The Weekend Quiz – February 12-13, 2022 – 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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Bank of England Governor just didn’t go far enough

The Bank of England governor Andrew Bailey caused a stir last week when he said that British workers should not get wage increases in the coming period. This was a day after the Bank of England raised interest rates, presumably because they have some theory that that will cure Covid and get trucks moving again. There was general outrage expressed by a range of voices, who often are not on the same page – unions, corporate interests, the ‘high wage’ aspiring Tory government (perhaps). The outrage was, unfortunately, personalised with critics pointing out that “Bailey was paid £575,538, including pension, last year” (Source) and hasn’t offered to give any of that fat cat salary back. But as in most things, getting personal usually misses the point. Beyond the rage, in a sense, he was correct to highlight that if the current supply-induced price pressures trigger a wider distributional struggle then accelerating inflation will result and the policy implications of such an event as that will be very damaging to workers in the UK. But, the problem was that he didn’t go far enough. This won’t be a popular view but it comes from studying inflationary mechanisms all my career, which means I think I understand how supply constraints move into a generalised wage-price spiral, which then causes worker more damage than some wage restraint. And, remember, we are talking about Capitalism here – not some profit-sharing, collectively-owned nirvana. The Bank of England Governor was clearly thinking that the conditions for a 1970s wage-price spiral are approaching for the UK, which means that wage restraint would be sensible if the goal was to insulate the current supply shocks arising from the pandemic and aberrant behaviour by OPEC etc and render them transitory. I don’t think the conditions are present yet and he should have generalised the concern to focus on other more obvious triggers that do exist at present.

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US labour market – employment and participation up, but still no obvious wage pressures

Last Friday (February 4, 2022), the US Bureau of Labor Statistics (BLS) released their latest labour market data – Employment Situation Summary – January 2022 – which reported a total payroll employment rise of only 467,000 jobs in December and a rise in the participation rate – which often leads to a rise in the unemployment rate as marginal workers outside the labour force sense their opportunities for work are now better. Employment growth accelerated in January 2022 which reverses the recent trend. 0.3 points decline in the official unemployment rate to 3.9 per cent, while participation was unchanged at 61.9 per cent. While the US labour market is still creating work – it is doing so at a declining rate and there are unequal patterns across the industrial sectors. The US labour market is still 2,875 thousand jobs short from where it was at the end of February 2020, which helps to explain why there are no fundamental wage pressures emerging. Any analyst who is claiming the US economy is close to full employment hasn’t looked at the data.

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The Weekend Quiz – February 5-6, 2022 – 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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RBA rejects theory that interest rate rises cure Covid and make trucks go faster

It’s Wednesday and a ‘blog lite’ day but there was an important speech delivered by the Governor of Australia’s central bank today that reveals the reasons that the RBA is once again refusing to be bullied into increasing interest rates rises by the ‘markets’. It is almost comical to observe the ludicrous self-importance that the ‘markets’ are exhibiting at the moment. Every day there is a new article or segment on the finance reports about how the ‘markets’ are going to win the battle against the RBA, who will buckle soon on interest rates. Well, yesterday the RBA didn’t buckle and they made fools of the ‘markets’. Remember the ‘markets’ is just a collection of economists who work for financial institutions that make more profits when interest rates are higher. It is no wonder they are always demanding higher rates. That is what vested interests are about. And for the media to just continually give them a platform, especially the national broadcaster, is a disgrace. Anyway, the ‘markets’ lost out yesterday and the RBA clearly doesn’t think that interest rate rises cure Covid and make trucks go faster.

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New UK cost of living dataset improves on standard CPI release – somewhat

The UK Office of National Statistics released a new dataset last week (January 28, 2022) – CPI-consistent inflation rate estimates for UK household groups (plutocratic weighting) – which resumes its analysis of the differential impacts of price rises on different cohorts in the population. Other national statistical agencies have also been doing for some years now. For example, the Australian Bureau of Statistics regularly publishes its – Selected Living Cost Indexes, Australia (last edition September-quarter 2021, published November 3, 2021). This type of data fills the breach left by the standard CPI releases

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Income support for children improves brain development

When I first came up with the idea of a buffer stock employment approach to maintain full employment and discipline the inflationary process (back in 1978), the literature on guaranteed incomes was still in its infancy. The idea of a basic income guarantee was still mostly constructed within the framework Milton Friedman had laid out in his negative income tax approach, which I first came across when reading his 1962 book Capitalism and Freedom, while I was an undergraduate. I wasn’t taken with the idea and the preferred an approach to income security that not only integrated job security but also had a built-in inflation anchor. When I developed that idea, inflation was still conceived of the main problem and governments were fast abandoning full employment commitments because mainstream economists told them TINA. I thought otherwise. However, as I developed the buffer stock approach further in the 1990s as part of the first work that we now call Modern Monetary Theory (MMT), nuances about additional cash transfers became part of our approach. I refined those ideas in work I did developing a minimum wage framework for the South African government in 2008. I was reminded of all this when I read a report in New Scientist last week (January 24, 2022) – Giving low-income US families $4000 a year boosts child brain activity. Some might think this justifies the BIG approach, whereas it strengthens the case for a multi-dimensional – Job Guarantee.

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The Weekend Quiz – January 29-30, 2022 – 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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Video stream available – The Global Economy after two years of the pandemic

It’s Wednesday and I am flat out finalising writing commitments and my teaching responsibilities at present. I have also been doing a lot of media interviews given the inflation release yesterday. People are believing the nonsense coming out in the financial press that inflation is ‘out-of-control’ and interest rates need to be hiked to stop it in its tracks. How will increasing interest rates allow a Covid sick truck driver to return to work any quicker? How will a rise in rates, increase the number of container ships in the right locations? Etc. It is tiresome to be sure. Today a video, some information about my university classes that we are making available to the general public (starting later today), and then some post minimalism.

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The Weekend Quiz – January 22-23, 2022 – 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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The Weekend Quiz – January 15-16, 2022 – 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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When ABC journalists mislead the public and spread fiction

There is a difference between a journalist reporting news about economics and money and a journalist writing an opinion piece. In the first instance, the responsibility of the journalist is to ensure they cover the topic in a balanced way, seeking input from all viewpoints if the topic is controversial, as most topics in economics are. Too often journalists in this situation allow themselves to be used as mouthpieces for specific viewpoints, sometimes because they are coerced by editorial deadlines. Often they just uncritically summarise press releases put out by some group or another and represent the material as fact. In the second case, when a journalist is writing an analytical piece they are holding themselves out as experts. Then they better get it right. Usually, when they are writing about macroeconomics they do not get it right because they merely rehearse mainstream thinking, which most people by now should realise is off the mark. A case in point was a recent Op Ed (represented as analysis) published by the economics reporter at the ABC (January 10, 2022) – How the banks may profit from the taxpayer as COVID quantitative easing winds down. It is full of errors that journalists make when they don’t exactly understand the material they are dealing with. This should have been worked out during the GFC, when these issues arose in the general media. The fact that the same errors are being made more than a decade later doesn’t suggest any learning has taken place.

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Why are the progressive left mixing with the dark right on Covid?

It’s Wednesday and I have been digging a bit into what appears to be a growing coalition opposing lockdowns, mask wearing, vaccine rules, and vaccinations in general. The claims are that none of these things work and that the economy is better off without them. I am not writing today about these matters (I have in the past) but rather about the nature of these coalitions. One of the things that has held back progressive causes in the past is the tendency of social democratic type interests to adopt the mainstream macroeconomics, which not only limits what they can do but exposes them to accusations that the government will run out of money and cause inflation if they have ambitious programs. The pattern of progressive interests aligning with non-progressive voices is thus not new. I am seeing it again in the context of the public health debate, which, in part, explains why our world is in such a Covid-mess. It isn’t all bad today – there is some nice music to finish, being Wednesday.

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German threats of exit rely on the ignorance of others reinforced by Europhile progressives

I read a story in the German press – Der Euro auf dem Prüfstand (‘The euro on the test bench’, published January 7, 2022) – which reinforced my view that progressives who think the harsh austerity-bias of the Economic and Monetary Union (EMU) have vanished with the invocation of the ‘general escape clause’ within Article 126 of the Treaty of the Functioning of the European Union when the pandemic arrived are off the mark. And when the same commentators/thinkers welcomed the end of the Merkel era and the dawning of the new German government, their assessment reflected that they are trapped within the TINA to the euro thought process. Well, economists with influence in Germany certainly don’t think that and one of the bosses of the Kiel Instituts für Weltwirtschaft (IfW) (Kiel Institute for the World Economy), which is a German research institute, has called for the topic of German exit from the EMU to be debated. He believes that this will put pressure on the other Member States (particularly the so-called “Achse Paris-Rom” (Paris-Rome axis) to abandon any thought of relaxing the economic and monetary rules and force the ECB to tighten monetary policy again. The iron gauntlet of ‘schwarze Null’ is still firmly gripping the European debate.

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US labour market cannot be healthy with rising numbers of sick people

Last Friday (January 7, 2022), the US Bureau of Labor Statistics (BLS) released their latest labour market data – Employment Situation Summary – December 2021 – which reported a total payroll employment rise of only 199,000 jobs in December and a 0.3 points decline in the official unemployment rate to 3.9 per cent, while participation was unchanged at 61.9 per cent. While the US labour market is still creating work – it is doing so at a declining rate and there are unequal patterns across the industrial sectors. The US labour market is still 3,572 thousand jobs short from where it was at the end of February 2020, which helps to explain why there are no fundamental wage pressures emerging. Any analyst who is claiming the US economy is close to full employment hasn’t looked at the data. The failure to introduce a renewed fiscal stimulus will definitely leave the economy worse off, especially with the renewed virus onslaught from Omicron.

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The Weekend Quiz – January 8-9, 2022 – 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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The Japanese denial story – Part 2

Here is Part 2 of my analysis of the claim that Japan is not a good demonstration of what happens when macroeconomic policies are pushed beyond their usual limits. I have long argued that trying to apply a mainstream macroeconomics (New Keynesian) framework to the Japanese situation yields nonsensical predictions about rising interest rates, accelerating inflation, rising bond yields and government insolvency. Nothing like that scenario has emerged since Japan has introduced economic policies that ran counter to the mainstream consensus since the 1990s. Japan demonstrates key Modern Monetary Theory (MMT) principles and those that seek to deny that are really forced to invent a parallel-universe version of MMT to make their case. That version is meaningless. In Part 2, we extend that analysis to consider trade transactions, the fear of inflation, and the argument that the current generation are selfishly leaving their children higher tax burdens while we party on.

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The Japanese denial story – Part 1

Well, it’s 2022 already and we enter the 18th year of this blog. Regular readers will know that I have studied the Japanese economy in considerable detail over the course of my career and when it experienced one of the largest commercial asset price bubble busts in history in early 1992, the questions I was asking and the data I was looking out were important in framing the way I have done macroeconomics since. I consider Japan to be one of the nations that was early to embrace the madness of neoliberalism – credit binge, wild property speculation then crash – and the first nation to abandon it in favour of more responsible fiscal policy – which given the circumstances required on-going fiscal deficits exceeding 10 per cent of GDP at times. Its policy approach – including the relatively high deficits, the zero interest rate policy of the Bank of Japan, and then the massive bond-buying program by the same, became the target for various New Keynesian macroeconomists (including Krugman) to prophesise doom. Their textbook models predicted the worst – rising interest rates, accelerating inflation, rising bond yields and then government insolvency as bond markets bailed out and the currency plummetted. Nothing like that scenario emerged. Japan was playing out policies that ran counter to the mainstream consensus in the 1990s and beyond and I learned so much from understanding why things happened there as a consequence. This is Part 1 of a two-part discussion about why Japan demonstrates key MMT principles and how those who wish to deny that reality have to invent a parallel-universe version of MMT to make their case.

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The Weekend Quiz – January 1-2, 2022 – 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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The Weekend Quiz – December 25-26, 2021 – 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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