Brainbelts – only a part of a progressive future

Last week, the US Republican Party held an extraordinary convention in Cleveland, an old rustbelt manufacturing town. I say extraordinary because I guess you have to be American to understand how grown adults can systematically humiliate themselves for several days with the rest of the world looking on wondering WTF was going on! Anyway, just down the road from Cleveland is Akron, Ohio, which is being held out as a model for the new era of prosperity in advanced nations. I caution against believing that hypothesis. It was proposed in a book I have just finished – The Smartest Places on Earth – written by two Dutch writers (published 2016). It carried the subtitle “Why Rustbelts are the Emerging Hotspots of Global Innovation”. I do not recommend anyone purchase it even though it is getting rave reviews around the place. I see it as a sort of replay of the 1990s ‘New Regionalism’ mania that emerged as part of the Third Way movement, which the now discredited Tony Blair promoted as the entrepreneurial solution to turn regions into sub-national export centres to replace the ‘nation state’, that had been (according to the narrative) rendered powerless and irrelevant by globalisation. The book introduces the notion of the “Brainbelt”, which the authors claim are revitalising the “former rustbelt areas” and “bringing new competitiveness to the United States and Europe” – a sort of counter-strategy to foil the jobs lost to the low-cost nations such as China and the Asian economies in general. The problem is that the growth strategy seems to leave the worker behind!

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The case for re-nationalisation – Part 2

There was an interesting article written in the London Review of Books (September 13, 2012) by regular contributor James Meek in – How We Happened to Sell Off Our Electricity (you need to subscribe to read it). It discussed how the obsession with privatisation in Britain, which was meant to reduce state control of this sector, has led to the state still being dominant in electricity production. The only problem for the British is that the French government now owns a large swathe of the ‘privatised’ British electricity industry. The outcome demonstrates the absurdity of the whole privatisation debate. This example is not unique. State-owned enterprises have eaten up inefficient privately owned firms all around the world as governments sell off public assets in the belief that prices will fall, services will improve and costs will be lower. The reality now some 35 years or so into the privatisation experiment is that none of these claims have been realised. In many cases, costs are higher and the privatised firms rely on higher public subsidies than was the case when the operations were completely in public hands. Prices are no uniformly lower after privatisation. Profit-seeking firms seek to gain by cutting costs and under investing in essential infrastructure, which leads to poor outcomes for Society (blackouts, poor repair times etc). And, millions of jobs have been lost in this cost-cutting mania. As a result, we argue that a ‘Progressive Manifesto’ must include the case for re-nationalisation of many sectors, which are intrinsic to advancing the well-being of Society. Progressive parties should start researching and demonstrating how this policy will take us into the next century where green, sustainable production is the norm and there are high levels of public service available from these key sectors, rather than allow critics to argue that the re-nationalisation agenda is just a return to the dark old days of inefficient state enterprises where cronyism, nepotism and corruption was rife.

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Irish national accounts – smoke and mirrors really

Last week (July 12, 2016), the Irish Central Statistics Office published updated – National Income and Expenditure Annual Results – which revealed that between 2014 and 2015, the economy grew by a staggering 26.3 per cent (while the implied inflation rate was 6.1 per cent – difference between GDP at current prices and GFP at constant (2014) prices). They had earlier estimated (based on incomplete data) that real GDP would grow by 7.8 per cent between 2014 and 2015. So quite a difference. In expenditure terms, the CSO, estimated that “exports grew by 34.4%” and “Gross physical capital formation” grew by 26.7 per cent between 2014 and 2015. Over the last several months, I have received many unsolicited E-mails from people I don’t even know, suggesting I might bring my blog to an end because I am quite obviously incompetent. The reason: I maintain that Ireland is not a poster child for austerity. So do these startlingly positive National Accounts data suggest that my critics are on the ball. Does it prove that that austerity has turned Ireland around. Well, it doesn’t prove anything of the sort. What it actually ‘proves’ is the familiar proposition that if you add something large to something small and express the change in percentage terms the result will be large. That is what the latest national accounts results demonstrate. A closer examination of the results then tell you what that ‘large’ thing is, which leaves one to conclude that Ireland hasn’t made very much progress at all. Okay, so you can now stop sending me E-mails lecturing me about how stupid I am and look in public! Thanks.

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Towards a progressive concept of efficiency – Part 2

This is Part 2 of my discussion of how a progressive agenda can escape the straitjacket of neo-liberal thinking and broaden how it presents policy initiatives that have been declared taboo in the current conservative, free market Groupthink. Today, I compare and contrast the neo-liberal vision of efficiency, which is embedded in its view of the relationship between the people, the natural environment and the economy, with what I consider to be a progressive vision, which elevates our focus to Society and sees people embedded organically and necessarily within the living natural environment. It envisions an economy that is created by us, controlled by us and capable of delivering outcomes which advance the well-being of all citizens rather than being a vehicle to advance the prosperity of only a small proportion of citizens.

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Towards a progressive concept of efficiency – Part 1

Before I present the second part of my discussion about the relevance of re-nationalisation to what I would call a truly progressive policy agenda, we have to take a step backward. I note after the first part – Brexit signals that a new policy paradigm is required including re-nationalisation – there were a few comments posted (and many more E-mails received – apparently readers are happier berating me personally rather than putting their ideas out in the public domain) that I was advocating a return to the ‘bad’ old days of nationalisation where cronyism, inefficiency and trade union bastardry were the norm. The obvious next point was – how can I claim that is progressive and part of the future. In this two part blog (the second part will come tomorrow), I offer a framework for assessing these claims. Today’s blog foscuses on the neo-liberal vision of efficiency and reveals how narrow and biased towards private profit it is. In Part 2 (tomorrow) I will present the progressive vision and how it conditions the way we think of efficiency. Once we break out of the neo-liberal constructs and refocus our attention on Society rather than the individual then the way we appraise policy options also changes – it becomes enriched with new possibilities and understandings. We enter the progressive world and leave behind the austerity nightmare that neo-liberalism has created. We are then able to see how our old conceptions of nationalised industries or public sector job creation are tainted with these neo-liberal biases. And we are then able to see how policy initiatives that invoke scorn from the conservatives and many so-called modern progressives (obsessed with post modern constructs) have a vital role to play in a truly progressive manifesto. I split the discussion into two parts because the blogs are too long as they are.

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US labour market – some improvement but still soft

Last week (June 8, 2016), the US Bureau of Labor Statistics published the latest – Employment Situation – June 2016 – and the data shows that “Total nonfarm payroll employment increased by 287,000 in June, and the unemployment rate rose to 4.9 percent” on the back of rising labour force participation. The Household Survey measure showed that employment grew in net terms by 67 thousand (0.04 per cent), which presents a more modest picture than the media reports, that focus on the payroll data, are portraying. Clearly, the 287,000 net jobs added according to the payroll data is a lot better than the 11,000 added according to the same measure in May 2016 (which was revised downwards from 38,000). Further, hours and earnings data suggests a fairly moderate labour market outlook rather than any boom conditions. Broad measures of labour underutilisation also indicate a worsening situation. Underemployment (persons employed part time for economic reasons), which had risen sharply in May (by 468,000) fell by 587 thousand in June, which along with the rising participation rate (a fall in the discouraged workers by 36 thousand), suggests a better state of affairs that was anticipated in May. It remains to be seen whether this renewed jobs growth reduces the bias towards low-pay jobs – which I most recently examined in this blog US jobs recovery biased towards low-pay jobs continues.

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ECB research shows huge output gap and need for fiscal expansion

Last week, I reported on some claims by Australian private sector economists that the Australian government was deplete of policy tools (“run out of ammunition” was the cute term used among these self-serving characters) and would not be able to handle the Brexit fallout – see When journalists allow dangerous economic myths to pervade. It was obvious that the statements were nonsensical and only reflected the dangerous neo-liberal ideology that discretionary fiscal policy should be constrained to the point of being not used! In the last week, some major central bankers around the world have given speeches which suggest they also understand that fiscal policy has come to the fore and provide some certainty to the world economy. The latest estimates from the ECB of the Eurozone output gap certainly provide the evidence base to justify a major expansion of fiscal deficits across the Eurozone. The research is suggesting that there is a significant output gap which is evidence of insufficient aggregate spending rather than any structural shifts in potential GDP. I guess they are warming the Member States for more expansionary action although the message is very clear – the European Commission has to abandon its austerity mindset and provide some old-fashioned deficit stimulus – quick smart!

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Australian election outcome resonates with the Brexit dynamics

Less than two weeks ago, Britain sent a bombshell into the conservative, neo-liberal policy agenda and the narrative that supports it. I have read a lot of comments that the Referendum result was a reflection of racist attitudes towards minority immigrants. While it is no doubt that the open borders policy that allows firms to batter down wages growth and keep a constant excess supply of labour as a threat was an important part of the debate and vote, that in itself, was a reflection of the underlying tension that people and their communities have with the neo-liberal policy agenda. There would be much less concern about migration if there was full employment. The same sort of tensions that pushed the majority of British voters to support the Leave campaign have been apparent in the Australian Federal election which was held on Saturday (July 2, 2016). Australian voters have rejected a first-term conservative government. It is a rare event for us to reject any first-term regime of either persuasion. The conservatives in Australia are now in tatters without credibility and the unstable situation that has arisen as a result of the political uncertainty provides a great opportunity for the Australian Labor Party, who did very well in the poll on Saturday, to refresh their outlook and reject their neo-liberal tendencies to reflect the big shift in sentiment in the Australian electorate. A similar opportunity exists in Britain and I hope Jeremy Corbyn takes it and expunges the Blairites from his own Party.

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We starve the state and public infrastructure development at our peril

Australia is at the end of a long federal election campaign (albeit not as long as the US) and the vote is on Saturday (July 2). Both major parties – the conservatives (who call themselves liberal but oppose many freedoms) and the Labor Party (who are conservatives in drag these days) – have gone to pains to convince the voters that they will get the fiscal balance back into surplus by 2021. The Labor Party, which was meant to be the political voice of the workers has proposed something like $A71 billion in spending cuts and tax hikes (or scrapping tax cuts promised by the conservatives). But both are content to leave more than 15 per cent of the labour force lying idle and to oversee rising inequality, rising poverty and social alienation, in a nation that is arguable in the top three wealthy nations of the world. Moreover, the obsession with pursuing fiscal surpluses is taking a heavy toll on public infrastructure and social and community assets in Australia. The latest data shows that there is a massive shortfall in expenditure on these assets and that more than 11 per cent of these essential assets are in a poor to very poor condition, which means that the assets are incapable of serving their function including supporting economic growth. As well there is increasing evidence that shows the transformative nature of public investment in innovation and education. We starve the state and public infrastructure development at our peril. That should inform a progressive agenda if nothing else does.

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The British Left is usurped and IMF austerity begins 1976

We left the trail last time with James Callaghan telling the British Labour Party Annual Conference on September 28, 1976 that governments can no longer spend their “way out of a recession” and that the Keynesian approach was an option that “no longer exists”. He even suggested that the Keynesian approach to stabilising economic cycles was never valid. Meanwhile, his Chancellor, Denis Healey, by then convinced that Monetarist had validity, was working behind the scenes at the Conference to duchess or beat his colleagues in submission and accept the TINA approach to bringing in the IMF. They worked hard to construct the situation as a crisis of massive proportions although much of the ‘crisis’ was the result of their extreme reluctance to allow the pound to depreciate, to impose capital controls to stop the non-productive speculative outflows that were causing the currency to drop in value, and to accept that in the Post Bretton Woods era they no longer had to match their fiscal deficits with private debt issuance. But in doing so, the British government effectively created their own ‘funding’ crisis. Things came to a head in November 1976 within the Labour Cabinet, which was still deeply divided over the IMF issue. We finish this analysis of Britain and the IMF today by tracing events at the end of 1976 before providing a general summation of what it was all about.

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When journalists allow dangerous economic myths to pervade

Journalists have a lot to answer for in this modern era of constant media reporting across multiple modes of communication. I have previously argued that the trend has become one where journalists are used as broadcasting tools for press releases – that is, stories that appear to be news commentary are really just precised versions of some corporate press release or a statement from some right wing think tank. The lack of critical scrutiny where one line statements that on the face of it are highly contentious are allowed to ‘go through to the keeper’ is now the model for modern mainstream journalism. An example of this was the Australian Broadcasting Commission’s PM current affairs radio program last night (June 27, 2016) – Investors brace for another wild ride on international markets post-Brexit. The PM program is the ABC’s premier evening news and current affairs program where issues are meant to be taken apart and some so-called experts (from all sides) are meant to be interviewed so as to enlighten the public, who otherwise might be uncertain about the meaning and/or impact of some event. At least that was the intent of the program when it started many years ago. Now, it has become, like most of the ABCs current affairs reporting, a rather pale imitation of its original brief.

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Britain should exit the European Union

Tomorrow, Britain gets to cast a vote on its continued membership in the European Union, although it is unclear how binding such a vote would be on the Government. Probably not binding at all. The latest opinion polls are giving it 51 per cent remain to 49 per cent leave. The bookie odds are in favour of the remain camp. I am guessing the remain vote will win. It shouldn’t. The debate has been asinine to say the least. The public deception has reached unbelievable heights. My own profession has been wheeled out or wheeled themselves out in grand statements about how catastrophic exit would be. I don’t believe much of it at all. I provided my opinion on the topic in this February 23, 2016 blog – If I was in Britain I would not want to be in the EU. I will not repeat the analysis here. But in the research I have been doing on how the Left has become neo-liberal, there was a lot of overlap in how the Left became, to their detriment, pro-Europe. Here is some points on that. I hope the Exit wins.
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Further evidence that ECB monetary gymnastics have not stimulated lending

This morning I was reading the – The euro area bank lending survey – for the first quarter of 2016, published by the European Central Bank (ECB). This is a quarterly survey that the ECB conducts which was first published in 2003. It seeks to assess the extent to which banks are lending and the factors that are influencing that behaviour. The results published in the April 2016 edition relate to the first three months of 2016 and “expectations of changes in the second quarter of 2016”. Of particular interest was the inclusion of several ‘ad hoc’ questions (outside the normal survey design) that were designed to gauge “the impact of the ECB’s expanded asset purchase programme” and the “impact of the ECB’s negative deposit facility rate”. The results are fairly clear if you delve into the detail. From the April 2016 bank lending survey (BLS) we can conclude that the massive asset purchasing program and the negative interest rates have not significantly increased bank lending. We know why. It is a pity that the majority of commentators have not yet worked out the answer!

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Full employment = mass idle labour – detaching language from meaning

In the Golden Egg by Donna Leon, which I was reading on a flight over the weekend, there was a discussion about language and meaning. The detective in question was musing about how crimes are described and concluded that when we “detach language from meaning … The world is yours”. The worst crimes become anaesthetised. In my professional domain (economics), this detachment is rife and leads to poor policy choices. One such example, which is close to the focus of my own research work over the years has been the way in which the mainstream economists have revised the concept of full employment. We now read that Australia, for example, is at “full employment” when its official unemployment rate is 5.7 per cent (1.7 per cent above its previous low in February 2008), underemployment is 8.4 per cent, and the participation rate is still a full 1 percentage below its November 2010 peak (meaning some 190 thousand workers have dropped out of the labour force). By any stretch, the total labour underutilisation rate (that is, idle but willing labour) is in excess of 16 per cent. But to some smug journalists who cannot even get their facts straight, that is ‘full employment’. Mainstream economics – detaching language from meaning and misleading a nation as a result.

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The conspiracy to bring British Labour to heel 1976

This is a further instalment in tracing through the British currency crisis in 1976 and its retreat to the IMF later in that year. Today we discuss the tensions within the British Labour Party at the time, the Callaghan Speech to the Blackpool Annual Labour Conference on September 28, 1976, the behind the scenes work by Denis Healey and some clandestine activity between the US and British bureaucracies which was aimed to bring Britain to heel, one way or another and to overcome its ‘immorality’ – yes, the US thought the fiscal deficits the Brits were running were immoral.

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The European Commission and ECB outdo themselves in their quest for absurdity

As the years have passed, I have become inured to the depths of absurdity that the European Commission and the political elites its nurtures go to justify their existence. The Maastricht exercise in the late 1980s and early 1990s was comical. The convergence process towards Phase III of the Economic and Monetary Union in the 1990s was established a new norm for craziness. Who would believe the stuff that went on. Then the Goldman Sachs fiddle to allow Greece to enter the Eurozone two years later than the rest. What! Then the Stability and Growth Pact fudges in 2003 when Germany (and France) were clearly in violation of the rules they had bullied the other Member States into accepting. Look the other way and whistle! Then the GFC and the on-going mess. By now the Commission and the Council were outdoing themselves in pursuing absurdity. It was a pity that millions of innocent citizens have had their lives wrecked through unemployment and poverty as a result. And, now, perhaps, this lot have exceeded their own capacity for nonsense. I refer to the latest Convergence Reports published by the European Commission and the European Central Bank. Hypocrisy has no limit it seems. The Eurozone and EU is now firmly entrenched in austerity and deflation and the policy makers think that is the desirable benchmark for others to aspire to. Who could have invented this stuff! And, in relation to the upcoming vote in Britain – how the hell would any reasonable citizen want to be part of this sham outfit (EU) if they had a choice.

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The 1976 British austerity shift – a triumph of perception over reality

This is a further instalment in tracing through the British currency crisis in 1976 and its retreat to the IMF later in that year. Today we discuss whether it was the IMF that forced the change of direction for British Labour or all their own dirty work with the IMF just being used to depoliticise what Callaghan and Healey wanted to do (and were doing) anyway. We trace through the way the leadership of the British Labour government were building the case for austerity and the path they followed leading up to the request to the IMF for a stand-by loan. Far from being the only alternative available, the course taken by the Government was a triumph of ideology and perception over evidence and reality.

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The Weekend Quiz – June 11-12, 2016 – 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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Bias toward low-wage job creation in the US continues

Last Friday (June 6, 2016), the US Bureau of Labor Statistics (BLS) released the latest – Employment Situation Summary – May 2016. I analysed that data release in this blog – The US labour market continues to weaken. The message from the data is that while the unemployment fell to 4.7 per cent, employment growth is virtually non-existant and the unemployment rate fell to 4.7 per cent only because the participation rate fell by 0.2 percentage points (in other words, hidden unemployment rose as people dropped out of the labour force). The sharp slowdown now evident in the US labour market has meant that the US Federal Reserve Bank will have to rethink their so-called interest rate normalisation strategy. In the downturn that began in January 2008, there were 8.7 millions jobs lost (up to December 2009) and 86 per cent of them were in sectors that paid above average weekly earnings. Since the recovery began in January 2009, the US labour market has added 14.1 million jobs (in net terms). The question this blog explores is whether these jobs have been predominantly low paid jobs or not. I found that the jobs lost in low-pay sectors in the downturn have more than been offset by jobs added in these sectors in the upturn. However, the massive number of jobs lost in above-average paying sectors have not yet been recovered in the upturn and do not look like being so, given the labour market is slowing again. In other words there is a bias in employment generation towards sectors that on average pay below average weekly earnings.

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The British Cabinet divides over the IMF negotiations in 1976

This blog continues the discussion of the British currency crisis in 1976. Today we discuss the growing discontent within the British government over the need to negotiate the IMF loan in 1976. While it has been held out that Britain had no alternative but to impose austerity and allow the IMF to dictate policy, the fact is that an alternative was proposed which would have been a superior option.

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