It’s Wednesday and there is a lot going on in the data release sense – housing finance, construction and today, the Australian Bureau of Statistics released the latest – Monthly Consumer Price Indicator – which covers the period to April 2023. On an annual basis, the monthly All Items CPI rate of increase was 6.8 per cent down from 6.9 per cent. There is some stickiness in some of the components in the CPI but overall inflation peaked last year and is slowly declining as the factors that caused the pressures in the first place are abating. Tomorrow I plan to discuss an apparent tension in the Modern Monetary Theory (MMT) community as to whether interest rate increases are expansionary or contractionary. But today we just consider the data and then listen to some dub.
Today, I am Perth giving a keynote presentation to the Royal Australian and New Zealand College of Psychiatrists (RANZCP) 2023 Congress. My talk is titled – Why fiscal fictions lead to inferior health policy outcomes. Given the travel time to the other side of the world (the continent at least) – us East Coasters get restless when we have to come here – and my commitments at the Congress, I haven’t time to produce a post. So today, thanks to our regular guest blogger Professor Scott Baum from Griffith University who has been one of my regular research colleagues over a long period of time, we have a discussion about fiscal fictions and higher education policy, which is a very nice dovetail to the theme of today. Today he is specifically going to talk about the current concerns about student debt in Australia. Over to Scott …
Regular readers will know that I have spent quite a lot of time reading the literature in social psychology trying to understand how groups of scholars become crippled with the patterned behaviour that Irving Janis identified as Groupthink in his ground breaking study published in 1972. I feel that my own profession is dominated by this catastrophic syndrome, which has biased the policy scene towards destructive outcomes. However, even after some major calamities, which the mainstream economists were blind too (such as the GFC), the Groupthink is so entrenched and powerful that academic economists actively engage in purges of what they consider to be ‘fringe ideas’, which they dismiss as the equivalent of homeopathy (that is, witchcraft in their eyes). I read an example of this behaviour this week which indicates to me that we are a long way from seeing fundamental change in the academy which might restore the credibility of my profession in the public milieu. My advice to parents – keep your children away from studying economics!
It’s Wednesday and so before we get to the music segment we have time to discuss a few issues. The first relates to the progress Britain is making in its post-Brexit reality. There is now growing evidence that, despite predictions of economists supporting the Remain case, the newly gained freedom that Britain now enjoys as a result of leaving the EU has allowed it to restrict the entry of lower-skilled and lower-paid migrants (from the EU) and attract a large boost in skilled migration from non-EU nations with net benefits to the domestic economy. Second, it seems the mainstream is now discovering the work of Marxist economists from 5 or more decades ago and concluding that it provides a much better explanation of the inflation process than that offered by Monetarists (excessive money supply growth) or the mainstream New Keynesian theories which emphasise “departures from a natural rate of output or employment” (NAIRU narratives). That’s progress even if it took a while. Once you have absorbed all that there is some great improvisational music to soothe your senses.
Many central bank officials have been trying all sorts of conditioning narratives to convince us that their interest rate hikes have been justified. Now they are actually defying the information presented in the official data to simply make things up. Last Wednesday (May 17, 2023), the Bank of England governor gave a speech to the British Chamber of Commerce – Getting inflation back to the 2% target − speech by Andrew Bailey. It came after the Bank raised the bank rate by a further 25 points to 4.5 per cent the week before. In that speech, he admitted inflation was declining and the main supply-side drivers were abating. But he said the rate rises were justified and unemployment had to rise because there was now persistent inflationary pressures coming from a “wage-price spiral”. The problem with this claim is that there is no data to support it.
Yesterday we had the wages data. Today the Australian Bureau of Statistics (ABS) released of the latest labour force data (May 18, 2023) – Labour Force, Australia – for April 2023. The April result is the second consecutive month that the data is weaker. Employment fell by 4.3 thousand, participation fell by 0.1 point, and unemployment rose by 18.4 thousand even though the fall in the number of workers seeking work took some pressure of the situation. The unemployment rate rose from 3.5 per cent to 3.7 per cent. All the main aggregates are now in retreat – employment falling (also relative to the population), participation falling and unemployment rising. With yesterday’s wage data still revealing only modest wage increases and on-going and substantial real wage cuts, today’s data suggests the deterioration in the economy is underway. The underlying (‘What-if’) unemployment rate is closer to 4.9 per cent, which indicates the labour market still has slack. The broad underutilisation rate rose 0.1 point to 9.9 per cent and that means there are still 1,409.9 thousand Australian workers without work in one way or another (officially unemployed or underemployed).
Today (May 17, 2023), the Australian Bureau of Statistics released the latest – Wage Price Index, Australia – for the March-quarter 2023, which shows that the aggregate wage index rose by 0.8 per cent over the quarter (steady) and 3.7 per cent over the 12 months. The media are touting how strong the wages growth is but they should be focusing on the fact that Australia’s nominal wage growth remains well below that necessary to restore the purchasing power losses arising from price level inflation. Even though the inflation rate is falling significantly and nominal wages growth has picked up a bit, the problem still remains – real wages have now fallen for 8 consecutive quarters (2 years). Further with the gap between productivity growth and the declining real wages increasing, the massive redistribution of national income away from wages to profits continues. Further, the conduct of the RBA in this environment is contributing to the damage that workers are enduring. They continue to claim there is a threat of a wages breakout and so interest rates have to keep rising to create the necessary unemployment increase to prevent that from happening. It is just a ruse. The rising unemployment will be for nothing other than to repress real wages furthers. And meanwhile, the RBA interest rate hikes are driving up prices (for example, via the rent squeeze).
In my 2015 book – Eurozone Dystopia: Groupthink and Denial on a Grand Scale (published May 2015) – I traced in considerable detail the events and views that led to the creation of the Economic and Monetary Union (EMU, aka the Eurozone) once the Treaty of Maastricht was pushed through as the most advanced form of neoliberalism at that time. The difference between the EMU and other nations who have adopted neoliberal policies is that in the former case the ideology is embedded in the treaties, that is, in the constitutional system, which is almost impossible to change in any progressive way. In the latter case, voters can get rid of the ideology by voting the party that propagates it out of office. It is true that in current period, even the parties in the social democratic tradition have become neoliberal and there is little choice. But the EMU is different and has entrenched the most destructive ideology in its legal structures. We are reminded of this recently (April 26, 2023), when the European Commission released its latest missive – Commission proposes new economic governance rules fit for the future. Once operational, the policies advocated in this new governance structure will ensure that Europeans are once again made to endure persistent and elevated levels of unemployment and continued deterioration in the quality and scope of public infrastructure and welfare provision. The collapse of this ideological nightmare cannot come soon enough.
In Tuesday’s fiscal statement, the Australian government made a lot of noise about dealing with the climate emergency that the nation faces but in terms of hard fiscal outlays or initiatives it did very little, deferring action again, while ‘the place burns’. The Climate Council assessment was that the government “still seems to be on a warm-up lap when it comes to investing in climate action” (Source) and recommended the nation moves from a “slow job” to a “sprint”. I have previously written about the myopic nature of neoliberalism. There are countless examples of governments penny pinching and then having to outlay dollars to fix the problem they create by the austerity. The climate emergency is of another scale again though. And penny pinching now will cause immeasurable damage to humanity. Food security will be threatened. Urban environments will become unliveable. Pandemics will increase if we don’t stop clearing and if we release viruses stored in permafrost. And all the rest that awaits us. Now is the time to reset our understanding of fiscal capacity. It is already, probably, too late.