Its the Friday lay day blog – and we will be brief today. There was a proposal aired in the ABC’s The Drum series (March 26, 2015) by an ABC finance journalist suggesting that – Maybe we need to subcontract the budget process. My response was “why don’t we just subcontract out democracy to a dictator and be done with it”!
On Tuesday (March 24, 2015), the European Court of Auditors, which is the EU’s independent external auditor and aims to improve “EU financial management”, released a major report – EU Youth Guarantee: first steps taken but implementation risks ahead (3 mb). The Report reflects on the experience of the program which was introduced in April 2013. When the European Commission proposed the initiative I wrote that it was underfunded, poorly focused (on supply rather than demand – that is, job creation) and would fail within an overwhelming austerity environment. The Audit Report is more diplomatic as you would expect but comes up with findings that are not inconsistent with my initial assessment in 2012.
Recall back to the worst part of the GFC when the Australian government announced a relatively large fiscal intervention in late 2008, we had a swathe of financial market commentators predicting the worst. This article (published July 11, 2009) – Alarming debt bomb is ticking – was representative of the hysteria that the public was confronted with. We read about “a nearly saturated bond market” and the ticking time bomb of government debt. Apparently, the Australian government was soon to run out of money and would not be able to fund itself. There were predictions of a “failed auction, when there are insufficient bids from authorised dealers to cover the volume of bonds offered”. The intent of all these sorts of articles were to put public pressure on the government to impose austerity (but leave any handouts to the corporate sector) intact. Some five years later, the fiscal deficit is still rising. Yesterday (March 24, 2015), the Australian Office of Financial Management (AOFM), which issues and manages Federal government debt, issued its latest press release – Pricing of New June 2035 Treasury Bond. I wonder when all the retractions are going to come from the financial market commentators, the Treasurer and a range of academics who were claiming there was a calamity approaching. Amazing really. Read on.
There were regional elections in the autonomous community of Andalusia (Spain) over the weekend which saw the Spanish Socialist Workers’ Party (PSOE) hold onto power. The results showed that the left-wing political party – Podemos – which received nearly 8 per cent of the Spanish vote (5 seats) at the European Parliament elections in May 2014, was third in the Anadulusian election, gaining 15 of the 109 seats. The parallels with Syriza in Greece are now routinely being made. I am forming the view, however, that unless things change rather dramatically in Greece, Syriza may actually end up only undermining progressive agendas in Europe as they self-destruct under the iron fist of the Troika (I do not use the terms “the institutions” or the “Brussels Group”). This is of great interest to me at present because I am sketching out a 2016 book project at present with a co-author, which broadly focuses on the demise of the left and social democratic movements in the World, although we might pare the scope down with more discussion to concentrate on Europe. Of particular interest is the morbid inferiority of the French left relative to the Germans in the Post World War II period and the way in which American Monetarism has infiltrated and built on that inferiority. Much of the design of the monetary union can be understood through that sort of lens. So a broad canvas right now but that is always the case. Of immediate interest, though, is the possibility that Syriza will set progressive causes back rather than become the spearhead for a sweeping change in Europe and the end of this destructive era of neo-liberalism.
The so-called ‘Informal European Council’ released a document on February 12, 2015 – Preparing for Next Steps on Better Economic Governance in the Euro Area: Analytical Note – which has been used as a background paper to batter the Greeks into submission in the latest round of the Eurozone crisis. It was published under the authorshop of Jean-Claude Juncker (President of the European Commission) with “close cooperation” with Donald Tusk (President of the European Council), Jeroen Dijsselbloem (President of the Eurogroup of Finance Ministers) and Mario Draghi (ECB boss). All that is missing is the Madame from the IMF to complete the Troika. This is a very dishonest document, deliberately framed to advance the austerity agenda and damage the living standards of some of the nations within the monetary union. It is hard how any serious economist would put their name to this sort of analysis.
Here are the answers with discussion for yesterday’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 Billy Blog Saturday Quiz. The quiz tests whether you have been paying attention over the last seven days. See how you go with the following questions. Your results are only known to you and no records are retained.
Its my Friday lay day blog. The aim is to write less here and more elsewhere. I don’t always succeed. Today I have a day full of meetings. One was with the Australian Productivity Council about the viability of establishing a majority-Australian owned motor car industry. I will have more to say about this on another day but the idea is interesting if not compelling. I noted the faked fake is a fake (‘Fingergate’). The tension in Brussels is rising and the position appears to be unchanged. The hardliners lecturing Greece about the need for more reforms. The Greeks claiming they will not reimpose austerity even though they currently are. And it is all leading in one of two directions – capitulation of exit. But closer to homefor a while. The press are zeroing in of the offensive barbs about Holocausts and Goebbels that our Prime Minister keeps using to slur his political opponents, which really, despite all the mock shock and hurt from the recipients, only serve to slur the deliverer and make him look like an idiot. But his other ‘foot-in-the-mouth’ moment came on March 10, 2015, when the Prime Minister, in an attempt to make himself look tough to shore up his waning political support, claimed that indigenous Australians were making “lifestyle choices” by residing in remote communities and live on income support. He was supporting the West Australian state government’s decision to ‘close’ down 150 remote communities and force the residents into larger settlements to ‘save money’. The policy is wrong at the most elemental level and reveals not only an ignorance about economics but also a total lack of understanding of the cultural and anthropological history of our nation.
The British Chancellor George Osborne told the British people during his fiscal presentation yesterday that the “The sun is starting to shine – and we are fixing the roof”, which was code for the age of austerity is over. The problem with that narrative is that the sun over Britain is pretty weak, has been shining since 2012 when the British government deferred its austerity push when the nascent economic recovery it inherited tanked after its first fiscal exercise in June 2010. The strategy then was clear – they kept the fiscal deficit at relatively high levels (even if some of the shifting of expenditures etc cause inequities and undermines the prosperity of certain cohorts). Those deficits have supported growth over the last several years. But growth has also come from the stimulus the government gave to the housing sector (not the construction of houses but the churning of existing stock) in the 2012 and 2013 Fiscal Statements (aka the ‘Budget’). That growth strategy is ephemeral because the household sector can only absorb so much extra debt given its already highly indebted state. Overall, the fiscal narrative in Britain put out by the Conservatives is a lie. They have not created a nation of “Makers” and growth has not come from austerity. If you want to see what austerity does just look across the Channel to Italy, France, and, of course Greece. The UK has not demonstrated that austerity is a stimulus to growth.
Its sad when politicians lie just to get political points as they face declining popularity. We saw last week that the Australian Prime Minister started attacking indigenous Australians for living in areas that they have occupied, one way or another, for somewhere up to 80,000 years. He claimed these settlements were “lifestyle” choices and people could no longer expect government support if they wanted to indulge in such choices. 80,000 years for a culture that has a deep connection with the ‘land’ is quite story compared to the Anglo settlement in Australia of 226 years for a culture that connects via iPhones! The PM was playing into the hands of the racist Australians who think the indigenous population here are skivers and drunks and should get no state support. They ignore that this cohort is one of the most disadvantaged peoples of the World. In the last few days, the PM has been lying about the state of government finances and pledging to that “the government will have the budget back in balance within five years”. There was no mention of what this might imply for the real economy. I am surprised that the conservatives haven’t learned from the previous Labor Government who made continual promises of surpluses but failed each time – largely because they didn’t understand that they cannot control the fiscal outcomes no matter how hard they try. And when they do try and run against the spending desires of the non-government sector, they just cause havoc and damage and fail to achieve their goals anyway. Stupid is not the word for these sorts of promises.