The ‘truth sandwich’ and the impacts of neoliberalism

On June 15, 2018, the OECD released their report – A Broken Social Elevator? How to Promote Social Mobility – which provided “new evidence on social mobility in the context of increased inequalities of income and opportunities in OECD and selected emerging economies”. If you are still wondering why the mainstream progressive political parties have lost ground in recent years, or why the Italian political landscape has shifted from a struggle between ‘progressive’ and conservative to one between anti-establishment and establishment (the latter including both the traditional progressive and conservative forces which are now virtually indistinguishable) then this evidence will help. It shows categorically that neoliberalism has failed to deliver prosperity for all. While the full employment era unambiguously created a dynamic environment where upward social mobility and declining inequalities in income, wealth, opportunity were the norm, the more recent neoliberal era has deliberately stifled those processes. It is no longer true that ‘all boats rise on a high tide’. The point is that this is a situation that our governments have allowed to arise and which they can alter if they so choose. We should be forcing them to restore the processes that deliver upward mobility. And that is where the “truth sandwich” comes in. Progressive politicians that bang on about ‘taxing the rich to deliver services to the poor’ or who ask ‘where is the money going to come from’ or who claim the ‘bond markets will rebel’ and all the rest of the neoliberal lying drivel should familiarise themselves with the way the sandwich works. It is a very tasty treat if you assemble it properly.

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European-wide unemployment insurance proposals – more bunk!

The Europhiles have been tweeting their heads off in the last week or so thinking that the corner has been turned – by which they mean that Germany is about to get all cuddly with France and agree to fundamental shifts in thinking which will make the dysfunctional Economic and Monetary Union (EMU) finally workable, without the need for the ECB to break Treaty law by propping up the private bond markets. The most recent incarnation of the ‘saviour’ is a few words that the new German Finance Minister, Olaf ‘Wolfgang Schäuble'” Scholz said during an interview with Der Spiegel (June 8, 2018) – ‘Germany Has a Special Responsibility’ – about his support for a new unemployment insurance scheme for the Eurozone. It seems even the smallest things excite those who remain in denial about the long-term viability of the common currency. The proposal that Scholz was advancing has been out in the public debate for some years and is nothing like an effective solution to the terminal design flaws in the EMU. It is just an application of the same thinking that led to the creation of that flawed architecture in the first place and reinforces the conclusion that the main players in Eurozone policy setting have no intention of creating an effective federated monetary system. Just more of the same. Tomorrow, the tweets will be extolling the virtues of some other erroneous plan that some Europhile has come up with to save the system. And so it goes.

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ECB continues to play a political role making a mockery of its ‘independence’

Those who follow European politics will be familiar now with the recent events in Italy. I wrote about them in this blog post – The assault on democracy in Italy. The facts are obvious. The democratic process for all its warts rejected the mainstream political parties in the recent national election and minority parties Lega Nord and M5S formed a governing coalition. The trouble started when they nominated Paolo Savona as Finance Minister. He had occasionally made statements that paranoid European elitists would interpret as being anti-Europe and anti-German. The political solution was easy and Italian President Sergio Mattarella vetoed Savona’s nomination. The Coalition withdrew and a right-wing technocrat Carlo “Mr Scissors” Cottarelli was to be installed as Prime Minister. That arrangement didn’t last long and the Lega Nord/M5S coalition emerged in government with the unelected Guiseppe Conti the new Prime Minister. But the interesting story to emerge out of all that relates to overt political behaviour by the supposedly independent European Central Bank. It has been clear for some time that the ECB has used its currency-issuing capacity to ensure that ‘spreads’ on Member State government bonds (against the benchmark German bund) do not widen too much. But it is also clear that when the ‘market forces’ do increase the spreads, which foments a sense of financial crisis, the ECB doesn’t necessarily act immediately. A good dose of crisis talk is what the political process needs to keep the anti-European forces at bay. The ECBs behaviour in this context became very political in the recent weeks and the only explanation is that they wanted the sniff of crisis to pervade while all the negotiations were going on over who would emerge as the new government in Italy. Democracy suffers another blow in that neoliberal madhouse that is the European Union.

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Travelling mostly today …

I am travelling most of today and into remote regions to do some fieldwork so I do not have time to write anything substantial. I am researching various issues while in transit and will resume normal services tomorrow when I discuss minimum wages. Then, next Monday’s blog post will discuss the issue of bond spreads, which has been in the news in the last few weeks with the Italian situation. Further, there have been claims that the ECB is deliberately manipulating Italian bond purchases to drive up the spread against the German bund and thus place further pressure on the Italian political mess. Some have argued that by fomenting a sense of crisis in Italy (the rising bond spreads), the ECB has been supporting conservative forces horrified at the prospect of a Euro-skeptic government. It is a little more complex than that but I will write about that in detail next Monday.

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Oh Scotland, don’t you dare! – Part 2

This is Part 2 in my two-part series analysing the 354-page report from the Scottish Growth Commission – Scotland – the new case for optimism: A strategy for inter-generational economic renaissance (released May 25, 2018). In Part 1, I considered their approach to fiscal rules and concluded, that in replicating the rules that the European Commission oversees as part of the Stability and Growth Pact, the newly independent Scotland would be biasing its policy settings towards austerity and unable to counter a major negative shock without incurring elevated levels of unemployment and poverty. In Part 2, I focus specifically on the currency issue. The Growth Commission recommends that Scotland retain the British pound, thereby surrendering its independence. Moreover, while it is part of the United Kingdom, the British policy settings have to consider the situation in Scotland. Once it leaves, it will still be bound by British fiscal and monetary settings but those settings would be designed to suit the remaining British nations. So if the British government continues with its austerity obsession, Scotland would be forced to endure that end. Hardly, the basis for an independent nation with progressive aspirations.

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Oh Scotland, don’t you dare! – Part 1

The 354-page report from the Scottish Growth Commission – Scotland – the new case for optimism: A strategy for inter-generational economic renaissance (released May 25, 2018) – could have been published by the IMF given its adherence to the flawed neoliberal macroeconomic framework that that institution imposes on everything. It is too generous to call the Growth Commission’s work ‘analysis’ – a series of unfounded assertions with logical extrapolation from that flawed basis is more accurate. If Scotland were to create an independent nation on the basis of the ‘blueprint’ outlined in the Growth Commission’s Report then it would soon be heading into a mediocre oblivion – a future where it would be unable to effectively counteract the fluctuations of non-government sector spending and a future where fiscal policy was forced to be pro-cyclical. Scotland would end up another failed austerity state. This is Part 1 of a two-part series where I examine the Report and its implications. In Part 2, I will examine the currency issues in more detail. I hope to be in Scotland in early October as part of my next speaking tour of Europe – more details later.

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The assault on democracy in Italy

I decided to write an extended blog post today (Wednesday) because events in Italy are so interesting. My usual short post on a Wednesday will resume next week. George Soros is now saying that “everything that could go wrong has gone wrong” in Europe and a financial collapse is in the wind (Source). I doubt the latter but agree with the former assessment. All the flaws in the original neoliberal design of the Eurozone have been revealed and all the reasons why those flaws were created in the first place remain in place. Nothing has changed since 1977 when the MacDougall Report concluded that the cultural and national differences between the (then) Member States of the European Communities were too great to allow an effective monetary union to be created. That assessment and the earlier work of Pierre Werner in his 1970 Report were ignored as the neoliberals in France and Germany rushed headlong to Maastricht. France thought it would have a chance to dominate and Germany was distracted by unification but still firmly in charge of what would be allowed in the new monetary system and what would not. Now, one of the biggest nations – Italy – is is turmoil as the damage of being part of the Eurozone slowly but surely erodes its capacity to deliver anything remotely like prosperity and its social and political system starts to collapse. Italy must leave the Eurozone – the sooner the better. And, that will bring a reality check for the whole disaster and encourage other nations to push for an orderly dissolution.

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ECB research provides a withering critique of mainstream macroeconomics

Although this blog post considers some very technical material its message is simple. Mainstream macroeconomic models that are used to determine policy choices by governments are deeply flawed and the evidence strongly supports a central thrust of Modern Monetary Theory (MMT) – that fiscal policy is powerful and that austerity will kill growth. In that sense, it helps us understand why various nations and blocs (such as the Eurozone) struggled after the onset of the GFC. It also explains why the deliberate attack on Greek prosperity by the Troika was so successful in demolishing any prospect of growth – an outcome that the official dogma resolutely denied as they constructed one vicious bailout after another. It also explains why New Keynesian approaches to macroeconomics are flawed and should be ignored. I was reminded this week by a research paper I had read last year (thanks Adam for the reminder) which presents a devastating critique (though muted in central bank speak) of the mainstream approach to macroeconomic modelling. A research paper from the ECB (May 2017, No 2058) – On the sources of business cycles: implications for DSGE models – provides a categorical critique of DSGE models and a range of other stunts that mainstream economists have tried to introduce to get away from the obvious – economic cycles are demand driven.

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The British NHS debate – TINA but only if you believe in nonsense

The German propagandist Joseph Goebbels would have loved the so-called ‘NHS Funding Tool’ that the London-based Institute of Fiscal Studies has wasted hours of labour producing and making available on the Internet. In fact, history would show that the German menace was probably more circumspect in his propaganda activities that the IFS, which has set about to deliberately distort the public debate in the UK over NHS funding. Its latest entry (May 24, 2018) – Securing the future: funding health and social care to the 2030s – is nothing short of a disgraceful grab for headlines. The problem is that reports such as this then feed into an uncritical press, which then furthers the fictional world that my profession has created to hide their ideological preferences against public intervention – in this case, public health systems. The IFS Report is a typical case of neoliberal analysis, which contains hidden constraints that are designed to lead towards the TINA conclusion. Britain can afford to have a first-class NHS if it chooses and the real resources are available and people desire for them to be used in that sector rather than elsewhere. My bet is that the country would be much better off if there were less bankers and investment speculators (the occupations that the neoliberals revere) and more resources in the health sector. At present, constructing the NHS challenges, which are real and growing, as a tax rise or bust type scenario is dishonest in the extreme.

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The Europhile Left use Jacobin response to strengthen our Brexit case

Regular readers will recall that Thomas Fazi and I published an article in the Jacobin magazine (April 29, 2018) – Why the Left Should Embrace Brexit – which considered the Brexit issue and provided an up-to-date (with the data) case against the on-going hysteria that Britain is about to fall off some massive cliff as a result of its democratically-arrived at decision to exit the neoliberal contrivance that the European Union has become. There was an hysterical response on social media to the article, which I considered in this blog post a few days later – The Europhile Left loses the plot (May 1, 2018). In recent days, two British-based academics have provided a more thoughtful response in the Jacobin magazine (May 18, 2018) – Caution on “Lexit”. Here is a response which was co-written with Thomas. As a general observation, I noted some prominent progressive voices citing their attack on us enthusiastically, one even suggesting it landed “some good punches” after taking “a while to warm up”. Well, I can assure Andrew that my face (nor Thomas’s) was the slightest bit puffy after reading the critique.

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Die schwarze Null continues to haunt Europe

Last Tuesday (May 15, 2018), the new German Finance Minister Olaf Scholz stood up in the German Bundestag and delivered his first fiscal policy presentation. Not only was “die schwarze Null” (Black Zero) sustained but in his address, the new German Finance Minister made it clear that Germany would not entertain any expansion of the EU fiscal capacity (thus rejecting Emmanuel Macron’s proposals) and wanted to delay other ‘reforms’ that Germany had previously suggested they would support (beefing up the Single Resolution Fund and the creation of the European Monetary Union). For those Europhile progressives who have been hanging their hat on the hope that the takeover of the German Finance Ministry by the SPD would be the deal breaker that the Scholz’s presentation was nothing short of a disaster. He reiterated Germany would not be shifting in any major way and that Member States just had to buckle down and follow Germany’s fiscal example – surpluses as far as the eye can see. None of this was a surprise to me. It has been clear for some time that Scholz is just a continuation of Schäuble. Indeed some pointed statements from Bundestag politicians next day in their responses suggested just that.

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Timor-Leste – challenges for the new government – Part 2

This is Part 2 of my mini-series analysing some of the challenges that the newly elected majority government in Timor-Leste faces. Yesterday, I documented how the IMF and World Bank had infused its ideological stance into the currency arrangements that Timor-Leste set out with as a new nation. That infusion is still apparent in the major commentary on Timor-Leste’s future options – specifically that the dollarisation should continue and that fiscal austerity should be pursued (relative to the current fiscal stance) because the nation will run out of money. What they mean is that the Petroleum Fund will eventually run out of money. There is a major difference in those statements although under the current currency arrangements they are identical. The ‘run out of money’ story is only applicable as long as the new government resists adopting its own currency. I also showed how the development process has been stalled by the austerity bias. In Part 2, I explore the currency issue directly and make the case for currency sovereignty which would require Timor-Leste to scrap the US dollar, convert the Petroleum Fund into its stock of foreign exchange reserves, and to run an independent monetary policy with flexible exchange rates, mediated with the capacity to use capital controls where appropriate. In Part 3, which will come out next Monday, I will discuss specific policy options that are required to exploit what is known as the ‘demographic dividend’ where the age-structure of the nation generates a plunging dependency ratio. To exploit that dividend, which historically delivers massive development boosts to nations, the shifting demographics have to be accompanied by high levels of employment. That should be policy priority No.1. I will also complete some Petroleum Fund scenarios to complement the policy advice.

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Trade and finance mysteries – Part 2

I was running late yesterday and the blog post was already rather long so I left some matters concerning central banks for today. The question we address briefly today is what is the role of central banks in all these trade transactions. Does an export surplus country face an ever increasing money supply as central banks provide the counterparty service to traders who sell in a foreign currency but want their own currency (such as a manufacturer who incurs costs in say Yen but sales revenue in $AUD – as per our example yesterday)? There appears to be confusion on that front as well. So while I am not typically going to write a detailed blog post on a Wednesday, in the interests of continuity, here is Part 2 of the series on trade and currencies.

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The Europhile Left loses the plot

Regular readers will know that I have delved into social psychology in the last decade or so as a way of educating myself on why ideas survive when their logical consistency is lacking and their empirical content is zero. I have gained a good understanding of this phenomenon by exploring the literature on patterned group behaviour and the work by Irving Janis in the early 1970s on Groupthink. While I usually demonstrate instances of this destructive group behaviour on the part of the Right, it is also clear that that the Europhile Left is riddled with the problem. To the point of not even valuing debate anymore. At the weekend (April 29, 2018), the excellent Jacobin magazine published an Op Ed piece by myself and Thomas Fazi – Why the Left Should Embrace Brexit – which considered the Brexit issue and provided an up-to-date (with the data) case against the on-going hysteria that Britain is about to fall off some massive cliff as a result of its democratically-arrived at decision to exit the neoliberal contrivance that the European Union has become. The article was rather moderate in fact and considered the on-going failure of the apocalyptic arguments that have been introduced against Brexit, both before and after the Referendum. But the social media response (negative) has been at elevated levels of hysteria. Inane claims. Groupthink in action. And it is why the progressive cause is such a push over by the organised Right.

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Forget European reform – the Germans have anyway

For readers who follow my Twitter account, you will be aware that occasionally I have have brief interchanges with various Europhiles who have an abiding faith in the capacity of the Eurozone to reform itself along progressive lines to make it resilient against economic cycles and capable of advancing the prosperity of all the citizens who share the currency. They were particularly incensed when my latest book – Reclaiming the State: A Progressive Vision of Sovereignty for a Post-Neoliberal World with Thomas Fazi was published in September last year. Our argument has always been that Germany is Germany and as such there is little hope that the basic flaws in the EMU will be resolved any time soon. Well in the last week, the Europhile bubble has been well and truly pricked by the decision of new German finance minister Scholz to retain the hard-line order-liberal Ludget Schuknecht as the chief economist in the Finance Ministry. Signal: nothing is going to change in the EMU that matters.

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The facts suggest Britain is not as reliant on EU as the Remain camp claim

I have been doing some analysis of British and European Trade patterns over the Post World War 2 period. They reveal some very interesting insights that are seemingly lost in the on-going war by Europhiles against Brexit. One of the recurring themes in the Brexit debate is the so-called importance of membership of the European Union to on-going prosperity of Britain through trade. What the data reveals is that British exports growth did not accelerate with accession to the EU in 1973 and after the introduction of the ‘Single Market’, British exports to the EU started to level off and then decline rather sharply. In other words, Britain has been diversifying its exports and is less reliant on the EU than it was say in the early 1990s. The data also shows that the creation of the Single Market hasn’t even boosted intra-EU or intra-Eurozone trade. Additionally, and laterally, the data suggests that the introduction of the euro has not expanded intra-EMU trade. The claims by the Euro-elites that it would were a major part of their justification for pushing through to the common currency. I consider this sort of evidence has been largely ignored by those in the Remain camp, who prefer to base their assertions on the highly questionable ‘forecasts’ coming from neoliberal-inspired ‘models’, which have so far demonstrated an appalling record of accordance with the facts. The data I have shown here doesn’t provide an open and shut case for Brexit. But it does show that the importance of EU membership to Britain’s prosperity is probably overstated and that Britain will prosper if its own policy settings are appropriate.

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The Left propaganda that the state is powerless – continues

When we published our latest book – Reclaiming the State: A Progressive Vision of Sovereignty for a Post-Neoliberal World – last September, Thomas Fazi and I approached the UK Guardian to see if they would publish an Op Ed by us summarising the main arguments presented in the book. We received no response. Pluto tell us that the book is one of their better sellers since it was published. And it is not as if the topic is irrelevant in the Guardian’s assessment. That is clear from the fact that on April 5, 2018, they published one of their ‘long read’ articles by Rana Dasgupta – The demise of the nation state – which is a direct refutation of the ideas advanced in our book. This ‘long read’ also falls into the same traps and analytical errors that we point out has besotted the Left side of politics since the 1970s. The article is clearly part of the Guardian’s agenda to appear progressive but, in fact, be anything of the sort. As I have noted previously, the Guardian seems content to publish a torrent of anti-Brexit articles and criticisms of Jeremy Corbyn rather than provide any semblance of balance.

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Latest Europhile advocacy beggars belief – surrender sovereignty to regain it

Today, I have a lot of travelling coming up. So time is tight. Regular readers will know my views on the Eurozone. I have held those views since the late 1980s when I was a young lecturer. Nothing has changed to change my opinion. It is an unmitigated disaster. And, in the face of all evidence to the contrary, the Europhiles on the Left and the Right continue to put out propaganda trying to defend their monstrosity. Here is a selection of the latest input from the elites on how the EU is the salvation of democracy and sovereignty and yet Eurozone Member States are to be treated like high risk car drivers – paying more for a pittance of fiscal protection from the technocrats. It really beggars belief.

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My response to a German critic of MMT – Part 2

This is the second part of my response to an article published by the German-language service Makroskop (March 20, 2018) – Modern Monetary Theory: Einwände eines wohlwollenden Zweiflers (Modern Monetary Theory – Questions from a Friendly Critic) – and written by Martin Höpner, who is a political scientist associated with the Max-Planck-Institut für Gesellschaftsforschung (Max Planck Institute for Social Research – MPIfG) in Cologne. In this part we discuss bond yields and bond issuance. I had originally planned a two-part series but the issues are detailed and to keep each post at a manageable length, I have opted to spread the response over three separate posts. In Part 3 (next week) we will discuss inflation and round up the evaluation of his input to the debate.

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