I am reverting back this Wednesday to a shorter blog post to free up a bit more time to advance other writing projects. Here are some snippets on Germany and Italy that caught my eye this week. And a link to an essential video about Venezuela. And some music in a sad week (musically).
Those who follow European politics will be familiar now with the recent events in Italy. I wrote about them in this blog post – The assault on democracy in Italy. The facts are obvious. The democratic process for all its warts rejected the mainstream political parties in the recent national election and minority parties Lega Nord and M5S formed a governing coalition. The trouble started when they nominated Paolo Savona as Finance Minister. He had occasionally made statements that paranoid European elitists would interpret as being anti-Europe and anti-German. The political solution was easy and Italian President Sergio Mattarella vetoed Savona’s nomination. The Coalition withdrew and a right-wing technocrat Carlo “Mr Scissors” Cottarelli was to be installed as Prime Minister. That arrangement didn’t last long and the Lega Nord/M5S coalition emerged in government with the unelected Guiseppe Conti the new Prime Minister. But the interesting story to emerge out of all that relates to overt political behaviour by the supposedly independent European Central Bank. It has been clear for some time that the ECB has used its currency-issuing capacity to ensure that ‘spreads’ on Member State government bonds (against the benchmark German bund) do not widen too much. But it is also clear that when the ‘market forces’ do increase the spreads, which foments a sense of financial crisis, the ECB doesn’t necessarily act immediately. A good dose of crisis talk is what the political process needs to keep the anti-European forces at bay. The ECBs behaviour in this context became very political in the recent weeks and the only explanation is that they wanted the sniff of crisis to pervade while all the negotiations were going on over who would emerge as the new government in Italy. Democracy suffers another blow in that neoliberal madhouse that is the European Union.
It is a public holiday in Australia today. Would you believe it is the annual Queen’s Birthday holiday – the Queen of England that is. How Australia maintains this colonial relic is down to progressive forces being divided on rather irrelevant details and some of them siding with the monarchists. Tomorrow’s blog post will analyse the recent ECB behaviour with regard to Italian government bond purchases. But today I consider the minimum wage decision that was handed down on June 1, 2018, by Australia’s wage setting tribunal, Fair Work Australia in its – Annual Wage Review 2017-18. This is the process through the Federal Minimum Wage in Australia is adjusted. The decision announced will increase the minimum wage by 3.5 per cent from July 1, 2018 so that the new minimum wage will be $719.20 per week or $18.93 per hour. Given that the annual inflation rate is running around 2 per cent (or thereabouts), the decision, on the face of it, would suggest that the real minimum wage is now higher than it was a year ago, which is a good sign. But over the last year, low-paid workers have had to endure cuts in pay rates for work during non-standard hours (so-called penalty rates), which Fair Work Australia made operational on July 1, 2017. For some workers the losses from the penalty rate cuts amount to more than $6,000 per year. So our wage setting tribunal is giving with one hand and taking it back (and then some) with the other. The most sordid aspect of all this is that many employers demanded Fair Work Australia deliver real wage cuts in the annual review.
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.
Welcome to The Weekend Quiz. The quiz tests whether you have been paying attention or not to the blogs I post. See how you go with the following questions. Your results are only known to you and no records are retained.
The Australian Bureau of Statistics released the latest March-quarter 2018 National Accounts data yesterday (June 6, 2018). The results were very interesting and shows how vulnerable the Australian economy is despite the relatively strong growth that was recorded. Total growth for the quarter was a healthy 1 per cent which led to an annual growth rate of 3.1 per cent. That is close to our long-term trends. The standout contributor was exports. The National Accounts data indicates that the Australian economy continues to ride the terms of trade cycle. There was a sharp boost in our terms of trade in the March-quarter 2018, which drove export revenue up sharply. At the same time, household consumption expenditure continued to moderate as high levels of debt and flat wages growth impact. Domestic demand was weaker as a result. The boost to exports is volatile while the moderation in consumption is now structural and this means that the current overall growth trajectory is fairly fragile despite the stronger growth in the March-quarter overall. I expect household consumption expenditure to remain subdued while the path that exports will take is much more uncertain. Overall, this is not a balanced growth outcome.
I am travelling most of today and into remote regions to do some fieldwork so I do not have time to write anything substantial. I am researching various issues while in transit and will resume normal services tomorrow when I discuss minimum wages. Then, next Monday’s blog post will discuss the issue of bond spreads, which has been in the news in the last few weeks with the Italian situation. Further, there have been claims that the ECB is deliberately manipulating Italian bond purchases to drive up the spread against the German bund and thus place further pressure on the Italian political mess. Some have argued that by fomenting a sense of crisis in Italy (the rising bond spreads), the ECB has been supporting conservative forces horrified at the prospect of a Euro-skeptic government. It is a little more complex than that but I will write about that in detail next Monday.
This is Part 2 in my two-part series analysing the 354-page report from the Scottish Growth Commission – Scotland – the new case for optimism: A strategy for inter-generational economic renaissance (released May 25, 2018). In Part 1, I considered their approach to fiscal rules and concluded, that in replicating the rules that the European Commission oversees as part of the Stability and Growth Pact, the newly independent Scotland would be biasing its policy settings towards austerity and unable to counter a major negative shock without incurring elevated levels of unemployment and poverty. In Part 2, I focus specifically on the currency issue. The Growth Commission recommends that Scotland retain the British pound, thereby surrendering its independence. Moreover, while it is part of the United Kingdom, the British policy settings have to consider the situation in Scotland. Once it leaves, it will still be bound by British fiscal and monetary settings but those settings would be designed to suit the remaining British nations. So if the British government continues with its austerity obsession, Scotland would be forced to endure that end. Hardly, the basis for an independent nation with progressive aspirations.
The 354-page report from the Scottish Growth Commission – Scotland – the new case for optimism: A strategy for inter-generational economic renaissance (released May 25, 2018) – could have been published by the IMF given its adherence to the flawed neoliberal macroeconomic framework that that institution imposes on everything. It is too generous to call the Growth Commission’s work ‘analysis’ – a series of unfounded assertions with logical extrapolation from that flawed basis is more accurate. If Scotland were to create an independent nation on the basis of the ‘blueprint’ outlined in the Growth Commission’s Report then it would soon be heading into a mediocre oblivion – a future where it would be unable to effectively counteract the fluctuations of non-government sector spending and a future where fiscal policy was forced to be pro-cyclical. Scotland would end up another failed austerity state. This is Part 1 of a two-part series where I examine the Report and its implications. In Part 2, I will examine the currency issues in more detail. I hope to be in Scotland in early October as part of my next speaking tour of Europe – more details later.
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.