US inflation rate falling fast

It’s Wednesday, and today I discuss the latest US inflation data, which shows a significant annual decline in the inflation rate with housing still prominent. But for reasons I discuss, we can expect the housing inflation to fall in the coming months. I also discuss how on-going fiscal ignorance allows the Australian government to avoid investing in much-needed fast rail infrastructure which would solve many problems that are now reducing societal well-being. And then some of the best guitar playing you will ever hear.

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Latest IMF report on Australia is food for uncritical and lazy journalists but garbage nonetheless

The IMF regularly conduct ‘missions’ to member countries, where a group of highly paid economists trot out to a capital city somewhere, hole up in some luxury hotel, and have a few meetings with Treasury officials and the like and then shoot through after the short visit back to whence they came and produce their report. On October 31, 2023, the IMF published – Australia: Staff Concluding Statement of the 2023 Article IV Mission – which attracted a lot of mainstream press attention in Australia. The message that the public received was summarised in this article – International Monetary Fund says Australia needs higher interest rates. The article carried no qualifications or reflection on the methodology. The journalists who have a high profile in the mainstream national media sanctioned without question the IMFs conclusions. That is what goes for information in these times. It is an assault on our collective intelligence really.

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Bank of Japan shifts ground – just a little but there is no sign of a major adjustment any time soon

It’s Wednesday and I use this space to write about any number of issues or items that have attracted my interest and which I consider do not require a detailed analysis. The issues discussed may be totally unrelated. Today, I provide my response to yesterday’s decision by the Bank of Japan to vary its Yield Curve Control (YCC) policy, which some commentators are frothing about. The change was very minor and is not a sign that the expansionary position of the Bank is shifting significantly. I also discuss the culture of denial in the US State Department and then rock out to come classic swamp.

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Neoliberalism has not been about applying Chicago-style economic theory

Scottish-born economist – Angus Deaton – recently published his new book – An Immigrant Economist Explores the Land of Inequality – in which he provides a swathing critique of the state of the economics profession, particularly in the way that it impacts on policy making and societal well-being. He is a microeconomist who made a name for himself studying consumer demand, which means he has not contributed anything significant to the field of macroeconomics, where I hang out. The title refers to his migration to the US from Britain in the 1980s and his reflections on what he found and how the economics academy has changed over this 45 years in the profession. His point is that the economics profession has lost its purpose and should return to a focus on advancing well-being. He is particularly critical of Chicago-style economics – or ‘free market’ thinking. The problem though is that the neoliberal era has not been about applying Chicago-style economic theory. The elites just say they are doing that when in fact all they are doing is utilising the immense government capacity to shift the intervention dial in their favour. The government has not given way to the free market – it has just been reconfigured to become an agent of capital.

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British Shadow Chancellor promising the impossible

The British Labour Party officials and politicians have all been cock-a-hoop over the last week in Liverpool as they participate in their Annual Conference with the latest modelling suggesting they may win a “landslide 190-seat majority” at the next national election leaving the miserable and incompetent Tories with only 149 seats (currently 352) (Source). The contrast between the two national conferences this year could not have been greater. The Tories looked and sounded divided and like losers. The Labour Party looked like winners and united (although that latter condition has only come from the Stalin-like purge that the leadership has conducted on the Left of the Party). The Labour Party is now schmoozing the corporate bosses and each day that it passes it sounds more like what the Tories used to be like, before the rabid Right took over. That assessment is based on the promises that the Labour Party made at its recent Annual Conference. While the details are still relatively general, my assessment of the fiscal promises the Shadow Chancellor made last Monday and elsewhere is that the conditions that would be required to satisfy them will prove impossible to achieve.

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Former British Prime Minister still missing the point – this time on ODA

I read an article in the Financial Times earlier this week (September 23, 2023) – How do we raise trillions of dollars to fight the climate crisis? The answer is staring us in the face – which was written by former British Prime Minister and Chancellor Gordon Brown. The article is really just a promotion for a soon to be released book he has co-authored with characters from financial markets and mainstream economics. While purporting to be a solution to the climate challenges facing the world, it falls into the ‘progressive’ mainstream trap of coming up with just another ‘tax the rich’ plan.

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Claiming the European Union is close to full employment defies the meaning of language

Last week (September 13, 2023) in Brussels, the President of the European Union delivered her annual – 2023 State of the Union Address. We all know that these events are spin-oriented and the leader of the 27-nation bloc is hardly going to come out and talk the arrangement down. But this was an election speech – with the next major elections coming in the year ahead. The President lauded all the half-baked and under-funded programs that they have initiated under her ‘leadership’ and when it came to assessing the state of the labour market she made the extraordinary statement that as a result of Commission policies (such as – SURE) “Europe is close to full employment.” Yes, they are spinning the view that the problem is not a lack of jobs but “millions of jobs are looking for people” while admitting that “8 million young people are neither in employment, education or training” – the so-called NEET generation. Language should above all else convey meaning. Trying to claim that Europe is close to full employment violates that basic aspiration. The reality is that Europe is nowhere close.

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Australia national accounts – growth continues to be sluggish as material living standards decline

Today (September 6, 2023), the Australian Bureau of Statistics released the latest – Australian National Accounts: National Income, Expenditure and Product, June 2023 – which shows that the Australian economy grew by just 0.4 per cent in the June-quarter 2023 and by 2.1 per cent over the 12 months. If we extend the June result out over the year then GDP will grow by 0.8 per cent, well below the rate required to keep unemployment from rising. GDP per capita fell by 0.3 per cent and Real net national disposable income fell by 1.4 per cent – a measure of how far material living standards declined. Households cut back further on consumption expenditure while at the same time saving less relative to their disposable income in an effort to maintain consumption growth in the face of rising interest rates and temporary inflationary pressures. The result also shows that the RBA’s attempts to engineer a recession are so far failing which tells us about the ineffectiveness of monetary policy.

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Australia – real wages continue to decline and wage movements show RBA logic to be a ruse

Yesterday (August 15, 2023), the Australian Bureau of Statistics released the latest – Wage Price Index, Australia – for the June-quarter 2023, which shows that the aggregate wage index rose by 0.8 per cent over the quarter (steady) and 3.6 per cent over the 12 months. This represented a slowdown over the 12 months on the previous quarter’s result. If we consider the rate of increase in the CPI in relation to this nominal wages growth then in the June-quarter the two were equal and so real wages were steady. However, over the last 12 months, real wages have fallen by 2.4 per cent using the CPI measure. But the ABS note that the CPI is not a good indicator of cost-of-living changes and they have produced special time series based on expenditure patterns for selected groups including employees. If we use the Employee Selected Cost of Living Indicator we find that real wages fell by 0.7 points over the June-quarter 2023 and by a stagerring 6 points over the 12 months. That puts the Treasurer’s spin that the latest data is a good sign into perspective. Further with the gap between productivity growth and real wages increasing, the massive redistribution of national income away from wages to profits continues. Further, the RBA continue to claim there is a threat of a wages breakout and so interest rates have to keep rising to create the necessary unemployment increase to prevent that from happening. It is just a ruse. There is no sign of a wages breakout.

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Ratings downgrade on US government debt is as ridiculous as it is meaningless

It’s Wednesday and there are a few topics that warrant some comment. But at the top of the topics were headlines this morning shouting out that the US treasury bonds had been downgraded by one of those self-serving credit rating agencies, as if it was an event worthy of some import. The journalists obviously do not understand anything if they think that decision was important. The ratings downgrade on US government debt is meaningless and the rating agency involved just wants to boost its revenue by sounding important. After I explain all that we will have a quiet musical reflection to finish the day.

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Australia’s inflation rate continues to fall despite RBA inflationary rate hikes

Today (July 26, 2023), the Australian Bureau of Statistics released the latest – Consumer Price Index, Australia – for the June-quarter 2023. It showed that the CPI rose 0.8 per cent in the quarter (down 0.6 points) and over the 12 months by 6.1 per cent (down 0.9 points). The annual inflation rate in Australia was significantly lower again in the June-quarter as the supply-side drivers abate. This was always going to be a transitory adjustment phase after the massive disruption from Covid and the exacerbating factors associated with the Ukraine situation and the OPEC price gouge. There was never any justification for the RBA pushing up interest rates. The correct policy response should have been to provide fiscal support for lower-income households to help them cope with the cost of living rises and wait for the adjustment after the disruption to come. The approach taken by the Bank of Japan and the Japanese government was the correct one and that is now clear even though the mainstream economists still cannot see past their textbooks.

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Starmer must confront the reality – more spending will be required but taxes will probably also have to be higher

The question is when is a Labour Party a Labour Party? The answer is: When it is a Labour Party! Which means when it defends workers’ interests against capital and when it defends families against pernicious neoliberal cuts or constraints on welfare. Which means, in turn, that the British Labour Party is a Labour Party in name only and the British people have little to choose from with respect to the two parties vying for government – Tory and Tory-lite! The British Labour Party has been abandoning its traditional role for some time now and while it is true that society and the constraints on government have evolved/changed, some things remain the same in a monetary economy. And that means that the statements from the Labour leader in recent days about fiscal spending austerity and a refusal to reverse some of the most pernicious Tory policies fail to recognise the reality. More spending will be required in the coming years not only to redress the damage done by the years of Tory rule but also to meet the challenges ahead in terms of climate, housing, education, health and more. The real question should be not whether more spending is required but what must accompany that spending by way of extra taxation. In my assessment, the next British government will have to lift taxes to create sufficient fiscal space in order to meet the challenges facing the nation with extra spending. Starmer is clearly not wanting to have that debate, which means the British people are once again being deceived by their political class. Taxes will rise with growth but I doubt that will generate sufficient space for the extra spending that will be required.

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UN Report on employment guarantees misses the essential points about buffer stock mechanisms

In 1978, during my postgraduate studies at the University of Melbourne I came up with the idea of a Job Guarantee – although I didn’t call it that then. I have written about it extensively since then and you can see some of the non-academic work published in this blog under the category – Job Guarantee. Among the many blog posts is this one – Some historical thinking about the Job Guarantee (February 25, 2021) – where I discuss some of the provenance of the idea. It is hard to get people interested in this idea because they dismiss it as just another public sector job creation scheme and then make all sorts of claims about inefficiency, ‘make work’ and all the rest of the ruses that are used to divert attention from the substance of an idea or proposal. In fact, the way I conceived the Job Guarantee and the way it has subsequently become a central part of the body of knowledge now known as Modern Monetary Theory (MMT) is not as a job creation program, but, rather, as a comprehensive price stability framework exploiting the dynamics of buffer stock mechanisms. Anyway, it seems that the UN might be interested in the idea of guarantee employment now after the special Rapporteur on extreme poverty and human rights published – The employment guarantee as a tool in the fight against poverty – in April 2023. The question is whether this is a job creation program or closer to the concept of a Job Guarantee.

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Rising labour costs have only the smallest impact on services inflation

As the inflation episode starts to abate, central bank governors have been keen to advance narratives to justify why they would continue hiking interest rates, especially when it is pretty obvious that the drivers of the inflation were mostly coming from the supply-side and suppressing aggregate spending (via the higher rates) would not be a very effective measure to deploy. This is quite apart from the debate as to the effectiveness of using interest rates to stifle spending, which is a separate discussion with no clear conclusion other than probably not. As I have noted previously, it was hard to argue that inflation was accelerating out of control when it had started to decline many months ago. So they had to come up with a different narrative – which was that while inflation was falling it was not falling quickly enough. That is the current story line the officials trot out. And that allows them to claim that if it doesn’t fall quickly then two things will be likely: (a) workers will build the higher inflation into their wage demands and set off a wage-price spiral that becomes self-fulfilling even after the supply-side factors (Covid, Ukraine, OPEC) abate, and (b) that people would start to expect higher inflation was the norm and build that into the contractual arrangements and pricing. Neither behavioural phenomenon has shown any sign of becoming entrenched, which leaves the central bank officials without a cover. And even research from central banks themselves is demonstrating that there is not ‘high inflation’ mindset taking over.

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Education should be a nation-building investment not a tax on graduates

Today, I am Perth giving a keynote presentation to the Royal Australian and New Zealand College of Psychiatrists (RANZCP) 2023 Congress. My talk is titled – Why fiscal fictions lead to inferior health policy outcomes. Given the travel time to the other side of the world (the continent at least) – us East Coasters get restless when we have to come here – and my commitments at the Congress, I haven’t time to produce a post. So today, thanks to our regular guest blogger Professor Scott Baum from Griffith University who has been one of my regular research colleagues over a long period of time, we have a discussion about fiscal fictions and higher education policy, which is a very nice dovetail to the theme of today. Today he is specifically going to talk about the current concerns about student debt in Australia. Over to Scott …

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Post Brexit UK is seeing higher skilled labour entering from non-EU countries to support a range of services (public and other) – success

It’s Wednesday and so before we get to the music segment we have time to discuss a few issues. The first relates to the progress Britain is making in its post-Brexit reality. There is now growing evidence that, despite predictions of economists supporting the Remain case, the newly gained freedom that Britain now enjoys as a result of leaving the EU has allowed it to restrict the entry of lower-skilled and lower-paid migrants (from the EU) and attract a large boost in skilled migration from non-EU nations with net benefits to the domestic economy. Second, it seems the mainstream is now discovering the work of Marxist economists from 5 or more decades ago and concluding that it provides a much better explanation of the inflation process than that offered by Monetarists (excessive money supply growth) or the mainstream New Keynesian theories which emphasise “departures from a natural rate of output or employment” (NAIRU narratives). That’s progress even if it took a while. Once you have absorbed all that there is some great improvisational music to soothe your senses.

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RBA loses the plot – Treasurer should use powers under the Act to suspend the RBA Board’s decision making discretion

It’s Wednesday, and we have a few observations on recent events including a music feature. But the main issue in the last 24 hours is the decision by the Reserve Bank of Australia (RBA) to add an 11th interest rate increase at a time when inflation is falling significantly. As I noted last week, the narrative is now shifting among these characters – it is all about inflation not falling ‘fast enough’ and they still claim a wages explosion is likely unless they get inflation down more quickly. It now appears to me that the RBA has lost the plot completely. I have written regularly about this in the last 12 months, but today I have been exploring new data which shows that rising interest rates create a vicious circle of higher inflation which then precipitate further higher interest rates. My recommendation is that the Federal treasurer should use his powers under the RBA Act 1959 and overrule the RBA governor and his board and freeze interest rates. We have to stop this RBA madness somehow!

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Australian inflation rate has peaked and falling fast – but not fast enough for the interest rate boosters

Today (April 26, 2023), the Australian Bureau of Statistics released the latest – Consumer Price Index, Australia – for the March-quarter 2023. It showed that the CPI rose 1.4 per cent in the quarter (down 0.4 points) and over the 12 months by 7 per cent (down 0.8 points). The monthly data, also released today (which I do not analyse here) shows inflation dropping from 7.4 per cent in January to 6.8 per cent in February to 6.3 per cent in March. Significant downward trend as the supply factors abate. Taken together we conclude that the peak has now passed, which is consistent with my assessment that this would be a transient, supply-driven event. There are no wage pressures and inflationary expectations are in decline or steady. The laughable thing is that as the rate falls, the mainstream narrative, which continues to push for higher interest rates, has shifted from a focus on the inflation rate itself to the claim that it is now not falling fast enough. The claimed fears are now that the longer it remains at elevated levels the more chance there will be of a wage-price spiral breaking out and/or accelerating (un-anchored) expectations. Neither are likely given the situation before us and that leads to the conclusion that these interest rate boosters are just exuding hot air as usual. The major sources of price increases are temporary and in the March-quarter are the direct result of discretionary government administrative arrangements (indexation arrangements etc), which could easily be waived this year. The correct policy response should be to provide fiscal support for lower-income households to help them cope with the cost of living rises at present. Increasing interest rates again will not solve the problem that is already abating.

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The inflation backtracking from the central bankers and others is gathering pace

Remember all the hype from central bankers last year and earlier this year about how they had to get ‘ahead of the curve’ with their interest rate hikes just in case wage demands escalated and inflationary expectatinos became ‘unanchored’. Over the last 18 months, I consistently noted in various blog posts that this was all a ruse to create a smokescreen to justify the unjustifiable rate rises – given that the inflationary pressures were almost all coming from the supply side and those forces were temporary and abating. Well now, the mainstream, having pushed for the rate rises and got their way are now backtracking to maintain their credibility by claiming there are no wage-price dynamics in sight. It is a dystopia.

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The so-called Inclusion Committee that recommends keeping the unemployed impoverished

It’s Wednesday and apart from music I am talking mostly about poverty – opposites indeed. The beauty of the beat against the ugliness of enforced poverty. Enforced by government policy, which if there is political will can always eliminate systemic poverty. Yesterday (April 18, 2023), a major report was released in Australia by the grand-titled Economic Inclusion Advisory Committee – 2023–24 Report to the Australian Government. It provided a series of recommendations to the new Labor government about how it should deal with poverty, disadvantage and the appalling state of income support in this country. Among its recommendations it found that “current rates of these payments are seriously inadequate, whether measured relative to the National Minimum Wage, in comparison with pensions, or against a range of income poverty measures. People on these payments face the highest levels of financial stress in Australia”. Accordingly, they recommended a “substantial increase in the base rates” for unemployment benefits and other payments. The new Labour government has already indicated it will not increase the rates in any significant way. The problem, though, is that the recommendation of the ‘Inclusion Committee’, is such that if introduced would still leave the unemployed being forced to live below the poverty line. Yet, its recommendation is now framing the ‘limit’ parameters of the debate. All sorts of so-called progressives are using the recommendation as the aspiration, which really becomes self-defeating. The ‘Inclusion Committee’ might better have been called the ‘Exclusion Committee’.

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