The Left has failed during the pandemic but not because they supported restrictions

I usually use Wednesday to write less here. But because sometimes a data release is on Wednesday, Thursday then becomes my lighter day. And I also have to travel a lot today. But there is a relatively important issue to address. I have been receiving a lot of E-mails over the last several months that question me about my position on government restrictions with respect to the Covid pandemic. Apparently, it has seeped into the debate that the mainstream Left have been silent while governments around the world have imposed draconian social control on their citizens, which have been targeted against the workers. The questions all seems to suggest that I have been silent on that issue, which is indicative that I have adopted the ‘woke’ Left position. I beg to differ.

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The same erroneous logic that created the social housing shortage is apparently the solution

Australia has a dire housing crisis, particularly in the low-income or social housing end. Since the 1990s, successive federal governments, who fund the social housing, have abdicated from their responsibilities citing a lack of funds and the need to run fiscal surpluses in order to save money for the future. While it has been starving the social housing sector, it has been investing billions of dollars in its Future Fund, ostensibly to cover future liabilities. So instead of spending funds on hospitals, education, housing and other important infrastructure needs, the government has been spending on speculative financial assets in global markets, some of which have been scandalous (see below). The whole narrative has been based on the falsehood that the government is like a household and has to save to expand its future spending possibilities. That logic has killed off many valuable initiatives, including maintaining adequate social housing stocks such that now low income Australians are increasingly becoming poor or homeless due to the high cost of private-provided housing at market rents. Today, a new proposal was launched by a think tank advocated that the Australian government should borrow to build the Future Fund so it can deliver speculative returns to help fund the dramatic shortfall in social housing. That is, they are using the same logic (the government is financially constrained) to solve a problem the logic created. It would be hard to make this stuff up.

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Why flat wages growth in Australia tells us nothing about the impact of migration on the labour market

One of the important concepts one learns in studying the way firms work with respect to pricing and markups is the distinction between quantity and price adjustment over the course of an economic cycle. When economists talk of supply and demand, they usually refer to price adjustment, where prices adjust up or down when there is an imbalance between these aggregates. Orthodox economics presumes that prices adjust, for example, to eliminate an excess supply, which they apply to the labour market and conclude that the cure for mass unemployment is wage cutting. The problem is that in many circumstances, firms use quantity adjustments long before they contemplate price adjustments, because the former involves lower costs. The Australian Broadcasting Commission (ABC) ran a story from its business reporters today (November 16, 2021) – As migration restarts, will it hold down wages for everyone? – which has also become a feature news segment on its television coverage today. The analysis presented is seriously misleading. It not only fails to characterise the problem properly but buys into a highly contentious debate about whether migration has negative impacts on the labour market prospects for local workers. It behoves analysts to actually construct the problem correctly before they start taking sides in this debate. The ABC article fails in that regard which is disappointing. Their failure also reflects the lack of diversity in opinion they seek these days. They chose to simply rehearse the arguments presented by one pro-migration analysis as if it was definitive rather than seek expert opinion from neutral analysis. But it also demonstrates why understanding the difference between quantity and price adjustment is crucial to getting the conclusions right.

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Corporate welfare abounds

It’s Wednesday, so just a few snippets before some great music from the early 1960s. Over the last few weeks, the commentary in the financial and economic press has been that the ‘market’ has priced in higher inflation and the central banks will have to concede to the market prerogative. Even people I personally like in the media have been running this line and headlines last week included statements like the RBA has run the white flag up. All of this is a self-fulfilling outcome, if every one acts as if there is an imperative to give the ‘markets’ the running, then it will happen. And we should all be clear on what that means. Corporate welfare abounds. And it is not the only example in the last week.

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Countries than run continuous deficits do not seem to endure accelerating inflation or currency crises

There was a conference in Berlin recently (25th FMM Conference: Macroeconomics of Socio-Ecological Transition run by the Hans-Böckler-Stiftung), which sponsored a session on “The Relevance of Hajo Riese’s Monetary Keynesianism to Current Issues”. One of the papers at that session provided what the authors believed is a damning critique of Modern Monetary Theory (MMT). Unfortunately, the critique falls short like most of them. I normally don’t respond to these increasing attacks on our work, but given this was a more academic critique and I was in an earlier period of my career interested in the work of Hajo Riese, I think the critique highlights some general issues that many readers still struggle to work through.

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Australia – annual inflation rate falls to 3 per cent with the quarterly rate stable and the press go crazy

Apparently, inflation in Australia has come ‘roaring’ back, if you believe one financial commentator today. There has been a lot of talk about how inflation is spiralling upwards and it demonstrates the MMT ‘quackery’. If you examine today’s data release from the Australian Bureau of Statistics – Consumer Price Index, Australia (October 27, 2021) – which relates to to the September-quarter 2021, then it becomes clear that the slightly elevated CPI result is largely due to uncompetitive cartel behaviour and deliberate government petrol pricing policies that ensure that the cartel behaviour is ratified in the form of higher local petrol prices. Not much more to see than that really. Nothing much to do with Modern Monetary Theory (MMT) at all. Sorry about that. The CPI rose by 0.8 per cent in the September-quarter 2021 and 3 per cent over the 12 months. The two main drivers were the rise in prices for New dwelling purchases by owner-occupiers (3.3 per cent) and Automotive fuel (7.7 per cent). Last quarter, the annual rate of CPI increase was 3.8 per cent, which makes statements like ‘roaring back’ seem ridiculous and designed to attract headlines.

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The British Chancellor cannot run short of sterling unless he chooses to do so

It’s Wednesday and my blog-lite day or so it seems. Today I briefly discuss the proposition that the British government can run short of sterling. It cannot unless it chooses to do so. And the basis for choosing to do so would be deeply irrational and irresponsible, when judged from the perspective of advancing the well-being of the citizens. I also reflect on the vested interests in the financial markets and the way they get platforms in the media and policy making circles to advance their sectional interests (profit). And mostly, we just have a 33 minute musical feast to reflect upon.

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Australian government issues debt, buys most of it itself, and then pays itself interest into the bargain

These are rather extraordinary times indeed. I have been trawling through the Australian public debt data which is spread across the federal sphere and the various states and territories. The official data published by the ABS is always dated (lagging a year or so) and the state-level debt data is actually quite hard to put together – their various ‘debt management’ offices do not make it easy to put a time series together. My interest is in working out the impact of the rather radical shift in usual conservative Reserve Bank of Australia behaviour when the pandemic hit. They started buying government bonds (at all levels) and now own large swathes of public debt. They have also effectively been funding the rather large deficits that the governments in Australia have been running. And interest rates and bond yields remain low after nearly 18 months of this shift.

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(Modern) Marx and MMT – Part 2

This is Part 2 of my analysis of the way that fundamental ideas in Modern Monetary Theory (MMT) are totally consistent with a reasonable interpretation of Marx’s work. The motivation to clarify these issues came after I spoke at an event last weekend in the UK and shared a panel with a critic who claimed that Marx’s work established that MMT is wrong to assume that unemployment is a monetary phenomenon (insufficient spending) and that government spending can do anything about it. The claim was based on a view that Marx thought that capitalist firms have some unique logic that if they decide not to produce no amount of sales orders will induce them to expand production even if they have massive excess capacity (‘machines lying idle’) and a huge pool of idle labour to draw upon. No reasonable reading of Marx’s work would lead to that conclusion. In this part, we will consider what Marx thought about crisis and some later developments of his reproduction schemes, which make it clear that effective demand drives capitalist output, which conditions their employment decisions.

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British Labour Conference seems to be going well

It’s Wednesday, and I have been following the British Labour Party conference and it seems they are conducting business as usual. That is, working out new and old ways to keep themselves unelectable even when the Tories are one of the worst British governments in history I would think. But so it goes. A split is the only way forward I guess. The Blairites can then hold conferences, stack votes to have unelectable leaders and design fiscal rules to their hearts content. At least they will be saving me time this time around. I will just be able to cut and paste my previous critiques of John McDonnells’ neoliberal Fiscal Credibility Rule and apply the analysis to the new Rachel Reeves’ rules. Not much has changed. Who is giving this lot advice? After that, I am sure you will appreciate that the IMF is now considered to be past its use-by date and currently mired in a data-fudging scandal. And then some Rock Steady to calm us down. That’s what today’s blog post offers.

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The Merkel failure

Its seems the conservative economics press is going through a hard time as it tries to wrest itself from its past litany of errors of judgement, backing the wrong horse, whatever. The latest example is The Economist Magazine, which ran a Leader Article over the weekend (September 25, 2021) = The mess Merkel leaves behind. It eviscerates the Merkel period for leaving Germany with a legacy that will cause headaches for future leaders and for the German people. This runs counter to the usual stuff the Magazine has offered about the soundness of Germany over many years as a bastion of stability and good financial management. It also provides a dose of reality to the raft of ridiculous glowing assessments of the Merkel years. In my view, she has overseen a government that has undermined its own prosperity, deliberately disobeyed the very rules it enforces on other nations in the Eurozone, and bullied leaders of other nations to enact dreadful policy shifts that have impoverished defenceless citizens. It is a cause of celebration that she is going not because we laud her work, quite the opposite. One failure less in public office.

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The Weekend Quiz – September 18-19, 2021 – answers and discussion

Here are the answers with discussion for this Weekend’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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Remembering Tuesday, September 11

Last Saturday, September 11, we observed the anniversary of a terrible terrorist act, inflicted on a free people with a democratically-elected government by multinational conspiratorial forces. The terrorist attack happened on a Tuesday. It resulted in the death of thousands of innocent people and the offenders have never been brought to justice. We should etch that day – Tuesday, September 11, 1973 – in our consciences, especially if you are an American, British or Australian citizen, given the culpability of our respective governments in that despicable coup d’etat. Today, a bit of a different blog post as I remember this historical event and the way it undermined progressive thought for years. The type of economic policies introduced by Pinochet on advice from the ‘Chicago Boys’ became the standard approach for even the traditional social democratic parties in the 1980s and beyond. We still haven’t abandoned the macroeconomic ideology that accompanies this approach. And Chile, 1973, was the live laboratory. Yes, the Blairites and the Delors-types and the American Democrats, etc don’t chuck inconvenient people out of planes in the ocean to get rid of them like Pinochet did on a daily basis, but the macroeconomics invoked is not that different.

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The Weekend Quiz – September 4-5, 2021 – answers and discussion

Here are the answers with discussion for this Weekend’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 dying embers of New Keynesian reasoning

Lawrence Summers is a New Keynesian economist. That means something. While there are nuances that exist between members of that school of thought, mostly to do with policy sensitivities and speeds of adjustment, the New Keynesian paradigm has demonstrated clearly that it is incapable of capturing the macroeconomic dynamics in any consistent manner, despite it being the dominant approach in the profession. So, it is no wonder when Summers provides opinions the underlying logic he demonstrates is similarly flawed. Unfortunately, he keeps getting important platforms to express these opinions, which continues to blight the public policy debate. He was at it again when he started lecturing the US Federal Reserve Bank on the conduct of its asset-purchasing program.

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Keynes on national self-sufficiency

One of the emerging discussions is what will the post-coronavirus world look like both within nations and across nations. There is a growing thread about the worries of increased state authoritarianism as governments have imposed an array of restrictions. There is also an increasing debate about the need for nations to return to enhanced national self-sufficiency to avoid the disruptions in the global supply chain that the pandemic has created. In 1933, John Maynard Keynes gave a very interesting lecture on this topic in Dublin. In this blog post, I consider that lecture and assess its currency in the contemporary setting.

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Trends in the Northern Ireland labour market – Part 1

The article in the Socialist Worker Review (No. 89, July/August 1986, pp. 19-21), by Eammon McCann – The protestant working class – has kept me thinking for some years. I recalled it the other day when I was updating my Northern Ireland labour market data and working on some text. As a result of reading this article many years ago, I became very interested in the labour market dynamics in Northern Ireland, in particular, as they impact on the debate about unification and EU membership (yes, I have always been anti-EU). In that vein, I have been following the trends over time rather closely. More recently, the central place of the North Ireland Protocol in the Brexit discussions has increased the relevance of this research. I also benefitted from some very interesting conversations a few years ago with my host in Galway (forever thankful Niall), while I was visiting the Republic of Ireland on a speaking trip. These conversations filled in many gaps in my understanding of some of nuances of the issues involved. These trends provide some good background to what has been happening in a region that is undergoing significant change and how we might assess the Northern Ireland Protocol in a post-Brexit world. It also helps us understand the demise of the DUP as a relevant political force. They represent a different era. From my understanding, it is also the major economic changes that have been taking place in Northern Ireland that are more likely to influence the trend away from identifying as either unionist or nationalist or proceeding along ‘religious’ lines. A working class impoverished by austerity is a powerful solidifying force. The labour market has changed dramatically over the last several decades. In this multi-part series, I provide some reflections on these issues. This is part of a book project I am working on (more about which later).

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The ideology of neoliberal ‘freedom’ ends up damaging all of us – NSW Covid outbreak

It has been a while since I updated my commentary on the new bi-weekly dataset using Australian Tax Office payroll data that the Australian Bureau of Statistics started publishing in March 2020, in order to provide more updated information on the state of the labour market during the pandemic. The Monthly Labour Force survey comes out in the third week of each month and relates to data collected around the second week of the previous month. With ongoing state government lockdowns being imposed with little warning having a significant impact on employment, this more frequent dataset was welcome. We are now in a situation where around 13 millions Australians are in tight lockdowns (over half the population), principally in Melbourne and Sydney. The latter, due to the incompetence of the conservative state government in NSW, has been in lockdown for weeks now and as the largest state, the reverberations are clearly going to be felt across the nation. Last week (August 5, 2021), the ABS released the – Weekly Payroll Jobs and Wages in Australia, Week ending 17 July 2021 – which provides the first glimpse of what the impact of the extended lockdown in Sydney (in particular) is having on the labour market. Employment in NSW shrunk by 5.1 per cent in the 3 weeks since June 26, 2021 (the start of the restrictions). Overall, employment has slumped by 2.4 per cent nationally. And the virus is spreading into regional NSW and things will get worse. The damage is being borne largely by our youth, given the occupation segregation in the ‘closed down’ sectors. The Federal government is demanding we all get vaccinated but due to its trying to ‘save money’ last year, there is insufficient vaccine available to supply the demand. Both the NSW and Federal governments have demonstrated their incompetence in the decisions they have taken in the name of ‘freedom’ and ‘fiscal surpluses’.

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