Australian Labour Force – bad and getting worse

Today’s release of the – Labour Force data – for August 2013 by the Australian Bureau of Statistics tells me two things. First, it presents the case for why we had to change our federal government last weekend. The Labor Party had abandoned their responsibility for keeping unemployment low. Their obsession with achieving a budget surplus (they failed) deliberately undermined employment growth and has led to tens of thousands of Australians losing their jobs. Second, the new conservative government is going to have to shed its own ideological obsession with cutting deficits if it is to create an environment of robust employment growth and reduce unemployment. Its deregulation mantras will just make matters worse. I am not confident. We had the three evils in August – contracting employment, rising unemployment and a contracting labour force (via a further fall in the participation rate). Employment growth has negative now been negative for the last three months (a recession!) and in August both full-time employment and part-time employment contracting. Total employment is now lower than it was 6 months ago. Unemployment is rising towards 6 per cent as the weak employment growth fails to keep pace with the underlying population growth. Hidden unemployment also rose as more people gave up looking for work in an environment where job opportunities are shrinking rapidly. The broad labour underutilisation data from the ABS for the August quarter (released today) show sharp rises in both unemployment and underemployment. The broad rate of labour wastage is now 13.7 per cent. Add to this the impacts of the falling participation rate and the figure would be above 15 per cent. This data signals an urgent need for fiscal stimulus to reverse the negative trend. Unfortunately, with both sides of politics are locked into an austerity mindset the situation is likely to deteriorate further.

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Voting on a lie

Tomorrow, the Australian Bureau of Statistics will release the June-quarter National Accounts for Australia. In the lead up to this release, we get some information about the components of national expenditure and the contribution to the final real GDP growth result that will be released tomorrow. Last week, we learned, courtesy of the release – Private New Capital Expenditure and Expected Expenditure, Australia, June 2013 – That seasonally adjusted new capital expenditure and fallen by 2.3 per cent in the year to June 2013. This is off an extremely high base and suggests that the investment boom associated with the mining sector is winding down, albeit steadily. Today, the ABS released the latest – Balance of Payments and International Investment Position, Australia, June 2013 – which showed a widening Current Account deficit (by 7 per cent) with the surplus on the trade part of the account falling by 2 per cent. In volume terms, it is estimated that the external deficit would reduce real GDP growth by 0.04 percentage points. That is, a modest spending drain from the domestic economy.

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The stupidity of the German ideology will come back to haunt them

There was an interesting article in the Financial Times last week (August 29, 2013) – The German miracle is now running out of road – about the myopia of policy settings in Germany. The FT author was Sebastian Dullien, who has been consistently presenting the case that Germany is not a role model for the rest of Europe to follow. For example, see – A German model for Europe?. He notes that by targetting a budget surplus in a period of fiscal austerity, the Germans are undermining the very factors which made their manufacturing sector some strong. Their public investment in education and infrastructure is now lagging so much that the costs of business are rising in Germany and the long-term consequences of this are likely to be very damaging. The stupidity of the German ideology will come back to haunt them.

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There is a class warfare and the workers are not winning

The Politics of Envy – that old chestnut from the neo-liberals – is bandied around every time there is any insinuation that the capitalist system produces distributional outcomes that are not remotely proportional to the effort put into production. Whenever governments challenge the distributional outcomes – for example, propose increasing taxes on the higher income recipients (note I don’t use the word “earners”) there is hell to cry and the defense put up always appeals to the old tags – “socialist class warriors undermining incentive”, “envy”, etc. In the 1980s, when privatisation formed the first wave of the neo-liberal onslaught, we all apparently became “capitalists” or “shareholders”. We were told that it was dinosauric to think in terms of the old class categories – labour and capital. That was just so “yesterday” and we should just get over it and realise that we all had a stake in a system where reduced regulation and oversight would produce unimaginable wealth, even if the first manifestations of this new “incentivised” economy channelled increasing shares of real income to the highest percentiles in the distribution. No worries, “trickle-down” would spread the largesse. We know better now – and increasingly the recognition, exemplified in 2006 by Warren Buffett’s suggestion that “There’s class warfare, all right … but it’s my class, the rich class, that’s making war, and we’re winning” (Source), is that class is alive and well and in prosecuting their demands for higher shares of real income, the elites have not only caused the crisis but are now, in recovery, reinstating the dynamics that will lead to the next crisis. The big changes in policy structures that have to be made to avoid another global crisis are not even remotely on the radar.

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Saturday Quiz – August 24, 2013 – 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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Violence, suffering and denial

I wrote about the way the recent neo-liberal narrative in the UK, that constructs the unemployed as gaming the income support system and about how they need to be weeded out by harsher activity tests etc, is a theme Australians will be familiar with in this blog – The victims become the perpetrators – the neo-liberal smokescreen. The discussion touched on the way we abstract from the human suffering that accompanies mass unemployment and how the dominant paradigm seeks to construct the unemployed as an “Other” different to ourselves and accountable for their own state. Unemployment is not seen as a violent act deliberately perpetrated by us (through the agency we give our governments – the “mandate”) but rather as a chosen outcome, a rational end of an informed choice. Perhaps not one we would take ourselves but rational nonetheless and therefore of no further concern. I have been reading some relatively oblique philosophical literature lately centred on conceptions of ethics and the way historical temporality forces us to take a moral perspective whether we like it or not – that is, denial of past action is a particular moral perspective. It bears on some work I am doing in remote Indigenous communities in the Northern Territory at the moment as well as broader debates that exist in society. Here are some notes and thoughts that arise from this sort of reading and reflection.

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Saturday Quiz – August 17, 2013 – answers and discussion

Here are the answers with discussion for yesterday’s quiz. The information provided should help you understand the reasoning behind the answers. 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 spurious distinction between the short- and long-run

There was an interesting article in the Wall Street Journal (July 7, 2013) by US economist Alan S. Blinder – The Economy Needs More Spending Now . I am building a little database of what well-known economists said in 2008, 2009 and 2010 at the height of the crisis and in the early days of the fiscal and monetary interventions and what they are saying now. There is a lot of dodging and weaving I can tell you. Stories change, previous prognostications of certainty now appear highly qualified and nuanced and facts are denied. Alan Blinder was worried that the US Federal Reserve rapid building of reserves would have to be withdrawn quickly because otherwise banks would eventually lend them all out and inflation would accelerate. Of-course, banks don’t lend their reserves to customers and the predictions were not remotely accurate. In the article noted, Blinder continues to operate at what I am sure he thinks is the more reasonable end of mainstream macroeconomics. He is advocating more spending as a means of boosting higher economic growth. But when you appreciate the framework he is operating in, you realise that he is just part of the problem and part of the narrative that allows the IMF to talk about “growth friendly austerity” – the misnomer (or outright lie) of 2012-13.

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Australian labour market continues to weaken

Today’s release by the Australian Bureau of Statistics (ABS) of the – Labour Force data – for July 2013 continues to signals a weakening labour market. Employment growth was negative with both full-time employment and part-time employment contracting. Full-time employment has contracted for the last three months. Over the last six months, there have been only 29.9 thousand (net) jobs created in the Australian economy comprising an overall loss of 18 thousand full-time jobs and 47.9 thousand part-time jobs. Unemployment fell by 5,700 but only because the labour force contracted with a 0.2 points fall in the participation rate. In other words, hidden unemployment rose as more people gave up looking for work in an environment where job opportunities are shrinking rapidly. This data signals an urgent need for fiscal stimulus to reverse the negative trend. Unfortunately, with both sides of politics locked into an austerity mindset the situation is likely to deteriorate further.

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UK economy grows and so does its budget deficit

So the UK grew by 0.6 per cent in the June-quarter 2013 on a seasonally-adjusted basis. The conservatives are crowing as hard as they can that fiscal austerity has cleared the decks for a private sector recovery. We believe them of-course because the economy grew by 0.6 per cent. Right? Wrong. We don’t believe them. The fact is that the budget deficit rose in the last year and the annualised growth of the government and other services sector to growth has been positive in the last two quarters after a sharp contraction in the fourth quarter of 2012. On July 25, 2013, the British Office of National Statistics released its latest National Accounts data in the form of – Gross Domestic Product Preliminary Estimate, Q2 2013. The data release comes on the back of another ONS release – Public Sector Finances, June 2013 – which showed that budget deficit and public borrowing rose over the 12 months to June 2013. So the direction in public net spending is up and that is the opposite direction to the intended fiscal austerity.

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Austerity fails – its in the numbers

The latest Eurostat public finance data for Europe on July 22, 2013 – Euro area government debt up to 92.2% of GDP demonstrates the failure of the Euro policy agenda on its own terms. It is clear the indecency of the policy elites is reflected in the way they use nomenclature. Massive rises in unemployment and poverty is called modernisation or labour market reform. The argument bifurcates at that point. How can you argue with someone who thinks like that? But we all know what a financial ratio is. They are without nuance. A public debt ratio is what it is. And when the leaders say they are doing everything they can to reduce them and the cost all this “modernisation” is a price worth paying to reduce the public debt ratios we can conclude that they are failing if the debt ratios continually rise as they impose harsher austerity (sorry, increase the degree of modernisation). That is what the hard numbers are shouting. And that means that someone in Europe should just blow the whistle and call time is up and get rid of the whole swathe of policy leaders.

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Case Study – British IMF loan 1976 – Part 7

I am now using Friday’s blog space to provide draft versions of the Modern Monetary Theory textbook that I am writing with my colleague and friend Randy Wray. We expect to complete the text during 2013 (to be ready in draft form for second semester teaching). Comments are always welcome. Remember this is a textbook aimed at undergraduate students and so the writing will be different from my usual blog free-for-all. Note also that the text I post is just the work I am doing by way of the first draft so the material posted will not represent the complete text. Further it will change once the two of us have edited it.

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Australian labour market – weak and deteriorating

Today’s release by the Australian Bureau of Statistics (ABS) of the – Labour Force data – for June 2013 signals a deteriorating situation. Employment growth was about zero and full-time employment continued to contract. 84 per cent of jobs created in the last 6 months have been part-time. Unemployment rose by 23,700 and the unemployment rate rose 0.2 points to 5.7 per cent. This data signals an urgent need for fiscal stimulus to reverse the negative trend. Unfortunately, with both sides of politics locked into an austerity mindset the situation is likely to deteriorate further.

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The blood on the criminals’ hands is thick and won’t wash away

On Monday (July 8, 2013), the IMF released its “preliminary findings” of the – Article IV Consultation with the Euro Area. The nomenclature and turn of phrase alone are symptomatic of the organisation’s incapacity to come to terms of the problem it is addressing and its own role in creating and perpetuating the problem. On the one hand, they clearly acknowledge that “the economic recovery remains elusive, unemployment is rising, and uncertainty is high”. But on the other hand, they urge more of the same and claim the policies that have created this mess represent “progress”. The Euro area can do two things to improve the situation of citizens who live within it. First, abandon the voluntary fiscal rules which have not theoretical justification and allow nations to expand deficits to address the massive output gaps. If need be, fund the deficits via the ECB. Second, once the crisis is over, create a process whereby the monetary union voluntarily dissolves itself in an orderly manner. That is the only sure way of minimising the on-going damage. Oh, and third, withdraw all funding from the IMF and enter multilateral negotiations to create a new agency that helps poor nations defend themselves against speculative attacks on their currencies. And, while I am at it, fourth, reach an international accord to outlaw any speculative transaction that does not advance the real economy. That will keep them all busy and get the millions of people that the IMF and the Euro elites have deliberately made jobless busy again too.

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In a few minutes you do not learn much

There was an article in the New York Times at the weekend – Warren Mosler, a Deficit Lover With a Following – which seems to have attracted some attention. The attention has spanned from the vituperative personal attacks on the article’s subject, all of which would seem to be factually in error, to claims that proponents of Modern Monetary Theory (MMT) are “just nuts”. The latter assessment apparently was drawn after a few minutes consideration by a US economist. I don’t think one learns very much in a few minutes. But the output over the years of the particular economist quoted by the NYTs tells me he hasn’t learned much after presumably many hours of study. I suppose that if you are mindlessly locked into the mainstream macroeconomics textbook models then that is to be expected.

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Cutting unemployment benefits in the US will not decrease unemployment

Earlier this week I looked at the latest vacancy data for Australia released by the Australian Bureau of Statistics – Latest Australian vacancy data – its all down to deficient demand. I also took the time to update my data for the US Bureau of Labor Statistics – US JOLTS database, which provides detailed information about job openings and quit rates. The results for the US are similar to those found in Australia. But the data is apposite given the decision by the State of North Carolina to cut unemployment benefits – thinking that this act of cruelty will somehow reduce their appalling unemployment rate. It won’t.

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Saturday Quiz – June 22, 2013 – 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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It is hard to defend the 1 per cent by claiming their contribution added value

Writer of popular textbooks on macroeconomic myths, N. Gregory Mankiw has just put out a paper – Defending the One Percent – which is due for publication in the Journal of Economic Perspectives. The paper presents a narrative about the shift in the US personal income distribution (sharply towards higher inequality) since the 1970s in terms of rewards forthcoming to exceptionally skilled entrepreneurs who have exploited technological developments to provide commensurate added value (welfare) to all of us. As a result, rewards reflect contributions and so why is that a problem? In other words, the “left” (as he calls the critics of the rising inequality) are wrong and are in denial of reality. That view is unsustainable when the evidence is combined with a broad understanding of the research literature. Ability explains the tiniest proportion of the movements in income distribution. Social power and class, ignored by the mainstream economics approach, provides a more reliable starting point to understanding the rising inequality.

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Australian labour market – weak and deteriorating

Today’s release by the Australian Bureau of Statistics (ABS) of the – Labour Force data – for May 2013 signals a deteriorating situation. Employment growth was about zero. The fall in the unemployment rate was due to a decline in the participation rate. Monthly hours worked fell as full-time employment contracted. The broad labour underutilisation rate rose sharply by 0.4 pts to 12.9 per cent with more than 908 thousand workers underemployed. This data signals an urgent need for fiscal stimulus to reverse the negative trend. Unfortunately, with both sides of politics locked into an austerity mindset the situation is likely to deteriorate further.

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Massive real wage cuts will not improve growth prospects

There was a column in today’s Australian Financial Review “When the money-go-round slows, everyone suffers” which bemoaned the fact that all the investment bankers, lawyers and accountants that have been making heaps off the massive growth in the financial services sector are now doing it tough. We read that household budgets are being stretched when some woebegone executive suddenly discovers “multiple sets of $20,000 a year private school fees plus family holidays in Aspen” (from Australia). We feel sorry for them don’t we. The parasites of neo-liberalism who in between crafting handsome consulting contracts for themselves fill their days performing largely unproductive functions to our society. The AFR is, of-course, the neo-liberal propaganda machine that feeds the business sector with arguments about how badly they are doing because workers are overpaid and lazy. Yes, there was also an article in today’s edition about excessive wages and labour market regulation. Meanwhile, the latest evidence from Britain is that workers have taken the equivalent of a 15 per cent real wage cut over the period 2007 and 2012. The cuts have undermined nominal wages of workers in jobs rather than being the result of workers shifting to lower paid jobs. That is unprecedented and confirms the suspicions that the austerity agenda is being driven by a desire to win the class war for capital once and for all.

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