Declining wage shares undermine growth

There was an interesting Working Paper issued by the ILO – Is aggregate demand wage-led or profit-led? – last year, which finally received some coverage in the mainstream economics press this week. The Financial Times article (October 13, 2013) – Capital gobbles labour’s share, but victory is empty – considered the ILO research in some detail. That lag is interesting in itself given that it was obvious many years ago that the trends reported in the ILO paper and the FT article were part of the larger story – that is, the preconditions – for the global financial crisis. If you look back through the Modern Monetary Theory (MMT) literature, dating back to the 1990s, you will see regular reference to the dangers in allowing real wages to lag behind productivity growth. It seems that the mainstream financial press is only now starting to understand the implications of one of the characteristic neo-liberal trends, which was engendered by a ruthless attack on trade unions by co-opted governments, persistent mass unemployment and underemployment, and increased opportunities by firms to off-shore production to low-wage nations. Better late than never I guess.

Read more

GOP reps – if they had another brain it would be lonely

I have been watching in my spare time (yes) the 2010 first season of the HBO series – The Newsroom – which could be about events in US this week, so persistent has been the moronic behaviour that nations’ polity. There is growing evidence that the US Republicans are now an extremist party with a substantially tenuous grip on reality. They clearly do not understand that an economic depression is likely to follow their refusal to prevent the US Treasury to continue spending according to the current laws that the US Congress passed and which, together with the tax code, determine the current deficit. They clearly do not understand how deficits arise and the function they serve. The US might hold themselves out to be the world leaders in a range of areas but this debate is revealing how stupid the government representatives have become.

Read more

By hook or by crook – no sanctity in the private market

In the last week, Australians have been reminded yet again of the corruption that exists in the ranks of the corporate sector. Over the last few years we have been following the – unfolding evidence – of illegal practices (including bribery, UN-sanction busting) by companies (Note Printing Australia and Securency), which are owned by our central bank (RBA). Now, we have learned that one of our largest constructions companies appears to be corrupt to the core. They have been accused of “paying kickbacks to Iraqi officials in return for receiving lucrative contracts from the Iraqi regime” (Source). There are a myriad of examples of corporate fraud around the world (I just thought of Enron – “Burn, baby, burn. That’s a beautiful thing”). And then there was the global financial crisis with the cocktail of out-of-control investment banks, ratings agencies and whoever else with very long cheating snouts getting as much as they could for themselves, laws or no laws. And now we learn that a significant proportion of government procurement contracts in Europe are subject to corrupt behaviour. While, this tells me that the processes of government oversight need reworking in significant ways. But, further, it tells me that the root cause of the corruption is not the fact that governments are too big or spend too much money. Rather, an unfettered capitalism will pursue an agenda of greed and corruption and the idea that self-regulating markets (devoid of public oversight) are the best way to organise economic activity is a myth. The “market” is rife with corruption and inefficiency.

Read more

UK workfare plans just show how mean-spirited and ignorant we are

The UK Chancellor George Osborne told the delegates at the 2013 Conservative National Conference in Manchester yesterday that he was ending the culture of getting “something for nothing”. In his – Speech – the Chancellor claimed that “no one will get something for nothing” from now on, in reference to the “Help to Work” program, dubbed a new approach, that would see “(f)or the first time, all long term unemployed people who are capable of work will be required to do something in return for their benefits, and to help them find work”. We should immediately challenge the claim that the unemployed are doing nothing. An appreciation of the function that unemployment buffers plays in the capitalist system would tell one that the people who are forced to be in that buffer are certainly very active and protect the rest of us from the damaging consequences of poorly crafted macroeconomic policy. But beyond that, the evidence is clear – workfare schemes are not effective ways to provide pathways to more permanent employment. They are poorly disguised compliance programs designed to let the most disadvantaged workers in our society know that we resent their existence and, like the usurer in the Merchant of Venice, we want our “pound of flesh” in return for the pittance we provide by means of income support. These programs shine a dirty light on how mean-spirited and ignorant we are – in believing that mass unemployment is anything other than a systemic failure of the economy, in the face of deficient aggregate spending, to produce enough jobs and working hours. They are the means by which we indulge in our neo-liberal delusions – until, of-course, the times comes for you or I to face the sack next!

Read more

The opportunities for the unemployed in Australia are deteriorating

I have very little time today given other commitments. In recent months the Australian labour market has deteriorated quite noticeably and the Government has been forced to revise its estimates of the unemployment rate up to 6.25 per cent from 5.75 per cent in 2014. It is currently at 5.7 per cent and rising and before the GFC it reached a low-point value of 4 per cent. Underemployment is also rising as is hidden unemployment as the participation rate falls due to lack of employment opportunities. Further, in the last 6 months around 84 per cent of the net jobs created have been part-time. For the first time in several federal elections, unemployment and the paucity of job openings has become an election issue. Today, I used the little free time I had available to update my gross flows database to see if we could discern these trends as changing transition probabilities. In this blog I analyse the flows between full-time and part-time employment as well as movements between non-participation and employment to finish off the story. This blog is thus just an exploration of the data and an exercise to keep my databases current and for me to know what they are saying. The empirical side of my working life!

Read more

The ultimate boondoggle courtesy of slack government policy

Workers, particularly low-paid ones, are regularly sent up in comedy or satire. The 1959 British movie – I’m All Right Jack – was an acidic attack on the British trade union movement although it also parodied the stuffy upper-class British industrialists as well. In 2003, a British author Magnus Mills published the book – The Scheme for Full Employment – which is a satirical attempt to deride Keynesian full employment policies. Boondoggling and leaf-raking is the term that invokes the ultimate put down by the conservatives who laud the virtues of the private sector and accuse the public sector of creating waste and sloth every time someone proposes that the government introduce a large-scale job creation program to alleviate the dreadful damage that mass unemployment causes. Well the New York Times investigative team has discovered the ultimate boondoggle that has been made possible because of slack government policy. And, it involves our friends in the financial markets – those so-called productive, entrepreneurial free marketeers.

Read more

Bias towards low-pay job creation in Australia accelerates

The other day – in this blog – The British agenda to bring workers to their knees is well advanced – I considered the recent British Trades Union Congress (TUC) report (July 12, 2013) – The UK’s Low Pay Recovery – which shows that “eighty per cent of net job creation since June 2010 has taken place in industries where the average wage is less than £7.95 an hour”. The Report also showed that the middle-pay jobs were being shed and the bifurcation in the British labour market between an increasing number of (self-employed) low-paid jobs with precarious working conditions and future and the high pay jobs, which seemingly avoided much of the negative impacts of the recession, has intensified. The middle in Britain is being hollowed out and replaced by an increasing number of low paid workers. In Australia, 84 per cent of jobs created in the last 6 months have been part-time and underemployment has risen since February 2008 (the low-point in the last cycle) from 666.3 thousand (5.9 per cent) to 908.6 thousand (7.4 per cent). The question I look at in this blog, is the wage impacts of these employment trends in Australia. Are we also seeing the same hollowing out as is clearly occurring in Britain. Of those 84 per cent of jobs, what proportion are low-paid, medium-paid and high-paid. Clearly, if most of them are at the bottom end of the wage distribution then the raw figure of 84 per cent sits on top of an increasing disaster for the prosperity of working families.

Read more

Cutting unemployment benefits in the US will not decrease unemployment

Earlier this week I looked at the latest vacancy data for Australia released by the Australian Bureau of Statistics – Latest Australian vacancy data – its all down to deficient demand. I also took the time to update my data for the US Bureau of Labor Statistics – US JOLTS database, which provides detailed information about job openings and quit rates. The results for the US are similar to those found in Australia. But the data is apposite given the decision by the State of North Carolina to cut unemployment benefits – thinking that this act of cruelty will somehow reduce their appalling unemployment rate. It won’t.

Read more

Christmas is in decline in Greece

The alternative title for today could have been my award to the Euro elites for the title as Champions of Europe – for their consistent record-breaking feats – month after month – the unemployment rate rises. Eurostat reported on Monday (July 1, 2013) that – Euro area unemployment rate at 12.2% – up from 11.3 per cent in May 2012. That is an additional 1.4 million workers out of work in the 12 months. Unemployment is nearly reaching 20 million in the Eurozone. 3.5 million under 15s are now unemployed in the Eurozone (23.9 per cent up from 23 per cent in May 2012). Youth unemployment stands at 59.2 per cent in Greece, 56.5 per cent in Spain and 42.1 per cent in Portugal (and rising in all three nations). Talk about leaving a legacy for our grandchildren. Anyway. I thought I might just refresh my understanding of the Greek data today and ask some questions. What comes out is that Christmas is in decline in Greece – at least in a material sense. Which would be good if it was for the right reasons – that is, a renewed enlightenment towards non-material values. The problem is that it reflects a devastated economy being overseen by some bullies who not only fail in their own jobs but also want to make sure millions do not actually have jobs. The question (and there are a multitude of ways we could ask this) is Why?

Read more

It is hard to defend the 1 per cent by claiming their contribution added value

Writer of popular textbooks on macroeconomic myths, N. Gregory Mankiw has just put out a paper – Defending the One Percent – which is due for publication in the Journal of Economic Perspectives. The paper presents a narrative about the shift in the US personal income distribution (sharply towards higher inequality) since the 1970s in terms of rewards forthcoming to exceptionally skilled entrepreneurs who have exploited technological developments to provide commensurate added value (welfare) to all of us. As a result, rewards reflect contributions and so why is that a problem? In other words, the “left” (as he calls the critics of the rising inequality) are wrong and are in denial of reality. That view is unsustainable when the evidence is combined with a broad understanding of the research literature. Ability explains the tiniest proportion of the movements in income distribution. Social power and class, ignored by the mainstream economics approach, provides a more reliable starting point to understanding the rising inequality.

Read more

Britain continues to look like a failed state

Last week, the UK Department of Work and Pensions released a swathe of new – statistics – on poverty rates in Britain. While the Department tried as hard as it could to present the data in a misleading way and lied the facts, once analysed properly, are chilling indeed for a nation that pretends to be advanced and lectures Europe on its own misanthropic policy positions. I am sometimes asked when making public presentations how I judge the success or otherwise of public policy. I respond with a simple rule of thumb. The benchmark is not how rich the policy framework makes society in general but how rich it makes the poor! The conduct of governments in many nations over the last 20 years has not typified what a sophisticated and rich society should be doing to enhance the prospects of the weakest among us. The policies of the British government in recent years are the antithesis of sound public policy. In that sense, I judge Britain to be a failed state.

Read more

Massive real wage cuts will not improve growth prospects

There was a column in today’s Australian Financial Review “When the money-go-round slows, everyone suffers” which bemoaned the fact that all the investment bankers, lawyers and accountants that have been making heaps off the massive growth in the financial services sector are now doing it tough. We read that household budgets are being stretched when some woebegone executive suddenly discovers “multiple sets of $20,000 a year private school fees plus family holidays in Aspen” (from Australia). We feel sorry for them don’t we. The parasites of neo-liberalism who in between crafting handsome consulting contracts for themselves fill their days performing largely unproductive functions to our society. The AFR is, of-course, the neo-liberal propaganda machine that feeds the business sector with arguments about how badly they are doing because workers are overpaid and lazy. Yes, there was also an article in today’s edition about excessive wages and labour market regulation. Meanwhile, the latest evidence from Britain is that workers have taken the equivalent of a 15 per cent real wage cut over the period 2007 and 2012. The cuts have undermined nominal wages of workers in jobs rather than being the result of workers shifting to lower paid jobs. That is unprecedented and confirms the suspicions that the austerity agenda is being driven by a desire to win the class war for capital once and for all.

Read more

72% youth unemployment – the crowning glory of the neo-liberal infestation

It seems like everything is getting smaller in Germany. I read today that Germany’s longest word (63 letters) has been abandoned. It also seems that their jobs are getting smaller and more people are being forced into them. The so-called “mini-jobs”. Meanwhile Europe’s crowning glory and austerity’s greatest achievement lies a little south of the mini-job kingdom. Eurostat’s latest – Regional labour force data – tells us that in some regions in Spain and Greece, the unemployment rates of the 15-24 year olds have topped 70 per cent and will continue to rise. There are now an increasing chorus in the media from politicians and financial market types who are trying to dress all this up as good news. Apparently, the Greek share market is booming. The agenda is clear – if they can somehow convince the world that the devastation of Greece is “good news” then it will reduce the growing resistance to austerity that is starting to broaden the debate. The elites don’t want any moderation. So they have to re-construct devastation to appear to be bringing good outcomes. The madness continues. Tell the 15-24 year olds in Dytiki Makedonia that things are going along swimmingly!

Read more

So infested with neo-liberalism that they cannot add up anymore

We will start with a quiz question today. Its a very hard question so you will have to think long and hard to get the right answer. If you were the government and had the choice of spending $A114,975 per annum (or $A315 per day) to derive zero benefit and cause significant harm to both society and individuals or spending $A63,074 per annum (or $A173 per day) to derive significant benefit with virtually zero harm being caused which option would you take? While the dollar figures are calibrated for the Australian situation, neo-liberal governments around the world have been able to convince us that the first option is superior. There is no logic to it but reflects the extension of the logic that individuals are responsible for themselves and there is no such thing as a macroeconomic or systemic constraint on individual choice and behaviour. It is that folly that is causing all the strife at present and will ultimately bring the system down.

Read more

The last eruption of Mount Fuji was 305 years ago

Humans are very habitual. In Japan as elsewhere. It seems that a regular occurrence in Japan is that some career-minded economist comes out and predicts the end. The end can come in various projected forms. Hyperinflation, government bankruptcy, bond markets vaporising before our eyes, accelerating then exploding bond yields, Mount Fuji erupting and covering the plain beneath it with hot lava, etc. In fact, the eruption of Mount Fuji is the only probable event although even that has erupted only 16 times since 781 – the last eruption being 305 years ago. That august publication (not), the Wall Street Journal gave air to the latest fanatic in the article (May 27, 2013) – Tokyo Urged to Undertake Serious Fiscal Reforms. None of the predictions in that article match the chance that Mount Fuji might erupt tomorrow. In fact, none of the predictions have any chance of being realised. And so we wait the next habitual event in the Japanese calendar which will surely come in the form of some hero in a suit from one of the corrupt ratings agencies declaring that Japan’s sovereign credit rating is in danger or has been downgraded. Like a yo-yo, the rating goes up and down when the ratings agencies need a bit of publicity. Does anything happen much in Japan when the ratings change – nought! As with all these habitual breakouts of nonsense, it is as you were Japan. Keep pumping aggregate demand and things will be fine.

Read more

Buffer stocks and price stability – Part 3

I am now using Friday’s blog space to provide draft versions of the Modern Monetary Theory textbook that I am writing with my colleague and friend Randy Wray. We expect to complete the text during 2013 (to be ready in draft form for second semester teaching). Comments are always welcome. Remember this is a textbook aimed at undergraduate students and so the writing will be different from my usual blog free-for-all. Note also that the text I post is just the work I am doing by way of the first draft so the material posted will not represent the complete text. Further it will change once the two of us have edited it.

Read more

Buffer stocks and price stability – Part 2

I am now using Friday’s blog space to provide draft versions of the Modern Monetary Theory textbook that I am writing with my colleague and friend Randy Wray. We expect to complete the text during 2013 (to be ready in draft form for second semester teaching). Comments are always welcome. Remember this is a textbook aimed at undergraduate students and so the writing will be different from my usual blog free-for-all. Note also that the text I post is just the work I am doing by way of the first draft so the material posted will not represent the complete text. Further it will change once the two of us have edited it.

Read more

Investing in a Job Guarantee – how much?

This is a background blog which will support the release of my Fantasy Budget 2013-14, which will be part of Crikey’s Budget coverage leading up to the delivery of the Federal Budget on May 14, 2013. This blog will provide a detailed analysis of the investment the federal government would have to make to introduce a Job Guarantee. You will see how surprisingly small that investment is.

Read more

What is a Job Guarantee?

This is a background blog which will support the release of my Fantasy Budget 2013-14, which will be part of Crikey’s Budget coverage leading up to the delivery of the Federal Budget on May 14, 2013. The topic of this blog is the concept of employment guarantees as the base-level public policy supporting a return to full employment in Australia. We introduce the specific proposal – the Job Guarantee. In the next background blog we will see how much the Australian government needs to invest to make this policy improvement possible.

Read more

Australia output gap – not close to full capacity

A national media organisation (Crikey) invited me to be one of their Fantasy Budget providers this year and this is a background blog to the preparation of my Fantasy Budget 2013-14 for Australia, which I will publish next Monday. In this blog I consider the state of the Australian economy in terms of output gaps. The Australian government is keen to claim that the economy is operating close to or at trend real output – sometimes the Prime Minister or Treasurer – and senior Treasury officials, will replace the descriptor “trend output” with “full employment”. They make that claim to justify imposing fiscal austerity on the economy, which is expressed by their most recent goal to achieve a budget surplus in the current year. They have been pursuing that strategy for several budgets now after taking appropriate steps in 2008 to allow the budget deficit to rise significantly to head off the looming disaster associated with the global financial crisis. While the stimulus was not large enough at the time it did save the economy from the type of chronic recession that most of the advanced world remains stuck in. But, once recovery was established, the conservative ideology returned and the fiscal stimulus was withdrawn too quickly and an austerity plan implemented. At the time, it was clear that they would fail to achieve a surplus because in attempting to do so they undermined the recovery, and, their tax revenue growth. Other international events (a slowing of the terms of trade and an overvalued dollar) have compounded their poorly crafted fiscal strategy. The reality is that the Australian economy is now performing well below trend and the divergence is increasing. The labour market is also producing grossly inferior outcomes and we are clearly a hundreds of thousands of jobs short of what a reasonable definition of full employment would require. The budget deficit is too small not too large and the direction of policy in the coming year should be expansionary not contractionary.

Read more
Back To Top