Beyond metaphor … comes total nonsense, German style

Under an accompanying heading – “Beyond Greece” – the German Handelsblatt (a daily financial/business newspaper) published the article (July 14, 2015) – The Uncomfortable Truth About Debt. It was meant to be some sort of justification for the touch German stance against Greece. The authors claimed that “Germany has been hounded internationally for taking a hard line on Greece. But there is a bigger problem on the horizon: the debt mountain in Europe, and the world, is too high”. My BS sensors were on high alert as I read the opening paragraphs. There was good reason for my alert – the article, which would have been read by tens of thousands of German corporate sector managers etc, demonstrates a palpable failure to comprehend what the real issues confronting the Eurozone are and how Eurozone Member States (19 of them) are fundamentally different in terms of fiscal capacity relative to nations that issue their own currency. No wonder the political classes in Germany can get away with behaving so abominably.

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Europe’s US imported nightmare

I note the US have been rather quietly urging the EU to resolve the so-called ‘Greek crisis’, which I really think is a euro-crisis, even though its current epicentre is in Greece. What the Americans are doing beyond the purview of the public gaze is anyone’s guess but we can be sure it is interventionist, self-interested and probably not helpful to the well-being of ordinary Europeans including Greeks. The US influence over Europe has, in fact, culminated in the crisis, even if that realisation is not understood by many. I have just finished reading a book by the French journalist/publisher and politician – Jean-Jacques Servan-Schreiber – who died in 2006. The book – Le Défi Américain (The American Challenge) was very popular when it was published in 1967. It initially was a major hit in France and later was translated widely. It helped me understand how the US intellectual tradition has at critical times in Europe’s modern history been so definitive.

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The concept of ‘one Europe’ under threat from austerity

The EU Flash Barometer surveys provide information about public opinion in Europe. The latest Survey(No. 418) – Introduction of the euro in the Member States that have not yet adopted the common currency – shows how confused people are in Europe at present. It seems that only 41 per cent of people in nations that “have not yet adopted the common currency” believe it would have “positive consequences” while 53 per cent think it would have “negative consequences”. That sounds as though they think the euro is a bad system. Well not exactly. The confusion might lie in the fact that the cruel system of austerity that the political elites have inflicted on the European nations is eroding the system of social stability that was established after the devastation of World War II. This is certainly the view taken by the ILO in a recent book it released. The ILO believe that the operations of the common currency (the austerity etc) is undermining the European Social Model, which is a core principle of an integrated Europe. So by insisting on maintaining the flawed currency system, the political elites are endangering the very thing they claim to revere – political integration – the ‘one Europe’.

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So-called ‘free trade’ agreements should be strongly opposed

My header this week is in solidarity for the Greek people. I hope they vote no and then realise that leaving the dysfunctional Eurozone will promise them growth and a return to some prosperity. They can become the banner nation for other crippled Eurozone nations – a guiding light out of the madness that the neo-liberal elites have created. While Greece battens down against the most incredible attack on European democracy since who knows when – perhaps since the Anschluss that led finally to war breaking out a year later in Europe, one wonders how low the Brussels elite will go to preserve control of the agenda. They clearly lost control on Friday when the Greek leadership decided to go back to the people to determine whether they wanted more poverty-inducing austerity. In response, the Brussels gang along with their Washington mates at the IMF have come out with personal attacks, lies, threats and ridiculous dissembling. But that is what happens when bullies can’t bully. But while these events are rather extraordinary in historical terms, other insidious attacks on democratic rights and choice are on-going. One of the more startling attempts to undermine the capacity of elected states to deliver on their mandate to their electorates and hand over almost absolute power over the state to international corporations is the so-called Trans-Pacific Partnership (TPP).

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Friday lay day – Greece back in recession but austerity works doesn’t it?

Its the Friday lay day blog and here are some snippets from the week. The Hellenic Statistical Authority (EL.STAT) released the latest – Quarterly National Accounts ( 1st Quarter 2015 ) – on May 13, 2015. After all the claims that austerity was working and the Greek economy was growing again, we now learn that Greece is back in recession, having recorded two successive quarters of negative real GDP growth. Whatever way one spins it, the policy framework employed by the Eurozone is a failure. The national accounts data released by Eurostat which coincided with the Greek release – GDP up by 0.4% in the euro area and the EU28 – also shows that the German economy slowed considerably in the first-quarter 2015 and Finland, one of the fiercest supporters of austerity entered official recession. The Finnish response was they had to cut public spending harder because they would be in breach of the Stability and Growth Pact rules relating to size of the deficit and the volume outstanding public debt. These nations are so caught up in neo-liberal Groupthink that they cannot see how ridiculous their policies and supporting dialogue have become.

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A “Budget Responsibility Lock” – a ridiculous proposal

The US Koch brothers provide substantial funds to the George Mason University to ensure it remains a bastion of so-called libertarian, free-market thinking. The brothers don’t really want a free market but it just serves their political and commercial aims to tell everyone that is what it is all about. The Economics Department at this university pumps out propaganda about the virtues of deregulation. One academic (Bryan Caplan) goes further and claims that democracy is a bad idea when compared to taking the advice of economists who advocate free markets. This idea that somehow policy choices conditioned by what would advance the best interests of the public are inferior to those advocated by economists who know what is best for all of us has permeated the debate over the last few decades and led to some very undesirable developments. This was on my mind when I was reading the Manifesto of the British Labour Party which proposes, wait for it – a “Budget Responsibility Lock” – as a framework for fulfilling its responsibilities to the British public. This is a ridiculous proposal.

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Latest military expenditure data reveals the hypocrisy of austerity

Yesterday, the Stockholm International Peace Research Institute (SIPRI) released their latest data for – World Military Expenditure 1988-2014. In their – Press Release – we learn that total World military spending has fallen in the last three consecutive years although it “levelled off” in 2014. While the global trends are interesting (the shifting patterns between the big geo-blocks), I was interested in what was happening in the Eurozone in the era of austerity. I was also interesting in juxtaposing the military expenditure and social expenditure dynamics. What you learn is that Greece maintains its position as one of the largest relative spending nations on military items, spending nearly twice the proportion of its GDP compared to Germany and the Netherlands, two nations that lead the charge on imposing austerity. Further, the nations that are pushing the hardest for more austerity are those that benefit the most from Greek military expenditure. The hypocrisy is amazing.

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ECB should start funding government infrastructure and cash handouts

I was a signatory to a letter published in the Financial Times on Thursday (March 26, 2015) – Better ways to boost eurozone economy and employment – which called for a major fiscal stimulus from the European Central Bank (given it is the only body in the Eurozone that can introduce such a stimulus). The fiscal stimulus would take the form of a cash injection using the ECB’s currency monopoly powers. A co-signatory was Robert Skidelsky, Emeritus Professor, Warwick University, renowned Keynesian historian and Keynes’ biographer. Amazingly, Skidelsky wrote an article in the UK Guardian two days before the FT Letter was published (March 24, 2015) – Fiscal virtue and fiscal vice – macroeconomics at a crossroads – which would appear to contradict the policy proposal we advocated in the FT Letter. The Guardian article is surrender-monkey territory and I disagree with most of it. It puts the progressive case on the back foot. What the hell is going on?

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Eurozone unemployment – little to do with international competitiveness

The so-called ‘Informal European Council’ released a document on February 12, 2015 – Preparing for Next Steps on Better Economic Governance in the Euro Area: Analytical Note – which has been used as a background paper to batter the Greeks into submission in the latest round of the Eurozone crisis. It was published under the authorshop of Jean-Claude Juncker (President of the European Commission) with “close cooperation” with Donald Tusk (President of the European Council), Jeroen Dijsselbloem (President of the Eurogroup of Finance Ministers) and Mario Draghi (ECB boss). All that is missing is the Madame from the IMF to complete the Troika. This is a very dishonest document, deliberately framed to advance the austerity agenda and damage the living standards of some of the nations within the monetary union. It is hard how any serious economist would put their name to this sort of analysis.

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US and Eurozone inflationary expectations diverge

Back in October 2009, the US unemployment rate had climbed to 10 per cent (its seasonally adjusted peak in the recent recession), the fiscal deficit was around $US1.4 trillion (9.8 per cent of GDP), which was the largest since the end of the Second World War (1945) 9.9 per cent of GDP and federal spending rose by 18 per cent with about 50 per cent going to bail out the banks. Meanwhile the US Federal Reserve ramped up its so-called quantitative easing (QE) program and its balance sheet expanded rapidly (as its purchase of government bonds accelerated). A lot of mainstream economists and conservative politicians at the time predicted an economic maelstrom – higher interest rates, an acceleration of inflation in the US and the inevitability of higher taxation. The trends in other nations were similar – higher deficits as the unemployment rates rose and the same shrill predictions of doom from the mainstream. None of the predictions came to be. But what is interesting is that the behaviour of long-term inflationary expectations in the US is now quite different to Europe. The most likely reason is that market participants now consider the drawn out recession and stagnation in the Eurozone to be the result of manifest policy failure and do not consider QE will do anything to alter that. In the US, the policy framework – fiscal stimulus to growth and benign QE appears to be more credible.

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Lacklustre British economy all down to Conservative incompetence

Not much has really changed in Capitalism despite massive changes in technology, market reach, etc. The underlying behaviour is stable – chicanery, bleeding the state for all the advantages that capital can gain while berating workers (unions) and welfare recipients, rigging financial, share and product markets, lying about state finances to gain more access to public handouts, lobbying government to socialise risk and privatise profit, paying off politicians to engage in corrupt behaviour where conflicts of interest dominate, and more. I was reading about the famous – South Sea Company – today, which was a public-private partnership that began life in 1711. It was a total scam and had all of the elements noted above. Its collapse in 1720 on the back of corrupt and incompetent behaviour (GFC anyone?) caused one hell of a recession in the UK. The only thing it managed to do in any significant volume with its trade monopoly between the UK and South America was to buy and sell slaves and, even then, it messed that up financially – quite aside from the repugnance of the venture itself. Interestingly, its collapse led to the rise of the, then private Bank of England, becoming the Government’s banker, and ultimately, its dominant role as the central bank. What is the contemporary relevance of the South Sea Bubble and its collapse? There are many angles that resonate in the current debate, but the point today is that the current recovery in the UK is the slowest in 300 years – that is since the glacial recovery following the collapse of the South Sea Company. And George Osborne thinks he is a champion.

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Greek bank deposit migration – another neo-liberal smokescreen

There was a news report on Al Jazeera on Friday (January 5, 2015) – Greece’s left-wing government meets eurozone reality – which contained a classic quote about the supposed incompetence of the new Greek Finance Minister. A UK commentator, one Graham Bishop was quoted as saying “If you’re a professor of macroeconomics and a renowned blogger, you probably don’t understand precisely how the banking systems works”. Take a few minutes out to recover from the laughing fit you might have immediately succumbed to on reading that assessment. As if Bishop knows ‘precisely’ how the system works! The context is the current news frenzy about the deposit migration out of Greek banks as a supposed vote of no confidence in the anti-austerity stand taken by Syriza. Having voted overwhelmingly for Syriza, Greeks are now allegedly voting against the platform by shifting their deposits out of the Greek banking system. A close look at things suggests that is not going on and it wouldn’t matter much if it was.

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Time is running out for neo-liberalism

You get a sense as to why the public are confused about economic issues when you read this article in the Fairfax press this morning (February 3, 2015) – The brutal politics of privatisation stark after Queensland election shock – written in the aftermath of the conservative electoral bloodbath in the state of Queensland last weekend. The writer is a ‘well-respected’ business journalist, which just goes to show how ‘respect’ is easily gained if you sing from the appropriate hymn sheet. It is all in the conclusion: “The clock is ticking for Australia. With an infrastructure backlog and big budget deficits, we can build the infrastructure we need only by selling assets and attracting private capital”. Which is a barefaced (and ignorant) lie, even when applied to a state government that uses the currency issued at the federal level. Privatisation is not TINA. But while the public might be confused at the level of understanding (about how the monetary system operates etc), it is clear they are becoming increasingly focused at the level of feelings/sentiment. More and more people are seeing that neo-liberal remedies – privatisation, austerity, structural ‘reform’ etc – do not live up to their claims. Increasingly, we are seeing rising income and wealth inequality being associated with these attacks on workers. Several recent election outcomes around the world have categorically affirmed the obvious – citizens all over are starting to rebel against austerity and neo-liberal so-called ‘solutions’ (such as privatisation and public sector job cuts). In Australia we have just witnessed a remarkable electoral rout in the Queensland State Election where the neo-liberal, privatising conservatives were tossed out of office on Saturday exactly as a result of a widespread rejection of these policies. The Greek elections a few weeks ago provided a more profound signal of this trend. The European Parliament elections in May last year another. Time is running out for neo-liberalism. The smugness that the elites have had is

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Friday lay day – The myth of equal opportunity

Its my Friday Lay Day blog, which was meant to mean a smaller writing commitment but sometimes doesn’t turn out that way. But today I plan to stick to that ‘pledge’. I have just arrived back from 2 weeks working in Sri Lanka and have things to catch up on back here. I read an interesting book a few years ago – Whither Opportunity: Rising Inequality, Schools, and Children’s Life Chances – by Greg Duncan and Richard Murnane (2011), which studies “the consequences of rising in- equality for America’s education”. While there are national differences, the dynamics uncovered in that book apply to most nations (that I know of). I am currently engaged in a project on equity and opportunity and the link that this has with income inequality. We are now well informed about the rising income inequality that has occurred over the last 20-30 years. But we are less informed on how this is reinforced and reinforces itself by a stark inequality in opportunity.

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Smart Austerity – its just the same dumb austerity

“In its current form, EMU is not viable in the long run”. That quote comes from a Report – Repair and Prepare – Strengthening Europe’s Economies after the Crisis – jointly published by the – Jacques Delors Institut (located in Berlin) – and the Bertelsmann Stiftung – (located in Gütersloh, Germany). The Report purports to lay out a blueprint to prepare Europe for the “next potential threat to its very existence”. It proposes a “path towards renovation” to create an “ever closer union”. They claim that they have taken up this task because there is “extensive ‘crisis fatigue’ and ‘euro area debate fatigue’ in “in governmental circles and the media”. I would call it adherence to ideological Groupthink rather than fatigue. There has been a major failure yet none of those who created the failure have put their hands up to take responsibility. Once they dismissed the problem as being caused by “profligate and fat Greeks (insert vilified nationality as to your preference)”, various policy makers and media commentators resorted to the even more amorphous “structural problems” to explain the on-going crisis. The media has been full of captive writers who just reiterate press releases from neo-liberal politicians and/or mainstream economists. So is this new Report different? Is their plan viable?

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Greek elections – a solution doesn’t appear to be forthcoming

It is late Sunday afternoon as I write this in Colombo, Sri Lanka and about 4.5 hours to the west the Greeks are getting ready to vote in their national election. It has been hailed as a make or break-type of affair but from what I know from inside-type conversations with some of the players and from general reading it has the hallmark of a fizzer, even if Syriza wins the ballot. Essentially, none of the main players seem to be willing to actually solve the problem. The entrenched interests have helped create the problem and are impoverishing the Greek people (themselves excepted). So they are part of the problem. Syriza talks bit about freeing Greece from the Troika-yoke but has a set of proposals that are mutually inconsistent. They might help around the edge and redistribute income a bit but what is needed is a massive boost in national income and that can only come from a massive increase in spending. The non-government sector is not going to do provide the source of that spending boost to get things moving again. So, ladies and gentleman you know what the answer is – there is only one other sector left in town to do it. And, you also know what is stopping them – membership of the Eurozone and the requirement to obey fiscal rules that restrict necessary spending to stagnation-enduring levels. That is why Syriza’s strategy is mutually inconsistent. Even a debt jubilee – the current favourite of the progressives, which warms their hearts so they can convince themselves that they are different from the neo-liberals will not solve the problem. Repeat: a massive fiscal boost is required, which means deficits above 10 per cent of GDP for many years forward. Repeat: that can only be accomplished within the current political reality if Greece leaves the Eurozone. It should have done that in 2008. It should never have joined. It should do it next week.

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Denmark should abandon its euro peg

In my soon-to-be-published book on the Eurozone I examined the case of Denmark in some detail in the context of the evolution of the European Monetary System, the European Exchange Rate Mechanism (ERM), and the ratification process of the Treaty of Maastricht. Denmark was a participant in all the attempts to maintain fixed exchange rates after the Bretton Woods system collapsed in 1971. Further, while Denmark did not formally enter the monetary union by adopting the euro that doesn’t mean that they have maintained their currency independence. They chose instead to peg the Danish kroner against the euro (effectively continuing the ERM parities), which immediately meant that its central bank had to follow ECB monetary policy. Fiscal policy then became a passive player to ensure it didn’t exacerbate the peg parity and Denmark also bought into the Stability and Growth Pact fiscal rules. This meant that internal devaluation (wage cutting) was the only real counter-stabilisation option available to them when facing external imbalances and domestic recession. It hasn’t worked well as one would expect. In fact, the euro peg works against the interests of the Danish people, particularly low income workers prone to unemployment. Yet the nation has an obsession with maintaining it. Groupthink abounds. The correct policy strategy which would give the Danish government a wider range of policy tools to enhance the well-being of its people would be for Denmark to abandon its euro peg. It should do that virtually immediately.

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Friday lay day – more snake oil from Brussels

Its my Friday lay day blog. I am in Sri Lanka at present and will have some reports about that over the next 14 odd days. I was amazed overnight by the comments from IMF boss Lagarde who made overt political statements in an upcoming election year by claiming that David Cameron had shown “eloquent and convincing” leadership in the global recovery. She said they were a model for the European Union. When asked why the IMF had criticised Britain in 2012 for “playing with fire” by invoking fiscal austerity, she said the IMF had “got it wrong” (Source). Hmm. No recognition that Britain cannot be a model for most of the EU nations, given the latter surrendered their currency sovereignty, imposed fiscal rules that prevent growth, and have a central bank that will not act as a responsible currency issuer. Further, it was a false admission of failure. In fact, the IMF got it right and Britain didn’t implement the austerity that it had initially planned and has kept a relative large fiscal deficit that has helped support growth.

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News from Europe continues to deteriorate

I am travelling for most of today and so have very little time to write. But I do comment on the latest French unemployment data released the day before Xmas which signals that things are getting worse in France as the European Commission bolts down the austerity clamps even tighter. While I thought that Italy might be the jewel in the crown and be the ones to exit the unworkable Eurozone first, I am now thinking that France might be the straw that breaks the back. Things are certainly going to get worse there and their political system is veering towards an anti Euro sentiment. Not before time, although the parties promoting the anti-euro feeling are not very nice at all. Where are the Socialists? Oh, I forgot, they are in power – spearheading the austerity. What a mess. In addition, as a sort of stocking filler, I also thought I would post the Q&A section of the presentation I made in Rome on November 24, 2014 – Framing Modern Monetary Theory.

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Greece – two alternative views

When I was in Europe recently, I had interesting discussions about the future of Italy, Greece and Spain with various people, particularly in relation to trying to understand the apparent dissonance between the strong support for the euro and the devastation that membership of the common currency has created in these countries. It is, of course, a very complex issue that goes well beyond economics (as most things do). I formed two alternative views from what I was heard from those on the so-called progressive side of the debate. Either they are kidding themselves or that they have crafted a plan to force Germany (mainly) to break up the currency union. The alternative scenarios was also quite distinct along national lines with Italians more likely to be in the former group and Greeks in the latter group, although my sample sizes were relatively small.

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