When you’ve got friends like this … Part 3

Today is a continuation of the theme developed in these past blogs – The enemies from within and When you’ve got friends like this … Part 1 and When you’ve got friends like this … Part 2 – which focuses on how limiting the so-called progressive policy input has become. One could characterise it as submissive and defeatist. But the main thing I find problematic is that its compliance is based on faulty understandings of the way the monetary system operates and the opportunities that a sovereign government has to advance well-being. Progressives today seem to be falling for the myth that the financial markets are now the de facto governments of our nations and what they want they should get. It becomes a self-reinforcing perspective and will only deepen the malaise facing the world.

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Robin Hood was a thief not a saviour

I quite liked Robin Hood on TV when I was young. After each episode, there were famous sword duals in backyards, with usually some oppressive older brother playing the role of the sheriff and the youngest least defenceless kids were “his men”. The rest of us were the outlaws and we hid in bushes and sharpened dangerous bits of wood and fired them from powerful home made bows at the oppressors. Mothers had first-aid kits constantly in use. Neighbourhood girls were usually attracted to the outlaws which was always a useful by-product that the sheriff and his “men” seemed to overlook, although most of the “men” were too young to gauge the significance of this. Yes, 1960s suburban Australia. Anyway, Robin is back in town but this time some do-gooders are invoking his name to solve the problems of the world. However, none of their “solutions” are viable and are based on faulty understandings of the way monetary systems operate.

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Operation twist – then and now

A number of readers have asked me to clarify what I mean when I say that the central bank can control the yield curve at all maturities. This came up again when Marshall Auerback commented that the 1961 Operation Twist exercise in the US provides a model for central bank policy options. In 1961, the US Federal Reserve attempted to flatten the yield curve to bring down long-term rates for an economy that was mired in recession, yet at the same time, push short-term rates up to deal with a balance of payments crisis. The fixed exchange rate system meant they were losing gold reserves and desired to stop that drain. It is an interesting story though as to what happened and whether it has implications for the present. As you will see, the fact is that the central bank can control the yield curve and eliminate the influence of the bond markets if it chooses. The only reason it doesn’t do this is ideological.

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Another economics department to close

Today I decided that there is another macroeconomics research unit that needs to be closed down. My decision was reached after I read the latest paper from the Bank of International Settlements – The future of public debt: prospects and implications – which confirms that the Monetary and Economic Department of that organisation is publishing deficit terrorist literature. The paper is so bad that I am sorry I read it. I may avoid BIS publications altogether in the future. But if I apply that reasoning I am going to be back to reading Stieg Larsson novels and there are only three of them and I have already read them!

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EMU posturing provides no durable solution

Today I have been looking over documents from the EMU which emerged from last week’s summit in Brussels. Within the plush environs of their meeting halls and probably over very sumptuous dinners the best they could come up with was a half-baked plan to stop the daily headlines which have been indicating impending Greek default. Such a default would damage the Eurozone monetary system and probably show the way for other nations, which are being similarly bullied by the EU bosses into impoverishing their nations. Given some reporting today they may have succeeded … in stopping the headlines … for the moment. But the approach of the EMU leaders will do nothing to address the fundamental structural flaws in the their whole system. With the prospect of an extended period of austerity throughout the zone, they are really just making it more certain that the next major global downturn sinks them for good. That is, if social instability doesn’t do it beforehand.

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Saturday Quiz – March 27, 2010 – answers and discussion

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.

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The US should have universal public health care

I have been resisting writing about the US health care fiasco because frankly the whole debate is a fiasco and demonstrates the ability of mainstream economics to obscure a widespread understanding of how the monetary system operates and the opportunities that system provides a currency-issuing government. But I have had more E-mails on this topic over the last few weeks than most other issues (bar EMU). Most readers want some analysis from a Modern Monetary Theory (MMT) perspective and so here it is. If only to stop the E-mails.

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The bullies and the bullied

The events continue to get more strange in the Eurozone by the day. Yesterday, Portugal was downgraded, which will worsen their situation, despite the rating agency claiming that the fiscal austerity plan in place was credible. Tomorrow, European leaders meet in Brussels but the German leader doesn’t even want the crisis on the agenda. The Germans only want to discuss imposing even tougher restrictions on the ability of governments to govern in the interest of their citizens. It is like a B-grade horror movie script. But all the intrigues that are playing out in the Eurozone at present demonstrate (albeit tragically so) the dynamics that led to the collapse of the fixed exchange rate system (the Bretton Woods arrangement). Same old story – bullies and the bullied. It means the only viable solution is to abandon the EMU as soon as possible and restore some sanity … and democracy.

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Protect your workers for the sake of the nation

I am currently researching the way in which the labour market functions to discipline the inflationary process has fundamentally changed over the last 20 years as underemployment has risen. I will have more to say on that at another time as the work advances. But today it led me into considering research that demonstrates that different employment protection (higher dismissal costs etc) standards across the EMU have been instrumental in explaining the differentials in unemployment that are now evident. So nations with more protection have fared better in the crisis than nations which more vigorously pursued the neo-liberal flexibility agenda (that is, creating rising proportions of precarious employment). This type of research puts the debate now raging in the Eurozone that nations have to adjust by drastically cutting wages and conditions into a different light.

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