Monetary policy in the hands of the central banker sociopaths is advancing the class interests of the elites

Recently, I wrote about the conditions that dictate what impacts interest rate changes will have on aggregate spending and demand-driven inflation in direction, magnitude and temporality – see RBA governor’s ‘Qu’ils mangent de la brioche’ moments of disdain (June 8, 2023). It is highly likely in many cases, the decisions by central banks to increase interest rates, ostensibly to ‘fight inflation’ actually make inflation worse. More people are starting to understand that point even though central bankers appear to be still talking big about further interest rate rises. But the evidence is mounting against their position and ultimately that evidence is exposing the deep flaws in mainstream macroeconomics. I argue today that the problem is not only that the interest rate hikes can be inflationary but they are also facilitating a major reinforcement of the class divisions in our societies whereby the low income cohorts are transferring massive income benefits to the higher deciles. I also discuss cricket which recently has provided a demonstration of how the class divisions work. Then some music, given it is a Wednesday.

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A large government presence required for energy transition does not mean massive deficits are required

There appears to be confusion among those interested in Modern Monetary Theory (MMT) as to what the implications for a green transition that will fasttrack the transition to renewable energy will require by way of government. I regularly see statements that government deficits will have to be ‘massive’ for extended periods because the private (for profit) market entities will not move fast enough to deal with the climate emergency in any effective way. The confusion inherent in these claims is that they fail to separate the ‘size’ of government from any particular ‘net spending’ (deficit) recorded by government. The two outcomes are quite separable and have to be if government action is to achieve sustainable outcomes, not only in terms of environmental goals but also price stability goals. So let’s work all that out. Failing to do so, leads MMT activists to make claims that open them up to criticism from those who understand the point I am making but have different ideological agendas. So they make erroneous claims such that ‘MMT just advocates big deficits’, or that ‘MMT thinks that deficits do not matter’. But they have been lured into that position, in part, by the social media behaviour of some MMT activists.

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Why are the unions accepting massive real wage cuts?

In the 1890s, industrial capitalism had reached the point where the pain inflicted on workers in search of private profits by the industrialists reached a point where the workers could no longer tolerate it and they started to realise that in unity they had strength. This was a period of major industrial disputes and a burgeoning of trade union growth beyond the previously restrictive craft union base. The development of broad-based unions and their move into the political domain to give further voice to the concerns of workers marked a turning point and fostered social democratic political movements and the spread of welfare state capitalism, which lasted until the 1970s. The neoliberal period has seen many of the gains made by workers during that period wound back and now we are witnessing the consequences of that retrenchment – massive real wage cuts, profit gouging and central banks determined to further undermine the well-being of workers as they attempt to push up unemployment, in the name of fighting inflation. An inflation that is persistent only because corporations are using this period to solidify the shift in income distribution towards profits at the expense of wages. It is also apparent that the trade union movement has become co-opted and now collaborate with government and corporate bosses to oversee the deliberate cuts in real wages of their members. This is another turning point in history, where the workers’ own representatives give their support to policies that support those cuts, under the pretense that they have to be responsible. Responsible to whom? We are in a defining period at present in the class struggle and it seems that the labour side has swapped teams.

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Japan’s monetary policy experiment is working

Last week – RBA wants to destroy the livelihoods of 140,000 Australian workers – a shocking indictment of a failed state (June 22, 2023) – I wrote about the sense of being in a parallel universe when one reads official statements from the Bank of Japan and juxtaposes them against the stream of statements coming out of other central banks. The day after I wrote that post (June 23 2026), the Japanese e-Stat service (the portal for Japanese government statistics) released the latest – Monthly CPI data – which showed that the annual inflation rate fell by 0.2 points to 3.2 per cent in May, on the back of significant easing in electricity and gas prices, in part the result of government policy aimed at reducing energy prices rises in the domestic economy. Here is some more about the parallel universe. I conclude that the experiment underway between central banks is indicating that Japan’s zero interest rate regime (with fiscal expansion) is not an inflationary factor. It has not driven dangerous shifts in inflationary expectations for businesses or households. Further, the decision by the Bank of Japan not to hike rates has reduced the cost-of-living squeeze on mortgaged households that is being imposed by the (transitory) inflationary pressures. By way of contrast, other central banks have imposed extra burdens on those with debt and are engineering a massive redistribution of income from poor to rich into the bargain. As they continue with their blindness, they are risking recession and a major rise in unemployment, which will add to the pain the citizens are enduring.

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RBA wants to destroy the livelihoods of 140,000 Australian workers – a shocking indictment of a failed state

My early academic work was on the Phillips curve and the precision in estimating the concept of a natural rate of unemployment, or the rate of unemployment where inflation stabilises at some level. This rate is now commonly referred to as the Non-Accelerating-Rate-of-Unemployment (NAIRU) and my contribution was one of the first studies to show that the rate was variable and went up and down with the economic cycle, rendering it a meaningless concept for discretionary policy interventions. I extended that work into my PhD and built on much earlier work as a undergraduate to articulate the Job Guarantee idea. The NAIRU is unobservable and there have been various ways to estimate it from actual data. The problem is that these estimates are highly sensitive to the approach – so two researchers can get quite different estimates using the same data. Further, the estimates themselves are subject to large statistical errors meaning that we cannot be sure whether the NAIRU is say 4.5 per cent or 3.5 per cent or 5.5 per cent, say. Such imprecision makes it impossible to use the concept as a guide for monetary policy because if the NAIRU actually existed then ‘full employment’ might be at 3.5 or 5.5 per cent today but next week the estimates might be even wider. When would one want to start changing interest rates in pursuit of inflation stability – when the actual unemployment rate was down to 3.5 per cent or at 5.5 per cent or somewhere in between or at higher or lower unemployment rates, depending on what the models pumped out? You can see the problem. For some years, central bankers went quiet on the use of the NAIRU and stopped publishing their estimates exactly because they knew full well about the imprecision and that policy based on such a vague, difficult to estimate, unobservable would be discredited. That is until now. The RBA is now clearly admitting that their damaging and unnecessary interest rate hikes over the last year and a bit have been driven by the NAIRU. A sham. But a tragedy as well given the RBA’s almost obsession with pushing unemployment up by around 140,000. A shocking indictment of where we have reached as a civilisation.

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The New Global Financing Pact equals the old failed global financial arrangements

It’s Wednesday and I cover a few topics usually in less depth than usual and provide a musical entree. From tomorrow (June 22 to 23), the so-called world leaders are meeting in Paris for the – Summit for a New Global Financing Pact – which is being hosted by the French president. The aim, apparently, is to build a new global architecture to replace the Bretton Woods system (they left it a while!) to ‘address climate change, biodiversity crisis and development challenges’. The solution that is being proposed is to allow the financial markets to create debt and speculative derivative products to fund the new architecture because, apparently, governments do not have the financial capacity. The whole initiative is about replacing defunct financial architecture but it still proposes to rely on the same (defunct) approach to public infrastructure development and the like that has failed dramatically to reduce inequality and poverty. It has certainly massively enriched the top-end-of-town and the same result will come out of this Pact. I also comment on the latest Brexit claims and provide a brief entree into some Covid research that I found interesting. Then some music.

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Beware: pension systems about to collapse. Not! More mainstream fiction

Sometimes, one thinks that the intellectual world should evolve as intelligent people take account of the dissonance between their ideas and the facts before them and adapt their views. I know that doesn’t happen much but it should. I have studied the philosophy of science deeply enough over my student and postgrad days and beyond into my career to know that intelligent people have the capacity to completely fool themselves and hang onto defunct ideas as part of a paradigm-resistance to change. We know why that happens: senior professors have their reputations and legacy at stake, they control appointments, promotions, access to research grants, publication success for junior academics, and continuity of lucrative consulting empires. But sometimes I still am amazed when I read some research paper that I know has taken months to research and write up and which has been presented and talked about in seminars and conferences, and after dinner drinks and all the rest of it, but which bears no correspondence with the underlying reality. That was the situation when I read a research paper from three economists who were claiming that taxes have to rise and pensions cut if governments are to escape insolvency in the face of ageing societies. This continues, obviously, to be a powerful framework for proselyting the neoliberal mantra and a narrative that most people cannot see their way through to a conclusion that is all a fiction.

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Australia minimum wage decision 2023 – some relief for lowest paid but real cuts for others

On June 2, 2023 Australia’s minimum wage setting authority – the Fair Work Commission (FWC) issued their decision in the – Annual Wage Review 2022-23 – which provides for wage increases for the lowest-paid workers – around 0.7 per cent of employees (around 75 thousand) in Australia. In turn, around 20.5 per cent of all employees, who are on the lowest tier of their pay award (grade) receive a flow-on effect. The FWC determined that sought to protect the real living standards of the lowest-paid workers in the nation after receiving a ‘direction’ from the new Federal Labor Government to do so. While the small number of workers who actually receive the FMW were largely protected from the current inflation-erosion of their purchasing power (although not compensated for losses over the last year), the larger group of workers on statutory awards who earn the minimum award rate went backwards in real terms as a result of the decision. The major employer groups argued for very low nominal rises, while at the same, as they are enjoying booming profits. A scandalous indictment of our system.

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RBA governor’s ‘Qu’ils mangent de la brioche’ moments of disdain

The RBA governor had a few ‘Qu’ils mangent de la brioche’ moments in the last week when he responded to criticisms that his manic interest rate increasing behaviour is driving low-income families into crisis by, first, saying that people who couldn’t find cheap housing should move back with their parents. Then he followed that with the recommendation that people should work harder and get second jobs if they couldn’t make ends meet as a consequences of the squeeze on their mortgage payments from the RBA’s monetary policy changes. Nice. This is an extraordinary period of policy chaos – we have an out-of-control central bank pushing rates up and using various ruses (chasing shadows) to justify the hikes, when inflation is falling anyway for reasons unconnected to the monetary policy shifts. All the RBA will succeed in doing is increasing unemployment and misery. The unemployed will ultimately bear the brunt of this chaotic policy period. But then ‘Qu’ils mangent de la brioche’ and they can move back in with their parents!

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Australia national accounts – economic growth slumps to below 1 per cent annualised – unemployment on the rise

The Australian Bureau of Statistics released the latest – Australian National Accounts: National Income, Expenditure and Product, March 2023 – today (March 1, 2023), which shows that the Australian economy grew by just 0.2 per cent in the March-quarter 2023 and by 2.3 per cent over the 12 months. If we extend the March result out over the year then GDP will grow by 0.8 per cent, well below the rate required to keep unemployment from rising. Working hours dropped in the March-quarter and I expect that trend to accelerate in the coming quarters given the conduct of the central bank and treasury. The March-quarter result represents a significant decline in growth, 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. I expect growth to decline further and we will be left with rising unemployment and declining household wealth as a result of the RBA’s poor judgement.

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US labour market – perhaps at a turning point with unemployment rising

Last Friday (June 2, 2023), the US Bureau of Labor Statistics (BLS) released their latest labour market data – Employment Situation Summary – May 2023 – which revealed that the the US labour market may be at a turning point but is certainly not contracting at a rate consistent with an imminent recession. There was a continuing weakening of net employment growth, even though the payroll and survey data were in conflict. The rate of decline though, is currently consistent with an imminent recession. We will see in the June figures whether the slowdown has become a trend.

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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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Inside the Bank of England governor’s dreams – the wage-price spiral we cannot see

Many central bank officials have been trying all sorts of conditioning narratives to convince us that their interest rate hikes have been justified. Now they are actually defying the information presented in the official data to simply make things up. Last Wednesday (May 17, 2023), the Bank of England governor gave a speech to the British Chamber of Commerce – Getting inflation back to the 2% target − speech by Andrew Bailey. It came after the Bank raised the bank rate by a further 25 points to 4.5 per cent the week before. In that speech, he admitted inflation was declining and the main supply-side drivers were abating. But he said the rate rises were justified and unemployment had to rise because there was now persistent inflationary pressures coming from a “wage-price spiral”. The problem with this claim is that there is no data to support it.

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No evidence of an imminent wages breakout in Australia despite the claims by the RBA to justify their hikes

Today (May 17, 2023), the Australian Bureau of Statistics released the latest – Wage Price Index, Australia – for the March-quarter 2023, which shows that the aggregate wage index rose by 0.8 per cent over the quarter (steady) and 3.7 per cent over the 12 months. The media are touting how strong the wages growth is but they should be focusing on the fact that Australia’s nominal wage growth remains well below that necessary to restore the purchasing power losses arising from price level inflation. Even though the inflation rate is falling significantly and nominal wages growth has picked up a bit, the problem still remains – real wages have now fallen for 8 consecutive quarters (2 years). Further with the gap between productivity growth and the declining real wages increasing, the massive redistribution of national income away from wages to profits continues. Further, the conduct of the RBA in this environment is contributing to the damage that workers are enduring. They 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. The rising unemployment will be for nothing other than to repress real wages furthers. And meanwhile, the RBA interest rate hikes are driving up prices (for example, via the rent squeeze).

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The climate emergency requires us to reset our understanding of fiscal capacity. It is already, probably, too late.

In Tuesday’s fiscal statement, the Australian government made a lot of noise about dealing with the climate emergency that the nation faces but in terms of hard fiscal outlays or initiatives it did very little, deferring action again, while ‘the place burns’. The Climate Council assessment was that the government “still seems to be on a warm-up lap when it comes to investing in climate action” (Source) and recommended the nation moves from a “slow job” to a “sprint”. I have previously written about the myopic nature of neoliberalism. There are countless examples of governments penny pinching and then having to outlay dollars to fix the problem they create by the austerity. The climate emergency is of another scale again though. And penny pinching now will cause immeasurable damage to humanity. Food security will be threatened. Urban environments will become unliveable. Pandemics will increase if we don’t stop clearing and if we release viruses stored in permafrost. And all the rest that awaits us. Now is the time to reset our understanding of fiscal capacity. It is already, probably, too late.

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A fiscal statement designed to increase unemployment and drive more jobless workers into poverty

Last night (May 9, 2023), the Australian government delivered the latest fiscal statement (aka ‘The Budget’), and, in doing so guaranteed that unemployment would rise. A deliberate act of sabotage of living standards for disadvantaged Australians. All the hype was about the miniscule fiscal surplus that was announced as if it is some sort of badge of honour that politicians aim for. If they went to the homes of the poor; if they visited the public hospital system that is still straining under Covid etc and years of fiscal neglect; if they examined the state of climate science; and if they just opened their eyes generally, they would see that a fiscal surplus is an indication at this stage in our history of deliberate neglect of the main challenges of the day. Sure enough, the Government handed out some dollops of cost-of-living relief to low-income families – a few pennies in the scheme of things. But while recording a surplus they still refused to lift the unemployment benefit recipients above the poverty line and ensured their would be more of the same forced to live in poverty. The priorities are all wrong and this is another neoliberal-lite effort from the Labor Party.

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US labour market continues to tick over – no sign of a major slowdown yet

Last Friday (May 5, 2023), the US Bureau of Labor Statistics (BLS) released their latest labour market data – Employment Situation Summary – April 2023 – which revealed continuing employment growth and and modest declines in unemployment. While the US Federal Reserve is deliberately trying to undermine the labour market, even though the inflation rate is falling relatively quickly, the April data suggests that the interest rate increases are not achieving the aim. There is no surprise there. Monetary policy is a relatively ineffective tool to suppress demand. Most of the aggregates are steady and in terms of the pre-pandemic period, March’s net employment change was still relatively strong. Real wages finally showed some improvement in the face of a decelerating inflation rate. Overall, the US labour market is steady and doesn’t appear to be contracting in the face of the Federal Reserve interest rate hikes.

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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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