IMF – labour market regulations do not undermine potential growth

On the eve of the Annual Spring Meetings of the IMF and the World Bank in Washington last week, German Finance Minister Wolfgang Schäuble wrote an article in the New York Times (April 15, 2015) – Wolfgang Schäuble on German Priorities and Eurozone Myths – justifying the German stance with respect to the Eurozone crisis. He argued that the Eurozone was pursuing the correct response by placing a focus on “structural reforms”. He said that the IMF boss was in accord with this assessment and further structural reforms were necessary, including “more flexible labor markets”. He included labour market reform as part of a push for “modernization and regulatory improvements”. In denial of the basic rule of macroeconomics that ‘spending equals income’, Schäuble said that fiscal stimulus “is not part of the plan”. He might have read the complete text of the latest IMF World Economic Outlook (April 2015) – Uneven Growth: Short- and Long-Term Factors – before he sought comfort in the imprimatur of the IMF. That organisation seems to say one thing here and another there! It has become schizoid as it confronts the fact that its Groupthink sees itself as a major part of the neo-liberal free market (help the rich) putsch whereas its research economists find out that the facts don’t match the political (ideological) stance. The IMF should be defunded and recreated to serve positive purposes.

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Latest military expenditure data reveals the hypocrisy of austerity

Yesterday, the Stockholm International Peace Research Institute (SIPRI) released their latest data for – World Military Expenditure 1988-2014. In their – Press Release – we learn that total World military spending has fallen in the last three consecutive years although it “levelled off” in 2014. While the global trends are interesting (the shifting patterns between the big geo-blocks), I was interested in what was happening in the Eurozone in the era of austerity. I was also interesting in juxtaposing the military expenditure and social expenditure dynamics. What you learn is that Greece maintains its position as one of the largest relative spending nations on military items, spending nearly twice the proportion of its GDP compared to Germany and the Netherlands, two nations that lead the charge on imposing austerity. Further, the nations that are pushing the hardest for more austerity are those that benefit the most from Greek military expenditure. The hypocrisy is amazing.

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Saturday Quiz – April 11, 2015 – answers and discussion

Here are the answers with discussion for yesterday’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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Friday lay day – The Troika is the enemy and its either exit or capitulation

Its the Friday lay day blog. Lay day means rest, sometimes. The Greek government paid €450 million back to the IMF bloodsuckers yesterday which apparently calmed markets (Source). How can a so-called bankrupt country afford to pay that sort of cash? Well it can by causing more unemployment and poverty. The Government is trying to appease the Troika (IMF, ECB and the European Union) so that they will given them more cash in the coming weeks. Appeasement is an appropriate word here. Just as in the historical context, it means going along with something evil that will ultimately backfire and cause more grief. But then according to the US economist James Galbraith, in his latest apology (April 7, 2015), Syriza is – The Real Thing: An Anti-austerity European Government. Funny about that. Unless it is flying below all perception, Syriza seems trapped by an anti-democratic force that is intent on squeezing any notion of abandoning austerity from its agenda. And, try to square Galbraith’s claims against the insights provided by Alain Badiou and Stathis Kouvelakis in this interchange (April 3, 2015) – Dangerous Days Ahead.

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Friday lay day – worst sustained British productivity performance since 1948

Its the Friday lay day blog and a public holiday to boot. So not much today. I wrote earlier in the week a blog about the latest British employment data – Employment growth in the UK but of dubious quality. It was part of a series of blogs I have written documenting the gap between the political hubris coming from the Conservatives about how successful their austerity strategy has been and the reality on the ground. Yes, Britain is growing in the sense that real GDP growth is no longer negative. But in this environment of weak growth the essential conditions for longer term prosperity are being eroded. On Wednesday this week, more information came out to support this hypothesis. The British Office of National Statistics (ONS) published the latest – Labour Productivity, Quarter 4 (Oct to Dec) 2014 – Release – which showed that “labour productivity fell by 0.2% in the fourth quarter of 2014” and is the worst sustained performance since 1948 (no growth in the last seven years). Some claim to success. I remind readers that rising material standards of living in any nation rely on productivity growth. Without it societies with ageing populations are headed for mediocrity or worse.

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Welfare generosity increases commitment to work

In Australia successive governments (Labor and conservative) have refused to lift the unemployment benefit in line with inflation. As a result the real benefit has fallen dramatically and the unemployment benefit recipients now live well below the accepted poverty line. There have also been attacks on those who live on single parent pensions, disability pensions and other forms of income support associated with disadvantage and dislocation from the labour market. In the US, the Congress cut entitlements to unemployment benefits long before the damage from the crisis was over. In Britain, both sides of politics talk tough about cutting welfare benefits and the Conservatives has indicated that it will cut benefits significantly to force people to find employment. In the Eurozone, massive damage is being inflicted on the most disadvantaged workers as the austerity mavens hack into welfare payments. All these policy ventures are informed by the intellectually bankrupt profession that I belong to. In universities around the world, mainstream economists prattle on about ‘corner solutions’, which in English means that the provision of income support associated with unemployment subsidises the same and leads to less search effort and welfare dependency. The claim is that if benefits are cut people will search for jobs and ‘fiscal stress’ will be relieved. There is a sanctimonious moralism about it all as well buttressed by terminology such as “lifters and leaners”, “dole bludgers”, “job snobs”, “cruisers” as if those in disadvantage without work have chosen that state as a deliberate strategy to bludge on the rest of the population. The problem for all of this is that the credible research comes to the exact opposite conclusion: employment commitment is highest where the generosity of the welfare state is the highest. The neo-liberals need to go suck that for a while.

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Wage rises are required – real wages must grow in line with productivity

There was an interesting article in the UK Guardian last weekend (March 29, 2015) – Why falling inflation is a false pretext for keeping wages low – which examined wage trends in the UK and the validity of the argument that “Falling inflation now provides employers with a pretext for keeping wage settlements low”. Employer groups never support wage increases and are continually trying to suppress real wages growth below productivity growth so that they can enjoy a greater share of national income. As part of my research to discover the nature of the ideological shift accompanying the emergence of Monetarism as the dominant policy paradigm I have been examining wage distributions. This is part of a book I will complete next year (fingers crossed) on the demise of the political left. In this blog we examine the shifting relationship between labour productivity growth and real wages growth since 1960. The results are illuminating and open up a broad research front about which I will write more as time passes.

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Saturday Quiz – March 28, 2015 – answers and discussion

Here are the answers with discussion for yesterday’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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Friday lay day – lifestyle choices and destructive ignorance

Its my Friday lay day blog. The aim is to write less here and more elsewhere. I don’t always succeed. Today I have a day full of meetings. One was with the Australian Productivity Council about the viability of establishing a majority-Australian owned motor car industry. I will have more to say about this on another day but the idea is interesting if not compelling. I noted the faked fake is a fake (‘Fingergate’). The tension in Brussels is rising and the position appears to be unchanged. The hardliners lecturing Greece about the need for more reforms. The Greeks claiming they will not reimpose austerity even though they currently are. And it is all leading in one of two directions – capitulation of exit. But closer to homefor a while. The press are zeroing in of the offensive barbs about Holocausts and Goebbels that our Prime Minister keeps using to slur his political opponents, which really, despite all the mock shock and hurt from the recipients, only serve to slur the deliverer and make him look like an idiot. But his other ‘foot-in-the-mouth’ moment came on March 10, 2015, when the Prime Minister, in an attempt to make himself look tough to shore up his waning political support, claimed that indigenous Australians were making “lifestyle choices” by residing in remote communities and live on income support. He was supporting the West Australian state government’s decision to ‘close’ down 150 remote communities and force the residents into larger settlements to ‘save money’. The policy is wrong at the most elemental level and reveals not only an ignorance about economics but also a total lack of understanding of the cultural and anthropological history of our nation.

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US and Eurozone inflationary expectations diverge

Back in October 2009, the US unemployment rate had climbed to 10 per cent (its seasonally adjusted peak in the recent recession), the fiscal deficit was around $US1.4 trillion (9.8 per cent of GDP), which was the largest since the end of the Second World War (1945) 9.9 per cent of GDP and federal spending rose by 18 per cent with about 50 per cent going to bail out the banks. Meanwhile the US Federal Reserve ramped up its so-called quantitative easing (QE) program and its balance sheet expanded rapidly (as its purchase of government bonds accelerated). A lot of mainstream economists and conservative politicians at the time predicted an economic maelstrom – higher interest rates, an acceleration of inflation in the US and the inevitability of higher taxation. The trends in other nations were similar – higher deficits as the unemployment rates rose and the same shrill predictions of doom from the mainstream. None of the predictions came to be. But what is interesting is that the behaviour of long-term inflationary expectations in the US is now quite different to Europe. The most likely reason is that market participants now consider the drawn out recession and stagnation in the Eurozone to be the result of manifest policy failure and do not consider QE will do anything to alter that. In the US, the policy framework – fiscal stimulus to growth and benign QE appears to be more credible.

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Lacklustre British economy all down to Conservative incompetence

Not much has really changed in Capitalism despite massive changes in technology, market reach, etc. The underlying behaviour is stable – chicanery, bleeding the state for all the advantages that capital can gain while berating workers (unions) and welfare recipients, rigging financial, share and product markets, lying about state finances to gain more access to public handouts, lobbying government to socialise risk and privatise profit, paying off politicians to engage in corrupt behaviour where conflicts of interest dominate, and more. I was reading about the famous – South Sea Company – today, which was a public-private partnership that began life in 1711. It was a total scam and had all of the elements noted above. Its collapse in 1720 on the back of corrupt and incompetent behaviour (GFC anyone?) caused one hell of a recession in the UK. The only thing it managed to do in any significant volume with its trade monopoly between the UK and South America was to buy and sell slaves and, even then, it messed that up financially – quite aside from the repugnance of the venture itself. Interestingly, its collapse led to the rise of the, then private Bank of England, becoming the Government’s banker, and ultimately, its dominant role as the central bank. What is the contemporary relevance of the South Sea Bubble and its collapse? There are many angles that resonate in the current debate, but the point today is that the current recovery in the UK is the slowest in 300 years – that is since the glacial recovery following the collapse of the South Sea Company. And George Osborne thinks he is a champion.

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Greece goes back into depression – having never left it

Last Friday (March 6, 2015), Eurostat unveiled the latest – National Accounts estimates for the fourth-quarter 2014. All the Greek news this week will be about the – Letter – that the Greek Finance Minister sent to the president of the Eurogroup, in which he outlined 7 reform proposals. But it should be firmly focused on the fact that the Greek economy is back into depression having recorded two successive quarters of negative real GDP growth (despite the September-quarter data suggesting otherwise). The latest National Accounts data for Greece shows it contracted in the December-quarter 2012 significantly and the accompanying Labour Force data confirms that the unemployment rate is rising again and participation is falling. That is the disaster that the Eurogroup should be addressing. While they claim that internal devaluation will spawn growth through a burgeoning exports sector, the December-quarter 2014 data shows that exports contracted over the last three months of 2014. How long do the Greek people have to wait before the trade-led recovery nonsense is consigned to the nonsense bin?

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Friday lay day – more Intergenerational Report nonsense

Its my Friday lay day blog which is designed to divert my attention elsewhere. I have now had a chance to read the 170-page – Intergenerational Myth Report 2015, issued by the Australian Treasury yesterday. The whole nation has become caught up in the doom and gloom that the conservatives are putting out about the projected deficits for the next 40 years. Not a fiscal surplus in sight. But at the same time, all this is based (using their own logic) that we will be back in a steady inflation, full employment Australia within 5 years and sustain that state for the projection period out to 2054-55. Question: What would be so wrong with that? Of course, that statement just assumes their own logic. The projections however are not mutually consistent and there is insufficient information about net export trends for us to understand whether a fiscal deficit of 6 per cent of GDP in 2054-55 (on current legislation) is suitable or not. But again, if that size deficit is producing full employment and price stability why all the ‘sky is about to fall in’ unless we produce fiscal surpluses as quickly as possible? Answer: this is a nonsensical political exercise and has little to do with economics.

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Australian national accounts – growth well below trend continues

The – December-quarter 2014 National Accounts data – released by the Australian Bureau of Statistics today confirms that the Australian economy was stuck in a weak growth state in the last three months of 2014. Real GDP growth grew by by a miserable 0.5 per cent in the December-quarter 2014. The annual growth rate of 2.5 per cent is being held up by the strong March-quarter 2014 result (1.1 per cent growth), which was clearly atypical. An growth rate of around 2 per cent is a more reasonable estimate of where Australia began 2015. With fiscal austerity set to worsen this year, today’s date paints a fairly gloomy picture for the Australian economy for the remainder of this year. Now is not the time for fiscal retrenchment. The government needs to stimulate the economy to boost income and employment growth and not squeeze households and lead them into more debt.

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Don’t mention the war! er the Troika …

“Don’t mention the war”! was a classic line from the episode – The Germans – in the comedy Fawlty Towers. Basil Fawlty implored his meagre staff to stay silent in case they offended some German tourists staying at his hotel. His attempt at self-censorship failed and led to hilarious consequences. I was reminded of the sketch (see it below) when I was reading the – Greek finance minister’s letter to the Eurogroup (February 24, 2015). Apparently, it is now a case of ‘Don’t mention the Troika’, ‘Don’t mention the Memorandum’ and never ever talk about the ‘Lenders’. The bullying threesome (European Commission, ECB and the IMF) are now known as “the institutions” and the “Memorandum” (the bailout package) is now to be called “The Agreement” and the “Lenders” have been recast as the “Partners”. Okay, and that is progress. The Reform package surely lets the Greeks choose which nasty policy they will implement but it is still nasty. Yes, it “buys them time”. The damage from massive unemployment and poverty eats into people every day. 4 months is a long time when you are on the street starving. And by the time this agreement is done – will the Germans be happy to unleash billions of euros via the European Investment Bank to allow the Greek government to continue running fiscal primary surpluses and keep pumping interest income on outstanding debt into ‘foreign’ coffers? Pigs might fly.

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National income continues to be redistributed from wages to profits in Australia

One of the salient features of the neo-liberal era has been the on-going redistribution of national income to profits away from wages. This feature is present in many nations. As I noted in yesterday’s blog – Employer group demands free labour from Government – employer groups in Australia are upping the ante and demanding that the Government provide them with free labour. It goes like this – the government runs a fiscal austerity campaign, which creates rising unemployment. They then harass the unemployed for daring to apply for the below poverty line income support. If that is not enough, then the private sector demands the Government hand these unemployed workers over to them for free to “make coffee” and other tasks. Its a lovely world that we are living in. Meanwhile there is growing pressure on Australia’s wage setting tribunals to scrap penalty and overtime rates, allegedly because they damage employment and firms are just busting to put more workers on as long as wages drop. The Australian Bureau of Statistics published the latest – Wage Price Index, Australia – for the December-quarter today and we learn that the annual growth in wages is now at the lowest level since the data series began in the June-quarter 1997. The annual hourly wage inflation is now down to 2.5 per cent overall and 2.4 per cent in the private sector. With productivity growth running slightly slower and the annual inflation rate dropping sharply in recent quarters as the overall economy slows down (and oil prices fall), the shift to profits slowed marginally in the December-quarter. But Real Unit Labour Costs (RULC) continued to fall. Further, the long-term trends are still alarming with employment growth flat or negative and unemployment rising.

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Employer group demands free labour from Government

Last week, the peak body representing small business in Australia, the Australian Chamber of Commerce and Industry (ACCI) called on the Federal Government to hand over free labour under the guise that “making coffee” will enhance the skills of the workers. The free labour they want to get their hands on are the unemployed on income support. They want the Government to continue to pay the below-poverty income support but force the recipients to work in small and medium-size businesses “making coffee or serving customers” as a solution to youth unemployment. This is the same group that thinks the pay of the lowest-paid workers (like kitchen hands, cleaners etc) should be cut. They also claim that rising unemployment in Australia is being caused by structural rigidities in the workplace (job protection, occupational health requirements etc). There is a wide-ranging attack on workers going on at the moment. This is just one aspect of this attack. Austerity is forcing more onto the unemployment pile. Once there they are being increasingly subjected to pernicious policy requirements (see yesterday’s blog – Job Services Australia – ineffective and rife with corruption – scrap it!). Then employer groups lobby government to cut wages and conditions and scrap regulative environments that protect workers. It is an important era for social democrats. Either we regain some political equanimity and coherence or we continue to call parties Socialist that impose austerity and talk about being ‘pro-business’, while attacking pensions, wages, and employment.

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Job Services Australia – ineffective and rife with corruption – scrap it!

The ABC – Four Corners – program tonight will highlight the corruption and inefficiency within Australia’s privatised labour market services sector. The program – The Jobs Game – will screen at 20:30 Eastern Standard Time. I participate in the program although the extent of that participation is at the time of writing not known. I did about 2 hours of filming for it in December. Unfortunately, the ABC geo-blocks its iView service which allows Australians to watch past programs via the Internet. If the program is available via YouTube I will post a link. The flavour of the program is summarised in this promotion piece published by the ABC News service today (February 23, 2015) – Government recovers over $41 million worth of false claims after ‘rorting’ of Job Services Australia scheme. The Guardian newspaper will also publish an article based on this blog for tomorrow’s edition (sometime during the day). So the issue is getting out there finally after successive Governments have been trying to hide the issues. After all, its ideological baby is terminally ill and they don’t want to admit that.

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Friday lay day – Cave in or Trojan Horse?

Its the Friday lay day blog and I have a day ahead full of meetings with research partners, other parties and related matters. So I am glad I told myself I wouldn’t write much today. But we have to mention the discussions in Brussels yesterday – extraordinary on all sides. Late last night I read the letter the Greek Minister of Finance wrote to his suited confrères on the Eurogroup committee. I had to read it more than once and convince myself that I was reading it correctly rather than being duped by the hour of the evening and the flight I had taken to where I am today. I read it and read it. Each time I concluded cave in! Sure the words were still a bit like those that a proud, independent people might write to international partners. But once you cut through the defence of self-esteem to the substance the conclusion resonated strongly – the Greek government, for all their talk and bluster, have caved in. Then I read the memo from the German Ministry of Finance in all its Teutonic clarity – Fuck off, we want you to get down on your knees when you cave in not stand there without your ties and suits smiling about it. Amazing really, on all sides.

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The Australian government is not akin to a household

There was an extraordinary article published on the University of New South Wales News page (January 29, 2015) by a Professor of Finance (Peter Swan) entitled – Federal finances and family budgets have a great deal in common. Juxtapose that with a blog I wrote in December 2012 – Government budgets bear no relation to household budgets. Seems – we have a problem, Houston. Well, Peter Swan has a problem and along with him a raft of mainstream economists, including some who claim to be progressive. They are coming out of the woodwork where they hid during the peak of the crisis, as fiscal stimulus packages were saving the World economies, and are now rehearsing their usual erroneous claims about the dangers of on-going deficits. Their grasp of history and facts appears to be flimsy and their logic nonsensical.

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