Bank of Japan once again shows who calls the shots

On August 1, 2018, the 10-year Japanese government bond yield, shot through the roof (albeit a very low one). Yields shifted from 0.05 per cent on July 31 to 0.129 on August 1, which was the largest one-day rise since July 29, 2016 (when the yield rose 0.101 per cent). The Financial Times article (August 1, 2018) – Japanese bond market jolted as traders test BoJ resolve – wrote that “traders wasted no time in testing the Bank of Japan’s resolve to loosen its target range for the debt benchmark”. So what was that all about? And what key point does it demonstrate that seems to be lost on mainstream economists who continually claim that government debt is, or can become a problem once bond markets demand higher yields? The Japanese bond market has shown once again that private bond traders cannot set yields on government bonds if the central bank intervenes. Next time you hear some mainstream economist claiming a currency issuing government is running deficits at the will of the investors (read bond markets) politely tell them they are clueless. Japan once again provides the real world Modern Monetary Theory (MMT) laboratory – every day it substantiates the underlying insights contained within MMT and refutes the core mainstream propositions. The bond market over the last month or so demonstrates that the Japanese government is increasingly net spending by using credits created by the Bank of Japan, whatever else the accounting structures might lead one to believe. With inflation low and stable, these dynamics surely put paid to the various myths that a currency-issuing government can run out of money and that central bank credits to facilitate government spending lead to hyperinflation.

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The Weekend Quiz – September 1-2, 2018 – 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.

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Fiscal space has nothing to do with public debt ratios or the size of deficits

The Project Syndicate is held out as an independent, quality source of Op Ed discussion. When you scan through the economists that contribute you see quite a pattern and it is the anathema of ‘independent’. There is really no commentary that is independent, if you consider the term relates to schools of thought that an economist might work within. We are all bound by the ideologies and language of those millieu. So I assess the input from an institution (like Project Syndicate) in terms of the heterodoxy of its offerings. A stream of economic contributions that are effectively drawn from the same side of macroeconomics is not what I call ‘independent’. And you see that in the recurring arguments that get published. In this blog post, I discuss Jeffrey Frankel’s latest UK Guardian article (August 29, 2018) – US will lack fiscal space to respond when next recession comes – which was syndicated from Project Syndicate. Frankel thinks that the US is about to experience a major recession and that its government has run out of fiscal space because it is not running surpluses. We could summarise my conclusion in one word – nonsense. But a more civilised response follows.

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Meet Australia’s new Prime Minister

It is Wednesday and only a short blog post. I am also ailing with the flu and my head hurts. As I noted in Monday’s blog post – The conservative polity is fracturing – an opportunity for the Left (August 27, 2108) – Australia now has a new prime minister, the former Treasurer. His elevation has been celebrated as a victory for the ‘moderates’, given that his main contender, the guy who attempted the coup in the first place and succeeded in getting rid of the incumbent PM, was rather obviously extreme right in his views. Some are saying we have been saved by the fact that he didn’t succeed. But to call the new PM ‘moderate’ is to lose all sense of meaning to our language. He is a dangerous neoliberal ideologue who has inflicted untold pain on many people as he has made his way to the top.

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Brexit doom predictions – the Y2K of today

The UK Guardian has been publishing a ‘Brexit Watch’ page for some months now claiming it is is a “look at key indicators to see what effect the Brexit process has on growth, prosperity and trade”. They wheel out some economists who typically twist whatever data is actually analysed into fitting their anti-Brexit obsession. The problem is that the data or issue they choose to highlight is usually very selective, and, then, is often partial in its coverage. I commented on the way the Brexit debate is distorted by these characters in this blog post – How to distort the Brexit debate – exclude significant factors! (June 25, 2018) and specifically on the ‘Brexit Watch’ distortions in this post – The ‘if it is bad it must be Brexit’ deception in Britain (May 31, 2018) among others. Yesterday’s UK Guardian column by Larry Elliot (August 27, 2018) – Britons seem relatively relaxed in the face of Brexit apocalypse – does provide some balance by discussing why the general public is not taking these economist ‘beat ups’ about Brexit very seriously at all. This is a case of a profession that systematically makes extreme predictions and forecasts which rarely come to pass. The general public works out fairly quickly that when a mainstream economist says the sky is about to fall in it is time to get the beach gear out because it will be fine and sunny!

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The conservative polity is fracturing – an opportunity for the Left

Regular readers will know that I have spent a lot of time writing about the demise of the Left political parties as they became subsumed with neoliberal economic ideology, which blurred the political landscape as the ‘centre’ moved to the Right. That topic was the focus of our current book – Reclaiming the State: A Progressive Vision of Sovereignty for a Post-Neoliberal World (Pluto Books, September 2017). The neoliberal infestation has left these parties with declining electoral support, fractured internal organisations and cultures, and a seeming inability to abandon their flawed economic narratives. But there is a mirror image to this demise and that is playing out on the conservative side of politics. In Australia in the last week (but building for years) the far right conservative elements from within the government have brought down their own leader and our Prime Minister in a spiteful clash of ideologies between the more moderate elements in their party and the extremes out on the right. The internal tensions that drove this suicidal mission are being played out around the world. Think about the way that Trump is compromising the Republican party. Think about how Brexit is splitting Tory ranks in Britain. And so on. The problem for the conservatives is that citizens are realising that the neoliberal economic approach has failed to deliver on its promises. And that economic model is ‘owned’ by the conservatives. The adoption of neoliberal economics by social democratic parties is not part of their DNA. It is largely because their ranks have been infested by careerists who have come from the ‘elites’ and have little resonance with workers. The gaps in the policy space that these fractures have created is being occupied by extremist groups. It will be much easier for progressive parties to reclaim that space than it will be for the conservatives who are in the process of a death spiral. But to do that, the social democratic movements has to abandon every vestige of neoliberal economics – the concepts, policies and language and framing. That is the challenge.

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The Weekend Quiz – August 25-26, 2018 – 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.

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Public infrastructure investment must privilege public well-being over profit

One of the principle ways in which so-called progressive political parties (particularly those in the social democratic tradition) seek to differentiate themselves from conservatives is to advocate large-scale public infrastructure investment as a way of advancing public good. You can see evidence of that in most nations. Nation-building initiatives tend to be popular and also are less sensitive to the usual attacks that are made on public spending when income support and other welfare-type programs are debated. Capital worked out long ago that public spending on infrastructure provided untold benefits by way of profits and influence. In the neoliberal era, the bias towards ‘competitive tendering’ and public-private partnerships has meant that private profit tends to dictate where and what public infrastructure is built. The problem is that large-scale projects tend to become objects of capture for the top-end-of-town. Research shows that these ‘megaprojects’ typically deliver massive cost overruns and significantly lower benefits than are first estimated when decisions are being made about what large projects to fund. Further, evidence suggests that this is due to corrupt and incompetent behaviour by private project managers (representing their companies) and empire-building public officials. They lie about the costs and benefits so as to distort the decision-making processes in their favour. Any progressive government thus must be mindful of these tendencies and behaviours. A progressive policy agenda needs to be more than just outlining a whole lot of nice sounding public infrastructure projects that the government will pursue. The whole machinery of public procurement that has emerged in this neoliberal era needs to be abandoned and replaced with decision-making processes and rules that privilege the advancement of public well-being over profit.

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