Mainstream macroeconomics textbooks do not impart knowledge

I have spent most of today working on a Chapter for the upcoming macroeconomics textbook that I am writing with Randy Wray (UMKC). It is a difficult task getting the balance between the content and the pedagogy more or less correct. One has to be interesting but not simplify to the point of distraction. Moreover one has to seek to impart knowledge. Which then takes one down the epistemological path as to what constitutes knowledge. How much simplification is too much? How much abstract modelling is feasible? Questions like that. But an overriding objective is to ensure that students who are using the book receive an education which means they should expand their critical faculties based on an expansion of knowledge. One of the worst aspects of my profession is that the vast majority of textbooks that students are forced to learn from do not advance these objectives. Whatever else one might conclude about their presentation etc, they mostly can be reduced to being considered as propaganda instruments. Most of them tell outright lies about the way the monetary system operates. The current crisis and the unusual policy interventions (particularly those employed by the central banks) have brought these lies into stark relief. We can conclude that mainstream macroeconomics textbooks do not impart knowledge they are dogma.

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If a government won’t create jobs, it must provide income support

You can sense the fear in people’s lives at present as the economic crisis seems to be worsening and various so-called opinion leaders are telling us we are in danger of lapsing into a depression like the 1930s unless there is drastic action taken by governments. For example, the IMF’s latest salvo. Then you hear them say that the action necessary is more fiscal austerity. And you know it will definitely get worse. My own superannuation fund sent us letters last week suggesting that they are in danger of being unable to meet their liabilities and benefits – current and future – will likely be cut. How much? Fear tells us a lot. Action: all those retiring will take lump-sums and invest in cash – eliminating the risk but solidifying the cuts and – further undermining the viability of the fund. That what is happening everywhere. A moment’s reflection tells us that this fear is being deliberately created by the elites who are elected by us to advance our best interests. These elites are using fear – and deliberately perpetuating falsehoods to keep us ignorant – in order to usurp democracy and take control of the wealth creation processes so they can tilt the field further in their favour. This crisis could be over in a few weeks or months with appropriate policy interventions. It has now dragged on for years. That is because it is taking the elites that long to organise their on-going coup.

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How’s poor old Ireland, and how does she stand?

Last Friday (December 16, 2011), Ireland’s Central Statistics Office published their – National Accounts – for the September quarter 2011 and guess what? Things just became worse. Ireland is now nearly two years in the enforced austerity and all the deficit terrorists have been watching it closely for signs of life. The slightest upturn in GDP growth has brought a salvo of attacks on any one daring to oppose the harsh austerity. Well, I also watch it closely and the pattern that is unfolding is consistent with predictions. Things are getting worse not better. The only growth “engine” has been exports and with austerity spreading that market will not be strong enough to sustain growth when domestic demand is being ravaged by austerity.

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Saturday Quiz – December 17, 2011 – 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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Australian industry employment trends and fiscal stimulus

I am continually distracted by the daily entertainment from Europe – who could have written such a script? – bumbling from one disastrous “solution” to another, accusing each other of various sins, trying to rope Britain into their incompetence (although the latter doesn’t need any help in that department) etc. But the comedy ends as soon as the human element is considered. How long the citizens will remain docile is the big question. I had an interesting meeting the other day about a joint research project I am becoming involved in which will encompass that sort of enquiry including what has happened to the “left”. Anyway, today’s blog is a bit more pedestrian. I have been asked a lot recently by journalists and radio interviewers about the flat employment growth in Australia at present in the context of our so-called “once-in-a-hundred-years” mining boom. The mining industry has been so successful at self-promotion that people forget it only accounts for 2.1 per cent of total employment (a minuscule proportion). Anyway, the ABS released the detailed quarterly employment data for November 2011 yesterday which contains industry breakdowns. So I went digging this morning to bring my analysis up to date. Lesson: fiscal stimulus works and the Australia labour market is changing.

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UK labour market – when “stabilising” means outright deterioration

The British Office of National Statistics released their Labour Market Statistics for December 2011 yesterday and it showed that employment continues to collapse in the UK and unemployment rises. I was at the airport this morning and heard a commentator invoke the words of Albert Einstein. They are very apt in this current economic climate – “The significant problems we face cannot be solved at the same level of thinking we were at when we created them”. The British Employment Minister gets empirical evidence that the Government’s economic strategy is causing massive damage to the economy (who would have thought) and told us that the collapse in employment and vacancies, the rise in unemployment and the record levels of youth unemployment are signs that the “labour market is stabilising”. The UK nor Europe nor anywhere will get out of this mess using the sort of thinking that created the crisis in the first place. Until we work that out and attack this political evil millions are heading for poverty.

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100 per cent forecast errors are acceptable to the IMF

Imagine you had a headache and some economist tells you that you can cure the headache by bashing your head against a wall. So you duly bash your head against the nearest brick wall and not only does it hurt (perhaps drawing blood depending on the severity of the blow) but you note the headache is now worse. The economist then concludes you didn’t bash your head hard enough and instructs you to stick to the “rule” and give it another try – only this time go harder. Blood is now flowing, the head is traumatised and the headache gets even more unbearable. Welcome to Greece which is being bullied by the Troika (EU, ECB and the IMF) in a similar way. The latest IMF medium-term forecasts for Greece reveal a staggering failure by that institution to understand causality and the impacts that their austerity programs have on real economies. Without a blush, the IMF presented the world yesterday with revised forecasts for Greece which reveal their previous forecasts will be around 100 per cent wrong over just over a 6-month horizon. That sort of error is beyond any accepted professional standards. The IMF’s response – bash your head even harder.

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When markets fail

A repeating narrative during this crisis is that fiscal austerity is required in order to satisfy the “markets”, that amorphous collective of bond traders, gamblers, speculators, crooks and whatever else. The regular threats coming from the ratings agencies (those crooks who lied to investors in order to make profits via cosy deals with the originators of the “assets”) reinforce the idea that markets are the “regulators” of good judgement. Economics students are taught that one of the imperatives of government is to deregulate in order to allow the market signals to be clear and strong so we can act in accordance with the “markets” judgement of prudence. It is a paradigm built on a myth. Markets fail and easily become corrupted and arenas where criminals dominate. The signals they send are also deeply flawed and should not be acted upon. One of the lessons of this crisis is that our agents – the governments we elect – have to make markets work for us not the other way around. When markets fail to establish benchmarks that we do not consider to be in our best interests then it is time to reform them.

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It became necessary to destroy Europe to save it

The message to be drawn from this blog is that the dithering Euro bosses have done it again. Amidst all the bluster about stability and moving forward together all they have done last week (at the EU Summit) was further undermine the prospects of their region. The new rules that have seemingly been agreed upon will not be achievable and will generate even more financial instability as growth deteriorates further. In early 1968, amidst all the lunacy of the Vietnam War, an American general told a New Zealand reporter that the US decision to bomb a town full of civilians into oblivion was based on the logic that “It became necessary to destroy the town to save it”. Last week’s (December 9, 2011) – Statement by the Euro area Heads of State or Government – invokes that sort of logic except in this case the brutality is of a different degree and style. Neither action was justified in the circumstances that the decision-makers faced.

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