British GDP growth depends on the current fiscal position – a fact that is being forgotten

It seems that since they were elected British Labour, principally the Leader and Chancellor, have thought it necessary to put out ever increasing messages of doom and the need for tough fiscal action – aka austerity – despite them claiming when they were wooing the electorate that they would not pursue that ‘Tory’ option. Of course, they pulled the old stunt that once they were in office and had access to the ‘books’ they discovered, surprise surprise, that the state of government finances were even worse than they had imagined and that meant it was all to play for, which justified them taking tougher than planned actions. Every week passes since, it seems, when the tough talk gets tougher and core promises are abandoned. Tory policies that are the anathema of a progressive policy stance – such as the two-child benefit cap – will remain. And other Tory policies that were more ‘Labour like’ in nature will go – such as the Winter Fuel Payment received subsidy – will be severely cut back. There are many criticisms that I have made of the Chancellor’s stance (see previous blog posts) based on the absurdity of constructing the British government’s finances as equivalent in principle to the finances of a household issue. But, in addition to those more elemental issues, there is another matter that I have not seen addressed by the mainstream media nor the actual politicians relating to the proposed austerity. The whole discussion appears to be waged in a vacuum – context free. It is as if the current policy position, which the Chancellor claims is shocking and unsustainable, is divorced from the current broader economic reality in Britain. And that construction means that poor policy decisions will be made that will damage the material prosperity of the nation.

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Germany continues to kill the Eurozone

Earlier this week, the German statistical agency, De Statis released – Press release No.316 of 19 August 2024 – which confirmed that Germany continues to run policy settings that undermine the viability of the common currency. During the pandemic, Germany’s trade surplus declined significantly and the mainstream commentariat all pronounced that Germany had shifted direction and had finally learned that running an obsessive, export-led strategy that relied on suppression of domestic demand and increasing trade deficits elsewhere was fraught. Such a strategy had ensured the GFC was worse in Europe than elsewhere. The problem with that narrative is that it was wrong. The declining trade surpluses were driven by the temporary cost increases (mostly energy) that followed the pandemic and the price gouging by OPEC. The latest trade data shows that the economy has absorbed those shocks and is once again moving into large export surpluses that not only violate EU rules but also will further promote defensive strategies among its trading partners.

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We are 1.7 times over regenerative capacity and the world’s population control must be reduced

It’s Wednesday and so a few topics that have interested me over the last week plus some promotion etc. I have been going back in time lately re-reading some of the classic books that spawned the environmental movements in the 1970s. At that time, researchers were predicting doom because they foresaw that the population growth was becoming excessive and outstripping the capacity of the world to regenerate itself. Many of the leading offerings of the day were heavily criticised not only because they were inherently (as a matter of logic) opposed to capitalism. Ironically, the Left also refused to take up population control type advocacy because they considered it coercive and biased against the poor. They preferred to argue about redistribution rather than degrowth. The Left’s credibility now in that regard is rather in tatters and unless the progressive elements in the environmental movement return to a focus on reducing population growth the game will be up. I am researching those issues at present.

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Latest scientific research points to long COVID in Australia being a significant and growing problem

I have been regularly following the scientific literature on the labour market impacts of COVID-19 and as the evidence is becoming richer we are getting a clearer idea of those impacts. The short conclusion is that public health policy makers, under pressure from ill-informed individual and corporate interests, have failed dramatically to protect the public health and there will be long-term economic consequences as a result, quite apart from the devastating personal costs. It is a very strange phenomenon that we have observed over the last several years now. One that required strong public health leadership but which has, instead, been marked by a curious cloud of denial and abandonment. We are all to blame for that abandonment. The latest evidence indicates that long COVID in Australia is a significant and growing problem that is not only undermining the well-being of the people involved but is also a major restraint of economic performance.

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Australian labour market – showing signs of strength

Today (August 15, 2024), the Australian Bureau of Statistics released the latest – Labour Force, Australia – for July 2024, which shows that the labour outlook continues to remain positive. Employment growth was relatively strong and biased towards full-time jobs. The unemployment rose by 0.1 point to 4.2 per cent but only because the participation rate rose by 0.2 points, which meant there were more workers looking for work than the previous month. When there is positive employment growth and rising participation, we consider the rise in unemployment to be a sign of strength rather than deterioration. But we should not disregard the fact that there is now 10.6 per cent of the working age population (1.6 million people) who are available and willing but cannot find enough work – either unemployed or underemployed and that proportion is increasing. Australia is not near full employment despite the claims by the mainstream commentators and it is hard to characterise this as a ‘tight’ labour market.

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Real wages in Australia continue to fall as profits boom

Today (August 13, 2024), the Australian Bureau of Statistics released the latest – Wage Price Index, Australia – for the June-quarter 2024, which shows that the aggregate wage index rose by 4.1 per cent over the 12 months (down 0.1 point on the last quarter). In relation to the June-quarter CPI change (3.8 per cent), this result suggests that workers achieved modest real wage gains. However, if we use the more appropriate Employee Selected Living Cost Index as our measure of the change in purchasing power then the June-quarter result of 6.2 per cent means that real wages fell by 2.1 per cent. Even the ABS notes the SLCI is a more accurate measure of cost-of-living increases for specific groups of interest in the economy. However, most commentators will focus on the nominal wages growth relative to CPI movements, which in my view provides a misleading estimate of the situation workers are in. Further, while productivity growth is weak, the movement in real wages is such that real unit labour costs are still declining, which is equivalent to an ongoing attrition of the wages share in national income. So corporations are failing to invest the massive profits they have been earning and are also taking advantage of the current situation to push up profit mark-ups. A system that then forces tens of thousands of workers out of employment to deal with that problem is void of any decency or rationale. That is modern day Australia.

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Major macroeconomic policy reform is needed to reduce the reliance on monetary policy

There is some commentary emerging that is finally starting to question the reliance on monetary policy (setting interest rates) as the primary macroeconomic policy tool with fiscal policy forced into a passive role. In Australia, this debate has intensified in the last week following the hubris from the new Reserve Bank governor, who thinks her role is to sound like a ‘tough guy’ dishing out threats of ever increasing interest rate rises even as inflation falls. There was an Op Ed in the Sydney Morning Herald today (August 12, 2024) – Maybe only a recession will fix macroeconomic management – by the Economics Editor Ross Gittins, which challenges the current macroeconomic consensus. Some of this argument is acceptable. But when he advances his alternative proposal of “a new independent authority” to set monetary and fiscal policy, the reality is that this would be as bad as we have now. More on that later.

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US labour force data provides no basis (yet) for recession panic

The financial markets around the world have over the last week demonstrated, once again, that they are subject to wild swings in irrationality despite mainstream economists holding out the idea that these sorts of transactions exhibit pure rationality. Some of the capital movements are explained by a shift in the interest rate spread between Japan and the US as the former nation decided to increase interest rates modestly. That altered the profitability of financial assets in each currency and so there were margins to exploit. But the big swings came when the US Bureau of Labor Statistics (BLS) released their latest labour market data last Friday (August 2, 2024) – Employment Situation Summary – July 2024 – which showed payroll employment increasing by only 114,000 (well down on expectation) and the unemployment rate rising by 0.2 points to 4.3 per cent. Suddenly, the headlines were calling an imminent recession in the US and that triggered a flight into safer assets (government bonds) away from shares etc, which drove down bond yields (as bond prices rose) and left some short-run carnage in the share markets. A few days later the panic subsided and one has to ask what was it all about. In this blog post, I examine the labour force data and add some new extra ‘recession predictors’ to see whether the panic was justified. The conclusion is that it was not.

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