British Labour Party no longer fit for purpose

It was interesting to spend a few weeks in London recently and catch up with friends and research colleagues. It always focuses the mind on issues when one is in situ rather than gazing at data and reports from afar. My view of British Labour as being incapable of providing the British people with a progressive solution to the poly crisis the nation confronts has strengthened in the last few weeks and was emphasised once again by the decision of the leadership to backtrack on its £28 billion green investment strategy – its second U-turn on this key policy in the last few years. Touted as making Britain “A fairer, greener future” for Britain, “Labour’s Green Prosperity Plan” certainly differentiated it somewhat from the ruling Tories. Now that differentiation has been abandoned and the Labour politicians are claiming that “Labour’s fiscal rules … [are] … more important than any policy”, which is about as moronic as it gets. More of the same from the so-called political voice of the working class. I told an audience in London a few weeks ago that I considered the ‘institutions’ that had been created in the late C19 and into the C20 to give political voice to the working class had past their use-by date and were no longer fit for purpose. The British Labour Party is one such institution and it has been so captured by ‘conservatism’ of the worst type (sound finance etc) that it no longer is capable of delivering sustainable prosperity.

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British Labour Party running scared of the usual shadows

This is an election year in the UK and unless something dramatically changes, the Labour Party will be in power for the next term of Parliament and will have to manage a poly crisis that they will inherit from 40 or more years of neoliberalism. Note, I don’t confine the antecedents to the Tory period of office since 2010 because the decline started with James Callaghan’s Labour government in the 1970s and then just got worse during successive periods of Labour and Tory rule. During that long period, there has been no shortage of economists and public officials predicting that the financial markets would soon reap chaos as a result of the public debt levels being ‘too high’ (whatever that means). The most significant chaos came in 1992 when Britain was forced out of the European exchange rate system, which it should never have joined in the first place. While all these economists are now pressuring the likely next British government to pull back on their promises to ‘assuage’ the financial markets, there is not even a scintilla of evidence to support their predictions of doom. And the Labour party leaders are too stupid to realise that.

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Australian inflation rate falls sharply as supply pressures ease

Today’s post is a complement to my post on earlier this week – So-called ‘Team Transitory’ declared victors (January 8, 2024). Yesterday (January 10, 2024), the Australian Bureau of Statistics published the latest – Monthly Consumer Price Index Indicator – for November 2023, which showed another sharp drop in inflation. The data are the closest we have to what is actually going on at the moment and it is clear that the falling inflation that began in September 2022 is continuing at a fairly brisk pace. The annual rate is now down to 4.3 per cent from 4.9 per cent in October 2023. The main driver of inflation over the last few years has been fuel prices and automotive fuel inflation has fallen from 19.7 per cent in September 2023 to 2.3 per cent in November 2023, due to global factors quite independent of domestic monetary policy. In fact, as the time passes we get a much clear reinforcement of the transitory narrative driven by supply factors rather than demand factors. This narrative has also been given weight by a recent research paper from the ECB – What drives core inflation? The role of supply shocks (published November 13, 2023). Overall, the data is now exposing the folly of the New Keynesian macroeconomic policy approach which prioritises monetary policy as the counter stabilising tool and has considered the inflationary episode to be due to excessive government spending.

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Welcome to 2024 – the 20th year of my blog

Welcome to 2024. This marks the 20th year that my blog has been operating although there were a few years early on when I was experimenting with the technology etc and nothing much emerged. In continuous terms, the blog has been going for 15 uninterrupted years this year. Over that time, it has evolved from a 7-day a week commitment to a reduced offering. Here are my latest thoughts on how I will use the medium in the coming year.

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GIMMS London Event – Friday, January 26, 2024

As I previously indicated I am returning to Europe and the UK in a few weeks for the first time since the Covid pandemic began. I will provide further details in due course, but for now, here is a link to the first event I will be speaking at in London on Friday, January 26, 2024 that is organised by the wonderful women from GIMMS. See over for details and how you can get tickets to the event.

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The parallel universe in Japan continues and is delivering superior outcomes, while the rest look on clueless

It’s Wednesday and I have some commitments in Melbourne (recording a podcast with the Inside Network) and that requires some travel. So time is tight. Today, I update the latest from Japan courtesy of yesterday’s release from the Bank of Japan of its ‘Statement on Monetary Policy’. The parallel universe continues and is delivering superior outcomes, while the rest of the world’s policy makers, smitten with neoliberal nonsense, have their heads in the sand and the economies are turning to dust. I also provide some links to the video recording of the launch of the Japanese version of Reclaiming the State, which was held in Kyoto in November 2023. And I provide some links to a major article that I was featured in with one of Japan’s leading magazines. And if that isn’t enough, we have Voodoo Child.

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The shift to the Right among the weak and powerful is a sign that mainstream economic thinking has failed

The – Australian Election Study (AES) – is the “leading study of political attitudes and behaviour in Australia” and has been running for 35 years. It provides a great time series for investigating electoral trends. The most recent analysis covers the period of the most recent federal election (May 2022). The data shows that Labor Party, which is currently in government has dramatically lost primary vote support over the period covered by the data and in particular among the younger voters. A similar trend is observed for the Coalition conservative parties. There is also strong evidence that ‘rusted on’ is no longer a thing among young voters. The proportions of ‘lifetime voting’ for either major party has fallen dramatically. While the Greens have benefitted from this shift in young voting patterns, there is evidence, which is also resonating globally, that young people are increasingly being attracted to what we term ‘far right’ political voices. That is, where the organised Left has failed. Young progressive minds are deserting the traditional progressive political institutions. Part of this reflects the failure of mainstream economics. The other part reflects the insecure being lured by influential characters who are increasingly embracing right agendas (for various reasons).

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Prosperity of Australian households going south, while Keir Starmer praises Margaret Thatcher

I am covering a few topics today, given that I used yesterday’s post space to analyse the national accounts release. There is a further point I wish to make about the latest national accounts data. A focus on real household disposable income shows the full extent of the impacts of monetary policy (rate hikes) and fiscal policy (tax bracket creep) on household prosperity. The Australian government is overseeing one of the largest falls in household prosperity in recent history aided and abetted by the RBA. And the only thing the Treasurer has announced this week is his intention to alter the RBA Act to rescind his power to change monetary policy if it acts against the national interest. Meanwhile, the British Labour Party leader was out there praising Margaret Thatcher and equating her shock therapy to his own purges within the Labour Party of anything that resembles a progressive voice. After all that, I have some spiritual jazz for our listening pleasure.

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British House of Lords inquiry into the Bank of England’s performance is a confusing array of contrary notions

On November 27, 2023, the Economic Affairs Committee of the British House of Lords completed their inquiry into the question – Bank of England: how is independence working? – by releasing their 1st Report after taking evidence for several months – Making an independent Bank of England work better. The report is interesting because it contains a confusing array of contrary notions. On the one hand, the witnesses to the Inquiry claimed it was “Groupthink” in operation that prevented the Bank from raising rates earlier and that it was obvious the inflationary pressures were traditional excess spending driven by excessive monetary supply growth (classic Monetarism). That assessment is contested by the alternative, which I adhere to, that the inflationary pressures were supply driven and not amenable to interest rate shifts. And the Groupthink arises because these economists consider interest rate changes would solve the inflation irrespective of the contributing factors. While the Report is sympathetic to the mainstream view as above, it then launches into a critique of the mainstream forecasting approaches. A confusing array of notions.

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Inflation falling sharply in Australia while the RBA still is out there threatening rate rises

Yesterday (November 29, 2023), the Australian Bureau of Statistics (ABS) released the latest – Monthly Consumer Price Index Indicator – for October 2023, which showed a sharp drop in inflation. This release resolves some of the uncertainty that arose when the September-quarter data came out last month, which showed a slight uptick. I analysed that data release in this blog post – Slight rise in Australian inflation rate driven by factors that do not justify further rate hikes (October 25, 2023) and concluded that the slight rise was not a sign of excess spending and would soon resolve. Today’s figures are the closest we have to what is actually going on at the moment and show that the inflation fell from an annual rate of 5.6 per cent in September 2023 to 4.9 per cent in October. The trajectory is firmly downwards. As I show below, the only components of the CPI that are rising are either due to external factors that the RBA has no control over and are ephemeral, or, are being caused by the RBA rate rises themselves. The RBA boss was in Hong Kong this week trying to justify the rate hikes by saying that Australian households are coping well. Her analysis is partial and ignores the massive distributional differences arising from the interest rate increases. Justifying the unjustifiable!

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UK Autumn Statement is appalling and ties the hands of Labour – the voters face a Hobson’s choice

Last Wednesday (November 22, 2023), the Tory government in Britain released their fiscal update known as the – Autumn Statement 2023 – which basically sets the course of fiscal policy in the UK for the period ahead. The Tories continue their appalling record. But they have also locked Labor into an austerity mindset. Meanwhile, neither party resonates with the sentiments expressed by the people if the latest Ipsos survey is representative of that sentiment. The British people face a Hobson’s choice!

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Kyoto Report 2023 – 9

This is my last Report from Kyoto for 2023. I will be returning to my work there in 2024 and there are still lots of things to report on. I seem to discover more as I learn more, which is always a good thing. Anyway, our bikes are back in storage, our cases packed and by the time this comes out I will be back down South with mixed feelings about that. Life goes on though. Stay tuned for the Kyoto Report 2024 series – starting sometime next year.

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The Bank of Japan is light years ahead in sophistication relative to the West

Given yesterday’s detailed monetary policy analysis, I am using today to present an array of news items and some brief analytical thoughts on central bank monetary policy. The latter is based on a very interesting speech that the governor of the Bank of Japan gave in Nagoya earlier this week. The juxtaposition with the way the Western central banks are behaving at present is stunning. There is also some self promotion and some announcements. Then we get to listen to Ron Carter. A good day really.

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US national accounts data – no sign that interest rates are working the way economists think they work

On October 26, 2023, the US Bureau of Economic Analysis published the latest US National Accounts figures – Gross Domestic Product, Third Quarter 2023 (Advance Estimate) – which showed that “Real gross domestic product (GDP) increased at an annual rate of 4.9 percent in the third quarter of 2023”. The June-quarter 2023 growth rate was 2.1 per cent. There was broad-based growth in all the expenditure components, including those that would be most sensitive to interest rate rises. My prior, of course, is that the interest rates would not significantly reduce growth in the short run, whereas mainstream New Keynesian theory considers interest rate rises to be an effective tool in moderating total spending, and, in turn, reducing inflation. The reality does not support the mainstream proposition. Consecutive national accounts releases from the US, however, have shown that aggregate expenditure is resilient in the face of the interest rate increases.

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The de-risking narrative – another in the long line of neoliberal ruses

There have been several interrelated strands in research and practice associated with the dominance of neoliberalism over the last decades. The problem has been that these approaches have been as much enthusiastically promoted by social democratic or progressive forces as they have conservatives. Indeed, conservative political forces have gone down the ‘Trumpian’ far right sink hole and the social democratic parties have moved into the political space vacated – that is, further right than centre. Over the years we have been confronted with social entrepreneurship, new regionalism, corporate social responsibility and self regulation, volunteerism, light touch regulation and more – as part of a so-called ‘Third Way’ where class divisions are dead and the ‘market’ is supreme. More recently, so-called progressive politicians have been touting the ‘de-risking’ narrative as a way of fixing the mess left by the other Third Way approaches. Accordingly, the role for government is to de-risk the vagaries and flux of capitalism, so the entrepreneurs can make profits with surety and if there are issues the government will bail them out. It is a disastrous denial of government responsibility and will fail just as surely as all the rest of the ruses have combined to create the mess societies are in around the globe.

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IMF paper on Africa exemplifies why the mainstream approach is problematic

During the – 1997 Asian financial crisis – when the IMF intervened and imposed harsh structural adjustment packages on the impacted countries (cuts in spending and interest rate hikes), we learned that IMF officials would swan in from Washington to, for example, Seoul, for a weekend, hole up in expensive hotels and by the end of the weekend profess to know everything about the country and what was good for it. Austerity followed. This is the way the IMF work. They apply mainstream New Keynesian macro theory on a one-size fits all basis ignoring history, culture, institutional specificity and all the rest of the nuances and complications that should be taken into account when appraising a situation in some nation. So for them, spending a day or so in some expensive hotel was the perfect place for them to ‘know the country’ – good food, good wine, air conditioning – what more is required. The problem is that besides the specifics that always need to be considered, the overriding theory is not fit for purpose, which is why the application of the IMF-model with the SAPs has been a uniform disaster for nations. The IMF though continues to operate in this vein. I read a report yesterday about sub-Saharan Africa written by a series of IMF officials most of whom seem to be French citizens who have gone to the best universities, who advocate harsh fiscal policy shifts in the poorest nations. I am sure none of their jobs or wages are at stake.

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How interest rate rises undermine our climate adaption

It’s Wednesday and I have a few observations on a few things today. I have written before about how the rising interest rates in many nations, far from being deflationary, have demonstrably increased inflationary pressures. The two pathways that this impact occurs are: one, the boost to wealth among creditors coupled with significant proportions of fixed-rate mortgages provide the equivalent of a fiscal boost, and, two, the direct impact on costs to firms via their overdrafts and on landlords. The former just pass the unit cost rise on to consumers, while the latter increase rents, which feed into the CPI. But I have also been tracing another negative outcome from the interest rate hikes – the impact on investment in renewables. Here are some notes on that followed by some music with a renewable energy theme.

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Australia’s new White Paper on Full Employment is a dud and just reinforces the failed NAIRU cult

Today (September 25, 2023), the Australian government issued its – Working Future: The Australian Government’s White Paper on Jobs and Opportunities – statement, which portends to define labour market vision and policy for the years to come. White Paper’s are grand statement and this one falls short of that requirement. Compared to the path-breaking – The 1945 White Paper on Full Employment – which set the path for several decades of prosperity for workers, the current effort by the government is a mediocre affair. It is just a restatement of the NAIRU cult that has justified the so-called ‘activation’ or supply-side approach to labour market policy, which effectively relegates macroeconomic policy to the bench and considers micro policies are required to reduce the NAIRU and the measured unemployment rate. This is the failed strategy that has dominated for the last three decades and has cause the problems that the White Paper claims it wants to address. Its release today demonstrates that the Labor Government is really just a neoliberal-lite outfit – full of spin but short on any directional shift in policy. It is very dispiriting.

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Another mythical intergenerational report from the Australian Treasury

In my most recent podcast – Letter from The Cape Podcast – Episode 14 – I provided a brief introductino to why economic reports that project fiscal crises based on ageing population estimates miss the point and bias policy to making the actual problem worse. Today, I will provide more detail on that theme. Last week (August 24, 2023), the Government via the Treasury released its – 2023 Intergenerational Report – which purports to project “the outlook of the economy and the Australian Government’s budget to 2062-63”. It commands centre stage in the public debate and journalists use many column inches reporting on it. Unfortunately, it is a confection of lies, half-truths interspersed with irrelevancies and sometimes some interesting facts. Usually, these reports (the 2023 edition is the 6th since this farcical exercise began in the 1998) are a waste of time and effort.

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