several months I have been learning Japanese. I am now working at Kyoto University under a JSPS International Fellowship and living near the main campus. Each morning I go running along the Kamo River, which runs north-south through the east side of the city. It is a marvellous resource for runners, walkers,…
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Degrowth, Deep adaptation and MMT – Part 3

This is the third part in a on-going series that I am writing about Deep Adaptation, Degrowth and related concepts, all of which are designed to provide some sort of pathway beyond the current mess that the world is in with respect to climate, inequality, poverty, excessive consumption, and excessive population growth. Today, I consider how Modern Monetary Theory (MMT) fits into the transition agenda and discuss the labour market dislocation that will accompany the transition to degrowth.

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The Weekend Quiz – October 1-2, 2022 – 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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