Germany has a convenient but flawed collective memory

There is a lot of discussion at present about the historical inconsistency of the German position with regard any debt relief to the Greek government. Angela Merkel has reiterated over the weekend that there would be no further debt relief. Why she is now a spokesperson for the Troika that does not include the German government is interesting in itself. In this context, I recall a very interesting research study published in 2013 – One Made it Out of the Debt Trap – by German researcher Jürgen Kaiser, who examined the London Debt Agreement 1953 in great detail. After becoming familiar with the way the Allies handled the deeply recalcitrant Germany and its massive debt burden in that period, one wonders why the German government is so vehemently against giving relief to Greece. This is especially in the context that the only mistake that Greece made was joining the Eurozone and surrendering its own capacity to deal with a major financial crisis. The ‘mistakes’ of the German nation before the London Agreement have been paraded before us all again with the 70th anniversary of the liberation of the Auschwitz death camp featuring in world events last week.

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Friday lay day – The myth of equal opportunity

Its my Friday Lay Day blog, which was meant to mean a smaller writing commitment but sometimes doesn’t turn out that way. But today I plan to stick to that ‘pledge’. I have just arrived back from 2 weeks working in Sri Lanka and have things to catch up on back here. I read an interesting book a few years ago – Whither Opportunity: Rising Inequality, Schools, and Children’s Life Chances – by Greg Duncan and Richard Murnane (2011), which studies “the consequences of rising in- equality for America’s education”. While there are national differences, the dynamics uncovered in that book apply to most nations (that I know of). I am currently engaged in a project on equity and opportunity and the link that this has with income inequality. We are now well informed about the rising income inequality that has occurred over the last 20-30 years. But we are less informed on how this is reinforced and reinforces itself by a stark inequality in opportunity.

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Smart Austerity – its just the same dumb austerity

“In its current form, EMU is not viable in the long run”. That quote comes from a Report – Repair and Prepare – Strengthening Europe’s Economies after the Crisis – jointly published by the – Jacques Delors Institut (located in Berlin) – and the Bertelsmann Stiftung – (located in Gütersloh, Germany). The Report purports to lay out a blueprint to prepare Europe for the “next potential threat to its very existence”. It proposes a “path towards renovation” to create an “ever closer union”. They claim that they have taken up this task because there is “extensive ‘crisis fatigue’ and ‘euro area debate fatigue’ in “in governmental circles and the media”. I would call it adherence to ideological Groupthink rather than fatigue. There has been a major failure yet none of those who created the failure have put their hands up to take responsibility. Once they dismissed the problem as being caused by “profligate and fat Greeks (insert vilified nationality as to your preference)”, various policy makers and media commentators resorted to the even more amorphous “structural problems” to explain the on-going crisis. The media has been full of captive writers who just reiterate press releases from neo-liberal politicians and/or mainstream economists. So is this new Report different? Is their plan viable?

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Greek elections – a solution doesn’t appear to be forthcoming

It is late Sunday afternoon as I write this in Colombo, Sri Lanka and about 4.5 hours to the west the Greeks are getting ready to vote in their national election. It has been hailed as a make or break-type of affair but from what I know from inside-type conversations with some of the players and from general reading it has the hallmark of a fizzer, even if Syriza wins the ballot. Essentially, none of the main players seem to be willing to actually solve the problem. The entrenched interests have helped create the problem and are impoverishing the Greek people (themselves excepted). So they are part of the problem. Syriza talks bit about freeing Greece from the Troika-yoke but has a set of proposals that are mutually inconsistent. They might help around the edge and redistribute income a bit but what is needed is a massive boost in national income and that can only come from a massive increase in spending. The non-government sector is not going to do provide the source of that spending boost to get things moving again. So, ladies and gentleman you know what the answer is – there is only one other sector left in town to do it. And, you also know what is stopping them – membership of the Eurozone and the requirement to obey fiscal rules that restrict necessary spending to stagnation-enduring levels. That is why Syriza’s strategy is mutually inconsistent. Even a debt jubilee – the current favourite of the progressives, which warms their hearts so they can convince themselves that they are different from the neo-liberals will not solve the problem. Repeat: a massive fiscal boost is required, which means deficits above 10 per cent of GDP for many years forward. Repeat: that can only be accomplished within the current political reality if Greece leaves the Eurozone. It should have done that in 2008. It should never have joined. It should do it next week.

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Denmark should abandon its euro peg

In my soon-to-be-published book on the Eurozone I examined the case of Denmark in some detail in the context of the evolution of the European Monetary System, the European Exchange Rate Mechanism (ERM), and the ratification process of the Treaty of Maastricht. Denmark was a participant in all the attempts to maintain fixed exchange rates after the Bretton Woods system collapsed in 1971. Further, while Denmark did not formally enter the monetary union by adopting the euro that doesn’t mean that they have maintained their currency independence. They chose instead to peg the Danish kroner against the euro (effectively continuing the ERM parities), which immediately meant that its central bank had to follow ECB monetary policy. Fiscal policy then became a passive player to ensure it didn’t exacerbate the peg parity and Denmark also bought into the Stability and Growth Pact fiscal rules. This meant that internal devaluation (wage cutting) was the only real counter-stabilisation option available to them when facing external imbalances and domestic recession. It hasn’t worked well as one would expect. In fact, the euro peg works against the interests of the Danish people, particularly low income workers prone to unemployment. Yet the nation has an obsession with maintaining it. Groupthink abounds. The correct policy strategy which would give the Danish government a wider range of policy tools to enhance the well-being of its people would be for Denmark to abandon its euro peg. It should do that virtually immediately.

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SNB decision tells us that the crisis is entering a new phase

Switzerland – homeof the secret bank vaults, which house treasures stolen from people (particularly the Jewish victims) by the Nazis during WW2 and ill-gotten cash by capitalists who wish to evade scrutiny of prudential and tax authorities of their domiciled nations. Now it is the canary, which has just sung to tell us that all the hubris about Eurozone recovery cannot cover up the reality that the crisis is not yet over and requires root and branch reform to the policy ideology that exposes the floored design of the monetary union. The – Decision – last week (January 15, 2015) by the Swiss National Bank (SNB) to both break the peg of the Swiss franc to the euro and cut its interest rate on sight deposits to -0.75 per cent signals the surrender by that nation to the reality surrounding its borders. The interest rate decision was required after it decided to scrap the exchange rate peg, given that it didn’t want a credit crunch killing the domestic economy. The appreciation of the exchange rate, which has been held artificially low by the peg, will already undermine domestic spending. The SNB said its decision as reversing its previous “exceptional and temporary measure”, which “protected the Swiss economy from serious harm” as the exchange rate became overvalued. But the decision itself was rather extraordinary given it was seemingly so surprising for most and central bankers are meant to be cautious types.

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While Europe debates a placebo the disaster deepens

The youth are our future. The future is for our youth. Poverty used to be a problem of the aged as they left employment and entered retirement. Shorter life spans than now meant it was a relatively short-lived but deplorable state for people to end in. All that has changed. The youth are still our future but there is a much diminished future for them. Poverty risks and burdens have also shifted from the older members of the population to the younger members. From the retired to the jobless and casualised worker. And we get angry when young people get lured away by what they see as attractive, hope-filled futures, that may or may involve remaining alive in the here and now, and wield guns and bombs. Yet the policies we support close the door on any future that might be more acceptable to the rest of us. Neo-liberalism is creating a ticking bomb. The GFC was just the first act. Societies around the advanced world are undermining their own longevity as they accept that fiscal austerity is the only alternative. To what?

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Friday lay day – unemployment is a pernicious state

Its my Friday lay day blog and today I have been working on social psychology and group dynamics today. I am trying to dig into how economic ideas forms and how they are reinforced by language, media, and the educational system. Many people have researched topics like this but we are aiming to bring it all together into a coherent framework with the added aim of developing a progressive language guide to advance the conceptual ideas that I research and write about. The events in the last few days in Paris have also given me cause for thought within this overall research agenda, given the obvious link with a particularly zealous interpretation of a religious script and the role of economic disadvantage and austerity in fostering what some might call medieval, at best, behaviour. The role of language and conceptualisation is also implicated. I don’t intend to write about the events though. I am not professionally qualified to provide any meaningful input and as an individual I have mixed views on it. I certainly wouldn’t be perpetuating the ‘Je Suis Charlie’ campaign but that doesn’t mean I excuse the behaviour of the barbarians. But barbarism has many forms as does terrorism, and one could easily argue that the sort of austerity that has been inflicted on nations like Greece and France has created a responsive form of terrorism that is more random and very dangerous.

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Germany should be careful what it ‘allows’

The German Magazine Der Spiegel ran a story over the weekend (January 3, 2015) – Austritt aus der Währungsunion: Bundesregierung hält Ausscheiden Griechenlands aus dem Euro für verkraftbar (Exit from the Monetary Union: Federal government considers Greece’s exit from the euro is manageable). This so-called “radical change of position” is presumably designed to impart external pressure on the Greek democratic process, which is about to elect a new national government presumably on January 25, 2015. The claim is that the German government is prepared to make Greece expendable because it thinks it has shored up the rest of the Eurozone so that what happens to Greece is immaterial. I think Germany should be careful what it ‘allows’.

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Declining employment opportunities for graduates – a future disaster

Another day of light blogging. It used to be the case that if you secured a University degree then you were nearly immune from unemployment and enjoyed a fairly quickly growing wage gap on those of the same age who were not so fortunate to attend university. It was always the case that the unskilled are at the back of the jobless queue. This cohort is traditionally forced to endure low wages when they are lucky enough to find work and when they are not so lucky, they have to tolerate the opprobrium that neo-liberal attack dogs impose on them for daring to try to live on the pittances handed out as unemployment benefits. Any time the economy takes a nosedive this group finds itself out of work. But, even in recessions, the possession of a University degree was a fairly good insurance policy against such misfortune. The GFC changed that and in some nations the austerity that has been enforced by mindless and unaccountable bureaucrats has not only had devastating effects on the unskilled but has also undermined the prospects of the higher skilled workers. There is no cost-benefit analysis available that could justify such an arrant waste of productive resources, quite independent of the massive personal cost that the unemployed face upon their exclusion from mainstream society. Those pushing for austerity have a lot to answer for. But most of them will be long retired on their fat superannuation pensions before the full scale of the disaster they have created is revealed.

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The top 10 progressive issues for 2015! Did I say progressive?

I am away most of this week and have limited time for blogs and I am also concentrating on the Modern Monetary Theory (MMT) book I am working on that will be published later in 2015. I also do not want to use the blog space exclusively for that book writing like I did for a portion of this year when I wrote the book on the Eurozone (which will come out in May 2015). I can also say that an Italian version of the book is now going to be a reality and we hope to get it out as soon as possible in 2015 – more later on that topic – it tells a story in itself about the Italian left! So for the rest of the week we will be in Blog Light’ territory although only marginally. Today – a sad story of how progressives seem to lose their way. I would have thought the first progressive imperative would be to counter the neo-liberal myths about economics in order to liberate a range of other social and environment initiatives that will improve society and the world in general from the yoke of neo-liberal lies about fiscal deficits and the way the monetary system operates. I was wrong. After considering the material for this blog, I think I will file it under my – Friend’s like this … – series.

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Alleged Greek growth could be an illusion

It seems that Greece is still in trouble with the Athens Stock Exchange share prices tumbling rather abruptly in recent weeks. In the last 6 days or so the Athens Stock Exchange Composite Index has plunged by around 19 per cent on the back of growing political tension and the strong likelihood that the pro-austerity, Troika surrender monkeys in power at present will be tossed out and a new dialogue with Europe will begin. The snap election call has spooked the markets it seems. But I have also been puzzling about (read: been deeply suspicious of) the growth narrative that is being peddled about Greece by the European Commission and the IMF. There remain unsolved puzzles about the third-quarter 2014 Greek national accounts data, which is another way of saying they don’t quite add up. It may be that the alleged real GDP growth of 0.7 per cent was a statistical artifact – the case of incomes falling less slowly than prices. The evidence certainly suggests that is the case. That is what this blog is about.

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Trickle down economics – the evidence is damning

The condition known as – Schizophrenia – describes “a mental disorder often characterized by abnormal social behavior and failure to recognize what is real”. Then again, the condition known as – Dissociative identity disorder – describes a condition where a person has “at least two distinct and relatively enduring identities or dissociated personality states that alternately control a person’s behavior”. If these states can be applied to institutions, then the OECD needs urgent medical attention. The OECD released a working paper yesterday (December 9, 2014) – Trends in Income Inequality and its Impact on Economic Growth – by Federico Cingano. It provides evidence that destroys the basic tenets of neo-liberal economics and supports a wider social and economic involvement of government in the provision of public services and infrastructure, particularly to low income groups. The fiscal implication is that deficits need to be higher.

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The Cyprus confiscation becomes the model for bank insolvency

I am still sifting through the documents from the recent G20 Summit in Brisbane to see what our esteemed leaders (not!) have planned as their next brilliant move to reinforce neo-liberal principles. One of the least talked about outcomes from the recently concluded G20 Summit in Brisbane were the agreed changes to the banking systems operating in the G20 nations. The dialogue started in the G20 Finance Ministers’ and Central Bank Governors’ Meeting in Washington in April 2014. Clause 8 in the official Communiqué covered the aim of the G20 “to end the problem of too-big-to-fail” and signalled the “development of proposals by the Brisbane Summit on the adequacy of gone-concern loss absorbing capacity of global systemically important banks (G-SIBs) if they fail.” The Brisbane Summit would consider these proposals. The aim was to “give homeand host authorities and markets confidence that an orderly resolution of a G-SIB without exposing taxpayers to loss can be implemented”. You won’t believe what they came up with.

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The inexact science of calibrating fiscal policy

In the showdown between France and the European Commission last week, France clearly is the winner on points, which is not surprising given the impossibility of the task the Commission had set it in meeting the Excessive Deficit Procedure (EDP) rules and the danger to the latter if France was to openly defy it. We have a sort of stand-off between the surrender monkeys – France is going along with the rules sort of and the Commission is bending the rules to save face. It is 2003 all over again. The public might actually think this EDP process is based on a fairly definite science with respect to measuring fiscal policy positions which provide unambiguous statements of deficits. The public would be very wrong if they did adopt that conclusion. In general, the applied work associated with informing the EDP process is very inexact. But, moreover, it is ideologically tainted which makes the process very damaging for any notion of prosperity. All applied work has measurement and other technical issues, which means it is always just an approximation. But when those errors are overlaid by a systematic bias against government net spending and therefore full employment, then the exercise becomes a scandal.

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Saturday Quiz – November 29, 2014 – answers and discussion

Here are the answers with discussion for yesterday’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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Friday lay day – real resources are available but not used, why?

Its Friday and I am writing a short blog only. A lot of people I meet find it hard to understand what a cost is in economics. They are too accounting oriented, in the sense that think a dollar sign on a piece of paper (such as a fiscal statement) represents a cost. In some contexts, it is sensible to think about dollars but when considering what a government should do, the only thing that really matters is the real resource cost. That may be calibrated in dollar terms but is not a monetary amount. In walking around three large Italian cities in the last week (Florence, Rome and Milan) I saw a lot of idle resources. The real costs of this idleness are massive – lost production, lost real income, lost lives. I saw many people not working and many others trying to scratch out an income selling trinkets on street corners. I also saw rubbish and urban decay everywhere such that the urban amenity was severely diminished. I didn’t see a shortage of productive jobs that could be done to improve the civic (public) parts of Italian life. But no-one was doing them. Why? The potential jobs were latent only because there was no-one willing to pay the idle workers to perform these productive tasks. That happens when there is a shortage of spending and has nothing to do with structural parameters.

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The loaded language of austerity – but all the sinners are saints!

The US National Institute of Justice tells us that – Recidivism is “is one of the most fundamental concepts in criminal justice. It refers to a person’s relapse into criminal behavior, often after the person receives sanctions or undergoes intervention for a previous crime”. You know murder, rape, theft, and the rest. According to the European Commissioner for digital economy and society and Vice-President German Günther Oettinger running a fiscal deficit above 3 per cent when you economy is mired in stagnation is a criminal act! This religious/criminal terminology is often invoked. German Finance minister Wolfgang Schäuble told the press before a two-day summit in Brussels in March 2010 on whether there should be Community support for Greece, that “an automatic system that hurts those who persistently break the rules” was needed to punish the “fiscal sinners”. This sort of language, which invokes metaphors from religion, morality and criminology is not accidental. Especially in Europe, where Roman Catholocism still for some unknown reason reigns supreme in society, tying fiscal deficits to criminal behaviour or sinning is a sure fire way of reinforcing the notion that they are bad and should be expunged through contrition and sacrifice. The benefits of fiscal deficits in circumstances where the non-government sector is saving overall are lost and the creation of the metaphorical smokescreen allows the elites to hack into the public sector and claim more real resources for themselves at the expense of the rest of us.

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Austerity hacks into our cultural heritage

As I noted last Friday, the Australian government has announced it will be cutting a massive part of the budgets of the Australian Broadcasting Commission (ABC) and the Special Broadcasting Service (SBS), both publicly-owned national media organisations as part of its mindless fiscal austerity push. The Minister claims there is plenty of fat in these organisations but the ABC news report (November 24, 2014) – ABC cuts: Managing director Mark Scott announces more than 400 jobs to go – tells us that nearly 1 in 10 staff will be sacked and programs scrapped to meet the funding cuts. The ABC and SBS are jewels in Australian cultural life. They support local filmmakers, musicians, artists, and advance a more sophisticated understanding of what is going on around us. I am very critical of the way they have succumbed to neo-liberal economics, but in general, the alternative is a mind-numbing Fox-type flow of game and reality shows and sensationalist news. The only thing that is worth watching on commercial TV is the coverage of AFL football and even then one has to turn the sound off and have the ABC radio commentary accompanying the TV coverage to ensure a quality experience.

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A depressing report from Florence

I am in Rome today and tomorrow. This afternoon I am giving a presentation at the Roma Tre University (Università degli Studi Roma Tre) on Modern Monetary Theory (MMT) and how we might advance the spread of the ideas. There is a very committed group of people in Italy who want to build a political presence to counter the neo-liberal dominance, which has infested all the major parties here (and everywhere). The first thing they need to do is to forget MMT as an organising vehicle and, instead, articulate a vision that advances public purpose and prosperity. MMT is a tool box or framework to understand the consequences of economic decisions (private and public) on the macroeconomic aggregates. It is not a policy agenda. I have suggested they concentrate on full employment, job security, climate change and reducing inequality and advancing opportunity for all as the organising vehicle for their political endeavours. Otherwise, there is the danger that they become an MMT cult. Anyway, I left the Florence roundtable thinking that dramatic shifts are required in the way the EU is structured before Europe can make any significant return to those sorts of policy aims. I also concluded that the elite is so entrenched in its own neo-liberal Groupthink and its own advanced sense of preservation that very little will change and mass unemployment will persist for years to come. It is a very sad state.

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