Australian economy contracts and workers national income share declines further

Today (December 1, 2021), the Australian Bureau of Statistics released the latest – Australian National Accounts: National Income, Expenditure and Product, September 2021 – which shows that the Australian economy contracted 1.9 per cent in the September-quarter. The annual growth rate of 3.9 per cent is relatively meaningless given the base was severely affected by the lockdowns last year. The decline in economic activity was driven by private demand, which contracted by 2.4 percentage points – mostly due to a decline in household final consumption expenditure. Public spending contributed 0.7 points to the GDP figure thus attenuating, to some extent, the fall in private demand. The increase in spending on health by both Federal and State governments was not large enough to avoid the contraction though. Real net national disposable income fell by 3.8 per cent, but rose by 7.8 per cent over the year. GDP per capita fell by 2 per cent in the September-quarter. There was a massive boost in the household saving ratio (from 11.8 per cent to 19.8 per cent) as a result of the tight lockdowns in Victoria and NSW during this period as a result of the renewed fiscal support. We will have to see how the rebound is next quarter now that the restrictions have been significantly eased. The most worrying thing about the data today is that the wage share in national income slumped further while the profit share in a smaller pie rose. Something needs to be done about that.

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Corporate profits boom in Australia undermines our capacity to national prosperity and well-being

Yesterday (November 29, 2021), the Australian Bureau of Statistics released the latest – Business Indicators – for the September-quarter 2021. This dataset provides quarterly estimates of private sector sales, wages, profits and inventories. It provides a means of viewing exactly what has gone wrong with the Australian economy over the last two decades as successive governments have failed to prioritise general well-being, and, have instead, acted as agents of capital. There is a massive imbalance in the capacity of workers and profit-recipients to access national income that is produced by the workers. Profits have been booming while wages growth has been low for a long time now. And if you thought the booming profits would be siphoned into productive investment to lift productivity and create the non-inflationary space for real wage increases, then you would be wrong. The massive lift in profits has gone into unjustifiable increases in executive pay, property booms and financial market speculation. None of the things that help lift national prosperity and well-being.

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The Weekend Quiz – November 27-28, 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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When wages go up, we all benefit – what Starmer should have said

The British Labour Party leader (for now) Keir Starmer gave a – Keynote Speech – to the Annual Conference of the Confederation of British Industry in Birmingham on November 22, 2021. If you read it or heard it you will know that his leadership marks the return of British Labour as class traitors. He started by saying the “Labour is back in business”, which should have been ‘Labour is the agent of business’ He played up the line that Britain’s future depends on the business sector profits growing stronger than they are now and that everyone benefits when profits are high and growing. Even at the most elementary level that statement defies the evidence. But for a Labour leader to make it spells trouble for the Party. So what else is new.

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Governments should not ‘cool’ an economy or cut deficits when there are millions unemployed still

It’s Wednesday and only a few items today. It seems that the mainstream economists are emerging again and making all sorts of claims that fiscal policy has to target lower deficits and monetary policy needs to tighten (interest rates rise) to stop our governments going broke and inflation going wild. It really is like a tired broken record, isn’t it. They have sort of gone underground during the crisis and more are thinking it is time to reassert the nonsense of the past. And so it goes. But at least Wednesday brings music to this blog – and what a treat we have today.

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The Weekend Quiz – November 20-21, 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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UK Office of Budget Responsibility demonstrating the well-trodden GIGO format

I have finally been able to read the latest fiscal statement – Autumn Budget and Spending Review 2021 – from the H.M. Treasury, which was released on October 29, 2021. That 202 page document is not something anyone should spend time reading but in my job one has to in order to stay abreast of what is happening around the world. It also took me down the Office of Budget Responsibility snake hole to read their latest – Fiscal risks report – July 2021 – which obviously conditions the way the fiscal statement is framed. That is a really bad document. And as it happens, footnotes in that document take us further into the pit of New Keynesian fiction, where we find modelling that OBR relies on, that has the temerity to model fiscal shocks where labour markets always clear and households choose the unemployment rate, which is constructed as ‘leisure’, as they maximise their satisfaction. I suppose that is okay in a world where we assume households live to infinity. That is, nothing remotely like the world we live in. I don’t plan to analyse in detail the fiscal statement. Rather, here are some reflections on some of the material that the Treasury think is useful in framing the statement. Which helps to explain why these sorts of statements become lame quickly.

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The Weekend Quiz – November 6-7, 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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MMT economists do not seek to enumerate how many angels can dance on the head of a pin

One of the recurring criticisms that mainstream economists make of Modern Monetary Theory (MMT) is that does not follow the rules of formalism that have become the norm in the economics profession. The implication is that by not following these conventions, MMT economists are unable to say anything precise and scientific. Apparently, a literary discourse cannot convey anything that is sound. Pity that some of the greatest contributions to human knowledge have come from those who could write properly. But this criticism of MMT is about something else again. Dominant academic communities develop their own rules of enquiry, which encompass perspectives of the field to be studied, procedures to be followed, methods and techniques to be used and the end goals of the analysis. If those communities become riddled with Groupthink, then a degree of uniformity in practice becomes expected and enforced either subtly through peer group pressure or more coercively through publication, grant and promotional practices, which effectively determine whether a person will advance or be cast aside. The criticism waged against MMT economists that we don’t follow the normal rules of exposition is really an attempt to enforce the discipline of the mainstream (New Keynesian) community and avoid discussion of substantive issues, such as empirical congruence or extent of anomaly. If the dominant paradigm can convince young scholars and the public that its techniques and methods are the only sound way in which to conduct scientific enquiry and highlight an emerging threat as not being up to speed then it can avoid the scrutiny.

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The Weekend Quiz – October 30-31, 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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In the battle between government and the hedge fund gamblers – the government has all the cards

Given my inflation report yesterday, I have shifted my usual Wednesday light blog post day and music feature to today. The economic debate has moved in recent years from ‘when is the government going broke’ to ‘hyperinflation is approaching’. It amazes me how puerile the economic commentary is as journalists and economists seeking headlines trot out headlines about how bad something (insert: insolvency, inflation, whatever is the latest craze) is going to be and what needs to be done about it. Nothing much happens in the real world and they keep their jobs and begin the next mania. Replay. And so it goes. It seems though that within this fictional world, that masquerades as informed economic commentary, subtle changes are underway. Governments worked out that during the GFC, the only weapon they had that would save the system was fiscal policy. They also worked out that large-scale bond buying by their central banks complemented the effective use of fiscal policy and didn’t deliver all the maelstrom that the mainstream New Keynesian textbooks predicted. The pandemic has accentuated that. And now there is this sort of stand-off between the ‘markets’ that were given too much latitude in the pre-GFC period and governments. The market players, who have become accustomed to manipulating government policy to ratify their speculative bets, which delivered massive profits to the hedge funds and the like, are now confronting central banks and treasuries that actually have power and cannot be bullied into delivering such policy ratification. That is progress and interesting to observe.

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Federal Reserve research paper kills another core New Keynesian idea about inflation expectations

The New York Times article (October 1, 2021, updated October 15, 2021) – Nobody Really Knows How the Economy Works. A Fed Paper Is the Latest Sign – reported on a paper by one Jeremy B. Rudd, who is a senior advisor in the Research and Statistics division at the Federal Reserve Bank in the US. The paper – Why Do We Think That Inflation Expectations Matter for Inflation? (And Should We?) – published as Finance and Economics Discussion Series 2021-062, by the Board of Governors of the Federal Reserve System, argues that a core aspect of New Keynesian macroeconomic orthodoxy “rests on extremely shaky foundations … and adhering to it uncritically could easily lead to serious policy errors.” The paper rejects the central notion in mainstream macro that the trajectory of inflation is driven by expectations. The idea that expectations are the key force has led central banks deliberately using the unemployed to fight an (imaginary) inflation threat. It has led fiscal authorities to pursue contractionary policies that have forced millions into unemployment. The Rudd paper is important because it shows the mainstream edifice is collapsing – it jettisons an other core concept. There is not much left in mainstream economics that hasn’t been rejected by evidence or exposed as being theoretically inconsistent.

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When ‘new’ is really old and doesn’t get us very far – latest BIS paper

It takes a while for the mainstream organisations in economics, banking and finance to start to realise that the framework they use cannot explain the actual events in the real world, without serious revision. The problem though, is that the overall framework is flawed and the typical ‘response to anomaly’ approach, which changes a few assumptions to get ‘novel results’ is inadequate because it leaves one blind to all the possible policy solutions. The latest example is the Bank of International Settlements paper – Indebted Demand (released October 19, 2021) – which was written by three economists from Princeton, Harvard and Chicago Booth, respectively. They now recognise that rising inequality and massive household debt is a major problem for economic growth and macroeconomic stability. But, in maintaining ‘conventional’ assumptions about the government sector, they miss the vital linkages in the story, that Modern Monetary Theory (MMT) economists have been providing for the last 25 or so years. Whether these responses to anomaly represent progress or different variations in a flawed ‘chess’ strategy is a matter of opinion. My thought is they are a largely a waste of time, although marginally, they demonstrate that elements of mainstream macro theory that were considered core elements a decade ago are no longer sustainable.

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Latest US quits behaviour signals possible shift in power to workers

The US Bureau of Labor Statistics published the latest JOLTs data last week (October 12, 2021) – Job Openings and Labor Turnover Summary – August 2021 – which has raised a possible shift in bargaining power in the US labour market towards workers. The most obvious sign of that is the rising quit rates, which are most prevalent in the low-wage sectors. While there is still some slack in the US labour market, the evidence suggests that workers are taking advantage of the improved job opportunities to pursue better wages and conditions. We will have to wait and see whether there are any significant wage outcomes arising from this behaviour or whether workers are just jumping from very bad to bad jobs. Time will tell.

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The Weekend Quiz – October 16-17, 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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The one-trick New Keynesian ponies are back in town

I learned long ago that when you consult a surgeon the recommendation will be surgery. After about 10 or more knee operations (both legs) as a result of sporting injuries, and, then some, to undo the damage done by previous surgery, I ran into a physiotherapist who had a different take on things. He showed me ways the body can respond to different treatments and retain the capacity for high-level training and performance even with existing damage. I still run a lot and his advice was worth a lot. The point is to watch out for one-trick ponies. The analogy is not quite correct because sometimes surgeons get it right. I don’t think the same can be said for a mainstream economist, who are also one-trick ponies. If you ask a mainstream economist what to do about macroeconomic policy they recommend hiking interest rates and cutting fiscal stimulus if the CPI starts to head north, irrespective of circumstances. But the message is getting blurred by realities, especially since the GFC. More pragmatic policy makers realise that just responding in the textbook manner hasn’t provided a sustainable basis for nations to follow. In the last week, we have seen the contradiction between the one-trick ponies, who are desperate to get back into their textbook comfort zone, and those who see the data more clearly. In Britain, one part of the Bank of England, the Financial Policy Committee has indicated the way forward is going to require careful policy support for businesses because many SMEs have loaded up on debt during the pandemic and face a precarious future. In the same week, a private sector bank economist, who is also an external member of the Bank of England’s Monetary Policy Committee, called for interest rate hikes and a deeper withdrawal of fiscal support (and central bank coordination of that support) to deal with, an as yet, unclear inflation threat.

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The Weekend Quiz – October 9-10, 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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The Weekend Quiz – October 2-3, 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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Marx and MMT – Part 1

I gave a talk at the Resist Event in Brighton UK last Sunday evening. On the panel was a person who dismissed Modern Monetary Theory (MMT) as irrelevant to the real challenges that arose under Capitalism and he invoked Marx a lot. It was not a very illuminating interchange because not only did he misrepresent what MMT was but, in my view, he also seemed to think that we could extrapolate Marx’s scant ideas of money directly into the situation faced by nations today. Marx considered money to be a commodity (gold) and he did not present any meaningful analysis of the role played by the modern consolidated central bank-treasury function (aka government). Last Sunday’s critic claimed that MMT is wrong to assume that unemployment is a monetary phenomenon (insufficient spending) and that government spending can do anything about it. Apparently, Marx thought that capitalist firms have some unique logic that if they decide not to produce no amount of sales orders will induce them to expand production even if they have massive excess capacity (‘machines lying idle’) and a huge pool of idle labour to draw upon. Marx would never have agreed with that idea. Marx’s writings are not the Bible. They are insights gleaned at specific points in history with specific institutional arrangements, some of which remain relevant today, some which do not. Modern Marxist-oriented scholars are aware of that point. A deterministic application of his thinking is not very likely to yield insights when the context is very different. In this two-part series, I seek to lay out a clear reason why MMT is not a violation of a correctly interpreted Marx.

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The Weekend Quiz – September 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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