Welcome to The Weekend Quiz, which used to be known as the Saturday Quiz! The quiz tests whether you have been paying attention or not to the blogs I post. See how you go with the following questions. Your results are only known to you and no records are retained.
Regular readers will recall a few of my blogs where I have demonstrated that the US economy is still nowhere near to what one might call full employment, even though that concept is highly contested and can span a range of outcomes depending on the ideological disposition one takes. I have also done some research decomposing the marked decline in the US participation rate since around 2000 into age-related effects and what I call the discouraged worker effects (workers giving up looking for jobs because of the slow employment growth). This week (March 20, 2017), research published by the Federal Reserve Bank of San Francisco bears on this topic –
How Tight Is the U.S. Labor Market? – and they essentially concur with my previous assessments. There work is interesting because it reaches the same conclusion from a variety of methods, which is always a good sign because it means the result is not method-specific. However, there are those who for their own ideological reasons want to argue that the US economy is already at full employment. If they were correct, it would mean the quality of that ‘full employment’ had shifted markedly – lower – as a consequence of the GFC and its aftermath and that the associated underutilisation levels had risen.
Maybe the Australian Government should examine all its contracts with the biggest 121 companies in Australia and cancel them. Perhaps it should, where these companies provide public infrastructure consider setting up not-for-profit public companies to compete against the private 121 (thus lowering prices) and direct all public procurement to these new public institutions. The reason I suggest that is because the Business Council of Australia, which represents the largest companies in Australia (membership equals 121) is demanding the Australian government introduce rather sharp spending cuts or “suffer the consequences”. Okay, a good place to start, might therefore be to cut all public assistance to the companies that are members of the BCA, which would generate huge reductions in government spending. Do you think they would be so aggressive if that was on the table? Not a chance. This is a tawdry lot of corporatists who have had a long history of whingeing about government intervention unless, of course, it is helping grease the profits of their membership. Why the media has given their latest calls for fiscal rectitude the coverage it has reflects on the quality of our media these days.
In 2012, while unemployment and underemployment was still at elevated levels after rising in the early days of the GFC, non-government spending was weak, the external deficit was around 4 per cent of GDP, real GDP growth remained well below its trend in the 5 years before the GFC, and the economy was no-where near full employment, the then Treasurer, Wayne Swan launched into the largest fiscal shift away from deficit in recent history (in the modern era since 1970). He was obsessed with ‘getting the budget back into surplus’ in the following year because somehow he had gleaned from the work of John Maynard Keynes that a responsible government has to pay back deficits with surpluses. The Australian government’s deficit had risen because tax revenue had fallen as a result of the slowdown in activity and because the Government introduced a rather large fiscal stimulus, which saved Australia from going down the recession route that other nations were mired in. Maintaining that deficit or enlarging it with further stimulus is what a responsible government should have done. But Swan, apparently thought that with Europe heading further into the morass (as a result of mindless austerity) that he had to show the world what a good government does – run surpluses. Apparently, he thought the credit rating agencies would close the government down. Apparently, he thought inflation would runaway from its low levels. Apparently, he believed the lie that fiscal deficits pushed up interest rates. Apparently, he didn’t know that introducing fiscal contraction when non-government spending was weak would further slow the economy and damage confidence. All of which happened. Quite obviously he didn’t know a thing. Swan, ever the politician (but in opposition now) is apparently thinking differently – now he is claiming fiscal deficits have to rise to push the economy towards full employment. This chameleon-like performance is rather sickening given the damage he caused when he was actually the Treasurer in charge of fiscal policy and full of neo-liberal lies and confusion.
Life returns to a more normal situation today as I have arrived back in Australia. But I have plenty to catch up on today so to free up some time I am posting the full video of my first presentation in Maastricht (March 6, 2017) as part of the 2017 Joan Muysken lecture.
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, which used to be known as the Saturday Quiz! The quiz tests whether you have been paying attention or not to the blogs I post. See how you go with the following questions. Your results are only known to you and no records are retained.
This analysis is coming from Brussels and the data doesn’t look any better here than it does back in Australia. The situation being revealed is very poor. The latest labour force data released today by the Australian Bureau of Statistics – Labour Force data – for February 2017 shows total employment fell by 6,400 and repeats the behaviour of the last few years where it has been zig-zagging around the zero growth line on a more or less monthly basis. Australia’s status as a part-time employment nation continues, despite a modest rise in full-time employment this month. Over the last 12 months, Australia has lost 23.2 thousand full-time jobs (in net terms) and gained 127.8 thousand part-time jobs. Overall, employment has grown by only 104.6 thousand jobs (net) – a very low annual figure. This status as the nation of part-time employment growth carries many attendant negative consequences – poor income growth, precarious work, lack of skill development etc. The failure of employment to keep pace with the labour force growth saw unemployment rise sharply in February 2017 by 26 thousand and the unemployment rate to rise by 0.2 points to 5.9 per cent. Underemployment also rose sharply by 0.3 points to 8.7 per cent and taken together (unemployment and underemployment) there were 14.6 per cent of the labour force counted as broadly underutilised (1,862.7 thousand). The teenage labour market remains in a poor state and deteriorated further in February. It requires urgent policy intervention. Overall, the Australian labour market is weak and showing no signs of improvement. The poor outlook signals the need for a policy shift biased to expansion. It is clear that the current restrictive fiscal policy position adopted by the Federal government is not sufficient to redress the inadequate non-government spending growth.
Last Tuesday, in Maastricht, I gave one of two lectures I presented in a series (the other was on the previous Monday night). The first lecture, which was public, focused on the Eurozone disaster and I outlined why an orderly breakup of the failed monetary union would be in the best interest of all (I will post video of that lecture next Monday). The next lecture, which was to staff and students only, focused on the failure of macroeconomics and I juxtaposed fake news with the fake knowledge of mainstream macroeconomics. I want to expand a little on that topic. The Wall Street Journal published an article last week (March 6, 2017) – Everything the Market Thinks About Inflation Might Be Wrong – which bears on the validity of Modern Monetary Theory (MMT) relative to mainstream monetary economics. What I would call actual knowledge (MMT) and fake knowledge (mainstream theory). The article is not without its issues but it correctly notes that the underlying basis of orthodox inflation theory is false and fails to explain movements in inflation.
The tiny nation of Malta (~ 420 thousand population) and the only one of two Eurozone nations that have English as one of its official languages is now hosting the EU Presidency for 2017. This was a function that was established by the Treaty of Lisbon in 2009 and allows a nation to influence the European Union’s agenda. As the rules dictate Malta shares this function with two other nations (Netherlands and Slovakia) to form the so-called Trio Presidency. There will be a lot of talk and papers produced and a lot of flags and posters are appearing in Valletta (Malta’s fortress capital) but don’t expect much to come from it. The other thing about 2017 and the EU is that they are celebrating the 60th anniversary of the signing of the Treaty of Rome later this month (signed on March 25, 1957 and operational from January 1, 1958). The European Commission is clearly keen to give the impression that the Treaty of Rome was the first step in the succession of steps that made Europe what it is today. In one sense that is correct. But in a more important sense that claim is nonsense. The reality is that the subsequent revisions of the Treaty (Maastricht and Lisbon) represented fundamental paradigm or ideological shifts in the way Europe was to be governed. The Treaty of Rome recognised that limited economic cooperation could be beneficial to all participating nations as long as it was attenuated or managed by comprehensive system of state intervention. The subsequent treaties represent a shift from the Member States having the capacity to ensure full employment to a situation where the Member States are biased to enforcing austerity and creating persistent and elevated levels of unemployment and poverty at the behest of the ideological masters in the European Commission, who are neither elected by or accountable to the people of Europe they claim to represent. So … why are they celebrating the 60th anniversary of an approach to economic policy making and nation-building that they have now completely rejected?