Budget surpluses are not national saving – redux

I was reading several older papers from the 1990s today as part of a project I am working on where I track predictions that leading mainstream economists were making at the time about the evolution of national and global economies. It is a very interesting exercise to build the narratives that were popular at an earlier time and then consider how far the economists got things right. I have noted that there has been some debate out in blog-land about who predicted the failure of the Euro. I am less interested in documenting which person was the first or the second – there were many who saw the design flaws from the inception and could extrapolate what they would mean if a negative shock occurred. Modern Monetary Theory (MMT) economists were among them. I am more interested in groupthink (at the paradigm level) and how the failed predictions can be used to demonstrate the inapplicability of a certain body of theory. That is, what can we learn from the failure of mainstream economists in general to see the crisis coming (and being in denial now of what the solution is). In this blog I consider a part of the thinking that explains why my profession proved to be unreliable in this regard. I renamed this blog – appending it with the term redux because on March 23rd, 2009 – I wrote a blog – Budget surpluses are not national saving.

Read more

Increase minimum wages and give job guarantees for the low paid

I lived in the North-West of England for a time in Lancashire as I pursued my PhD at Manchester University. It was during the UK Miners’ Strike 194-85, which was in response to the Thatcher Government’s attack on the major unions in the UK to further its ideological war on workers’ rights and welfare provision. The union lost dramatically after a struggle of 12 months symbolising the rise of neo-liberalism. The same ideology that sought to undermine the rights of workers also led to policy changes that, ultimately, caused the financial crisis and on-going real recession. The reason I raised that experience is because I read a report from a Manchester research organisation over the weekend which highlighted a major problem in that region (poverty wages etc) but also, without stating it, provided an alternative policy approach to the current crisis which would quickly get economies moving again – creating jobs and enhancing the capacity of households to spend. A policy response that antithetical to what is being tried at present is to increase minimum wages and introduce employment guarantees for the most disadvantaged workers whose welfare has been disproportionately undermined by the crisis. That would not only help alleviate the major problem at present – deficient aggregate demand – but also redress some major equity issues that the crisis has accentuated.

Read more

Saturday Quiz – August 4, 2012 – answers and discussion

Here are the answers with discussion for yesterday’s quiz. The information provided should help you understand the reasoning behind the answers. 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.

Read more

Introducing economic dynamics

I am now using Friday’s blog space to provide draft versions of the Modern Monetary Theory textbook that I am writing with my colleague and friend Randy Wray. We expect to complete the text by the end of this year. Comments are always welcome. Remember this is a textbook aimed at undergraduate students and so the writing will be different from my usual blog free-for-all. Note also that the text I post is just the work I am doing by way of the first draft so the material posted will not represent the complete text. Further it will change once the two of us have edited it.

Read more

ECB deficit funding or persistent mass unemployment

Yesterday’s Statement from the US Federal Reserve Open Market Committee (FOMC) stated that the US economy is slowing and the “housing sector remaining depressed” and employment growth slow. The US central bank indicated that moderate growth would persist for the immediate future but that it was threatened by events overseas (read Europe). And over in Europe – the pressure is mounting on the ECB, which knows it must continue to work out ways to fund member states but is being constantly pummelled by the inflation-phobes in Germany (and elsewhere). The problem in Europe is not sovereign debt but a lack of spending. Even within the flawed European monetary system design, the ECB has the capacity to fund increased spending. Those who claim this would be disastrous have a strange view of the consequences of not doing that. This debate resonates with that between Keynes and the Classics in the 1930s. The former demonstrated categorically that without external policy intervention (for example, fiscal stimulus) economies tend to states of chronic mass unemployment with massive income losses (and other pathologies) being the result. Do the Euro leaders really want that state to evolve? They are at present doing everything they can to ensure it does.

Read more

The non-existent but remarkable austerity-depreciation mechanism

The conservative lobby (often dominated by Austrian school types) are increasingly running the narrative that neither monetary or fiscal stimulus can engender growth as nations wallow in stagnation. Their rejection of the use of fiscal stimulus – aka spending of one sort or another – would appear to be in denial of the basic macroeconomic rule – one person’s spending is another person’s income – or in a sectoral sense – government spending equals non-government income. Their arguments against monetary policy have some resonance with my own views. But, for example, is any one really going to argue that if the government hired all the unemployed and paid them a stable wage (in excess of any income support they might be receiving) that the shops would not experience rising sales, which, in turn, would stimulate rising orders to suppliers and increased production and higher growth. Are they really saying that all stimulus spending leaves the shores via net exports? While historical evidence is often cited, when one digs further it becomes clear that the evidential basis of the anti-government claims cannot be substantiated. And – the arguments reduces to a rather crude expression of their dislike of government activity.

Read more

Europe is really having a lost decade

I am sick of reading about Europe’s lost decade. For example, in the UK Guardian article (July 27, 2012) – Spanish recession to last until 2014, IMF warns – the economics editor Larry Elliot says that the IMF is “Predicting a lost decade of growth for the eurozone’s fourth biggest economy”. The lost decade terminology emerged to describe the experience of Japan in the 1990s after its spectacularly damaging property crash. But I think it is offensive to use the term in relation to the Eurozone crisis. We are not seeing a lost decade emerge Japanese-style. Rather, we are witnessing a self-imposed humanitarian disaster driven by the ideological arrogance of the Euro elites (aided and abetted by the OECD and IMF). The experience of Japan in the 1990s was nothing compared to what these elites are doing in the name of neo-liberalism. Journalists should stop making the comparison and, instead, call the current crisis in Europe for what it is.

Read more

British solution to unemployment – make them work for free

There was a story in the UK Guardian yesterday (July 29. 2012) – Million jobless may face six months’ unpaid work or have benefits stopped – that described how the failed neo-liberal British government is following the path that the conservatives followed in Australia in attempting to “manage” the unemployment that their flawed policy regime created. The Australian approach has failed dramatically and imposed considerable hardship on the most disadvantaged citizens in our midst. The same approach is unfolding in Britain and it to is already looming as a failure.

Read more

Saturday quiz – July 28, 2012 – answers and discussion

Here are the answers with discussion for yesterday’s quiz. The information provided should help you understand the reasoning behind the answers. 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.

Read more

Another macroeconomist who is blind

Everyday the major financial newspapers and magazines provide Op Ed space to so-called leading economists. For the majority of the public, it is these Op Ed articles that provide their interaction with my profession. It is a pity. The majority of the reasoning presented by these characters, most who occupied senior positions in US academic departments, is spurious to say the least. The public is thus being poorly educated (to put it mildly) on a daily basis and this represents a major problem for our democracies. Voting in elections is one thing. But when citizens are voting based on faulty understandings that they have derived from these economists, then what is the value of a free vote? Today I consider the views of leading Princeton economist Alan Blinder – who is another macroeconomist who is blind to the way the economy works.

Read more

Off-shore tax havens – be sure we define the issues correctly

I was asked today what the Modern Monetary Theory (MMT) position was on the new report about to be published by the – which reports trillions of dollars (and other currencies) being secreted in tax havens by the wealthiest citizens and the role that the top 10 banks have played in arranging these fund transfers. Progressives are clearly up in arms about the research findings and for good reason, especially if one holds equity to be a valid policy and national goal (as I do). But the way MMT analyses these trends is somewhat different. Once we get a good understanding of what the off-shoring of wealth and tax evasion actually means for domestic economies, it is clear that the progressive attacks often miss the point.

Read more

Saturday quiz – July 21, 2012 – answers and discussion

Here are the answers with discussion for yesterday’s quiz. The information provided should help you understand the reasoning behind the answers. 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.

Read more

Whatever else they say – they all know that public spending cuts are bad

As an outsider, US Presidential campaigns are very curious events. But that is not my topic today. Well it sort of is my topic. The US President has recently visited Virginia – a place where defense spending appears to be highly concentrated. Various senior Republicans decided to give the President a lesson in economics. The only problem is that the lesson seems to run counter to what their main hope – Mitt Romney – is trying to say. In fact, they all got themselves tangled up in a logical mess. But the truth that emerges is that – whatever else they say – everyone of them knows that public spending cuts will damage the economy. They also all know – whatever else they say – that at this present time – with private spending so weak – that such a slowdown will be disastrous. They also know that the American people are pretty easily duped by conservative talk and religious invocation. And that is the way they plan to get power. What happens to the unemployed is just a side-issue it seems. Makes you wonder what went wrong with public education in America (that these characters can be taken seriously)!

Read more

The CON merchants who buttress the neo-liberal ideology

Two things led to this blog today. First, the IMF has once again been lecturing the world on economic policy. In the Global Financial Stability Report and the World Economic Outlook Update – both released yesterday (July 16, 2012) the IMF has downgraded their growth forecasts again yet is hanging on to the myth that austerity is the path to resolution and that the deficit reductions underway are appropriately growth supporting. Doesn’t anyone in the IMF understand logic? One cannot on the one hand admit that growth is falling below previous forecasts yet on the other hand claim that policy which caused growth to slump is growth supporting. Second, Anna Schwartz died in New York on June 21, 2012. The two events can be linked.

Read more

Saturday quiz – July 14, 2012 – answers and discussion

Here are the answers with discussion for yesterday’s quiz. The information provided should help you understand the reasoning behind the answers. 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.

Read more

Some notes on Aggregate Supply Part 2

I am now using Friday’s blog space to provide draft versions of the Modern Monetary Theory textbook that I am writing with my colleague and friend Randy Wray. We expect to complete the text by the end of this year. Comments are always welcome. Remember this is a textbook aimed at undergraduate students and so the writing will be different from my usual blog free-for-all. Note also that the text I post is just the work I am doing by way of the first draft so the material posted will not represent the complete text. Further it will change once the two of us have edited it.

Read more

Australian labour force data – weak and weakening

Last month my Labour Force commentary was entitled – Australian labour market – good signs but wait for the reversal. It didn’t take very long for the reversal to come, although I caution anyone drawing trends from month-to-month variations in this sort of data. Today’s release by the Australian Bureau of Statistics (ABS) of the Labour Force data for June 2012 reveals a weakening labour market with all the negative signs concurring – falling full-time employment, falling participation, falling hours worked and rising unemployment. If the labour force had not have contracted due to the falling participation rate, the unemployment rate would have been closer to 5.5 per cent rather than 5.2 as officially recorded. Certainly this data is not consistent with any notions that the Australian labour market is booming or close to full employment. The most continuing feature that should warrant immediate policy concern is the appalling state of the youth labour market. My assessment of today’s results – weak and weakening.

Read more

Growth is lagging because spending is lagging – the solution is clear

A recurring theme in the press and one that I get several E-mails about a month is that a national government has “more space to net spend” if its past history of deficits and debt are lower than otherwise. This is also related to the acceptance by many so-called progressive economists that national government budgets should be balanced over the course of the business cycle – that is, it is fine to go into deficit when there is a downturn but the government should pay it back via surpluses when the economy is strong. Neither proposition has merit but serve as powerful buttresses for the continuation of the neo-liberal attack on government fiscal freedom and full employment. Government deficits have not caused the crisis. Growth is lagging because spending is lagging. If the non-government sector cannot sustain aggregate spending to ensure unemployment drops then there is only one sector left in town folks!

Read more

Saturday quiz – July 7, 2012 – answers and discussion

Here are the answers with discussion for yesterday’s quiz. The information provided should help you understand the reasoning behind the answers. 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.

Read more

Some notes on Aggregate Supply

I am now using Friday’s blog space to provide draft versions of the Modern Monetary Theory textbook that I am writing with my colleague and friend Randy Wray. We expect to complete the text by the end of this year. Comments are always welcome. Remember this is a textbook aimed at undergraduate students and so the writing will be different from my usual blog free-for-all. Note also that the text I post is just the work I am doing by way of the first draft so the material posted will not represent the complete text. Further it will change once the two of us have edited it.

Read more
Back To Top