The new British Labour government will have to abandon its fiscal rule or deliver very little

It’s the Wednesday pot-pourri – British politics, self promotion, events, sport and music. Politicians invariably claim that the situation they inherit when they take office following an election is untenable and that the ‘public finances’ are worse than they had initially thought. Of course, the idea that ‘public finances’ can be good or bad or somewhere in between is a misnomer and just reflects the ignorance of the fiscal capacity that governments have (that is, currency-issuing governments). There is no such thing as a deteriorating public finance situation. So when Rachel Reeves got up after being elected the new Chancellor of the UK she was just posturing and telling the British people that they should not expect much better than what the Tories delivered. What can be good or bad or somewhere in between is the state of public infrastructure and public services. And after 14 years of devastating Tory rule, one can safely conclude that there is a huge deficit in the UK in that context. The question then is what can be done about it. My reading of the situation is that if Labour want to actually improve things significantly in terms of public service provision and the viability of Britain’s infrastructure then it will have to abandon its mindless fiscal rule. And it would be better that they do that quicksmart while they enjoy such a large domination of the Parliament.

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Australian government tax cuts – the most vulnerable are being hoodwinked

I am still catching up after being away in the UK last week. I will reflect on that trip in another blog post. So, today, we have a guest blogger in the guise of Professor Scott Baum from Griffith University who has been one of my regular research colleagues over a long period of time. He indicated that he would like to contribute occasionally and that provides some diversity of voice although the focus remains on advancing our understanding of Modern Monetary Theory (MMT) and its applications. Today he is going to talk about income tax cuts and cost of living relief. Over to Scott …

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Australian labour market – the outlook turned up in June

Today (July 18, 2024), the Australian Bureau of Statistics released the latest – Labour Force, Australia – for June 2024, which shows that the labour outlook has improved somewhat from the last several months of plodding along not sure which way to turn. While it has been difficult to make any definitive conclusions about where the labour market is going based on the data from the last few months, the June data suggests that the direction is up rather than down. With both employment growth and participation rising, unemployment rose slightly but that is a sign of an improving labour market outlook rather than the opposite when unemployment rises on the back of a falling participation rate. The official unemployment was 4.1 per cent, a modest rise over the month, but would have actually fallen to 3.9 per cent had the participation rate not risen. Employment growth was stronger and concentrated on full-time work with monthly hours worked rising. As a result, underemployment and broad labour underutilisation fell – another good outcome. But we should not disregard the fact that there is now 10.5 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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Degrowth and Japan – a shift in government strategy towards business failure?

I am briefly in the UK (arrived Tuesday and returning to Melbourne early Friday). We are officially launching our new book – Modern Monetary Theory: Bill and Warren’s Excellent Adventure – later this morning at the UK MMT Conference in Leeds, England. I am avoiding many of the sessions to reduce Covid risk, given the lecture theatres do not seem to have been refitted with modern ventilation. But from what I can see the Conference is well attended and going well. I should add that I had nothing to do with the organisation of the Conference but as usual I thank those who have put time to build an event that focuses on the work that I am part of. Anyway, a whirlwind trip this time. Today, though I reflect on the latest developments in Japan with respect to its ageing and shrinking population and how that impacts on business viability and skill shortages. All part of my research on degrowth strategies.

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Season 2 of our Manga – The Smith Family and their Adventures with Money – available now

Today (July 12, 2024), MMTed releases Episode 1 in the Second Season of our Manga series – The Smith Family and their Adventures with Money. We have spent the last several months developing the storylines and graphics and Season 2 will run from today to December 6, 2024 with episodes appearing on a fortnightly basis.

Have a bit of fun with it while learning Modern Monetary Theory (MMT) and circulate it to those who you think will benefit …

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Special pleading from Japan’s fossil fuel financing megabanks reaches new heights

In our new book – Modern Monetary Theory: Bill and Warren’s Excellent Adventure – which will be launched in the UK next Wednesday, we devote a chapter to what we refer to as the Japanese irony. This relates to the fact that while the conduct of policy in Japan is justified in mainstream terms, the more extreme policy settings that emerge produce outcomes that expose the deficiencies of the mainstream theories. At present, we are observing more examples of this. The latest matter of interest in Japan (from my watch) is the pressure the three megabanks are putting on the Bank of Japan policy makers to push up bond yields and interest rates. There is no reason based in financial stability concerns or community well-being for the Bank of Japan to agree to their demands. They just amount to special pleading from Japan’s fossil fuel financing megabanks for more corporate welfare to boost their profits.

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Central bankers live in a parallel universe

It’s Wednesday, which means a few (sometimes unrelated) items are discussed or analysed. Today, we see that real wages in 16 of the 35 OECD countries are still below the pre-pandemic levels, which tells us among other things that the inflationary pressures were not wage induced. Further, a speech yesterday by the Federal Reserve boss demonstrated quite clearly how central bankers fudged the whole rate hike narrative. And after all that, some music from the 1960s.

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ECB estimates suggest meeting current challenges will be impossible within fiscal rule space

In the recent issue of the ECB Economic Bulletin (issue 4/2024) there was an article – Longer-term challenges for fiscal policy in the euro area – which demonstrates why the common currency and its bevy of fiscal rules and restrictions is incapable of meeting the challenges that humanity and the natural world face in the coming years. The ECB article is very interesting because it pretty clearly articulates the important challenges facing the Member States and provides some rough estimates of what the fiscal implications will be if governments are to move quickly to deal with the threats posed. However, it is clear from the analysis and my own calculations that significant austerity will be required in areas of expenditure not related to these challenges. Given the current political environment in Europe, it is hard to see how such austerity can be imposed and maintained in areas that impact the daily lives of families. What is demonstrated is that the architecture of the EMU is ill-equipped to deal with the problems that Member States now face. The common currency and fiscal rules were never a good idea. But as the challenges mount it is obvious that Europe will have to change its monetary system approach in order to survive.

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