Sometimes compromise is the worst thing

I guess I had to write something about the “compromise” aka cave-in yesterday in the US capital. You can only conclude that the US President wanted this agenda and needed a smokescreen (mad Republicans) to put it in place. There is a lot of evidence that Obama wanted to attack pension and medical entitlements. Now he can. Not for long though – he is a one-term president in the making. When you put all the elements together sometimes compromise is the worst thing.

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There is no federal public debt problem in the US

I would have thought the role of a Professor of Journalism at a university would be to teach students how to write copy and to research issues in the field of journalism. I would not assume that such a person would claim expertise in macroeconomics and start pontificating about national economic policy. But I was wrong – again. In this article (July 31, 2011) – American dream comes with a heavy cost – which was published in the Melbourne Age (but previously the UK Guardian) one Rosalind Coward proves how little she knows about economics. Contrary to the sway of media opinion from these “tin pot” experts – there is no federal public debt problem in the US.

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Saturday Quiz – July 30, 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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The top-end-of-town have captured the growth

This Report – The “Jobless and Wageless” Recovery from the Great Recession of 2007-2009 – published by the Center for Labor Market Studies of Northeastern University (thanks Stephan) should have received headline attention from all the American media outlets instead of the disgusting venting of religious zealotry that goes under the name “debt ceiling debate” which has dominated media space. The Report was published in May 2011 and seeks to examine the way in which the recovering real output in US is being distributed to beneficiaries – workers, firms etc. It shows that the so-called economic recovery in the US has not delivered any tangible benefits to the vast majority of citizens and has rather, concentrated real gains among the top-end-of-town. Given that the recovery has floated on the fiscal stimulus the findings reinforce the biased nature of policy in the US. That indicates poor fiscal design by an incompetent and corrupt government not that fiscal policy is inherently unsuitable for advancing public purpose.

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Misrepresentations, misunderstandings and plain factual errors

The Sydney Morning Herald disgraced itself today (July 28, 2011) with two very poor articles about the current debt debate in the US. The ratio of articles on the “conservative-do-not-know-what-the-economics-is-about” side of the debate to the alternative is infinite. There is no progressive commentary at all. Two articles today – Clever money haunts the US and Drowning in red ink – reveal how easy it is to call yourself an expert and get people to listen to you. They are full of misrepresentations, misunderstandings and plain factual errors.

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Australian inflation rate – or rather – the banana rate

The Australian Bureau of Statistics released the Consumer Price Index, Australia data for the June 2011 quarter today and it revealed a significant easing of the inflation rate on last quarter (0.9 per cent compared to 1.6 per cent in March 2011). The annualised inflation rate rose to 3.6 per cent up from 3.3 per cent in the 12 months to March 2011. While many commentators are calling this the start of a spiral in core inflation spike the data is still being driven by ephemeral factors associated with the impacts of the natural disasters (floods and cyclones) that our food growing areas endured earlier this year. The major factors driving the inflation rate are food (and that is mostly bananas) and world oil price movements. I still consider these impacts to be mostly of a transitory nature. Given that the core inflation rate is still well within the RBA’s targeting band, I do not consider there is a case for an interest rate rise next week (using their own logic). Bananas cannot keep increasing by 470 per cent every 6 months. And if they do, they are easily substituted away from.

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3 million Americans or so may find out the truth

I watched the US President speaking live today from the White House. I wish I hadn’t. The local media (here) characterised him as talking tough. What I heard was a leader who doesn’t know what he is talking about. But he isn’t alone out there in the “debt ceiling” debate land. I have noted before that when the crisis really hit I thought it would spell the end of the stranglehold that mainstream macroeconomics had on public policy. That body of theory had led the world into the crisis by endorsing policies that set the financial system up to collapse. As it was becoming obvious (as far back as 15 years ago) that a major crisis was approaching mainstream economists were in denial and claimed that the “business cycle” was dead. I was wrong in assuming (more hoping) that the mainstream paradigm would be wiped out by the travesty. And as the months pass, their erroneous theories seem to be getting more credibility not less. The debt ceiling debate has reached proportions of madness that I didn’t think were possible in a broadly educated country (at least to primary school level). What must the Martians be thinking of us now. Anyway, certain practical matters not counted on by the ideologues suggest that 3 million Americans or so may find out the truth.

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Why we should abandon mainstream monetary textbooks

I have noticed some discussions abroad that criticise Modern Monetary Theory (MMT) on the basis that none of the main proponents have ever actually worked on the operations desk of a central bank. This sort of criticism is in the realm of “you cannot know anything unless you do it” which if true would mean almost all of the knowledge base shared by humanity would be deemed meaningless jabber. It is clearly possible to form a very accurate view of the way the monetary system operates (including the way central banks and the commercial banks) interact without ever having worked in either. However, today, I review a publication from the Bank of International Settlements which dovetails perfectly with the understandings that MMT has provided. It provides a case for why we should abandon mainstream monetary textbooks from the perspective of those who work inside the central banking system.

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Saturday Quiz – July 23, 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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