The neo-liberal class warfare on the poor and the rest of us

I read a report just released yesterday (March 9, 2016) – The uneven impact of welfare reformby the Centre for Regional Economic and Social Research, which is located at the Sheffield Hallam University in Britain. It showed that the British Government is successfully prosecuting a class war against the disadvantaged and, increasingly, against segments of ‘middle’ Britain. It confirms the view I formed in 2010 when the Conservative government was elected and announced its first fiscal statement in June of that year that it was intent on pursuing some unfinished business – to wit, entrenching the attacks on workers and income support recipients and redistributing national income in favour of capital. These attacks were somewhat interrupted by the urgency to deal with the meltdown associated with the GFC. Leopards don’t change their spots and the Conservatives are intent on finishing off the agenda that began back in the 1970s with the attacks on unions and public services. I was thinking about the report as I was reflecting on a radio program I heard the other day about how the Australian National Library is being forced to make severe cuts to its archival services among other things in response to federal government austerity plans. Mindless is the first word that came into my head when I was listening to the program. In the case of Britain, the attacks are being dressed up as ‘welfare reform’. In the case of Australia, the spending cuts are being dressed up as ‘efficiency dividends’. The neo-liberal nomenclature is an attempt to obscure what is really going on – a massive attack on society, its disadvantaged, and its cultural institutions. Neo-liberals hate society and anything that provides inclusive access to all in the benefits that society can deliver. These cuts are deliberately targeted to reduce social inclusion and undermine information access.

Read more

Japan – another week of humiliation for mainstream macroeconomics

In September 2010, The Project Syndicate, which markets itself as providing the “Smartest Op-Ed Articles from the World’s Thought Leaders” gave space to Martin Feldstein – Japan’s Savings Crisis. Like a cracked record, Feldstein rehearsed his usual idiotic claims that interest rates in Japan would rise because “of the continuing decline in Japan’s household saving rate” and that “the higher interest rate would eventually raise the government’s interest bill by about 4% of GDP. And that would push a 7%-of-GDP fiscal deficit to 11%”. Then, so the story goes, “This vicious spiral of rising deficits and debt would be likely to push interest rates even higher, causing the spiral to accelerate”. At which point, Japan sinks slowly into the sea never to be seen again. It turns out that the real world is a little different to what students read about in mainstream macroeconomics textbooks. At the risk of understatement I should have said very (completely) different. Better rephrase that to say – what appears in mainstream macroeconomics textbooks bears little or no relation to the reality we all live in. Anyway, events over the last week in Japan have once again meant that this has been just another week of humiliation for mainstream macroeconomics – one of many.

Read more

Finland would be better off outside the Eurozone

Towards the end of last year, I wrote a blog – Finland should exit the euro. I had been undertaking some detailed research on the plight of this relatively small Eurozone nation for a number of reasons. First, it had recently undergone a major industrial decline as Nokia/Microsoft missed market trends and went from world leader to irrelevance. Second, Finland was a vocal proponent of the view that Greece should be pillaried into oblivion by the Troika – to ‘take their medicine’ (more crippling austerity). Third, the data trends were unambiguously pointing to Finland descending into the Eurozone ‘basket case’ category itself as its own conservative government imposed harsh fiscal austerity on the tiny, beleagured nation. Two things are clearer than ever about the Eurozone. First, it is a dysfunctional mess and efforts to reform it so far have only made matters worse. Second, any single nation (and all together) would be unambigously better off exiting the mess and restoring their own currency sovereignty and letting their exchange rate take up some of the adjustment. The following text covers an article that I have written for a Finnish Report coming out in May 2016 to be published by the Left Forum Finland, which is a coalition formed by the political party Left Alliance, the People’s Educational Association (KSL) and the Yrjö Sirola Foundation.

Read more

If I was in Britain I would not want to be in the EU

The foundations of national sovereignty are the currency-issuing capacity of the national government. The foundations of a democracy include the ability of the citizens of that currency zone (the ‘national government’) to choose the political representatives at regular intervals who will make decisions on their behalf. A direct chain of responsibility between the elected officials to the voters is thus established and the citizens can take action accordingly if they feel they are being disadvantaged by the legislative outcomes. The anathema of this sort of direct responsibility and accountability is the European Union, which is cabal ruled by unelected officials (in the conventional sense) who are not held accountable for their decisions, no matter how poor they turn out to be. The history of the Eurozone is one of policy failure with millions of people rendered unemployed, in poverty, or otherwise disadvantaged by the destructive decisions made by successive European Commission administrations. There was a good reason why the French president Charles de Gaulle resisted the development of supranational power blocks in Brussels and elsewhere (for example, in Frankfurt under the Eurozone). His preference for Inter-Governmental relations, where large common issues such as climate change, migration, rule of law, etc could be decided upon by representatives of each Member State government, without surrendering national sovereignty, was sound. Given all of that, the United Kingdom should exit the dysfunctional European Union immediately and only negotiate with other states on a government to government basis.

Read more

The European circus continues

Yesterday, I briefly examined how a pack of big-noting financial market traders were trapped in stupidity by patterned behaviour and self-reinforcing group dynamics (aka Groupthink). Today, we consider the neo-liberal Groupthink that continues to trap political leaders and policy makers in Europe into a web of denial and stupidity.

In both case, innocent people have suffered huge negative impacts while, by and large, the idiots have escaped fairly unscathed. The recent data from Eurostat shows that growth is fairly flat in the Eurozone and industrial production is in recession. It also shows that the banking system is in deep jeopardy and the so-called reforms that were introduced post-GFC are not considered robust by investors. With massive bank deposit flight going on and banking share prices plunging, it is clear that the ‘markets’ have lost faith in the financial viability of the Eurozone. Meanwhile. Mario Draghi winds the key up in his back and tells the world that everything is fine and the ECB is on top of the situation. With chaos descending on the monetary union again, the ECB cannot even achieve its single purpose – a stable 2 per cent inflation rate. It has failed to even achieve that over the last four years. One couldn’t write this sort of stuff if they were trying.

Read more

The folly of negative interest rates on bank reserves

On Friday (January 29, 2016), the Bank of Japan issued a seven-page document – Introduction of “Quantitative and Qualitative Monetary Easing with a Negative Interest Rate” – which left me confounded. Do they actually know what they are doing or not? For years, the liquidity management conducted by the operations desk at the Bank has been impeccable, in the sense that they have maintained near zero interest rates in the face of growing fiscal deficits. There was always some doubt when they were the early users of quantitative easing which many claimed was to provide the banks with more reserves so that they would increase their lending to the private domestic sector in order to stimulate growth, after many years of rather moderate real performance to say the least. Of course, banks are not reserve constrained in their lending so the the only way that this aspect of ‘non-conventional’ monetary policy would be stimulatory would be if investment and purchasers of consumer durable were motivated to borrow at the lower interest rates that the asset swap (bonds for reserves) generated. The evidence is that the stimulus impact has been low and that there are many other factors other than falling interest rates governing whether borrowers will approach their banks for loans. In their latest announcement, the logic appears to be that by reducing reserves they will induce banks to lend more. Go figure that one out!

Read more

The Modigliani controversy – the break with Keynesian thinking

I have been continuing the research for my next book (hopefully to be finished by May 2016) on the way in which the neo-liberals convinced policy makers including those in progressive social democratic political parties that the globalisation of finance and capital flows meant that the currency-issuing state was no longer capable of maintaining full employment through appropriate use of fiscal policies. The tenet we are entertaining is that the state never went away, it was just co-opted by capital to serve its interests. This will be a two-part blog and centres on a critical period in economic history in the mid-1970s, which marked the break with the full employment system which had moderated the excesses of capitalism. This was the period when the neo-liberal period dawned, and which steadily, opened the way for these excesses to reemerge, in all their indecent indulgence and destruction. It is also the period in which a series of economic myths crystallised into the mainstream narrative we know today, which opposes government deficits and allows unemployment to remain elevated at excessive levels. It is really important to understand what went on then because we are living with the legacy of the falsehoods introduced during this period.

Read more

Europe’s future is bleak with an ageing population and policy failure

I read an interesting article that was published on December 18, 2015 by the Center for Global Development, which is one those centrist-type research and advocacy organisations that lean moderately to the right on economic matters. The article – Europe’s Refugee Crisis Hides a Bigger Problem – discusses what it considers to be “three population related crises”, two of which at the forefront of public attention (because they are moving fast) – the “refugee crisis” and the “terrorism crisis”. The third is “Europe’s slow moving and in inexorable ageing crisis”, which is largely being ignored in the public debate. The article provides a basis to link the three crises together – in the sense that “Europe actually needs millions of migrants a year to mitigate its ageing crisis”. While I have some sympathy with the article, there are many omissions that reflect the bias of the author. Two major issues – mass unemployment and productivity growth are ignored completely. The emphasis in the article is on whether the public sector can afford not to bring in more people to offset the ageing of the EU28 population. That emphasis discloses the bias of the author and diminishes the strength of the article.

Read more

Democracy in Europe requires Eurozone breakup

On December 21, 2015, there was an article on the Social Europe portal – A New Plan for Greece And Europe: A Defining Moment For European Social Democracy – which I found interesting, though very incomplete, given its title. In fact, the ‘New Plan’ is really a series of fairly general statements, which at times, are somewhat inconsistent if you extend them into the necessary detail that they imply. For example, one of their key observations is that within the European Union there is a “wide and growing gap between national control over budgets that people have voted for and the post-national governance imposed on them”. Which would suggest that the solution requires that there is an aligning of the fiscal responsibility and control at the level of the currency-issuing unit. However, there is no hint of that in their ‘Plan’. They talk about an “Enhanced respect for the fiscal sovereignty of Greece” but fail to articulate how that can occur within the common currency when the Greek government has no currency-issuing capacity. Of course, if we want to increase the fiscal sovereignty of any Eurozone nation, then the only sustainable way of doing that is for that nation to re-establish its own currency and exit the monetary union. However, this would appear contrary to their “pan-European” sentiments, which dominate their overall vision. In short, once again the bogey person of the pan-European appears to be taken as a given and then specific matters that might appear inconsistent with that old ‘social democratic’ obsession in Europe are glossed over.

Read more

Spain in limbo but has not rejected austerity

On the Sunday before last (December 20, 2015), Spain conducted a general election, which has left the nation in limbo. Alex Tsipris, the Greek Prime Minister, still trying to hang on to the image that he is a progressive leader in some way, tweeted once the results were known that “Austerity has now been politically defeated in #Spain, as well. Parties seeking to serve society made a strong showing #20D”. I wonder who he is trying to kid … “as well” – as well as where? Certainly not in Greece, which was the implication of his tweet. And, to be clear, certainly not in Spain. While the conservative Popular Party (PP), which has overseen the most recent imposition of austerity and is firmly pro-EU and pro-euro, did not gain an absolute majority, they did win the most seats (123 in the Spanish parliament) and were well ahead of the other major austerity party, yes, the Spanish Socialist Party (PSOE), which won 90 seats). Even the left-wing We Can party (Podemos), who won 69 seats is not planning to exit the common currency. There is no hope of an anti-austerity coalition forming.

Read more

Finland should exit the euro

I think the progressive side of politics has a real problem when it is increasingly gazumped in policy insights by politicians and/or commentators from the populist, xenophobic, racist, homophobic, far right-wing. Whether Finland’s Foreign Minister Timo Soini is all of those things or just nationalistic and far right (one of the members of his Finns party wants homosexuals and some foreigners rounded up and sent to some remote Baltic Sea island), he is certainly correct when he told the press yesterday that “Finland should never have signed up to the single currency union” and “could have resorted to devaluations had it not been for its Euro membership” (Source). Earlier this month (December 4, 2015), Statistics Finland published the latest National Accounts data for the third-quarter 2015, which showed that real GDP declined by 0.5 per cent in that quarter and by 0.2 per cent over the previous 12 months. In the past 12 months, both exports and imports declined by 3.4 per cent, the former signalling declining markets and the latter declining domestic income – both bad. Investment spending fell by 3.9 per cent in the year to September, which will further undermine the nation’s potential growth. It is now becoming the basket case of advanced Europe.

Read more

Who is responsible for the Eurozone crisis? The simple answer: It is not Germany!

Today, the Australian Treasurer will release the so-called Mid-year Economic and Fiscal Outlook (MYEFO), which will reveal that the fiscal deficit has risen on the back of slower economic growth. I will comment about that and the reactions tomorrow, probably. Today’s blog is about the Eurozone, obviously one of my favourite research topics. There was an article in the UK Independent (December 14, 2015) by British economist Simon Wren-Lewis – Who is responsible for the eurozone crisis? The simple answer: Germany. The article largely avoids the question and chooses, instead, to focus on more contemporary influences which have magnified rather than caused the crisis. The article clearly blames Germany for the crisis and exonerates Greece, Ireland and Spain. However, I have argued in the past that France is largely responsible for the mess that Europe is in economically at present and it’s responsibility goes back decades before the Eurozone was even constructed. The causa causans of the Eurozone crisis is the essential design and construction of the Economic and Monetary Union (EMU), which was never going to be capable of operating in an effective manner. Germany set in train policies that would ensure they were insulated from the wreckage that the dysfunctional system would engender. Germany ‘gamed’ a dysfunctional system for its own advantage but they didn’t create that system and in that sense they are only a causa sine qua non, rather than the essential cause.

Read more

IMF continues with its wage-cutting line

In November 2015, the IMF released an IMF Staff Discussion Note (SDN/15/22) – Wage Moderation in Crises: Policy Considerations and Applications to the Euro Area – which purports to measure “the short-run economic impact of wage moderation and the implications for policy in the context of the euro area crisis”. It juxtaposes the impacts of the so-called internal devaluation approach with the impacts of Eurozone monetary policy. It recognises that the euro zone countries cannot use exchange rate depreciation to boost domestic demand but argues that instead, “lower nominal wage growth … and lower inflation or higher productivity growth relative to trading partners is needed”. The paper presents the standard mainstream arguments that: 1) wage cuts improve employment through increased competitiveness; 2) interest rate cuts stimulate overall spending; 3) quantitative easing stimulates overall spending. There is very little empirical evidence to support any of these statements, especially when fiscal austerity is accompanying these policy measures. The discussion does acknowledge wage cuts may be deflationary and “work in the opposite direction of the competitiveness affect”, in other words, domestic demand and overall growth declines. The unstated message is that internal devaluation doesn’t really improve competitiveness when it is imposed across the currency bloc and undermines domestic spending, which further impedes any export growth (because domestic income drives import demand).

Read more

Friday lay day – George Osborne talks tough but is saved by ridiculous forecasts

It’s my Friday lay day blog and I am wading through a pile of documents tracing the evolution of internal French cabinet discussions in the 1960s. That sounds like fun doesn’t? What doesn’t sound like fun is reading through the documents provided by the Office for Budget Responsibility to accompany the so-called Autumn Statement. The – Economic and fiscal outlook – November 2015 – is one of those extraordinary neo-liberal documents that is in denial of reality. The upshot is that the ridiculously optimistic forecasts from the OBR in the latest round of spending revisions are giving George Osborne the opportunity to once again talk tough (as an ideological warrior) but avoid ‘walking the walk’ for the time being any way. Politically, extreme austerity of the Conservative kind will not go down well in Britain right now.

Read more

The massive Eurozone real income losses continue to mount

Eurostat released the third quarter National Accounts data for Europe on Friday (November 13, 2015) – GDP up by 0.3% in the euro area and by 0.4% in the EU28 – which showed real GDP growth slowing in the Eurozone (down from the slug-like 0.4 per cent) and nations such as Finland and Estonia (one of the previous ‘poster children’ for austerity) heading into basket-case territory. Finland contracted by a sharp -0.6 per cent in the Third-quarter 2015 and has been in recession since the Estonia contracted by 0.5 per cent as did the beleaguered Greece. Portugal stagnated at zero growth. The so-called European recovery is looking distinctly wan! As at the third-quarter 2015, the Eurozone as a whole as still not reached real GDP levels equal to the peak in the March-quarter 2008. The overall 19 economy monetary union is still smaller than it was before the crisis began some 7.5 years ago. But to envisage how large the losses are of the failure of the policy makers to quickly restore growth, we have to also estimate where the Eurozone economy would have been had the GFC not occurred and pre-GFC growth rates were maintained. Then we have staggering losses of national income to consider across the failed monetary union. A very damaging folly has been inflicted on the people of Europe as a result of the neo-liberal Groupthink that dominates policy making.

Read more

European Commission forecasts – a denial of their only effective policy tool

In Greece, the national unemployment rate has been around (or higher) than 25 per cent since 2013 so it is little surprise that mortgage defaults has spiralled and people are selling of family heirlooms to wealth antique dealers in Switzerland to cover daily costs. A Geneva-based dealer told the Financial Times in June (Source) that “For buyers there are opportunities that only come along when there’s a real economic upheaval . . . in Greece it hasn’t happened since the second world war”. So the vultures are enriching themselves as a result of peoples’ misery. Its the market! No it isn’t. Its an incompetent government looking after themselves and allowing their citizens to go down the drain. Just yesterday, the Greeks have agreed to tougher foreclosure measures (as part of the bailouts) which will see impoverished Greeks lose their last vestige of dignity – their homes. And the latest European Commission – Autumn Economic Forecasts – (released November 5, 2015) portend a very sorry future for Greece and the Eurozone generally.

Read more

Friday lay day – a mini-Job Guarantee proves beneficial in the US

Its my Friday lay day blog and I am working on various projects today so I will cut this blog relatively short. Two things came up this week that I thought were interesting but only require a noting by way of blog entry. The first was a report about a mini-Job Guarantee type program in the New Mexico city of Albuquerque, which is demonstrating that public job creation programs can change peoples’ lives for the better when there is no hope and no other opportunities. The second story I read that was interesting was the Wolf Street Report (October 24, 2015) – Barcelona Threatens to Print Parallel Currency, Madrid Seethes – which discussed the plan by “Barcelona’s left-wing city council plans to roll out a cash-less local currency that has the potential to become the largest of its kind in the world”. The austerity-mavens in Madrid and their puppet masters in Brussels will be having conniptions at the prospect.

Read more

The Eurozone – being ‘trapped in a dysfunctional monetary system’

On November 6, 2000, the Financial Times correspondent Wolfgang Münchau wrote in his article ‘Weak euro reflects uncertainty of euro-zone’ that “structural reforms alone will not determine whether the Emu is viable … The Europeans have no system of transfer payments and the EU budget is too small for this purpose … the euro-zone countries cannot remain as they are: they must move towards full economic union”. He also observed that the “current is clearly flowing in the opposite direction: EU governments increasingly emphasise inter-governmental co-operation as opposed to a wider role for supra-national institution”. I examined that ‘current’ extensively in my current book – Eurozone Dystopia: Groupthink and Denial on a Grand Scale (published May 2015) – as it was (and is) a major reason the monetary union has failed. And, further, the cultural and national barriers which prevented the creation of a system-wide fiscal union are still insurmountable. Münchau is one of several journalists and commentators who have shifted their positions on the desirability of the common currency yet remains wedded to the idea of retaining it – as if returning to national currency sovereignty would be a disaster. I opposed the Maastricht proposal when it was made public and remain opposed. Restoring national currencies, while initially disruptive will not in the long-term prove to be worse than what Münchau admits is a state where nations are “trapped in a dysfunctional monetary system”.

Read more

Australian inflation trending down – where are all the gold bugs?

There was a time, in better days, that the evening news had news, sport and weather. Then, at some point, around the 1980s the national news started to host a Finance segment. Sometimes these segments are meagre reporting of what happened in the share markets. Even that benign news is symptomatic of the way neo-liberalism has infested our daily thinking and made the common folk feel part of the game that they are really can never be part of – wealth creation. At other times, the finance segments introduce economic theory and analysis as if it is news. Then the insidious nature of the neo-liberal propaganda machine becomes stark. But the starkness is lost on most because they think it is news and we have been led to believe that what gets pumped out at 19:00 on the national broadcaster (and other times by other broadcasters) are facts. Facts don’t lie do they? Well, when it comes to finance segments they are mostly lies.

Read more

British government analysis shows fiscal stimulus effective in supporting growth

The British Office of National Statistics published the – Gross Domestic Product Preliminary Estimate, Quarter 3 2015 – yesterday (October 27, 2015) which showed, unsurprisingly, that the British economy is slowing and heading back into recession under current policy settings. The annual real GDP growth rate declined for the third successive quarter as the impacts of the world slowdown and domestic policy austerity start to take their toll. The British government really has to reflect back on 2012 and realise that with non-government spending weak and a household sector carrying very high levels of indebtedness, now is not the time to be trying to cut discretionary net public spending. There is a need for a public spending injection to restore growth while the world works out which way it is going to go.

Read more
Back To Top