Latest data – largest quarterly output decline in recorded US history – but Europe is worse

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1. BTW, the Spanish National Institute of Statistics reported that 1.6 million people couldn’t look for jobs because of the lockdown situation. Hence they were classified as inactive and not unemployed. If they had been counted as unemployed the rate would have 20% of the active population, not the officially reported 15%.

2. Bill writes
   “The latest Eurostat data shows the European Union contracted by 11.9 per cent in the second quarter 2020, while the euro area was down 12.1 per cent. Italy shrank by 12.4 per cent and is now the same size as it was in 1993. ”

   But that is misleading. GDP (per quarter) shrinking doesnt mean that the country losing size or the economy. It’s the Flow, the output, which is shrinking. All the production potential build up is still there. So the comparison whith a year in the past seems heavily misleading and shouldnt happen by a proponent of SFC-modelling.

3. You can just about guarantee they will reintroduce their austerity policies early as resistance is futile against the BORG.

   Converge or die.

4. ” It shows that the US economy has declined by 9.49 per cent between the March- and June-quarters. On an annual basis the decline was 9.54 per cent.” This confuses me. Are you referencing Year over Year declines? A quarterly decline of 9.54%, if carried out through the year, translates into an annual decline of 27.5% even if the first quarter was zero. Then later on this: “Real gross domestic product (GDP) decreased at an annual rate of 32.9 percent in the second quarter of 2020, according to the “advance” estimate released by the Bureau of Economic Analysis. In the first quarter of 2020, real GDP decreased 5.0 percent.” I get that x4 gives a more stark headline and all, but I’m still confused about the figures. If first quarter declined by 5% and then the second quarter declined further by 9.49%, then the annual quarter projected out would be X2, or 29.08%. Anyway, I’ll just go with the reality that whatever the declines are, it’s a disaster!

5. As a construction worker I experience the changing attitudes towards investment every day on the job. A seemingly large amount of investors and their money are still trying to force construction projects through, everyday there are large starts that stutter to stops, yet they keep trying. The general contractor companies would love a “don’t ask, don’t tell” policy about illness among workers withmany people desperate to work, but right now the threat of legal liabilities forces them to follow through and shut jobs down (these are large projects). I know many workers laboring under an imagined future they are trying to make happen and would rather be dead than not working. If Mitch McConnell gets the proposed protection from liability for companies and employers there will be a large jump in construction investment and output, along with a jump in cases (though many will not be reported) and probably deaths. The carrot needs to be removed so the lash of the whip will be felt.

6. “Capitalism is now on state life support. The ‘market’ will not provide the cure.” It is only a matter of time (and suffering) before the people make the decision to pull the plug on the machinery of capital-controlled government that is infusing fiat money to keep capitalism alive. Instead of perpetuating the capitalist coma, this fiat money must be redirected to support life itself, to restore the health of people and planet. And no, “the market” cannot do this; only the people can. The view through the MMT lens shows that this redirection of fiat money is THE life-and-death issue that dwarfs all others. The coming Covid Depression will provide the context in which this single, vital issue can be politicized in the positive sense of entering public awareness and creating consensus around the elemental agenda of survival. Thus, I submit, more than ever in recent memory, there is reason right now, as the darkness sets in, to hope.

7. Willy love your explanation how Libertarian based market economies self-equilibrate through cheating!

8. I admire your optimism, Newton. It will not be easy, as I’m sure you know.

   I’ve enjoyed reading through the posts on Bill’s blog. It’s been a long time since I read Frank Livesey’s textbook at high school – but it wasn’t long before I realised just how redundant these teachings were.

   I graduated in 1983 – just as Thatcher came to power and deregulated finance. My first house was a five bedroomed detached Victorian villa that cost £70K – way beyond what my parents or grandparents could ever have dreamt of owning. Everything seemed so easy. Money was plentiful.

   But every now and again, the bubble burst. Nigel; Lawson and the ERM was my first experience – but there were other shocks, of course.

   9/11 and the GFC. Much of the last decade has been a rolling crisis – particularly since Brexit and Trump – and I don’t know about you, but by Christmas last year it was pretty obvious that the powder keg was about to erupt again.

   Why?

   Take a step back for a moment. What Bill et al. have done is to seek a rational explanation for what governments and central banks do with money in relation to their economic framework. Including the creation of money under the fiat currency principles.

   For most people in the world, understanding what that means would be a paradigm shift – for good reason. A light-bulb moment indeed.

   As economists – once you’ve gained that enlightenment, there has been an explosion of positive and productive ideas – and that’s most commendable. Bill’s suggestion with the JG is a fine example – but there are other’s too. It’s heartening to see a quality discussion stimulated by a simple focus.

   Many of the ideas and proposals I’ve read here are worth consideration – they have an underlying goodness – a clear focus to the importance of the collective; the preserve this place for the benefit of all who come after us. Dreamers and organisers – it’s been a joy to read.

   However, I feel you underestimate the challenge ahead.

   By your very observations, money supply and creation has been pretty much unlimited for many countries over the past two(?) decades. I suspect if we truly knew how much money has been created by governments and banks, we’d be completely flabbergasted. Is there a figure above a Trillion yet?

   As economists, you might think governments would be taxing their citizens to an extraordinary degree just to sift some of the cash back out to prevent inflation – but that has never happened. Instead we have the off-shore banking system to conveniently hide the cash instead. It serves a purpose, I guess – but only if you understand human nature, as I’m sure Warren Mosler would agree.

   So, beyond the hermetically sealed national economies – where you practice your progressive fiscal policies, there is a huge elephant in the room sitting atop an enormous drain. It’s called the “Other World”. Here live the true “Masters of the Universe”.

   This is the world we have to conquer, if there is to be any hope for humanity, as we know it could be.

   It’s as if we’ve discovered the Magic Money Tree in our adolescence and behaved accordingly. Suddenly we’re near retirement and have to change course – urgently, but it isn’t easy.

   Bill devotes much writing to Japan. What an interesting journey – particularly the relationship between the Ministry of Finance and the Central Bank of Japan. Whilst they were both consumed by each other – behind the scenes, in the ‘other world’, currency traders, vulture funds, speculators – were waiting to pounce.

   Just like every other crisis.

   As Central Banker, Masaaki Shirakawa, noted:

   “It is not easy to change the institutional framework and promote structural reform, since it necessarily involves the vested interests of all the related economic agents.”

   Yutaka Yamaguchi, a deputy governor of the Bank of Japan remarked:

   “The Bank of Japan had faced the big dilemma, that monetary easing would produce the mitigation of immediate risks, which in turn, would result in a delaying adopting ultimate solutions.”

   The examples of the Japanese and Asian crises illustrate how crises can be engineered to facilitate the redistribution of economic ownership and to implement legal, structural and political change.

   But by whom and why?

   The solutions offered here are dependant on individual countries using their own powers of money creation with a fiat currency and practising the principles espoused by Bill et al. with specific goals of full employment and a green, sustainable economy.

   Most admirable. But our governments are only middle managers – it’s the board and chairman that dictate the ultimate policy and they will likely also have the same objectives as Bill et al. Only their methodology is radically different. And callously brutal.

   We’re all desperately trying to solve the impossible, but only because we’re looking in the wrong direction.

   Newton, fellow contributors – and Bill. It’s been a pleasure reading your thoughts. I wish you all the very best in the days and months ahead.

   Nae Pasaran!

9. One other thing. Be careful, Bill. What you’re doing here is lifting a tightly closed lid and exposing a squalid, disgusting world – but a dangerous one nonetheless. You’re fellow countryman – Julian Assange is experiencing the most horrid torture for exposing secrecy and corruption. What you are doing is on another scale, altogether.

   Remember the Joe South song.

   Great ideas. If you’d like a hand to put them in place, please let me know. You’ll need all the help that you can muster.

   All the best.

10. I believe this short essay of mine addresses some central issues of thes times. It definitely draws on MMT as well as on influences from Marx, Veblen and CasP theory (Capital as Power).

    DIFFERENT CRISIS – SAME SYSTEM.

    “GDP measures only the flow of currency through the production-and-consumption economy.” – Ed Zimmer.

    Currency is notional not real. The corollary of Ed Zimmer’s statement is: “GDP measures nothing real.” GDP measures the flow of the notional numéraire. The numéraire (money) measures the social-fictive and market-mediated dimension of “value” in the floating base unit of the numéraire, usually dollars. In reality, the only way to accurately measure anything objectively real is to measure it in a scientific dimension and to use a rigorously defined and fixed base unit. (See the SI (International System of Units) table for the scientifc dimensions and base uniis.)

    The above argument does not state that money is unusable. Clearly, it is usable. We have the empirical proof that it is established and produced by state fiat and is used by people for purchases and trades of goods and services, including labor services, in our extant political economy system. This kind of reality of money, its use in exchanges, is a constructed and extensive, processual, complex-system and sociopolitical fact in modern economies.

    Leaving aside the ontological “value mistake” in microeconomics, the scientific mistake in macroeconomics and national accounts is to assume that numéraire amounts can be used used to aggregate unlike things in the (fictitious) dimension of “value”. Collections of objects and processes may only be validly aggregated in the same dimension. In turn, the base unit for measuring in the aggregation dimension must be scientifically objective, reliable and stable. Money is none of those things. (See Blair Fix – “The Aggregation Problem – Implications for Ecological and Biophysical Economics.)

    What does this mistake of aggregating in money (as in GDP calculations) mean in practice? While it is pragmatically possible to use money for trade and exchanges, it is not scientifically valid to aggregate in the money “dimension” to get a true picture of the overall real economy system or to get a true picture of the effect of the real economy system on the surrounding real systems of ecology and biosphere. The only way to get a true picture in those arenas is to measure real things in real dimensions and categories and do so scientifically. This alerts us to the true nature of GDP and other macroeconomic numbers. They are tools of propaganda and control and nothing more. They are among the prime tools of the capitalist system. If any non-objective or concocted “picture” is used to “inform” people then the only true purpose can be indoctrination and control. These GDP numbers and national account numbers are used to justify decisions and to lend authority to edict, not to make decisions.

    The political economy system of capitalism makes a priori assumptions and decisions on other criteria and then uses macroeconomic numbers to justify the decisions. That the decisions precede the number calculations is clearly demonstrable by real examples. Conditions of war and of civil crisis demonstrate this fact most clearly. These are conditions where, as in the Wizard of Oz, we see the curtain of “good governance” and “fiscal responsibility” twitched aside to reveal the true sequence in which the levers of power governance and fiscal governance are pulled. The political power lever is pulled first. The fiscal lever is pulled afterwards to ring up the necessary concocted numbers to justify the decision.

    There are clear examples of this from recent Australian history. One example occurred when Australia was embroiled, in a somewhat token manner, in the Middle Eastern Wars in an effort to ingratiate itself with its ally and master, the USA. At the time in question, the low level of unemployment payments in Australia was a political issue and indeed it had been a perennial issue. The government’s line was that it had to balance the budget. No extra funds could be found for unemployment benefits or other social issues for that matter. Then, the USA put pressure on Australia. We were not doing enough in the War on the Arabic Peoples, otherwise known as the “War on Terror”. Suddenly, our government found $500 million extra Australian dollars to fly missions and drop bombs in the Middle East using our small but relatively high-tech Air Force.

    The next clear example comes from the COVID-19 pandemic and we will all be able to relate to this. Once again, pre-pandemic, the goal was a balanced budget and no government debt. No monies (and thence no real resources) were available to lift the miserable rate of unemployment benefit or improve other social programs. Suddenly, when faced with economic and societal breakdown due to closures necessarily enforced to deal with the dangerous pandemic, the dollars were found (electronically “printed”) to pay “jobseeker” (a much raised unemployment benefit) and “jobkeeper” (a benefit really paid to employers to help keep people on). We can note that business people (big firms and small petite bourgeois owned firms alike) are in favor of subsidy dollars when they flow through them.

    The point is that the flows of the real resources, real goods and real services of the nation can be adjusted, by political fiat, in times of crisis existential or political, to any level and in any direction at political will, within the parameters of what is possible in the real and machtpolitik (power politics) spheres alone. Consent of the people is sometimes preferred but not absolutely necessary. Money has nothing to do with the decisions or the feasibility of the decisions. It only has to do with facilitating exchanges necessary to implement the decisions. In this sense, money is logistics consequential on government strategic command and control; simply part of the delivery system of decisions for all that is usually – or suddenly and in a new fashion – declared within the ambit of government fiat.

    There is no reason that radical changes to the flows of real resources, real goods and real services of the nation should be limited to war and pandemic crises. Many enduring social ills have festered and become chronic under the rule of neoliberal or late stage capitalism. There is no reason not to make radical changes to solve these chronic ills and then keep these radical changes in place more or less permanently.

    Managing the economy and the environment must be made subject to science for production and impact options (using the production and impact sciences) and then made subject to democratic and ethical decision making for the choices from scientifically feasible and ethically defensible options. Thence decisions must be made as to what real resources are available, what the priorities are and where the real resources are to be deployed. This must all be done at the statist, dirigist and command level. In crucial matters (like halting climate change) we do need to institute new command economy elements. A command economy in a democracy is not the same sociopolitically as a command economy in an authoritarian state. If one holds the view that there are the same then one must hold the view that both sides of WW2 were morally indistinguishable, as they both ran command war economies, and that for the post-WW2 era it would have made no practical difference for human rights who won war.

    Advances in science, technology, computing power and data gathering capacity now make it possible for a command economy system, using accurate data about real parameters (not notional numéraire data about fictive values unrelated to science or ethics) to plan the essential real aspects of the economy and to meet real human and ecological needs. and to do this for the very purposes of civilizational and existential survival. Again, if one’s thinking recoils from this conclusion, it means essentially one is rejecting the possibility of democratic command of the economy and ceding that command to cartels of oligopolistic corporations under ever-increasing conditions of corporate monopolization of the global economy.

    One would be acquiescing and acceding to corporate dictatorship as the rising corporate monopolies take over more and more of the world economy. The power vacuum left by ceding democratic command and control via neoliberalism and minarchism is being filled by the corporate capitalist governance of the world. It is under that system that the real power decisions are already being made behind the cloak and veil of money. It is under their aegis that the common people and the entire biosphere environment are being destroyed. Money is propagandistically reified as the highest “reality” which logically and imperatively justifies the diktats of corporate capital.

    Money is properly a tool of the exchange system and nothing more. It is not a measure of “value”, nor a measure of anything at the macro real levels, nor a decision metric useful for managing real systems. Any decision for the command, control and management of society by capital, as cover and control, is a decision for corporate capitalist dictatorship.

11. Newton,

    “”Capitalism is now on state life support. The ‘market’ will not provide the cure.”

    And I suspect the mainstream and their boosters now believe this too, given the pandemic caused economic crisis.

    I was surprised that Bill and Noel Pearson were able to publish their JGS manifestos in the Murdoch press in Australia. I am beginning to think that Murdoch and the like now can see monetary policy is useless and that the only way to bail out and save capitalism’s skin is for fiscal policy to take the running. This is the only way I can rationalize the Murdoch press promoting MMT after spending decades promoting the mainstream government spending, deficit and debt mythologies.

12. Private debt level is higher than GFC.

    What a dumpster fire.

13. Debt is not real. Real systems are real: real economy, real environment, real people. When things are going wrong in the real systems then you really are in trouble. Debt can be cancelled. This can even be done in ways that minimize real harm to the real systems mentioned above.

    https://www.theguardian.com/business/2020/aug/03/global-debt-crisis-relief-coronavirus-pandemic

14. The graph on contribution to US growth of various government levels does not match the analysis. It’s only state and local governments that actually decreased whereas every other sector shows an increased contribution in the current quarter relative to the previous.

15. Ikonoclast: Nice essay. Many important observations. One that especially struck me: “Advances in science, technology, computing power and data gathering capacity now make it possible for a command economy system, using accurate data about real parameters (not notional numéraire data about fictive values unrelated to science or ethics) to plan the essential real aspects of the economy and to meet real human and ecological needs. and to do this for the very purposes of civilizational and existential survival.” Couldn’t agree more. We’ve reached a point where we can plan, coordinate, and operate a viable, humane, and ecologically-sensitive economy–a way of living together as full human beings–that makes the so-called free market look primitive and pathological. Many see this fact but let the possibility of achieving it go with a sigh, seeing it as a pipe dream up against insurmountable forces. Yet others like Bill and those of us who converse here simply refuse to let that neoliberal bitch called TINA have the last word.

16. Ikonoclast:
    A relief to read. We cannot let the suborned administrators of our nations and cultures determine what is real. For example, population growth is officially not a component of the climate emergency. The USA is will succeed in “conquest of space” despite the problem of “conquering” neutron stars at 10 million tons per teaspoon, and share prices on north american markets is an indicator of value. The only sensible form of discourse we can retreat to and depend upon is a loosely scientific one.
    Somebody has to devise a reality filter. The bulb on my BS warning device has been flashing for decades and it and I are fatigued. Thank you, and thanks for this site and its commentators.

17. @Iconclast

    “There is no reason that radical changes to the flows of real resources, real goods and real services of the nation should be limited to war and pandemic crises.”

    Of course, there are reasons. During the postwar period, most OECD countries and also others had economic policies that kept unemployment low.
    But this also resulted in a stronger market position for the working class, they got a larger part of productivity growth than top end of town.
    We cannot have it like that? That those who “deserve” get less?

    But It was also war/pandemic times, the top end of town was afraid of the commie pandemic. Afterall Soviet had shown a significant endurance and industrial capacity in WWII.
    Better to keep the working class “happy” or they might go commie.
    So, when the enemy was defeated economic order was back to “normal”.

    Of course, we should avoid the financialized GDP gobbledygook and focus on the real economy, what is and can be produced with available real resources. And is it necessary and without negative side effects.
    With almost 8 billion on the planet and growing we have to household with real natural resources.

    Globally population has grown from 2.5 billion 1950 to almost 8 billion now, +220 %. Europe did grow with +36%, considered a demographic if not disaster but a big problem. What number had been the “right”? 220 %? And 1.8 billion in Europe.
    Permanent population growth is impossible.
    The global +220 % growth, mainly Asia and Africa will create an enormous aging population problem if they don’t keep up population growth. +36 % are nothing compared to that.

18. Another thing is food production, in Sweden now a mantra is that we just produce 50 % of what we eat. That does not consider how much food we export and are a purely economic calculation. If one calculates in total tons and calories the possible food supply picture is significantly different. We are not dependent on imported lettuce, kiwis and so on for our nutrition, even if oranges and bananas are nice to have.
    The real dependence is on diesel and energy consuming artificial fertilizers.