US labour market improves but slack still remains with no wage pressures emerging

Last Friday (March 4, 2022), the US Bureau of Labor Statistics (BLS) released their latest labour market data – Employment Situation Summary – February 2022 – which reported a total payroll employment rise of only 678,000 jobs and a rise in the participation rate. Fortunately, employment growth was strong enough to drive the unemployment rate down by 0.2 points to 3.8 per cent. The US labour market is still 2,105 thousand jobs short from where it was at the end of February 2020, which helps to explain why there are no wage pressures emerging. Real wages continued to decline. Any analyst who is claiming the US economy is close to full employment hasn’t looked at the data.

Read more

Australian national accounts – growth rebound

Today (March 2, 2022), the Australian Bureau of Statistics released the latest – Australian National Accounts: National Income, Expenditure and Product, December 2021 – which shows that the Australian economy reversed the contraction in the September-quarter 2021 and posted an annual growth rate of 4.2 per cent. Covid lockdowns and restrictions caused the contraction and their abandonment allowed for growth to return. Growth was driven by strong growth in household consumption expenditure as public fiscal support declined and private investment expenditure went backwards. The change in the terms of trade was negative reflecting the rising import prices as supply constraints continue and demand rises. Overall, a good result but the next quarter will be much less robust (floods etc).

Read more

External border closures in Australia reduced the unemployment rate by around 2.7 points

The debate continues as to whether the population growth slowdown instigated by the Covid border restrictions imposed by the Federal government has been responsible for the rapid decline in the unemployment rate in Australia. The mainstream view is that migration is good for the economy and adds more in net terms to overall spending (and labour demand) than the extra workers add to labour supply, meaning that it does not put upward pressure on the unemployment rate. I have always contested that view – as a general statement. The reality is that depending on the stage of the cycle and the strength of labour demand, the rate at which new entrants enter the labour force, and the size of the unemployment pool at any point in time, immigration can undermine the employment prospects of local workers. Based on some reasonable estimates, if the external border had not been closed, the unemployment rate would be around 6.9 per cent now, rather than the official rate of 4.2 per cent. The rapidity of the recovery in the unemployment rate is due to the border closures and that should condition appropriate visa policies.

Read more

Australia – workers endure on-going real wage cuts as corporate profits soar

Yesterday (February 23, 2022), the ABS released the latest – Wage Price Index, Australia – for the December-quarter 2021. The WPI data shows that nominal wages growth remained modest to say the least. The data shows that the significant cuts to workers’ purchasing power continue, and, in my view, constitute a national emergency. While the conservatives are railing about inflation now and looking to target workers’ wages (further cuts), the evidence is that the wages side is not driving any inflationary pressures – the opposite is the case. The business sector, as a whole, thinks it is clever to always oppose wages growth and the banks love that because they can foist more debt onto households to maintain their consumption expenditure. But the reality is clear – there can be no sustained recovery for the economy post Covid without significant increases in the current rate of wages growth.

Read more

Workers in UK enduring real wage cuts except the unproductive bankers

It is Wednesday and I have three live presentations to make throughout the day. So we will be brief today. The ABS released the latest Wage Price Index today which shows that annual wages growth in Australia was 2.3 per cent, compared to the official inflation rate of 3.5 per cent. I will analyse that data in detail tomorrow, given I am short of time today. But there was also disturbing data coming out of the UK last week on the wages front, which reflects a major imbalance in priorities and also tells me that there is no wage demands driving the current inflationary episode.

Read more

The year Australian progressives abandoned the national commitment to full employment

At present, the unemployment rate in Australia is 4.2 per cent and falling. If the rate of new immigrants remains low for a while as our external borders open, then it is likely the unemployment rate will fall into the 3 per cent range soon. What people are learning is that the claims made by mainstream economists that full employment was anything between 5 and 8 per cent (at various times to suit their arguments) was a lie. It just suited their ideological agenda and flawed theoretical framework to maintain that narrative. Of course, underemployment is still very high, which means that even if the unemployment rate falls further, we are still a way from being at full employment. But with prices accelerating at present, we are seeing calls for government to pursue an austerity fiscal approach, which would prevent the unemployment rate falling further. We have been here before. Today, I document a major turning point in Australian politics, when the Labor government became the first to abandon the national government’s commitment to full employment, a policy approach that had defined the post Second World War period of prosperity. So … back to 1974 we go.

Read more

The last thing we need is a return to fiscal surpluses and rising household debt

There are some Op Eds that are bad, and then others that transcend that standard to become terrible. Such was the case last week when I read this article in the Australian press (Sydney Morning Herald) (February 18, 2022) – It’s time to return to Costello economics, whoever wins the federal election – which was written by a former advisor to the last Labor Prime Minister in Australia. The article is dishonest in that it completely ignores the most significant aspects of the period he seeks to eulogise. It is also scary if it reflects current Labor Party thinking, given the author’s previous associations.

Read more

Australian labour market – as Covid spreads, workers get sick and hours or work falls dramatically

The Australian Bureau of Statistics released the latest labour force data today (February 17, 2022) – Labour Force, Australia – for January 2022. The situation is this: most states have now abandoned Covid restrictions and the virus has spread quickly and is now impacting significantly on the availability of workers. One standout in today’s data is the dramatic fall in monthly hours worked (-8.8 per cent). This puts paid to the notion spread by economists that there is a trade-off between the economy and the health of workers. Employment growth was modest to say the least and full-time jobs growth was negative. The unemployment rate was unchanged. The flat population growth as external borders remain largely closed (or there is a slow take-up of international travel opportunities from foreign tourists) has helped keep the unemployment rate low as employment growth slows dramatically. The falling fiscal support is not helping however.

Read more

The last thing policy makers should be thinking about right now is creating a recession

There was an informative article in the UK Guardian over the week (January 13, 2022) – Australia’s supply chain issues likely to continue despite drop in Covid cases – which documented the many ways in which the pandemic has led to difficulties in getting goods supplied to retail outlets or their destination (in the case of overseas mail deliveries). The majority of recent articles about the economy and policy options have erred on the side of the need for interest rate hikes and fiscal policy cutbacks, which assume the rising inflation rates around the world are the demand-side events. But it is obvious to anyone other than private bank economists who are lobbying for interest rate rises to increase the profits for their banks, or, mainstream economists, who oppose central bank bond-buying and fiscal deficits, that the cause of the problems at present is not being driven by an explosion of nominal spending – neither from the non-government sector or through fiscal policy. Here is some more evidence to support that conclusion.

Read more

US labour market – employment and participation up, but still no obvious wage pressures

Last Friday (February 4, 2022), the US Bureau of Labor Statistics (BLS) released their latest labour market data – Employment Situation Summary – January 2022 – which reported a total payroll employment rise of only 467,000 jobs in December and a rise in the participation rate – which often leads to a rise in the unemployment rate as marginal workers outside the labour force sense their opportunities for work are now better. Employment growth accelerated in January 2022 which reverses the recent trend. 0.3 points decline in the official unemployment rate to 3.9 per cent, while participation was unchanged at 61.9 per cent. While the US labour market is still creating work – it is doing so at a declining rate and there are unequal patterns across the industrial sectors. The US labour market is still 2,875 thousand jobs short from where it was at the end of February 2020, which helps to explain why there are no fundamental wage pressures emerging. Any analyst who is claiming the US economy is close to full employment hasn’t looked at the data.

Read more

Some thoughts on a five-year development plan for Timor-Leste

Some years ago, I did some work for the Asian Development Bank on Pakistan and Central Asia. It was a really interesting experience because it taught me a lot about the challenges facing poorer regions who have dependencies on imported energy and food and limited export opportunities. Since then I have been studying a number of countries and am convinced that development strategies have to fundamentally change if the poorer nations are to achieve any hope of sustainable development. At present, I am working on the development of such a framework, which will incorporate the best-practices proposed by scholars who similarly reject the traditional IMF/World Bank development model. Specifically, I am focusing on Timor-Leste, which is about to stage a presidential election (March 19, 2022). Xanana Gusmão’s party – National Congress for Timorese Reconstruction (CNRT) – has backed former president Jose Ramos-Horta against the incumbent Fretilin President, Francisco Guterres and the third candidate Martinho Gusmão (United Party for Development and Democracy – PUDD). It appears that if Jose Ramos-Horta is elected, there will be a dissolution of parliament and early elections will be held after a period of political turbulence following the 2017 election. Early indications are that Ramos-Horta is well placed after the conduct of Guterres in recent years. The new government must consider a new development strategy and so I am working to provide some structure to that goal from a Modern Monetary Theory (MMT) perspective.

Read more

Income support for children improves brain development

When I first came up with the idea of a buffer stock employment approach to maintain full employment and discipline the inflationary process (back in 1978), the literature on guaranteed incomes was still in its infancy. The idea of a basic income guarantee was still mostly constructed within the framework Milton Friedman had laid out in his negative income tax approach, which I first came across when reading his 1962 book Capitalism and Freedom, while I was an undergraduate. I wasn’t taken with the idea and the preferred an approach to income security that not only integrated job security but also had a built-in inflation anchor. When I developed that idea, inflation was still conceived of the main problem and governments were fast abandoning full employment commitments because mainstream economists told them TINA. I thought otherwise. However, as I developed the buffer stock approach further in the 1990s as part of the first work that we now call Modern Monetary Theory (MMT), nuances about additional cash transfers became part of our approach. I refined those ideas in work I did developing a minimum wage framework for the South African government in 2008. I was reminded of all this when I read a report in New Scientist last week (January 24, 2022) – Giving low-income US families $4000 a year boosts child brain activity. Some might think this justifies the BIG approach, whereas it strengthens the case for a multi-dimensional – Job Guarantee.

Read more

The Weekend Quiz – January 22-23, 2022 – answers and discussion

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

Read more

Australian labour market continues to improve but Omicron overshadows all

The Australian Bureau of Statistics released the latest labour force data today (January 20, 2022) – Labour Force, Australia – for December 2021. The situation is this: most states have now abandoned Covid restrictions. The December survey was taken a few weeks after the ‘opening up’ and before Omicron got settled at parties, events, restaurants and wherever else it is lurking. Infections are now very high but the data only captures the opening up effect (with some Omicron impact). Employment growth slowed but was still strong and unemployment and underemployment fell significantly. We are seeing the impact of flat population growth coming up against growing demand for workers and that is the reason the unemployment rate has fallen so quickly. It is good for workers but that won’t last long because the government is already trying to lure foreign workers to fill so-called labour shortages. This will stop the wages growth that would benefit domestic workers from occurring. Overall, this is an improving situation although whether it will last is another question given the rapidly rising infection rate. It is certainly time for the Federal government to take advantage of the strengthening situation in the non-government sector and target some really good job creation initiatives in the regions and demographic cohorts that are still lagging behind.

Read more

German threats of exit rely on the ignorance of others reinforced by Europhile progressives

I read a story in the German press – Der Euro auf dem Prüfstand (‘The euro on the test bench’, published January 7, 2022) – which reinforced my view that progressives who think the harsh austerity-bias of the Economic and Monetary Union (EMU) have vanished with the invocation of the ‘general escape clause’ within Article 126 of the Treaty of the Functioning of the European Union when the pandemic arrived are off the mark. And when the same commentators/thinkers welcomed the end of the Merkel era and the dawning of the new German government, their assessment reflected that they are trapped within the TINA to the euro thought process. Well, economists with influence in Germany certainly don’t think that and one of the bosses of the Kiel Instituts für Weltwirtschaft (IfW) (Kiel Institute for the World Economy), which is a German research institute, has called for the topic of German exit from the EMU to be debated. He believes that this will put pressure on the other Member States (particularly the so-called “Achse Paris-Rom” (Paris-Rome axis) to abandon any thought of relaxing the economic and monetary rules and force the ECB to tighten monetary policy again. The iron gauntlet of ‘schwarze Null’ is still firmly gripping the European debate.

Read more

US labour market cannot be healthy with rising numbers of sick people

Last Friday (January 7, 2022), the US Bureau of Labor Statistics (BLS) released their latest labour market data – Employment Situation Summary – December 2021 – which reported a total payroll employment rise of only 199,000 jobs in December and a 0.3 points decline in the official unemployment rate to 3.9 per cent, while participation was unchanged at 61.9 per cent. While the US labour market is still creating work – it is doing so at a declining rate and there are unequal patterns across the industrial sectors. The US labour market is still 3,572 thousand jobs short from where it was at the end of February 2020, which helps to explain why there are no fundamental wage pressures emerging. Any analyst who is claiming the US economy is close to full employment hasn’t looked at the data. The failure to introduce a renewed fiscal stimulus will definitely leave the economy worse off, especially with the renewed virus onslaught from Omicron.

Read more

The Weekend Quiz – January 8-9, 2022 – answers and discussion

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

Read more

Bottom up reform in the EMU requires the abandonment of the Treaties

Regular readers will know that I have written a lot about the topic of European integration. My 2015 book – Eurozone Dystopia: Groupthink and Denial on a Grand Scale (published May 2015) – was a detailed study of the evolution of the Economic and Monetary Union (EMU) from the origins of the ‘European Project’, as peace came in the late 1940s. I have argued that the creation of the EMU, after several failed attempts in the 1960s and 1970s, was only possible because of the emergence of Monetarism in the academy and its related socio-political manifestations which we call, generally, neoliberalism or market liberalism. If France had not succumbed to the neoliberal myths and believed it could dominate the currency union with a ‘franc fort’ then its traditional rivalry with Germany would have continued to prevent the adoption of the common currency. What I have been arguing since the ECB introduced the Securities Market Program (in May 2010) is that despite the success by the EMU architects (Delors and his gang) in embedding neoliberal principles into the legal structure of the European Union and its institutions the reality has overtaken them and a dysfunctional dystopia is only maintained by the ECB and other institutions defying the ‘rules’ established. We are now starting to see other researchers take up that angle, which is progress.

Read more

The Weekend Quiz – January 1-2, 2022 – answers and discussion

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

Read more

The Weekend Quiz – December 25-26, 2021 – answers and discussion

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

Read more
Back To Top