Eurozone policy failures laid bare

On March 13, 2018, the OECD released its latest Economic Outlook with accompanying “Interim projections” as at March 2018) suggesting that the current growth phase will continue through to next year as consumer and business confidence improves and translates in higher investment rates. The OECD, however, forecasts that growth in the Eurozone will decline over the next two years. The major Eurozone nations (France, Germany and Italy) are not witnessing the growing investment expenditure. The Eurozone might be seeing a little sunshine creeping out from the very dark clouds. But it is far from recovered and the future is ominously black. Key cyclical indicators remain at depressed levels, which means that when the next cycle hits, the Eurozone will be in a much worse position than before. And the reason: the fundamentally flawed design of the monetary system with its accompanying austerity bias. The reform required is root-and-branch rather than a prune here and there.

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The New Keynesian fiscal rules that mislead British Labour – Part 3

This is Part 3 (and final) in the series which examines the robustness of claims made by two British academics about the desirability of the British government (particularly Labour) adopting further fiscal constraints on their flexibility to advance well-being in that nation. Part 3 further develops the critique and focuses on the validity of tightening voluntary constraints on government and outsourcing key parts of the fiscal policy development process to so-called ‘independent’ fiscal councils or boards. We conclude that these suggestions would further entrench the neoliberal dominance of government policy and reduce its capacity to serve the wider interest. In effect, taking this sort of advice would be counterproductive for British Labour, which really needs to to further break out of its recent Blairite neoliberal past and present a truly progressive manifesto to the British people that will force the Tories to move closer to the centre and squeeze the extreme right-wing elements. This will require more than articulating progressive-sounding social and environmental policies. It will require more than proposals to renationalise the railways. Effectively, British Labour has to reframe the macroeconomic debate and eschew the sort of reasoning that the mainstream of my profession offers. It must, in my view, embrace Modern Monetary Theory (MMT) principles to free itself from the shackles of all the neoliberal mumbo jumbo that the New Keynesians continually offer as economic verities. The reality is the the New Keynesian approach has one output – an elaborate litany of lies.

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The New Keynesian fiscal rules that mislead British Labour – Part 2

This is Part 2 of my Three Part exposition of how the standard New Keynesian approach to the specification of fiscal rules will generate poor advice for politicians desiring to achieve progressive socio-economic goals. The paper I am using to represent the New Keynesian approach has, by all indications, been somewhat influential in the formation of the macroeconomic approach currently being espoused by the British Labour Party. In that sense, the critique aims to disabuse the Labour politicians and their apparatchiks of building policy options based on fake economic knowledge, and, instead, embrace the principles of Modern Monetary Theory (MMT), which provides an accurate depiction of how the monetary system actually operates and the policy options for a currency-issuing government such as in Britain, and the likely consequences of deploying these options. The one major lesson that comes out is that the New Keynesian approach is an elaborate fraud. It plays around with so-called ‘optimising’ models asserting human behaviour that no other social scientist believes remotely captures the essence of human decision-making, and then derives conclusions from these models that are claimed to apply to the world we live in. Prior to the GFC, these ‘models’ didn’t even consider the financial sector. The fact is that nothing of value in terms of specifying what a government should do can be gleaned from a New Keynesian approach. It is barren.

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The ‘tax the rich’ call bestows unwarranted importance on them

It is Wednesday, so only a few snippets only today, while I am working on six lectures I have to give in Helsinki over the next two weeks. The first of those lectures will be a public event. And looking at the weather I am about to undergo around a 45 degree Celsius turnaround from where I am today in Australia to where I will be next week! That is what happens when you go to Finland in the early part of the year. Anyway, here are some items of interest I hope.

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The Weekend Quiz – February 17-18, 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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Here is a new argument for the Remainers – should be a winner

Here are a couple of Wednesday snippets on my (alleged) no blog post day. I have a great tip for the Remainers in Britian who are struggling to make any sense in their quest to hang on to the European dream (nightmare!). It is not a new argument but it has resurfaced in the US recently. Apparently, “the top US intelligence official” (words have meaning and intelligence usually means having some brain power) has told the US Congress that “the ballooning national debt … posed a ‘dire threat’ to … national security”. He told the Congress that the “fiscal crisis … truly undermines our ability to ensure our national security”. Truly used to mean something also. So here’s the thing all you so-called British Remainers. This will top your claims that Brexit will increase the rate of cancer in the UK. Just start raving on about threats to national security. A sure winner. It is the argument you introduce when you have run out of any semblance of an argument. Meanwhile, we now know that the British government, while in the EU, helped the right-wing forces (including the CIA) to kill the democracy in Chile in 1973, in what should be considered one of the more disgusting historical episodes. But then Salvatore Allende was clearly a threat to national security. What with all those Chileans that were improving their material standards of living under Allende and all!

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The bond vigilantes saddle up their Shetland ponies – apparently

Last week (February 8, 2018), we witnessed the US Senate spectacle with Rand Paul embarrassing himself with his lack of economic knowledge but also embarrassing both major parties – the Republicans for their gross hypocrisy and the Democrats for their gross idiocy. The – Congressional Record – of Paul’s speech (starting S817) is a classic. Also, last week, the stables were stirring apparently, as the ‘bond vigilantes’ were strapping on their saddles and getting ready to make the US government suffer for its so-called fiscal ‘ill discipline’. These characters apparently emerge out of the darkness of fiscal profligacy to defend our interests and force the government to run surpluses. Fantasy stuff all round. In fact, Rand Paul should resign and get a job he is more suited for (which would be?) and the bond vigilantes should make sure their Shetland ponies are not to wild for them. These bond traders play this elaborate game of bluff and pretend they have the power over the government. In fact, they are mendicants queuing up for their daily dollop of corporate welfare and the government could play them out of the game anytime it chose to. The problem is that the bluff works because governments are captive to the neoliberal nonsense that my professsion preaches.

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The Weekend Quiz – February 10-11, 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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Oh poor Britain – overrun by chlorinated chickens, hapless without the EU

I have been doing some research on Brexit. I vowed to stay clear of the topic because of all the stupidity surrounding it from both sides, but most galling are the Labour Remainers who think the European Union is some sort of nirvana (with a few problems) and is on the road to redemption through some amorphous ‘reform’ process. Pigs might fly! I mentioned the recent publication by Open Britain (January 30, 2018) – Busting the Lexit Myths – in yesterday’s blog. This document seeks to state the case for British Labour’s “Campaign for the Single Market”. The ‘single market’ is held out as some sort of security blanket for all and sundry. Without it, Britain will apparently lapse into a state where the government will be unable to maintain services, where “genetically modified foods, chlorinated chicken, and access to procurement of protected sectors like healthcare” overwhelm the local economy, where environmental and working standards disappear and that hapless island floats off into a shocking dystopia. It is really the stuff of fantasy. But the image it evokes of the confidence in British democratic systems and its own capacity for volition is quite stunning. Without the EU, Britain becomes hapless. You laugh then cry. Pathetic.

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Planning public works – history has a lot to say if we listen properly

A few weeks ago, in my three part series answering questions about Modern Monetary Theory (MMT), I addressed the issue often raised about the fiscal policy emphasis in MMT, that it is difficult to time government spending injections to match the cyclical need. These criticisms go back a long way and were used by the likes of Milton Friedman to build up his case against discretionary fiscal activism in favour of monetary rules. Of course, that was an ideological preference, given the Monetarists wanted ‘small’ government and technocrats implementing economic policy. The basic precepts of Monetarism have not stood the test of time and the GFC and its aftermath have showed, beyond doubt, that monetary policy is an ineffective means of stimulating aggregate spending and that fiscal policy is the best way to counter non-government spending collapses. In those blogs, I outlined several ways in which fiscal policy could overcome ‘timing’ issues and deliver prompt stimulus when needed and be able to contract the stimulus in a timely manner once non-government confidence and spending had recovered. The points I raised are not new and have been discussed and made operational many times in the past. A tweet from my MMT colleague Stephanie Kelton last week reminded us of this again when the US National Resources Planning Board (NPP) was mentioned with a link to the The Internet Archive is a “non-profit library of millions of free books, movies, software, music, websites, and more” and is a fabulous resource for researchers. Reading the Report from the NPP is like music to the ears! History has a lot to say if we listen properly.

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The Weekend Quiz – January 20-21, 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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The Weekend Quiz – January 13-14, 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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An MMT response to Jared Bernstein – Part 2

This is the second part of my response to an article posted by American political analyst Jared Berstein (January 7, 2018) – Questions for the MMTers. Part 1 considered the thorny issue of the capacity of fiscal policy to be an effective counter-stabilising force over the economic cycle, in particular to be able to prevent an economy from ‘overheating’ (whatever that is in fact). Jared Berstein prescribes some sort of Monetarist solution where all the counter-stabilising functions are embedded in the central bank which he erroneously thinks can “take money out of the economy” at will. It cannot and its main policy tool – interest rate setting – is a very ineffective tool for influencing the state of nominal demand. In Part 2, I consider his other claims which draw on draw on the flawed analysis of Paul Krugman about bond issuance. An understanding of MMT shows that none of these claims carry weight. It is likely that continuous deficits will be required even at full employment given the leakages from the income-spending cycle in the non-government sector. Jared Bernstein represents a typical ‘progressive’ view of macroeconomics but the gap between that (neoliberal oriented) view and Modern Monetary Theory (MMT) is wide. For space reasons, I have decided to make this a three-part response. I will post Part 3 tomorrow or Thursday. I hope this three-part series might help the (neoliberal) progressives to abandon some of these erroneous macroeconomic notions and move towards the MMT position, which will give them much more latitude to actually implement their progressive policy agenda.

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An MMT response to Jared Bernstein – Part 1

There was an article posted by American political analyst Jared Berstein yesterday (January 7, 2018) – Questions for the MMTers – which I thought was a very civilised exercise in engagement from someone who is clearly representative of the more standard Democratic Party view, that the US government has to move towards balancing its fiscal position and reducing government debt in order to meet the social security challenges posed by an ageing population and the accompanying increase in dependency ratios. He is sympathetic to Modern Monetary Theory (MMT), given that he wrote “there’s no distance between my views and a core principal of MMT: the need for deficit spending when the economy is below full employment”. In other words, he notes that “MMT or whomever else argues on behalf of expansionary fiscal policy is correct”. But that is a fairly standard ‘progressive’ position when the economic cycle is below full capacity. This position typically alters quite dramatically when so-called longer terms considerations are brought into the picture. Jared Bernstein worries about the inflationary consequences of fiscal policy (so do MMT economists by the way) and thinks central banks should be the primary macroeconomic policy makers (MMT economists reject this). He also thinks that if the government doesn’t sell bonds to match its deficits then there will be “currency debasing”. MMT economists have pointed out the fallacies of that proposition but he is still in the dark about it. And he also things that fiscal position should be balanced at full employment. MMT economists do not agree with that proposition pointing out that it all depends on the state of saving and spending decisions in the non-government sector. It is likely that continuous deficits will be required even at full employment given the leakages from the income-spending cycle in the non-government sector. So while his queries are conciliatory and written in an inquiring fashion, the gulf between this typical ‘progressive’ view of macroeconomics and MMT is rather wide. This is Part 1 of a two-part series that responds to the questions that Jared Bernstein raises and hopefully puts the record a bit straighter.

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The Weekend Quiz – December 30-31, 2017 – 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 23-24, 2017 – 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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Lack of universal health care due to application of spurious ‘sound finance’

I have been reading several reports in the past week – ranging from studies using dodgy input-output tables to claim the regions that voted most enthusiastically for Brexit will suffer the most – part of the never ending ‘modelling’ of the alleged disaster – to reports by the historians tracking the impact of austerity on the rise of the Nazis in pre-war Germany. All interesting. I am particularly researching the way in which the Common Agricultural Policy impacted on Britain and why it will be good to be free of it. But one report struck me as fundamental to the way in which neoliberalism has led societies astray and damaged the most defenseless citizens of the world. On December 13, 2017, the World Bank and the World Health Organisation (WHO) published its latest – Tracking Universal Health Coverage: 2017 Global Monitoring Report. This is an audit report to keep track of the progress towards the UN’s 17 Sustainable Development Goals, which were agreed upon in September 2015. One of those goals is health and well-being and within that ambit comes, among other targets, universal health care provision. We learn that “at least half of the world’s population cannot obtain essential health services” and health care service deficiencies are chronic at the poorer end of the income and wealth distribution. The reason is not a lack of real resources to be deployed. Rather, these appalling results are persisting because governments apply neoliberal ‘sound finance’ principles to their spending choices (with the IMF bullying them to do so). So we find major cuts to health care service provision in nations because they claim they cannot raise enough revenue to pay for the provision. In currency-issuing nations, no matter how low the average income levels are, that sort of claim is always spurious.

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The Weekend Quiz – December 16-17, 2017 – 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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Britain doesn’t appear to be collapsing as a result of Brexit

Do you remember back to May 2016, when the British Treasury, which is clearly full of mainstream macroeconomists who have little understanding of how the system actually operates released their ‘Brexit’ predictions? The ‘study’ (putting the best spin possible on what was a tawdry piece of propaganda) – HM Treasury analysis: the immediate economic impact of leaving the EU – was strategically released to have maximum impact on the vote, which would come just a month later. Fortunately, for Britain and its people, the attempt to provide misinformation failed. As time passes, while the British government and the EU dilly-dally about the ‘divorce’ details, we are getting a better picture of what is happening post-Brexit as the ‘market’ sorts what it can sort out. Much has been said about the destructive shifts in trade that will follow Brexit. But these scaremongers fail to grasp that Britain has been moving away from trade with the EU for some years now and that process will continue into the future. I come from a nation that was dealt a major trading shock at the other end of Britain’s ill-fated dalliance with Europe. It also made alternative plans and prospered as a result. The outcomes of Brexit will be in the hands of the domestic policies that follow. Stick to neoliberalism and there will be a disaster. But the opportunity is there for British Labour to recast itself and seize the scope for better public infrastructure, better services and stronger domestic demand. Then the nation will see why leaving the corporatist, austerity-biased failure that the EU has become was a stroke of genius.

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British Tories reject the ‘free market’ neoliberal myth

The conservatives in the British Labour Party are obviously worried. The UK Guardian article (December 2, 2017) – Labour faces subversion by Momentum and far left, says Roy Hattersley – reports the claim by former Deputy leader, Roy Hattersley that British Labour is “facing the biggest crisis in its history” because left-wingers are engaged “in a systematic takeover of the party”. Gosh. Sounds shocking. A traditionally left-wing political party slowly wresting it back to mission after being hijacked by the right-wing, neoliberal Blairites. That sounds like Armageddon. The Blairites tried to kill off Jeremy Corbyn several times as they continued to undermine him in the public eye and bleated about how he was going to destroy the Labour Party. They then fell silent when he nearly delivered the Party government in the recent national election and saved many of their jobs. Now, with a by-election in Watford, the conservatives are back to it although it has to be said that Hattersley cannot be called a Blairite. He represents the pre-Blairite right-wingers who backed Dennis Healey as he imposed Monetarist ideology on the Party in the mid-1970s. And this article came out soon after the Tory government announced a major ‘socialist’-style industrial plan. In its press release (November 27, 2017) – Government unveils Industrial Strategy to boost productivity and earning power of people across the UK we learn that the Tories are finally understanding that it can actually improve the fortunes of British workers by abandoning the failed neoliberal, ‘free market’ narrative and recognising, instead, the central role to be played by the nation state in advancing well-being and economic fortune.

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