Understanding what the T in MMT involves

I’ve been meaning to write about this topic for some time, but a Tweet the other day reminded me that there was still major misunderstandings of what Modern Monetary Theory (MMT) represents and that it was time to clarify some of those errors in comprehension. Specifically, there is a current out there that considers MMT to be incorrectly labelled because according to the argument there is no theory involved. It’s hard to imagine why anyone would think that but the fact that they do tells me that I should write this blog post. As I noted yesterday, our Macroeconomics textbook to be published by Macmillan Palgrave in February 2019 is full of theory. It has a lot of description, taxonomy, accounting, history, and philosophy, but also a lot of theory that ties some of those other components together in a meaningful way. The T in MMT is not a misnomer. The Tweet I saw the other day also said there was nothing new in MMT so what’s with the modern bit! I have already dealt with that issue in the past.

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Australian labour market – employment growth improves but uncertainty remains

The Australian Bureau of Statistics released the latest – Labour Force, Australia, August 2018 – today which show that the Australian labour market showed better signs in August 2018 than in July but there are questions about the sensitivity of the results to the sample rotation used by the ABS to construct its survey. I expect the results to be revised downwards next month. With that said, employment growth was solid (dominated by full-time growth) and the participation rate rose. Taken together, unemployment rose slightly and the unemployment rate was steady. Monthly hours worked however hardly moved which is further reason to doubt the employment estimates. Overall, my assessment is that the Australian labour market remains in an uncertain state and, is still a considerable distance from full employment. There is clear room for some serious policy expansion at present.

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Exploring the effectiveness of social media

Regular readers will know that I have become interested in the concept of messaging and language to help in the practical goal of widening the spread of Modern Monetary Theory (MMT) knowledge and putting really powerful tools into the hands of activists who build social and political movements. There are some great efforts underway (for example, Real Progressives in the US). On October 5, 2018, I will be launching the Gower Initiative for Modern Monetary Studies and running some workshops for them in London. This is another excellent activist group setting out and prepared to climb the hill and all the mainstream economics obstacles that are in their way. The aim is to build a network of these groups around the Globe (Italy, where there is already a solid network; Spain, similar; Germany – I will be there October 13); Finland, already solid activity; Scotland, I will be there October 10; Ireland, I will be there October 3-4, and elsewhere). On this theme, some current research, which Dr Louisa Connors and myself will unveil at the The Second International Conference of Modern Monetary Theory (New York, September 28-30), is the role that social media (among other things) plays in spreading knowledge. Regular readers will know I occasionally point to what I see as the futility of twitter firestorms where some MMT activists interact with some neanderthal-economics type who can’t get Zimbabwe typed quick enough and a drawn out back-and-forth of tweets, which can sometimes go for days, with increasing numbers of twitter addresses copied into the thread. They usually end in grief. The question is whether these social media platforms are suitable given what we know about effective framing and the type of language and strategy that is necessary to make that framing persuasive.

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Meet Australia’s new Prime Minister

It is Wednesday and only a short blog post. I am also ailing with the flu and my head hurts. As I noted in Monday’s blog post – The conservative polity is fracturing – an opportunity for the Left (August 27, 2108) – Australia now has a new prime minister, the former Treasurer. His elevation has been celebrated as a victory for the ‘moderates’, given that his main contender, the guy who attempted the coup in the first place and succeeded in getting rid of the incumbent PM, was rather obviously extreme right in his views. Some are saying we have been saved by the fact that he didn’t succeed. But to call the new PM ‘moderate’ is to lose all sense of meaning to our language. He is a dangerous neoliberal ideologue who has inflicted untold pain on many people as he has made his way to the top.

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The conservative polity is fracturing – an opportunity for the Left

Regular readers will know that I have spent a lot of time writing about the demise of the Left political parties as they became subsumed with neoliberal economic ideology, which blurred the political landscape as the ‘centre’ moved to the Right. That topic was the focus of our current book – Reclaiming the State: A Progressive Vision of Sovereignty for a Post-Neoliberal World (Pluto Books, September 2017). The neoliberal infestation has left these parties with declining electoral support, fractured internal organisations and cultures, and a seeming inability to abandon their flawed economic narratives. But there is a mirror image to this demise and that is playing out on the conservative side of politics. In Australia in the last week (but building for years) the far right conservative elements from within the government have brought down their own leader and our Prime Minister in a spiteful clash of ideologies between the more moderate elements in their party and the extremes out on the right. The internal tensions that drove this suicidal mission are being played out around the world. Think about the way that Trump is compromising the Republican party. Think about how Brexit is splitting Tory ranks in Britain. And so on. The problem for the conservatives is that citizens are realising that the neoliberal economic approach has failed to deliver on its promises. And that economic model is ‘owned’ by the conservatives. The adoption of neoliberal economics by social democratic parties is not part of their DNA. It is largely because their ranks have been infested by careerists who have come from the ‘elites’ and have little resonance with workers. The gaps in the policy space that these fractures have created is being occupied by extremist groups. It will be much easier for progressive parties to reclaim that space than it will be for the conservatives who are in the process of a death spiral. But to do that, the social democratic movements has to abandon every vestige of neoliberal economics – the concepts, policies and language and framing. That is the challenge.

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The Weekend Quiz – August 25-26, 2018 – 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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Public infrastructure investment must privilege public well-being over profit

One of the principle ways in which so-called progressive political parties (particularly those in the social democratic tradition) seek to differentiate themselves from conservatives is to advocate large-scale public infrastructure investment as a way of advancing public good. You can see evidence of that in most nations. Nation-building initiatives tend to be popular and also are less sensitive to the usual attacks that are made on public spending when income support and other welfare-type programs are debated. Capital worked out long ago that public spending on infrastructure provided untold benefits by way of profits and influence. In the neoliberal era, the bias towards ‘competitive tendering’ and public-private partnerships has meant that private profit tends to dictate where and what public infrastructure is built. The problem is that large-scale projects tend to become objects of capture for the top-end-of-town. Research shows that these ‘megaprojects’ typically deliver massive cost overruns and significantly lower benefits than are first estimated when decisions are being made about what large projects to fund. Further, evidence suggests that this is due to corrupt and incompetent behaviour by private project managers (representing their companies) and empire-building public officials. They lie about the costs and benefits so as to distort the decision-making processes in their favour. Any progressive government thus must be mindful of these tendencies and behaviours. A progressive policy agenda needs to be more than just outlining a whole lot of nice sounding public infrastructure projects that the government will pursue. The whole machinery of public procurement that has emerged in this neoliberal era needs to be abandoned and replaced with decision-making processes and rules that privilege the advancement of public well-being over profit.

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Reclaiming our sense of collective and community – Part 1

My home town (where I was born and still spend a lot of time) is Melbourne, Victoria. It is a glorious place, at least the inner suburbs within about 3-4 kms of the city centre where I hang out mostly. It recently ‘lost’ its top place in the Economist Intelligence Unit’s Global Liveability Index (most pleasant place to live) to Vienna (Source). One wag thought it might have been because the Economist got confused between Australia and Austria. Economists are easily confused! But the reason I mentioned this is because it is symptomatic of how neoliberalism has reconstructed our realities and degraded our sense of community. The ‘competitive’ narrative, even though firms go all out to use power and deception to fix and rig markets in their favour, now dominates our perception. While I identify with Melbourne and would think a significant part of my identity is linked to that identification, the neoliberal narrative with its distinctive language, aims to reconstruct the community and communities of Melbourne, not as social and cultural artifacts, but as ‘products’ competing with other cities of the world for supremacy. I was thinking about this as I scope out the structure of the next book that Thomas Fazi and I will publish next year as a follow-up to our current book – Reclaiming the State: A Progressive Vision of Sovereignty for a Post-Neoliberal World (Pluto Books, 2017). Thomas and I have advanced our ideas and we will, in part, be focusing on how communities and the nation state work together to advance progressive outcomes. In our first book together, we set out how nation states can operate from a technical perspective and what they should do to provide for a progressive future. In the next book, we will dig deeper into the ways people and their communities have to re-empower themselves. Language, construction, vocabulary, and framing are all significant in this regard.

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The Weekend Quiz – August 18-19, 2018 – 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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Australian labour market weakens in July 2018

The Australian Bureau of Statistics released the latest – Labour Force, Australia, July 2018 – today which show that the Australian labour market weakened in July 2018 and one is lead to think that the June 2018 improvement was an outlier after several months of poor results earlier in the year. It looks like the labour market has settled back into that weak pattern. Overall employment growth was negative but this was all down to the teenage segment, where there were substantial losses of part-time work. Unemployment fell marginally but only because the participation rate fell by 0.1 points, which meant that the labour force contracted by more than employment. Overall, my assessment is that the Australian labour market remains in an uncertain state, but is on the weak side, and, is still a considerable distance from full employment. There is room for some serious policy expansion at present.

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A twitter storm of lies …

This is my short Wednesday offering, which will be quite short considering the last two days have been (necessary) epics. My three-part series created somewhat of a social media storm, which means people are interested in the topic and I think that is healthy. Democracy is strengthened if people educate themselves and contest propositions that are abroad in the debate. But, as I noted yesterday, social media storms have a way of getting out of control and out of the realm of being complementary to a more considered educative process and interaction. What the recent Twitter storm has demonstrated is that key people are just willing to make spurious accusations (aka lies) without having taken the time to consider the depth of the literature that is available on any topic. That is not helpful to democracy. It undermines it. Anyway, in this short blog post, I consider some of the responses to my three-part series. As a footnote, I have now retitled the three-part series “MMT is just plain good economics” rather than using the quotation from the British Shadow Chancellor’s advisor who said that “MMT is just plain bad old economics”. Framing. I took the points of several commentators on this blog seriously in this regard. Thanks.

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Australian households running down savings and in a race to go broke

A short blog post today as it is Wednesday. I have also been travelling a lot and have been reading a lot. And have been otherwise distracted. But I thought this information was worth writing a few paragraphs about for the record. Last week, I wrote a blog post – The fundamental realignment of British society via fiscal austerity (July 30, 2018) – about some of the more unsavoury impacts of the British government’s austerity push. I highlighted how the current growth strategy was precarious because it was reliant on the private domestic sector accumulating increasing debt to maintain consumption growth at a time when the external sector was draining growth, private investment was weak and the government was hell bent on cutting services and infrastructure investment. The ONS data shows that “UK households have seen their outgoings surpass their income for the first time in nearly 30 years” and they “are borrowing more and saving less”. A recipe for disaster. A report published in Australia late last week – 14th Household Financial Comfort Report (August 2018) – provides “in-depth and critical insights into the financial situation of Australians based on a survey of 1,500 households”. It is not a pretty story and demonstrates the global uniformity of the neoliberal approach, which is characterised on ever increasing private debt and falling commitments to sustain public services. The GFC only temporarily interrupted this agenda that aims to reverse decades of gains for workers and their families under social democratic governments.

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The government is not a household and imports are still a benefit

It is Wednesday and so a shorter blog post today while I spend more time writing other things. But there was one issue that was raised in the comments in the last week following my blog post – Build it in Britain is just sensible logic (July 26, 2018) – that I thought warranted attention. The government is not a household is a core Modern Monetary Theory (MMT) proposition because it separates the currency issuer from the currency user and allows us to appreciate the constraints that each has on its spending capacities. In the case of a household, there are both real and financial resource constraints which limit its spending and necessitate strategies being put in place to facilitate that spending (getting income, running down savings, borrowing, selling assets). In the case of a currency-issuing government the only constraints beyond the political are the available real resource that are for sale in that currency. Beyond that, the government sector thus assumes broad responsibilities as the currency issuer, which are not necessarily borne by individual consumers. Its objectives are different. Which brings trade into the picture. Another core MMT proposition is that imports are a benefit and exports are a cost. So why would I support Jeremy Corbyn’s Build it in Britain policy, which is really an import competing strategy? Simple, the government is not a household.

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US growth surprise will not last

Last Friday July 27, 2018), the US Bureau of Economic Analysis published their latest national accounts data – Gross Domestic Product: Second Quarter 2018 (Advance Estimate), which tells us that the annualised real GDP growth rate for the US was a very strong 4.1 per cent in the was 3 per cent in the June-quarter 2018. Note this is not the annual growth over the last four-quarters, which is a more modest 2.8 per cent (up from 2.6 per cent in the previous quarter). As this is only the “Advance estimate” (based on incomplete data) there is every likelihood that the figure will be revised when the “second estimate” is published on August 29, 2018. Indeed, the BEA informed users that it has conducted a comprehensive revision of the National Accounts which includes more accurate data sources and better estimation methodologies. So I had to revise my entire dataset today to reflect the revisions. The US result was driven, in part, by “accelerations in PCE and in exports, a smaller decrease in residential fixed investment, and accelerations in federal government spending and in state and local spending.” Real disposable personal income grew at 2.6 per cent (down from 4.4 per cent in the first-quarter). The personal saving ratio fell from 7.2 per cent to 6.8 per cent. Notwithstanding the strong growth, the problems for the US growth prospects are two-fold: (a) How long can consumption expenditure keep growing with flat wages growth and elevated personal debt levels? (b) What will be the impacts of the current trade policy? rise is a relevant question. At some point, the whole show will come to a stop as it did in 2008 and that will impact negatively on private investment expenditure as well, which has just started to show signs of recovery. Government spending at all levels has also continued to make a positive growth contribution. But with rising private debt levels and flat wages growth the growth risk factors are on the negative side. When that correction comes, the US government will need to increase its discretionary fiscal deficit to stimulate confidence among business firms and get growth back on track.

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The plaintive, I just want to do my art!

Today is Wednesday and only a few observations today as I want more time to write other things. Last night, I gave a talk at a Politics-in-the-Pub event in Newcastle, which is a monthly gathering held at a local hotel and attracts an audience of around 80 people or thereabouts. These are people who purport to be active politically and progressive in bent. The topic was Universal Basic Income and Automation, although it was really a general discussion of UBI, and, with my appearance, a comparison with the Job Guarantee. It was a revealing evening really because the discussion indicated that major policy issues are debated in public and among progressive people without the provenance of ideas being understood or how things fit together in a system. Quite dispiriting really. So I thought I would explore the appeal – I just want to do my art, which was one statement last night in support of a UBI.

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UBI advocates ignore the dynamic efficiencies of full employment

I have written about the concept of dynamic efficiency before. The most recent blog post on this theme was – The ‘truth sandwich’ and the impacts of neoliberalism (June 19, 2018) – which examined how social mobility across generations has been declining as a result of the decades of entrenched unemployment driven by neoliberal austerity biases. I also outlined the proposition in this blog post – US labour market reality debunks mainstream view about structural impediments (January 15, 2018). The point of all this is that establishing high pressure labour markets brings about more than just workers who want to work having jobs. It brings other major benefits that workers can enjoy and forces firms and governments to manage their affairs differently from when there is entrenched unemployment. The UBI proponents never really understand that point as they continue to surrender to the proposition that mass unemployment is inevitable and all the governments should do is keep people alive with some guaranteed income. All these dynamic efficiency gains are then not realised and capital has the run of the field.

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Australian labour market – stronger employment growth but still uncertain

The Australian Bureau of Statistics released the latest – Labour Force, Australia, June 2018 – today which show that the Australian labour market gained some strength after several months of poor results. Overall employment growth was stronger with a robust increase in full-time employment, although the overall increase in monthly hours worked was modest. Unemployment fell marginally with the unemployment rate steady at 5.4 per cent. However, participation rose by 0.2 per cent and employment growth was strong enough to absorb both the underlying population growth and the new entrants into the labour force. The teenage labour market delivered mixed results – with overall employment rising disproportionately but full-time employment declining. A further grey cloud came with the rise in underemployment by 35.1 thousand to 8.6 per cent. The broad labour underutilisation rate rose to 13.73 per cent. Overall, my assessment is that the Australian labour market remains in an uncertain state and is still a considerable distance from full employment.

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Elements in a strategy for the Left

Reuters reported (July 8, 2018) that the awful Madame Lagarde was in France last week lecturing people on how the “joint euro zone budget could be designed with conditions so that it does not become a no-strings transfer of rich countries’ cash to poorer members”. Meanwhile, Jürgen Habermas was lecturing all and sundry on how a “frightened retreat behind national borders cannot be the correct response to … the politically uncontrollable functional imperatives of a global capitalism that is being driven by unregulated financial markets” (Source). Meanwhile, in the UK, the ‘Remainers’ think staying in the corrupt EU is a good idea because the Tories are so incompetent and divided. The state of the world. Misperceptions, misinformation and just plain poor analysis. There are tremendous opportunities for the Left to make political gains. But if they don’t abandon the type of ideas and language that is exemplified by Habermas’s latest entreaty and if they don’t undermine the likes of Lagarde and the Remainers (the pan-Europe contingent) then they will, once again, miss the boat.

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Brexit propaganda continues from the UK Guardian

Its Wednesday, so a relatively short blog post today. We are just about finished the final responses to the editors from Macmillan on the manuscript for the next Modern Monetary Theory (MMT) textbook, which I am now reliably informed will be published in February 2019. Today, two short topics. First, the disgraceful and on-going propaganda from the UK Guardian about the “Brexit process”. Second, a report released today in Australia showing the damaging effects of a financial sector that is not properly regulated. And then some event announcements and then some music to restore our equanimity.

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Governments should not issue debt under foreign law

In examining the implications for an exit from a currency union, one of the issues that arises is the proportion of public debt that is issued under foreign law. This is a separate issue to the implications of foreign-currency denominated debt. Both issues are problematic and compromise a government’s capacity to remain solvent. I covered the former issue to some extent in my 2015 book – Eurozone Dystopia: Groupthink and Denial on a Grand Scale – when I was considering different strategies for exit. There has been some further research on the question of foreign law debt issuance by the ECB and its Working Paper No. 2162 – Foreign-law bonds: can they reduce sovereign borrowing costs? – published June 2018, has relevance. It is clear that a government reestablishing its sovereignty has the upper hand, especially if it has issued debt under its own legal system. Which is why the likes of the IMF and the European Commission has been keen to increasingly pressure governments to issue debt under foreign laws under the ruse that this is a show of faith to the private bond markets. Once again the increasing bias towards foreign-law debt is all about privileging private capital over the interests of citizens in national states. What is absolutely clear is that a sovereign government should never issue debt instruments under any legal system other than their own. What is even clearer – such a government has no need to issue any debt at all.

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