British Labour Party once again tripping over their nonsensical fiscal rules

Regular readers will know that I am not enamoured with the British Labour Party leadership and its obsession with its so-called fiscal rule, which is really just a continuation of the rule that the Tory’s were supposedly running with. How can a self-styled progressive party (so-called) that is about to take over a nation that has been shattered by 14 years of the worst Tory rule that one can imagine, and which will require billions of pounds to be spent to even put a dent in the degradation in infrastructure, services, not to mention addressing the forward-looking challenges (health, climate, etc), claim that a fiscal rule that is biased towards austerity be appropriate? It beggars belief. By continuing with such rules, the Labour Party is ensuring that it will either fail to make much headway in redressing the damage and placing Britain in a better position to deal with the carbon challenges or will fail to meet the fiscal rules or both. It is recipe for not much. Pity the British people who have already endured the consequences of supporting, first Blair’s Labour, then the long hard years of the bumbling and incompetent Tories. In today’s post I want to highlight one aspect of the fiscal rule absurdity, and actually say that Nigel Farage is right about one thing, although not for the right reasons. Read on – a story of corporate welfare and fiscal fictions unfolds.

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The delusional RBA has everyone convinced that they are the reason inflation is falling

It’s Wednesday and as usual I present commentary on a range of topics that are of interest to me. They don’t have to be connected in any particular way. Today, RBA interest rate decisions, COVID and some great music. Yesterday, the Reserve Bank of Australia (RBA) held their target interest rate constant. In their media release (June 18, 2024) – Statement by the Reserve Bank Board: Monetary Policy Decision – the RBA claimed that “higher interest rates have been working to bring aggregate demand and supply closer towards balance”. The journalists duly digested the propaganda from the RBA and throughout yesterday repeated the claim relentlessly – that the RBA had done a great job in ‘getting inflation down’ and now was attempting to ‘navigate’ a sort of knife edge between effective inflation control and the increasing probability of recession. It was an amazing demonstration of being fed the narrative from the authorities, and then, pumping it out as broadly as possible through the mainstream media channels to the rest of us idiots who were meant to just take it as gospel. Not one journalist that I heard on radio, TV or read questioned that narrative. The emphasis was on the ‘poor RBA governor’ who had a difficult job protecting us from inflation and recession. Well, my position is that the decline in inflation since the December-quarter 2022 has had little to do with the 11 interest-rate hikes since May 2022 and more to do with factors changing that are not sensitive to domestic interest rate variations. Further, the impact of two consecutive years of fiscal austerity (the Federal government has recorded two fiscal years of surpluses now) has mostly been the reason that GDP growth is approaching zero and will turn negative in the coming quarters at the current policy settings.

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Progressive journalists in Britain so easily become willing mouthpieces for mainstream economic lies

Imagine if you are a UK Guardian reader and wanting to assess the options for an almost certain victory by Labour in the upcoming general election. Your understanding of the challenges facing the next government will be conditioned by what you have been reading in that newspaper. Unfortunately, there have been a stream of articles purporting to provide informed analysis of the challenges ahead and the capacities of the new British government to meet them which make it very hard for any progressive reader to assess the situation sensibly. These articles promote the usual macroeconomic fictions about the need for tight fiscal rules that will help the government avoid running out of money as it tries to deal with the decades of degeneration created by the austerity mindset. It is stunning how so-called progressive media commentators have so easily become willing mouthpieces for the mainstream economic lies which have only served to work against everything they purport to stand for. Business as usual though. Sadly.

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Australian labour market – employment grows but overall still marking time

Today (June 13, 2024), the Australian Bureau of Statistics released the latest – Labour Force, Australia – for May 2024, which provides some increased clarity given the last few months have generated data that has been mixed in signal. The data for May 2024 shows employment continuing to increase, unemployment falling, and the participation rate steady. Taken together the demand-side of the labour market is running just ahead of the underlying population growth, although working hours are falling. Some clarity but it is still not absolutely clear which way the labour market is heading. The net change in employment was driven by full-time employment. But we should not disregard the fact that there is now 10.7 per cent of the working age population (1.6 million people) who are available and willing but cannot find enough work – either unemployed or underemployed and that proportion is increasing. Australia is not near full employment despite the claims by the mainstream commentators and it is hard to characterise this as a ‘tight’ labour market.

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IMF holds a religious gathering in Tokyo – to keep the troops in line

The IMF joint hosted a conference in Tokyo last week – Fiscal Policy and Sovereign Debt – and the continues its misinformation campaign on the ‘dangers’ of public debt. The conference claimed that it brought together ‘leading scholars and senior policymakers’ and upon examination of the agenda it was clear that there was very little diversity in the speakers. The organ started playing and all sessions sang from the same hymn sheet. That is how Groupthink works. Repeat and rinse, repeat and rinse, and, never confront views that are contrary to the message. Groupthink is about avoiding cognitive dissonance for fear that at least some of the ‘parishioners’ might lose the faith. The famous British economist, Joan Robinson likened mainstream economics to a branch of theology and these conferences that the IMF convene around the world are like evangelical crusades, to keep the troops in line so they can continue to keep all of us in line – for fear that we might all start seeing through the veil and discover the rotten core.

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Australian low-paid workers get a 3.75 per cent nominal wage increase but are still worse off in real terms

On June 4, 2024, Australia’s minimum wage setting authority – the Fair Work Commission (FWC) issued their decision in the – Annual Wage Review 2023-24 – which provides for wage increases for the lowest-paid workers – around 0.7 per cent of employees (around 79.2 thousand) in Australia. In turn, around 20.7 per cent of all employees, who are on the lowest tier of their pay award (grade) receive a flow-on effect. The FWC “decided to increase the National Minimum Wage and all modern award minimum wage rates by 3.75 per cent, effective from 1 July 2024”. The decision reflected concerns for “cost-of-living pressures” being particularly endured by “those who are low paid and live in low-income households”. However, the decision, which was vehemently opposed by the employers, still leaves the lowest paid workers worse off in real terms compared to where they were at the onset of the pandemic. We should have done better than that.

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Australia – GDP growth heads towards zero – then recession if there is no policy shift

Today (June 5, 2024), the Australian Bureau of Statistics released the latest – Australian National Accounts: National Income, Expenditure and Product, March 2024 – which shows that the Australian economy grew by just 0.1 per cent in the March-quarter 2024 and by 1.1 per cent over the 12 months (down from 1.5 per cent). If we extend the March result out over the year then GDP will grow by 0.4 per cent, well below the rate required to keep unemployment from rising. GDP per capita fell for the fifth consecutive quarter and was 1.3 per cent down over the year. This is a rough measure of how far material living standards have declined but if we factor the unequal distribution of income, which is getting worse, then the last 12 months have been very harsh for the bottom end of the distribution. Household consumption expenditure was stable but only because the saving ratio fell further. There is now a very real possibility that Australia will enter recession in the coming year unless there is a change of policy direction. Both fiscal and monetary policy are squeezing household expenditure and the contribution of direct government spending, while positive, will not be sufficient to fill the expanding non-government spending gap. At the current growth rate, unemployment will rise. And that will be a deliberate act from our policy makers.

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Senior mainstream economist now admits central banks are not as independent as many believe

The UK Guardian published quite an odd article the other day (May 30, 2024) by Mr GFC Spreadsheet Fudge Man Kenneth Rogoff – Why policymakers are more likely to risk high inflation during periods of economic uncertainty – which essentially claims that economic policy has been conducted for several years by institutions that do not meet the essential requirements that are specified by the mainstream New Keynesian macroeconomic approach, upon which the institutions have claimed justification. If that makes sense. He now claims that the eulogised principle of ‘central bank independence’, which is a mainstay of the New Keynesian justification that macroeconomic counter stabilisation policy should be left to monetary authorities and that fiscal policy should play a supporting but passive role, no longer exists as policy makers have had to come to terms with multiple crises. Of course from an Modern Monetary Theory (MMT) perspective such independence never existed and was just a ploy to allow the governments to depoliticise economic policy making and thus distance themselves, politically, from the fall out of unpopular policy interventions. If it wasn’t the IMF to blame, then it was the ‘independent’ central bank for austerity and interest rate hikes and all the rest of it. Now we have a senior Harvard professor admitting it was a ruse and bemoaning the fact.

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Government debt fears – more fiction from the mainstream media

After all these years of trying, the insights provided by Modern Monetary Theory (MMT) still haven’t cut through. One doesn’t even need to accept the complete box of MMT knowledge to know that, at least, some of it must be factual. For example, how much brainpower does a person need to realise that a government that issues its own currency surely doesn’t need to call on the users of that currency in order to spend that currency? Even if we could get that simple truth to be more widely understood it would change things. But every day, economists and the journalists demonstrate a lack of understanding of how the monetary system actually works. Are they stupid? Some. Are they venal? Some. What other reason is there for continuing to use major media platforms to to pump out fiction masquerading as informed economic commentary? And the gullibility and wilful indifference of the readerships just extends the licence of these liars. Some days I think I should just hang out down the beach and forget all of it.

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