Video of Australian book launch of ‘Modern Monetary Theory: Bill and Warren’s Excellent Adventure’

It’s Wednesday and as usual I am writing about a few issues rather than providing a detailed analysis of a specific issue. Today, I publish the video of Australian launch of our new book – Modern Monetary Theory: Bill and Warren’s Excellent Adventure. I also comment on the current situation in the Middle East and finish with some great music from the rather odd collaboration between Oscar Peterson and Stéphane Grappelli in the early 1970s.

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More misery and dysfunction coming for France – as the fiscal rules bite

For all those Europhile progressives who have held out that reform is the way to deal with the neoliberalism of the European Union and even, in some cases, claimed that the austerity mindset was over (once the fiscal rules enshrined in the Stability and Growth Pact were temporarily suspended during the pandemic), the behaviour of the French government should wake them out of their delusional reverie. The new Prime Minister addressed the National Assembly last week and outlined a new fiscal direction involving significant expenditure cuts and tax hikes. His plan will not satisfy the European Commission, however, who under the Excessive Deficit Protocol (EDP) have indicated they want a faster transition back to the fiscal rule thresholds (that is, even harsher austerity than Barnier is proposing). This policy shift is in the context of an elevated unemployment rate (which is rising) and an already significant output gap. The austerity is likely to push the unemployment rate towards 9 per cent (around) and will be a disaster for the prosperity of the French people who are still enduring the cost-of-living fallout from the pandemic and the Russian-Ukraine situation. Add in the possible impacts of the Middle East crisis and we have a failed state. Once again the fiscal rules defined within the EMU architecture are going to deliver shocking outcomes.

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Shipping disruptions unlikely to precipitate another inflation surge

It’s Wednesday and while I usually have a few topics to discuss, today I am concentrating on the recent disruptions to shipping channels and the likely impact on inflation. I was also hoping to post a video of the recent launch of my new book with Warren Mosler in Melbourne on September 12, 2024 but the editing is not quite finished. If we analyse the shipping data it is quite clear that global shipping channels are being seriously disrupted by a number of factors. Most particularly, the Suez Canal is becoming unusable while the Panama Canal is struggling with water levels following a devastating drought. The impact of the former has been for major shipping companies to divert their movements around the Cape of Good Hope, adding time and costs to the freight deliveries. If we reflect on the implications, the most reasonable conclusion at this stage is that these shifts in shipping patterns are unlikely to precipitate another surge in inflation. There might be some temporary cost and price shocks but I cannot see them persisting. And, there is nothing here that is relevant to central bankers.

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IMF surcharges cripple the poorest nations and transfer wealth from the poorest to the richest nations

I am now working in Kyoto again and have a full day’s commitments ahead of me. But as part of my on-going research I have been investigating the conditions under which the IMF extends financial support to the poorest nations. And today I will tell you about the surcharge system which the IMF uses to make it even harder for those nations to repay the already onerous debt obligations that the IMF imposes on them. These surcharges are just another component of the IMF’s extraction system which transfers wealth from the poorest nations to the richest. I have long advocated the abolition of the IMF and a replacement, multilateral institution being created that actually works to help reduce poverty and the redistribute resources from endowed to less-endowed nations without any harsh austerity measures. The challenge is how would that work. I will write more about my ideas on that in due course. But the evidence keeps mounting to justify the abolition. The surcharge system is one part of that evidence suite.

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Recent and upcoming elections tell us a lot about how far gone the global order is

It’s Wednesday and I am flat out finishing things today as I am off to Japan again to work once again at Kyoto University. I will keep you updated on the progress of that work and a public event that we are thinking about in November in Kyoto (or possibly Tokyo or both). For now a few thoughts on current political happenings and some administrative matters.

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Class origins matter – but who are the agents of change?

The celebratory headlines in Australia today are about how the Federal government has just recorded two consecutive financial year fiscal surpluses, which the Treasurer lauded as an example of “responsible economic management” as the government removes from the economy a cumulative sum of $A172.3 billion since it was elected in May 2022. The headlines should have said “Federal government destroys non-government financial wealth over the last 2 years as more people are without work’, which is actually what has happened. Anyway, it is too depressing to see the media fawn over the Treasurer today. So I am going to go abstract and avoid talking about that any further. There was an interesting article in the UK Guardian the other day September 26, 2024) – Take it from me (and Keir Starmer) – you should never pretend to be more working class than you are. I don’t usually agree with the journalist but this article made me reflect on a lot of things.

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The 20 EMU Member States are not currency issuers in the MMT sense

For some years now (since the pandemic), I have been receiving E-mails from those interested in the Eurozone telling me that the analysis I presented in my 2015 book – Eurozone Dystopia: Groupthink and Denial on a Grand Scale (published May 2015) – was redundant because the European Commission and the ECB had embraced and was committed to Modern Monetary Theory (MMT) so there was no longer a basis for a critique along the lines I presented. I keep seeing that claim repeated and apparently it is being championed by MMT economists. While there are some MMTers who seem to think the original architecture of the Economic and Monetary Union has been ‘changed’ in such a way that the original constraints on Member States no longer apply, I think they have missed the point. They point to the fact that the ECB continues to control bond yield spreads across the EU through its bond-buying programs (yes) and that the Commission/Council relaxed the fiscal rules during the Pandemic (yes). But the bond-buying programs come with conditionality and the authorities have now ended the ‘general escape clause’ of the Stability and Growth Pact and are once again enforcing the Excessive Deficit procedure and imposing austerity on several Member States. The temporary relaxation of the SGP rules (via the general emergency clause) did not amount to a ‘change’ in the fiscal rules. Indeed, the EDP has been strengthened this year. The Member States still face credit risk on their debt, still use a foreign currency that is issued by the ECB and is beyond their legislative remit, and are still vulnerable to austerity impositions from the Commission and their technocrats. To compare that situation with a currency-issuing government such as the US or Japan or Australia, etc is to, in my view, commit the same sort of error that mainstream economists make when they say that ‘the UK is at risk of becoming like Greece’ or similar ridiculous threats to discipline fiscal authorities in currency-issuing nations.

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Delinking and degrowth

One of the issues that some on the Left raise when the topic ‘degrowth’ enters the conversation relates to the sense of elitism from the wealthy nations, which can now indulge in a bit of non-material aspiration amidst the large houses, two-or-three car garages, speed boats, lycra-clad journeys to coffee shops on $10,000 bicycles designed for racing but ridden around the corner … you get the message. The criticism is that such a bourgeois ‘movement’ has no correspondence with the needs and aspirations of citizens living in poorer nations with fundamental development challenges, not the least being food security and poverty. They thus reject the idea as another ‘woke’ issue. There is some truth in what they say but it is an inadequate stance given that the global economy is operating 1.7 times over regenerative capacity and urgent changes are required. That means we have to deal with the notion of dependency between ‘North’ and ‘South’, which takes us back to the colonial relations and beyond, as an integral part of the degrowth agenda. This is where the concept of ‘delinking’ comes in. Here are some preliminary notes on all that, which arise from research I am doing for my next book on these issues (probably coming out first quarter 2025).

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Latest scientific research points to long COVID in Australia being a significant and growing problem

I have been regularly following the scientific literature on the labour market impacts of COVID-19 and as the evidence is becoming richer we are getting a clearer idea of those impacts. The short conclusion is that public health policy makers, under pressure from ill-informed individual and corporate interests, have failed dramatically to protect the public health and there will be long-term economic consequences as a result, quite apart from the devastating personal costs. It is a very strange phenomenon that we have observed over the last several years now. One that required strong public health leadership but which has, instead, been marked by a curious cloud of denial and abandonment. We are all to blame for that abandonment. The latest evidence indicates that long COVID in Australia is a significant and growing problem that is not only undermining the well-being of the people involved but is also a major restraint of economic performance.

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The Bank of England does not need a tiered reserve system for the Government to avoid austerity

There is an interesting debate going on in the UK at present about the concept of tiered bank reserves. The concept is now being used by commentators to argue that the new British government does not need to inflict the austerity that the Chancellor has now announced (even though she is denying that is what the government is up to) because the government can simply reduce outlays to the commercial banks in order to meet the fiscal rules. The discussion is rather asinine really and features all the missteps that commentators make when trying to appear progressive but falling into the usual mainstream macroeconomic fictions.

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ECB estimates suggest meeting current challenges will be impossible within fiscal rule space

In the recent issue of the ECB Economic Bulletin (issue 4/2024) there was an article – Longer-term challenges for fiscal policy in the euro area – which demonstrates why the common currency and its bevy of fiscal rules and restrictions is incapable of meeting the challenges that humanity and the natural world face in the coming years. The ECB article is very interesting because it pretty clearly articulates the important challenges facing the Member States and provides some rough estimates of what the fiscal implications will be if governments are to move quickly to deal with the threats posed. However, it is clear from the analysis and my own calculations that significant austerity will be required in areas of expenditure not related to these challenges. Given the current political environment in Europe, it is hard to see how such austerity can be imposed and maintained in areas that impact the daily lives of families. What is demonstrated is that the architecture of the EMU is ill-equipped to deal with the problems that Member States now face. The common currency and fiscal rules were never a good idea. But as the challenges mount it is obvious that Europe will have to change its monetary system approach in order to survive.

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German debt brake is bad economics and undermines democracy

It’s Wednesday and today I don’t comment on the US Supreme Court decision to embed criminal behaviour in the presidency (how much of a joke will the US become) or the Presidential debate, which has focused on the performance of Biden while, seemingly ignoring the serial lies told by the other contender. If these two are all that the US has to offer as the leader then what hope is there for that nation. We will shift focus today from the idiocy of the US to the idiocy of the German government and its fiscal rules. After a temporary suspension during the pandemic, the German debt brake is being applied again and reintroduces a rigidity into fiscal policy that makes it hard for the government to actually run the economy responsibly. By prioritising an arbitrary financial threshold between good and bad, the debt brake undermines the capacity of the government to address the decaying public infrastructure (also a victim of the past austerity) and meet the climate challenges ahead. Through its negative impacts on well-being in Germany, it has also generated the political space for the right-wing extremists to gain ground. Bad all round.

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I make a prediction about the relationship between US government debt and impending crisis

Over time we observe a pattern of idiocy in the financial press, where different fictions, dressed up as allegedly shattering propensities, are regularly cycled through in succession, each one getting headlines for a day or so, only to be replaced by the next sensationalised issue. So-called experts or corporate bosses are wheeled out and make horrendous predictions that one country or another is entering a catastrophe of its own making – too much government spending, too much debt, or some other policy position – is usually fingered as the culprit. None of the predictions ever come to pass and the media never follow up to reflect on why. They are too busy pushing out the next headline and the next issue, which, in turn, will be replaced by something else, and then something else, and so on, until the initial prophesy of dooms is recycled, despite failing dismally to engage with the real world when it was last aired. And this pattern has unfolded over decades. Who ever checks the veracity of the predictions? How does the reputation of these so-called experts survive continual failure? The problem is that most of us believe this fiction and elect politicians and accept poor economic policy based on the fictional world we live in. Anyway, I have a prediction … read on.

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Progressive journalists in Britain so easily become willing mouthpieces for mainstream economic lies

Imagine if you are a UK Guardian reader and wanting to assess the options for an almost certain victory by Labour in the upcoming general election. Your understanding of the challenges facing the next government will be conditioned by what you have been reading in that newspaper. Unfortunately, there have been a stream of articles purporting to provide informed analysis of the challenges ahead and the capacities of the new British government to meet them which make it very hard for any progressive reader to assess the situation sensibly. These articles promote the usual macroeconomic fictions about the need for tight fiscal rules that will help the government avoid running out of money as it tries to deal with the decades of degeneration created by the austerity mindset. It is stunning how so-called progressive media commentators have so easily become willing mouthpieces for the mainstream economic lies which have only served to work against everything they purport to stand for. Business as usual though. Sadly.

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IMF holds a religious gathering in Tokyo – to keep the troops in line

The IMF joint hosted a conference in Tokyo last week – Fiscal Policy and Sovereign Debt – and the continues its misinformation campaign on the ‘dangers’ of public debt. The conference claimed that it brought together ‘leading scholars and senior policymakers’ and upon examination of the agenda it was clear that there was very little diversity in the speakers. The organ started playing and all sessions sang from the same hymn sheet. That is how Groupthink works. Repeat and rinse, repeat and rinse, and, never confront views that are contrary to the message. Groupthink is about avoiding cognitive dissonance for fear that at least some of the ‘parishioners’ might lose the faith. The famous British economist, Joan Robinson likened mainstream economics to a branch of theology and these conferences that the IMF convene around the world are like evangelical crusades, to keep the troops in line so they can continue to keep all of us in line – for fear that we might all start seeing through the veil and discover the rotten core.

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Senior mainstream economist now admits central banks are not as independent as many believe

The UK Guardian published quite an odd article the other day (May 30, 2024) by Mr GFC Spreadsheet Fudge Man Kenneth Rogoff – Why policymakers are more likely to risk high inflation during periods of economic uncertainty – which essentially claims that economic policy has been conducted for several years by institutions that do not meet the essential requirements that are specified by the mainstream New Keynesian macroeconomic approach, upon which the institutions have claimed justification. If that makes sense. He now claims that the eulogised principle of ‘central bank independence’, which is a mainstay of the New Keynesian justification that macroeconomic counter stabilisation policy should be left to monetary authorities and that fiscal policy should play a supporting but passive role, no longer exists as policy makers have had to come to terms with multiple crises. Of course from an Modern Monetary Theory (MMT) perspective such independence never existed and was just a ploy to allow the governments to depoliticise economic policy making and thus distance themselves, politically, from the fall out of unpopular policy interventions. If it wasn’t the IMF to blame, then it was the ‘independent’ central bank for austerity and interest rate hikes and all the rest of it. Now we have a senior Harvard professor admitting it was a ruse and bemoaning the fact.

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Government debt fears – more fiction from the mainstream media

After all these years of trying, the insights provided by Modern Monetary Theory (MMT) still haven’t cut through. One doesn’t even need to accept the complete box of MMT knowledge to know that, at least, some of it must be factual. For example, how much brainpower does a person need to realise that a government that issues its own currency surely doesn’t need to call on the users of that currency in order to spend that currency? Even if we could get that simple truth to be more widely understood it would change things. But every day, economists and the journalists demonstrate a lack of understanding of how the monetary system actually works. Are they stupid? Some. Are they venal? Some. What other reason is there for continuing to use major media platforms to to pump out fiction masquerading as informed economic commentary? And the gullibility and wilful indifference of the readerships just extends the licence of these liars. Some days I think I should just hang out down the beach and forget all of it.

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Tracing the British Labour Party’s fears of The City – Part 1

When I met with John McDonnell on October 11, 2018 at his Embankment office block in London he was then the Shadow Chancellor. The theme of the meeting was dominated by the concerns (near hysteria) about the power of the City of London (the financial markets), expressed by his advisor, a younger Labour Party apparatchik whose ideas are representative of the bulk of the progressive side of politics in Britain. The topic of the meeting centred on the fiscal rule that the British Labour Party chose to apparently establish credibility with the financial markets (‘The City’). I had long pointed out that the fiscal rule they had designed with the help of some New Keynesian macroeconomists was not just a neoliberal contrivance but was also impossible to meet and in that sense was just setting themselves up to failure should they have won office at the next election. Essentially, I was just met with denial. They just rehearsed the familiar line that the British government has to appease the financial interests in The City or face currency destruction. That fear is regularly rehearsed and has driven Labour policy for years. It wasn’t always that way though. As part of preliminary research for a book I plan to write next year I am digging into the history of this issue. What we learn is that the British government has all the legislative capacity it needs to render The City powerless in terms of driving policy. That raises the question as to why they don’t use it. All part of some work I am embarking on. The reason: I am sick to death of weak-kneed politicians who masquerade as progressive but who bow and scrape to the financial interests in the hope they will get a nice revolving door job when they exit politics. A good motivation I think.

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COVID-19 myopia – it actually costs more to have no acute care protocols in place and more people die as a result

I regularly scan research output from disciplines other than economics that I think impacts on economic matters. On April 17, 2024, a new study from medical researchers at the Burnett Institute in Melbourne, working with staff at the Department of Health and Human Services, in Victoria published a pre-print in The Lancet – Admission Screening Testing of Patients and Staff N95 Masks are Cost-Effective in Reducing COVID-19 Hospital Acquired Infections – which continues to show that public health policy in Australia is failing and part of that failure is the myopia that ‘sound finance’ principles engenders. I have written before about this myopia where governments think they need to cut back on spending because they are ‘short’ of funding and end up having to spend more over time because the initial spending cuts cause massive (and predictable) problems. We have seen this phenomenon in many situations (several cases are cited below). This new research puts an end in my view to the debates about hospital and more general health practices in the Covid era and exposes how the lack of political leadership, a refusal to fund public education, and poor hospital practices – mostly due to alleged funding shortfalls – have turned Australian hospitals into death zones. And while the authorities are telling the public they are ‘saving taxpayers’ money’ the reality is that the pubic outlays to deal with the problems they are creating by this austerity will be multiples of what would be required to implement sound policy now and avoid those longer-term problems.

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