European Commission processes still biased towards fiscal austerity

I keep reading that the European Commission has abandoned the Stability and Growth Pact (SGP) and that the euro is no longer a problem. I beg to differ. On June 6, 2021, the European Commission released a – Report prepared in accordance with Article 126(3) of the Treaty on the Functioning of the European Union – which updated their latest views on the state of fiscal balances in the EU. The Report confirms the Commission’s intention to return to the Excessive Deficit Mechanism process in 2023. The problem is that the whole assessment process is biased towards fiscal austerity. I show why in this blog post.

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Investors lose out following the advice of New Keynesian (mainstream) macroeconomics

I have been doing a lot of talks over the last few years discussing Modern Monetary Theory (MMT) with financial professionals. I stress that I am not acting as a consultant, to allow this community to make more money. I often joke I hope they all go broke. My motivation is education and one hopes that these communities will spread our ideas through their own influential networks. The aim is to put pressure on the public policy makers to restore full employment and reorient the public imagination away from the gloom that the neoliberal years has imposed on our policy aspirations. One of the things I confront these audiences with is the reality that an adherence to the precepts of mainstream macroeconomics and the predictions that flow from them have undermined their own objectives (which, shh, is to make money). I can easily point to many ways in which the mainstream of my profession have vicariously made predictions that could never be accurate, yet have been relied on by investors as if they were derived from valid knowledge. I have no sympathy for those who have made massive losses in this way, but when the consequences spread into the real economy and start costing jobs and work-related incomes, then the concerns rise. In the last few weeks, we have seen a classic example of this phenomenon and the message is – won’t they ever learn!

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Still a lot of slack remaining in the US labour market

The US Bureau of Labor Statistics published the latest JOLTs data yesterday (July 7, 2021) – Job Openings and Labor Turnover Summary – May 2021 – which provides some interesting insights into labour market dynamics that run against the mainstream narrative. It allows me to calculate broader measures of labour demand and supply to achieve a more accurate indication of how tight or otherwise the US labour market is. Currently there is still considerable slack in the US labour market, some of it, outside the official labour force, and some of it in underemployment, as well as the official unemployment number. My estimates of the gap between labour supply (employment plus unemployment plus part-time for economic reasons plus not in the labour force but want to work) and labour demand (employment plus job openings) comes to 12,465 thousand or 7.75 per cent of the labour force. In February 2020, this gap stood at 8,076 thousand or 4.9 per cent of the labour force. So there has been improvement but there is still a lot of slack in the US labour market.

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Staggered minimum wage increases in Australia further punish the most vulnerable workers

Last Thursday, guest blogger Scott Baum analysed the recent decision by the Fair work Commission – Annual Wage Review 2020-21 – on June 16, 2021, which raised the National minimum Wage in Australia to $772.60 per week or $20.33 per hour. See his blog post at – The working poor are still poor in Australia (July, 2021). Today, I also review that decision as part of my annual surveillance on minimum wage trends in Australia. The Fair Work Commission, is Australia’s wage setting tribunal, and as part of that task conducts an annual wage review which sets minimum wages across the nation. The minimum wage determination then flows on to other wage rates (these are the wage awards linked to the NMW). The decision is poor because it will further undermine the real living standards of tens of thousands of low paid workers. In particular, the decision to phase in the pay increases (November 2021 for Group 2 Awards and February 2022 for Group 3 Awards) is a disaster for low-paid workers in the hospitality, retail and tourism sectors. Meanwhile the major employer groups argued for zero or mimimal nominal rise while enjoying growth in profits with rising productivity growth. A scandalous indictment of our system.

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US labour market recovery leaves considerable slack and rising long-term unemployment

Last Friday (July 2, 2021), the US Bureau of Labor Statistics (BLS) released their latest labour market data – Employment Situation Summary – June 2021 – which showed that the recovery since the catastrophic labour market collapse in March and April 2020, continues with payroll employment rising by 850,000 in June 2021. The unemployment rate rose by 0.1 points to 5.9. However, the broader labour wastage captured by the BLS U6 measure fell by 0.4 points to 9.8 per cent. The US labour market is still 6,76 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. The other notable point is that long-term unemployment now dominates among the duration categories published by the BLS.

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The Weekend Quiz – July 3-4, 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 working poor are still poor in Australia

Today, we have a guest blogger in the guise of Professor Scott Baum from Griffith University who has been one of my regular research colleagues over a long period of time. Today, he is writing about the impact the recent decision by the Fair work Commission – Annual Wage Review 2020-21 – on June 16, 2021, which raised the National minimum Wage in Australia to $772.60 per week or $20.33 per hour. I am travelling most of today and so it is over, once again, to Scott …

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Australia’s Covid recession has increased inequality – winners and losers

Today is just a number-crunching exercise, which I conducted to allow me to understand where the employment losses and gains in the Australian labour market since the onset of the pandemic. The latest Australian Bureau of Statistics Labour Force data, which I analysed in this blog post – Australian labour market – stronger as working age population flattens out (June 17, 2021) – revealed that total employment in Australia is now above the February 2020 level by 130.2 thousand (1.0 per cent). I noted that some sectors are still languishing while others are rebounding strongly. I had to wait a week before the detailed industrial level employment data was released and today’s blog post is a brief view of that data to ascertain which sectors (and sub-sectors) are in the ‘languishing’ category and which have rebounded. This is also important for assessing any impending inflation risk from the employment growth. There is always a motivation for doing this boring type of number analysis.

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The Weekend Quiz – June 26-27, 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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Massive wastage of labour in the European Union

I have been updating my databases in the last few days and getting up to speed on the latest trends. In the past, I developed a set of broad labour market indicators for Australia with colleagues at the – Centre of Full Employment and Equity (CofFEE). Our quarterly measures of underemployment were precursors to the Australian Bureau of Statistics measures which are now published on a monthly basis. I was doing some calculations this morning using Eurostat data as part of some research I am doing to assess the inflationary potential that exists in various labour markets. As regular readers will know, my assessment of inflation risk starts in the labour market. Rarely do we encounter a situation where nominal spending outstrips the productive capacity of the economy (a demand-pull inflationary environment). That can occur is specific product segments but rarely overall. History tells us that there has to be some distributional struggle between labour and capital to drive an inflationary spiral. I am out there looking for any evidence of such a struggle. I am not having much success!

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Culture of austerity distorts business decision-making and we all lose

It is Wednesday and so a few snippets and some Afrobeat. Today, I briefly discuss a rather extraordinary claim by the Governor of the Reserve Bank of Australia that Australian employers refuse to pay higher wages in an environment where the federal government is biases aggregate policy towards surplus creation, even though that strategy was temporarily disabled during the first year of the pandemic. The overall austerity environment has distorted business decision-making to such an extent that firms are now obsessed with cost control and have forgotten that spending equals income and by encouraging a high wage, high productivity culture, their profits rise as well. Win-Win. At present it is lose-lose.

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The Weekend Quiz – June 19-20, 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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Australian labour market – stronger as working age population flattens out

Today (June 17, 2021), the Australian Bureau of Statistics put out the latest – Labour Force, Australia – for May 2021. The data shows that employment increased by 115,200 (which is strong), monthly hours worked increased by 1.4 per cent, unemployment fell by 53,000 (which is excellent), the unemployment rate fell 0.4 points to 5.1 per cent, the participation rate rose 0.3 points (good) and underemployment fell by 0.4 points to 7.4 per cent (excellent). It is hard not to see all these results in a positive light. More jobs are being created, more people are coming back into the labour force and fewer people are being underutilised relative to their desired work intentions. This reverses to some extent the backward step the labour market took last month. The labour market is still 237.1 thousand jobs of where it would have been if employment had continued to grow according to the average growth rate between 2015 and February 2020.

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Announcing the Instituto de Finanças Funcionais para o Desenvolvimento

Today is Wednesday and I have to travel most of the day and present to a large financial markets gathering in Sydney tonight. My theme tonight will be ‘What the Hell is Going On’, as a challenge to the mainstream who haven’t a clue about what is happening and summarise their lack of awareness and the dissonance that is creating for them by screaming about inflation. The mainstream macroeconomists are so far off the mark these days that they must be like the flat earth theorists who watched ships successfully sail off the edge of the globe only to come back around the other side. They are lost and can only interpret the current events in terms of ‘duh, central banks buying bonds, too much money in the system, duh, must be inflationary’. Anyway, today some jazz and a video to watch.

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The Weekend Quiz – June 12-13, 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 and Power – Part 2

This is Part 2 of a series that is developing here on the topic of Modern Monetary Theory (MMT) and power. I often read that Modern Monetary Theory (MMT) is defective because it has no theory of power relations. Some critics link this in their narrative to their claim that MMT also has no theory of inflation. They then proceed to attack concepts such as employment buffers, on the grounds, that MMT cannot propose a solution to inflation if it has no understanding of how power relations cause inflation. These criticisms don’t come from the conservative side of the policy debate but rather from the so-called Left, although I wonder just how ‘left’ some of the commentators who cast these aspersions actually are. The problem with these criticisms is that they have clearly adopted a partial approach to their understanding of what MMT is, presumably through not reading the literature widely enough, but also because of the way, some MMT proponents choose to represent our work. In Part 1, I examined how the economics discipline evolved from political economy to a narrow focus on the ‘economy’ as if it existed in a void of power. I also disabused readers of the notion that MMT ignores the link between money and the real econoy, which is a regular claim offered by critics from the Left. I also questioned critics who seem to want MMT to be a theory of everything. As I regularly point out MMT cannot predict who wins the football this week, but that isn’t a criticism. In Part 2, I am going to complicate things a little by expanding on the MMT is the MMT is a lens narrative as if we can neatly separate values from facts. I will also explain how power enters into the dominant theory of inflation in MMT.

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The monetary and fiscal normality of Wolfgang Schäuble – stagnation and entrenched unemployment

I have been working on an article that will come out in the press soon on inflationary pressures. It is obvious that characters like Larry Summers and Olivier Blanchard are trying to stay at the centre of the debate by issuing various lurid threats about the likelihood of an inflation outbreak in the US and elsewhere. Last week, the Financial Times published an article (June 3, 2021) by the former German Finance Minister and now President of the Bundestag, Wolfgang Schäuble – Europe’s social peace requires a return to fiscal discipline. I was initially confronted with the juxtaposition of this author, who bullied all and sundry during to the GFC to ensure an austerity mindset was maintained at great cost to the millions who were deliberately forced to endure unemployment, with the photo of John Maynard Keynes under the title of the article. The title didn’t seem to match the picture. My first impressions were correct. Lessons have not been learned.

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US labour market recovery continues but still 7,629 thousand jobs short from February 2020

Last Friday (June 4, 2021), the US Bureau of Labor Statistics (BLS) released their latest labour market data – Employment Situation Summary – May 2021 – which showed that the recovery since the catastrophic labour market collapse in March and April 2020, continues after a moderate month in April 2021. Payroll employment rose by 559,000 in May 2021 after rising by only 266 thousand last month. The slight rise in unemployment last month gave way to a fall in the unemployment rate by 0.3 percentage points to 5.8 per cent. edged up slightly to 6.1 per cent. The broader labour wastage captured by the BLS U6 measure fell by 0.2 points to 10.2 per cent. The US labour market is still 7,629 thousand jobs short from where it was at the end of February 2020.

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The Weekend Quiz – June 5-6, 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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Criticism of failed economists is not cancel culture

Everybody is concerned with ‘herd immunity’ at present as the pandemic continues on ravaging our social and economic lives. But I have been studying the concept of ‘herd mentality’ for some years, aka – Groupthink. Mainstream macroeconomics is sustained, not by any internal logical consistency (on which it fails), by close congruency with the empirical data (on which it fails), which are the usual qualities of a dominant system of ideas, but, rather, by (using modern terminology) its long-standing and on-going cancel culture. So it is rather amusing to read one of the leading voices in that paradigm, Kenneth ‘Spreadsheet’ Rogoff, whinging on the Internet that ‘cancel culture’ is being used to undermine the reputations of one of his mates (Larry Summers). Both continue to get platforms in the world media without trouble to push their vapid ideas into the narrative. The antithesis of cancel culture it would seem. What is going on is that more people are realising that the prognostications of mainstream macroeconomics are deeply flawed, and, while many may not know the technicalities and the theoretical complexities, they can see the empirical dissonance, and that means they know a – lemon – when they see one. And social media has given more people a voice and they are using that to call these characters out for what they are. And the sense of invulnerability that pervades all disciplines riddled with Groupthink is being questioned.

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