The Weekend Quiz – December 10-11, 2016 – 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.

Read more

The ‘post-truth’ era – nothing new in mainstream economics

The dictionary says Post Truth is the “fact or state of being post-truth; a time period or situation in which facts have become less important than emotional persuasion”. But I prefer to be direct – not to mince words – Post Truth is lying, plain and simple. It is making stuff up that is untrue, in denial of the facts, and, in cases where volition drives the lying, using strategic and well-thought out tools of psychological persuasion, fear, threats etc to make it look as though the statements are factual rather than lies. The interesting thing for me at the moment in this respect is that we are increasingly being told we are now in this Post Truth era. That social media has created this Post Truth era and that something should be done about it. Oxford English Dictionary announced recently that the Word of the Year 2016 is…, you got it, “post-truth” which they claim is a “concept … [which] … has been in existence for the past decade”. Its use has apparently “spiked in frequency this year” as a result of the Brexit referendum and the US election. Two things then are worth noting. First, there is nothing new about the idea of lying to influence public opinion. Indeed, as I will explain (briefly) the whole edifice of mainstream economics, including New Keynesian economics has been ‘post-truth’ since its inception. Second, the fact that it is getting attention now is because the establishment are starting to feel the pinch – their usual media power is losing traction with the democratising influences of the Internet – and their cosy worlds of influence are under threat from a rabble. And this applies to so-called progressive Left (the socialist politicians in Europe, the Labour politicians in Australia, Britain and elsewhere) who have so bought into the neo-liberal myth machine that they cannot understand why they are now losing support from their traditional sources (working class people). The ‘post-truth’ era is apparently upon us. But the reality is that there is nothing new about lying in mainstream economics. It is built upon a lie. It is just that the lying that is spreading on the Internet (‘fake news sites’) are damaging the establishment. That is why they are now complaining. They have never complained about the incessant lying from the economics profession.

Read more

Australian national accounts – inexorably marching towards recession

In the June-quarter, it was only the contribution of public spending that allowed the Australian economy to avoid negative growth. That contribution disappeared in the September-quarter and given the fiscal settings and the negative investment contributions it was obvious that Australia would slide closer to recession – recording negative growth for the first time since the September-quarter 2011. The fact is that the non-mining part of the economy is already in recession and has been for some time. Today, the Australian Bureau of Statistics released the – September-quarter 2016 National Accounts data – which showed that real GDP had indeed slumped to record a negative 0.5 per cent outcome. Annual growth (last four quarters) has fallen to 1.8 per cent, but the September-quarter outcome is closer to where we are now rather than what happened towards the end of last year and earlier this year. The Australian economy has been marching inexorably towards recession for the best part of this year and government refuses to budge from its attempts to impose fiscal austerity. Madness is a euphemism for their policy conduct. Incompetent also comes to mind. the September-quarter result has been driven by a negative contribution from private capital formation, net exports and now public spending. The only on-going positive contribution to growth came from household spending. My experimental research (which I will blog about when I am more certain of the methodology) show that when we take out the mining sector, Australia has been in recession or near it for some quarters and only the government contribution has made the difference between the two states. The on-going negative growth in private investment means that potential output in Australia and future growth rates will be lower than otherwise. Not a positive sign. The data continues to confirm that Australia faces a very uncertain outlook and with the Federal government intent on imposing austerity, then the nation is probably already recession overall (given the National Accounts data is already three months old). That should be a huge wake up call for the Federal government which is currently trying to bully the Senate into accepting massive cuts in public expenditure.

Read more

I, Daniel Blake – essential viewing

So Italy has now gone the way of the UK and the US in its referendum vote – rejecting the establishment but not sure on what to do instead. It seems that the US voters have been duped by a conman (noting he beat a conwoman). Now Renzi is to go and we will see what happens next. But the trends around the world are unmistakable. Ordinary folk are in rebellion and for good reason. Last night I saw the latest Ken Loach film – I, Daniel Blake, which is a grinding, shocking statement of how society has been so compromised by the neo-liberalism that these voting patterns are rebelling against. I would say that as an Australian the film was a little less shocking than it might have been because our stupid nation led the way in introducing the tyrannical administrative processes that accompany income support systems in this neo-liberal era. Britain (under Tony Blair – never let it be forgotten – he did more than lie about Iraq) followed Australia’s lead in this respect. So, Australians have seen this dystopia for more than 18 years now – and while I hope we have not become inured to it – normalised it – it has been part of our awareness for a long time. Nonetheless, the film is shocking in what it says about the societal compromise and the rise and normalisation of sociopathic relationships between state and citizen.

Read more

Australia races to the low-pay bottom while employers’ lies are exposed

Over the last 12 months, it has been increasingly obvious that the Australia has become a part-time employment nation. While the trend towards increasing part-time employment as a proportion of the total has been with us since the 1970s, the nature of that trend has been changing in recent years and belies the claims by the mainstream that it is a reflection of increased choice by workers for better life-work balance and the rising proportion of women in the workforce combining family responsibilities with income earning opportunities. The reality is different. Overall, there is a lack of working hours being generated in Australia (as elsewhere) because macroeconomic policy is restrictive (fiscal deficit to low as a proportion of GDP). That rationing of job creation is giving way to more part-time work, higher levels of underemployment (part-time workers who desire more hours but cannot find them), higher proportions of casual work, and a bias towards jobs that provide low (below average) pay. And the pressure is on to cut pay and conditions even further as employers make spurious claims about the damage penalty rates (overtime rates at weekends) cause the economy. The problem for them is that a recent (leaked) report by a Citi Research (part of Citigroup), hardly a friend of the unions and workers, has exposed the truth – cuitting penalty rates will just boost profits and will not lead to increased employment.

Read more

When Britain went fiat and the skies remained above

A former student sent me an E-mail recently and updated me on his progress and his current research project – the history of British banking in the 19th century. He also wanted to draw my “attention to a little known period in British Economic history that seems to reinforce the interrelationship between fiat currencies, public debt and expenditure and rates of economic growth and unemployment”. So square centre of my own research interests (among others). So I did some further digging and read back through the notes I have taken over the last 35 years as a researcher. I was aware of the Bank Restriction Act 1797 “was an Act of the Parliament of Great Britain … which removed the requirement for the Bank of England to convert banknotes into gold.” This essentially created a fiat currency system with the central bank as the currency issuer. More interesting things arise as you dig further. For a period of 24 years, Britain lived under this form of monetary system. And, need I add, during this period Britain usurped the Netherlands as the most developed economy in the world at that point in history and the industrial revolution boomed. The mainstream economists of today would have predicted catastrophic results from the 1797 Bank Act. But then we know that what they say has zero credibility anyway.

Read more

The British reality defying the ideologically-based gloom and doom

I last wrote about the aftermath of the June 2016 Brexit vote in this blog – Mayday! Mayday! The skies were meant to fall in … what happened?. Admittedly, it was written just a month after the vote and so the analysis could legitimately be considered as being tentative and was designed to refute the claims by the remainers that the UK would instantly sink into recession. It didn’t and it hasn’t. Despite the tentative nature of the blog (using the first data releases after the vote), I received a bevy of ‘hate’ E-mails, presumably from those ‘darlings’ that were miffed they didn’t get their way in the vote. Bad luck, that is the way ‘democracy’ works. We are now at the end of June and we have more information and my conclusion in August is now more concrete. The doom and gloom that was meant to follow the vote outcome is not to be seen in the data. While we might dismiss the on-going strength of consumption expenditure as being short-termism (it might change quite rapidly), last week (November 25, 2016) we learned that private capital formation (investment) is growing strongly and a number of foreign companies have reaffirmed their commitment to on-going investment in the UK. That is forward-looking decision making – out years into the future. Doesn’t look like a Brexit calamity to me.

Read more

The case against free trade – Part 3

This blog continues my mini-series of free trade. In Part 1, I showed how the mainstream economics concept of ‘free trade’ is never attainable in reality and so what goes for ‘free trade’ is really a stacked deck of cards that has increasingly allowed large financial capital interests to rough ride over workers, consumers and undermine the democratic status of elected governments. In Part 2, I considered the myth of the free market, the damage that ‘free trade’ causes’. The aim of this mini-series is to build a progressives case for opposition to moves to ‘free trade’ and instead adopt as a principle the concept of ‘fair trade’, as long as it doesn’t compromise the democratic legitimacy of the elected government. This is a further instalment to the manuscript I am currently finalising with co-author, Italian journalist Thomas Fazi. The book, which will hopefully be out soon, traces the way the Left fell prey to what we call the globalisation myth and formed the view that the state has become powerless (or severely constrained) in the face of the transnational movements of goods and services and capital flows. In this blog (Part 3 and final) I consider the concept of ‘fair trade’ as an alternative to the current situation where modern democracies demonstrate an unwillingness to resist the ever-increasing demands of global capital to cede democratic legitimacy in favour of corporate profits.

Read more

Australian labour market – staggering along and in trend deterioration

Yesterday, the ABS released its Wage Price Index data for the September-2016, which showed the record low wages growth is continuing. The latest labour force data released today by the Australian Bureau of Statistics – Labour Force data – for October 2016 shows that predictions that this low wages growth would be good for employment were, unsurprisingly, false. Total employment barely increased and the ABS said the trend to part-time work has intensified. Over the last 12 months, Australia has produced only 102.2 thousand (net) jobs with 136.9 thousand of them being part-time jobs. In other words, full-time employment has fallen by 34.7 thousand jobs over the same period. Australia maintains its status as the nation of part-time employment growth with all the attendant negative consequences. The teenage labour market remains in a poor state and contracted sharply again in October. It requires urgent policy intervention. Overall, with weak private investment now on-going, the Australian labour market is looking in pretty dismal shape and the Federal government should immediately renounce its ill-informed austerity narrative and announce a rather sizeable fiscal stimulus to provide some fiscal leadership to the nation. This should include a large-scale public sector job creation program which would ensure teenagers regained the jobs that have been lost due to the fiscal drag over the last several years. The deteriorating data is staring us all in the face now! There is no room for nuance.

Read more

The Weekend Quiz – November 12-13, 2016 – 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.

Read more

Using welfare systems to hide the problem of deindustrialisation

There have been lots of E-mail requests overnight for commentary on the US election result. I think that space is pretty crowded at present – with Clinton supporters trying to reconstruct events to defray their responsibility (a denial strategy), in a similar vein to the Remainers in Britain in the early days after the Brexit vote. I expect to read learned columns in the New York Times and other establishment newspapers in the weeks ahead outlining, with all the gravity that is possible in the written word, how millions of Americans who voted for Trump are now regretting it. Same as in the UK. I expect to read a lot about racism and misogyny and various numbers wheeled out to show who voted for whom to prove this or that. The twitterverse has already gone crazy with this sort of ‘analysis’. Maybe later when I have had a chance to reflect on the actual data I might write something. But what part of “the people are sick of the establishment even though they don’t quite know what they are going to do about it and given the choices support those who will do little about it” is hard to understand. The neo-liberal lust has created a monster that they now cannot control. The highly concentrated mainstream media doesn’t call the shots as much as it did. The academic economists who preach fear of change but who people know from the GFC are a depreciated cohort without much insight at all are now ignored. That is how I am seeing it. A great chance for a new progressive element but also space for the worst of the right-wing to fill. A big contest is now there for ideas to play out. The only problem is that the mainstream ‘progressive’ forces (like the Democrats, British Labour Party, Socialist Parties, etc) have been so captured by the establishment that they have become the establishment – neo-liberal to the core. But today, I will write a bit about the abuse of Disability Support Pension schemes to hide unemployment and make austerity look less worse than it is.

Read more

The case against free trade – Part 2

This blog continues my mini-series of free trade. In The case against free trade – Part 1 – I showed how the mainstream economics concept of ‘free trade’ is never attainable in reality and so what goes for ‘free trade’ is really a stacked deck of cards that has increasingly allowed large financial capital interests to rough ride over workers, consumers and undermine the democratic status of elected governments. The aim of this mini-series is to build a progressives case for opposition to moves to ‘free trade’ and instead adopt as a principle the concept of ‘fair trade’, as long as it doesn’t compromise the democratic legitimacy of the elected government. This is a further instalment to the manuscript I am currently finalising with co-author, Italian journalist Thomas Fazi. The book, which will hopefully be out soon, traces the way the Left fell prey to what we call the globalisation myth and formed the view that the state has become powerless (or severely constrained) in the face of the transnational movements of goods and services and capital flows. In Part 2, I consider the myth of the free market, the damage that ‘free trade’ causes and move towards a discussion of fair trade. I will complete the series in a third part soon.

Read more

US employment falls in October signalling increased weakness

After last month’s US Bureau of Labor Statistics employment data (for September) I assessed that – The US labour market is nowhere near full employment. This was in the context of overtly political (ideological) and ridiculous statements made by the President of the Federal Reserve Bank of San Francisco, who had claimed that the US economy had already returned to full employment. The current BLS data release – Employment Situation Summary – October 2016 – has not altered my view. It showed that total non-farm employment from the payroll survey rose by 161,000 and the unemployment rate remained “little changed” at 4.9 per cent. But from the perspective of the labour force survey (Current Population Survey), total employment fell by 43 thousand. See below for an explanation of that paradox. The point is that employment still remains well below the pre-GFC peak and the jobs that have been created in the recovery are biased towards low pay. In general, the problem is less job creation as quality of the work being created and the capacity of US workers to enjoy wage increases. There are also wide disparities among state unemployment rates.

Read more

The case against free trade – Part 1

Like many aspects of mainstream economic theory – free trade – is one of the concepts that sounds okay at first but the gloss quickly fades once you understand the basis of the theory and how it derives its seemingly ideal results. In practice, the textbook ‘model’ is never attainable in reality and so what goes for ‘free trade’ is really a stacked deck of cards that has increasingly allowed large financial capital interests to rough ride over workers, consumers and undermine the democratic status of elected governments. Further, even within the mainstream approach the terrain has moved. The old perfectly competitive ‘models’ of free trade, which go back to the Classical economist David Ricardo and were embodied in the so-called Heckscher-Ohlin and were used to disabuse notions of government intervention (protection, tariffs, import duties etc), have been surpassed in the literature. This blog is Part 1 in a two-part (might be three) series on why progressives should oppose moves to ‘free trade’ and instead adopt as a principle the concept of ‘fair trade’, as long as it doesn’t compromise the democratic legitimacy of the elected government. This is a further instalment to the manuscript I am currently finalising with co-author, Italian journalist Thomas Fazi. The book, which will hopefully be out soon, traces the way the Left fell prey to what we call the globalisation myth and formed the view that the state has become powerless (or severely constrained) in the face of the transnational movements of goods and services and capital flows. This segment fits into Part 3 which focuses on ‘what is to be done’.

Read more

Rising inequality and underconsumption

John Atkinson Hobson was an English economist in the second-half of the C19th and worked well into the C20th, dying at the age of 81 in 1940. I have been reflecting on his work in the context of wage and other labour market developments in recent years. Hobson, individually and with co-authors, provided some excellent insights into how rising income inequality, mass unemployment and increased poverty destabilises the economic system through its impacts on consumption spending. He argued that government should engender what he called a ‘high-wage economy’ which would provide the best basis for prosperity. He was writing as an antagonist to the trends of the day, which considered wage suppression to be good for business and society. In this blog, we consider some of those issues. This is a further instalment to the manuscript I am currently finalising with co-author, Italian journalist Thomas Fazi. The book, which will hopefully be out soon, traces the way the Left fell prey to what we call the globalisation myth and formed the view that the state has become powerless (or severely constrained) in the face of the transnational movements of goods and services and capital flows. This segment fits into Part 3 which focuses on ‘what is to be done’.

Read more

Australian national broadcaster gives ignorance the national stage

Our national broadcaster, the ABC, has a regular panel program called Q&A as part of its TV offerings where a panel of so-called experts are assembled each Monday night to wax lyrical about some particular and contentious topic. The ABC claims it provides a balanced coverage, which is required as part of its legal charter as the public broadcaster, yet on economic issues it clearly fails in this regard. Even the so-called progressive voices it ever puts on have broadly neo-liberal economic views regarding government fiscal capacities etc. Last Monday, the ABC breached its responsibilities even further by giving centre stage on economic matters to a person who clearly has no understanding of the issues she was holding out expertise in. I didn’t watch the program but the transcript reveals that the conversation was a violation of any intellectual standards. The ABC has descended into the gutter of tabloid journalism. What a shame!

Read more

Ending food price speculation – Part 2

This is Part 2 of the blog I started yesterday outlining the case to regulate food price speculation out of existence. This discussion is part of the policy section of what will soon be my latest book (with co-author, Italian journalist Thomas Fazi) which traces the way the Left fell prey to what we call the globalisation myth and formed the view that the state has become powerless (or severely constrained) in the face of the transnational movements of goods and services and capital flows. In Part 3 of the book, we aim to present a ‘Progressive Manifesto’ to guide policy design and policy choices for progressive governments. We also hope that the ‘Manifesto’ will empower community groups by demonstrating that the TINA mantra, where these alleged goals of the amorphous global financial markets are prioritised over real goals like full employment, renewable energy and revitalised manufacturing sectors is bereft and a range of policy options, now taboo in this neo-liberal world are available. This discussion is part of a chapter that will concentrate on financial market reforms (what to do with banks etc) and considers what can be done about food speculation. We argue that food speculation causes havoc in poor nations and a progressive stance should make it illegal. The enforcement would be through the new institutional framework I outlined previously. In today’s blog I complete the arguments advanced to justify our position.

Read more

Ending food price speculation – Part 1

We are currently finalising the manuscript of my latest book (with co-author, Italian journalist Thomas Fazi) which traces the way the Left fell prey to what we call the globalisation myth and formed the view that the state has become powerless (or severely constrained) in the face of the transnational movements of goods and services and capital flows. We argue that while social democratic politicians frequently opine that national economic policy must be acceptable to the global financial markets and, as a result, champion right-wing policies that compromise the well-being of their citizens, the reality is that currency-issuing governments retain the capacity to ensure there is full employment and can advance the material well-being of their citizens. In Part 3 of the book, which we are now completing, we aim to present a ‘Progressive Manifesto’ to guide policy design and policy choices for progressive governments. We also hope that the ‘Manifesto’ will empower community groups by demonstrating that the TINA mantra, where these alleged goals of the amorphous global financial markets are prioritised over real goals like full employment, renewable energy and revitalised manufacturing sectors is bereft and a range of policy options, now taboo in this neo-liberal world are available. A chapter in Part 3 will concentrate on financial market reforms (what to do with banks etc) and one topic in that context relates to the area of food speculation. We argue that food speculation causes havoc in poor nations and a progressive stance should make it illegal. The enforcement would be through the new institutional framework I outlined previously. In today’s blog I discuss the arguments advanced to justify our position.

Read more

Reforming the international institutional framework – Part 4

This is the fourth and final part of the discussion relating to reforming the international institutional framework. In brief, the argument is that there are several essential functions that a multilateral institutional framework has to serve that need to be incorporated within any new structure. It is clear that an agency to channel development aid remains essential. Further, it is important to create an agency that will provide liquidity to nations who are unable to access essential imported resources (such as food) without invoking exchange rate crises. While these functions seem to align with the current World Bank and the IMF, a progressive approach to service delivery in these areas would not resemble the operational procedures currently in place.

Read more

Reforming the international institutional framework – Part 3

As I noted in the first two parts of this little mini-series (can a mini-series be anything other than little), multilateral institutions such as the World Bank and the IMF have outlived their usefulness, given changes in economic conditions and a need to abandon the neo-liberal Groupthink that has infested both structures. In the final two parts (today and tomorrow) I will discuss the necessary issues that have to be addressed in reforming these institutions (or replacing them) and what a new international architecture that serves a truly progressive interest rather than the interests of financial capital in the US might look like.

Read more
Back To Top