The Weekend Quiz – February 6-7, 2021 – answers and discussion

Here are the answers with discussion for this Weekend’s Quiz. The information provided should help you work out why you missed a question or three! If you haven’t already done the Quiz from yesterday then have a go at it before you read the answers. I hope this helps you develop an understanding of Modern Monetary Theory (MMT) and its application to macroeconomic thinking. Comments as usual welcome, especially if I have made an error.

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The Weekend Quiz – January 30-31, 2021 – answers and discussion

Here are the answers with discussion for this Weekend’s Quiz. The information provided should help you work out why you missed a question or three! If you haven’t already done the Quiz from yesterday then have a go at it before you read the answers. I hope this helps you develop an understanding of Modern Monetary Theory (MMT) and its application to macroeconomic thinking. Comments as usual welcome, especially if I have made an error.

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How come the principles supported austerity one day but fiscal dominance the next?

As part of the paradigmic turmoil that is confronting mainstream economists, we are witnessing some very interesting strategies. Imagine you establish a set of principles that are seemingly inviolable. They are the bedrock of the belief system, even though it is not called that. These principles then offer all sorts of predictions about, yes, the real world. They are without nuance. The predictions are so worrying, that politicians, whether they are knowing or not, proceed with caution in some cases, and, in other cases, openly damage the well-being of citizens because they have been told that shock therapy is better than a long drawn out demise into ‘le marasme’. The authority for all the carnage that follows (unemployment, poverty, pension cuts, degraded public infrastructure and services, etc) is these ‘inviolable principles’. Economists swan around the world preaching them and bullying students and others into accepting them as gospel. The policy advice is hard and fast. Governments must stay credible. Except one day they completely change tack and all the policy advice that established certain actions to be totally taboo become the norm. We observe things are better as a result. Does this mean those ‘inviolable principles’ were bunk all along? Not according to the mainstream economists who are trying to position themselves on the right side of history. Apparently, their optimising New Keynesian models can totally justify fiscal dominance and central bank funding fiscal deficits when yesterday such actions were taboo. Which leg are they trying to pull?

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It is a syndemic not a pandemic – broader policies are needed

There was an article in The Lancet from its editor (September 26, 2020) – Offline: COVID-19 is not a pandemic – which questioned the “narrow approach” that governments were taking to the coronavirus pandemic based on the assumption that “the cause of this crisis … [is] … an infectious disease”. His argument is a whole of medical professionals have become prominent in daily press briefings and the like as they trot out the results of epidemic models and news agencies interview “infectious disease specialists” every other day. But the reality is that “(t)wo categories of disease are interacting within specific populations” – COVID-19 and “an array of non-communicable diseases” which are “clustering within social groups according to patterns of inequality deeply embedded in our societies”. He thus used the term ‘syndemic’ rather than pandemic to highlight the socio-economic distribution of the pandemic and focus attention on inequality and other forms of socio-economic disadvantage which interact with biological dimensions to determine health outcomes. He focuses on co-morbidities but I would focus on poor working conditions, poor housing, inadequate nutrition, the stress of poverty and poor urban planning that segments populations into leafy, low-density suburbs and suburban hell-holes where people are crammed in like whatever due to social inequalities and deficient government policy interventions.

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IMF actions in Ecuador expose its venal motivations

There is clearly confusion among mainstream economists as the fractures in their paradigm are being revealed on an almost daily basis. And the more venal ideological motivations are also becoming clearer, that is, if they weren’t already completely transparent. On January 21, 2021, the World Bank published a Policy Research Working Paper – Does Central Bank Independence Increase Inequality? – which demonstrated that the way central banking has been conducted in this neoliberal era has been instrumental in the increasing income inequality that has manifested. A month earlier (December 21, 2020), we read that the IMF is waging a campaign against the democratically elected Ecuadorian government to further restrict its fiscal discretion as it struggles with a terrible pandemic situation, and set in place rules that will allow further resource plunder by foreign corporations. The latter really tells you that despite claims by mainstream economists that they have shifted away from the mainstream austerity bias, the truth is different. A quite remarkable juxtaposition that just demonstrates how confused this lot must be at present. Their attempts to cover their motivations in technical authority are clearly failing.

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The Weekend Quiz – January 23-24, 2021 – answers and discussion

Here are the answers with discussion for this Weekend’s Quiz. The information provided should help you work out why you missed a question or three! If you haven’t already done the Quiz from yesterday then have a go at it before you read the answers. I hope this helps you develop an understanding of Modern Monetary Theory (MMT) and its application to macroeconomic thinking. Comments as usual welcome, especially if I have made an error.

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Comical claims by mainstream economists that the facts have changed

Last week, I wrote this blog post – OECD is apparently now anti austerity – warning, the leopard hasn’t changed its spots (January 12, 2021) – which warned against accepting the idea the growing number of mainstream economists, who were now advocating fiscal dominance, was evidence of a fundamental shift in New Keynesian thinking about macroeconomics. The reality is that they haven’t really shifted much at all and Max Planck’s postulate that paradigms shift one funeral at a time remains true. There are very few cases where the senior members of a dominant paradigm, voluntarily abandon their views when the evidence becomes overwhelmingly against them. They iterate, they declare ad hoc anomalies, they try to voice ideas that a new rival paradigm is articulating which resonate better with the data. This sort of strategy is common across academic disciplines which are under assault from a combination of poor predictive performance (data incongruity) and the arrival of a more convincing alternative paradigm. It is in full swing in macroeconomics now. But don’t believe these characters are suddenly accepting Modern Monetary Theory (MMT) and realising their previous belief system was never a sound way of characterising our fiat monetary systems. If you dig you discover these characters remain charlatans and will do almost anything to maintain their status as the dominant economists.

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British Labour may as well just not turn up at the next election

Why does the Shadow Chancellor of Britain have a WWW page entry at the Institute for Fiscal Studies? HERE. Perhaps when you read this you will have the answer. What follows is bad. It won’t make anyone happy – my critics or those who agree with the analysis. But that is what has happened in the progressive world as lots of ‘progressives’ added the neoliberal qualifier to their progressiveness and paraded around claiming technical superiority and insights on economic policy that the old progressives just could not grasp. They have become so enthralled by their own cute logic that they cannot see they are handing the opposite side of politics electoral victory on a consistent basis. After you read this you might understand why I say that the British Labour may as well just not turn up at the next election.

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OECD is apparently now anti austerity – warning, the leopard hasn’t changed its spots

In the last week, we have heard from the Chief Economist at the OECD (Laurence Boone), who has been touted on social media as offering a fundamental shift in economic thinking at the institution towards fiscal dominance. This is an example of a series of public statements by various New Keynesian (that is, mainstream macroeconomists) who are apparently defining the new macroeconomics of fiscal dominance. The point is this. Within the mainstream macroeconomics there was always scope for discretionary fiscal intervention under certain conditions. The conditionality is what separates their version of the possibilities from those identified and explained by Modern Monetary Theory (MMT). Just because these characters are coming out of their austerity bunkers to scramble to what they think is the right side of history doesn’t mean their underlying economics has changed. If you dig, you will find the same framework in place, just nuanced a little to suit the times. But the leopard hasn’t changed its spots. The underlying train wreck is still there and will be rehearsed again at some future date unless we push forward in abandoning the whole New Keynesian approach.

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Britain is now free of the legal neoliberalism that has killed prosperity in Europe

So Britain finally became free – sort of – from the European Union last week. I haven’t fully read the terms of the departure but the progress I have made so far in the text (several hundred pages) leads me to conclude that Britain has not gone completely free from the corporatist cabal that is the European Union. The agreement will see a Partnership Council established which locks Britain in to an on-going bureaucratic process dominated by technocrats – the sort of things the EU revels in and gets it nowhere. Overall, though, despite all the detail, Britain’s future policy settings will be guided by its polity and resolved within its own institutions. That means that the Labour Party has the chance to really push a progressive agenda. I doubt that it will but there are no excuses now. Which brings me to look at some data which shows how the fiscal rules imposed by the European Union, particularly in the 19 Member States who surrendered their currencies, have constrained prosperity and worked against everything that citizens were told.

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Bond investors see through central bank lies and expose the fallacies of mainstream macroeconomics

It’s Wednesday and I usually try to write less blog material. But given the holiday on Monday and a couple of interesting developments, I thought I would write a bit more today. And after that, you still get some great piano playing to make wading through central bank discussions worth while. The Financial Times article (January 4, 2021) – Investors believe BoE’s QE programme is designed to finance UK deficit – is interesting because it provides one more piece of evidence that exposes the claims of mainstream macroeconomists operating in the dominant New Keynesian tradition. The facts that emerge are that the major bond market players do not believe the Bank of England statements about its bond-buying program which have tried to deny the reality that the central bank is essentially buying up all the debt issued by the Treasury as it expands its fiscal deficits. This disbelief undermines many key propositions that students get rammed down their throats in macroeconomics courses. It also provides further credence to the approach taken by Modern Monetary Theory (MMT).

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The Weekend Quiz – December 19-20, 2020 – 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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Credit rating downgrades for Australian states – next

It is Wednesday and so just a few snippets before we get funky. Yes, jazz-funky. That should do it. In the last week, a credit ratings agency downgraded the rating of the state of Victoria to AA from AAA claiming that the the state was in fiscal trouble. They also downgraded the credit rating for the NSW government credit from AAA to AA+. You might wonder how the hell these corrupt and irrelevant organisations managed to survive the GFC, given the sectors complicity with the financial frauds and overreach that drove the world to near financial ruin? Well they survive because people still believe in the fictions that lie behind the whole concept of government debt ratings. Should anyone be worried about these changes in Victoria and NSW? Not at all. The announcements were just noise and tell us, in part, how far we have to go in expunging these fictions from our understandings.

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The Weekend Quiz – November 28-29, 2020 – 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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Governments will always let inflation accelerate – apparently

Today the UK Guardian editorial – The Guardian view on Rishi Sunak: time to create jobs, not anxiety – endorsed the introduction of a Job Guarantee to alleviate the terrible unemployment situation that Britain will create in the coming 12 months. Existing programs from the British government are “too small and too reliant on private companies to help much”. Even after the pandemic is solved (hopefully via vaccine) “the unemployment crisis will remain”. That is a positive step from the Guardian. And, it runs counter to the way many progressives are viewing the solution box, with UBI still figuring among their main options. The problem is that the UBI cannot deliver on its promises to everyone. But this blog post is not about UBI. As the Job Guarantee gains more profile in the public debate, several mainstream economists are now taking aim at it. The latest attempt, which I choose not to link to because it is not worth reading in full, invokes one of the arguments that mainstream economists developed in the late 1970s and early 1980s to justify their attacks on discretionary fiscal policy and elevate rules-based monetary policy to become the primary, counter-stabilisation tool. It was, of course part of the neoliberal putsch that has seen sub-optimal outcomes ever since for most of us and superlative outcomes for the top ends of the income distribution. The reason I note this argument is because it is general in nature and should be understood. In other words, I do not have to talk about the paper that introduces this attack on the Job Guarantee, because it just mimics the standard criticisms of government policy making that have been around for ages. So any time some new government policy approach is proposed, these characters just whip out this tired old defense. But it is useful for my readers to be on the lookout for it.

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The Weekend Quiz – November 14-15, 2020 – 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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Memo: Right pocket to left pocket – don’t let anyone know what it going on in these trousers.

On Tuesday (November 3, 2020), the Reserve Bank of Australia made its monthly announcement with respect to the conduct of monetary policy. The governor Philip Lowe released this – Speech – to announce the decision. There were four elements to the decision, which I will explain. But the most significant aspects of the decision was to set the support rate on excess reserve balances to zero and increase their government bond buying program by 200 per cent. And the most significant aspect of that last decision was how much dodging and weaving went on to deny what they are actually doing. And, within the decision is a point that I would have expected State Premiers to be up and arms about but, instead, there was silence. All in a day of paradigm shift in economics.

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A video, papers to be read and a song

It’s Wednesday and so only some snippets today. First, a video of a seminar I participated at the other day where we talk about the future of Europe (and the World). Second, some working papers that might be of interest. And finally a music segment. I felt like posting the 1980s song from The Vapors – Turning Japanese – after the Reserve Bank of Australia announced yesterday they were now modelling their monetary policy interventions of the excellent template that has been pioneered by the Bank of Japan. You know get the government to buy all of its debt – then pay itself back – then remit the payments as ‘dividends’ back to itself. Right pocket meet Left pocket. I will analysis the big shift in the RBA’s position tomorrow. And when you listen to the RBA Governor this morning trying to tell Australians that black is white when we all know it is black and they have let the cat out of the bag, you will realise why the whole hysterical show they are putting on is important. But that is tomorrow. And I hated the song anyway.

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The Weekend Quiz – October 31-November 1, 2020 – 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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Inflation is not necessarily due to excessive spending

Yesterday’s data from the Australian Bureau of Statistics (October 28, 2020) – Consumer Price Index, Australia – for the September-quarter 2020, illustrates what a lot of people do not fully grasp. Inflation can be driven by administrative decisions and can be curtailed or restrained by varying those decisions. No tax rises or cuts to government spending are needed. The data also reflect on the reasons that predictions from mainstream (New Keynesian) economic models fail dramatically. Mainstream economists claim that monetary policy (adjusting of interest rates) is an effective way to manage the economic cycle. They claim that central banks can effectively manipulate total spending by adjusting the cost of borrowing to increase output and push up the inflation rate. The empirical experience does not accord with those assertions. Central bankers around the world have been demonstrating how weak monetary policy is in trying to stimulate demand. They have been massively building up their balance sheets through QE to push their inflation rates up without much success. Further, it has been claimed that a sustained period of low interest rates would be inflationary. Well, again the empirical evidence doesn’t support that claim. The Reserve Bank of Australia has now purchased more than $50 billion worth of federal government bonds and a smaller amount of state and territory government debt. And yet inflation is well below the lower bound of the RBA’s inflation targetting range. The most reliable measure of inflationary expectations are flat and below the RBA’s target policy range.

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