Welcome to the Billy Blog Saturday Quiz. The quiz tests whether you have been paying attention over the last seven days. See how you go with the following questions. Your results are only known to you and no records are retained.
It’s my Friday Lay Day blog and today I’m spending some time travelling and some time thinking about the Modern Monetary Theory (MMT) textbook that I’ve been promising to finish for some time. I can confidently say now that we are on track to finish the first edition by March 2016. Randy Wray and I have taken on a third author (Martin Watts) and have agreed on a completion plan. More information on availability will be available in the new year as we get closer to completion. This week I noted a lot of comments (particularly with respect to my Job Guarantee post) that suggested many readers still do not exactly know what MMT is. Further, there was a heterodox conference in Sydney this week, where MMT proponents were accused of being neo-liberals and politically naive. Unfortunately, other commitments prevented me from attending the conference this year but I read the paper in question and wondered why salaried academics would bother writing it. So a few reflections on both those matters today.
Today’s release of the – Labour Force data – for November 2015 by the Australian Bureau of Statistics once again brings into question the validity of drawing assessments about the state of the labour market on the basis of monthly changes in the data. Today’s release shows that employment increased by 71,400 (0.6 per cent) on the back of a similar substantial increase last month. The estimates strain credibility although they are not necessarily at odds with what other data is suggesting. The direction is probably correct – that is, the labour market has improved (the Employment-Population ratio reliably indicates that). The ABS estimated that despite the dramatic increase in employment, unemployment fell by only 2,800 as a result of a 0.3 percentage points surge in the participation rate (again stretching credibility). Perhaps a signal on how volatile the data is, the ABS estimated the teenage participation rate rose by 0.7 percentage points on theh back of a estimated 0.8 point rise in October – again rather fanciful. The cautious position is to look at the trend over the last several months and that suggests that the labour market has improved. However, the teenage labour market remains very week with no discernible upwards trend revealing itself yet. If the forecasted decline in private investment occurs over the next 12 months, then this improvement in the labour market data will not persist.
I read an interesting paper this week from the US Federal Reserve Bank – The Corporate Saving Glut in the Aftermath of the Global Financial Crisis – written by Joseph Gruber and Steven Kamin. It was published in October 2015 as part of their International Finance Discussion Papers (Number 1150). Essentially, the paper documents a rather substantial “increase in the net lending … of non-financial corporations in the years preceding and especially following the Global Financial Crisis”. Their results cast doubt on the notion that the decline in productive investment over the last 15 years or so reflects a desire by firms to “strengthen their balance sheets”. These trends have significant implications for how we view fiscal positions and the normality or otherwise of particular deficit or surplus outcomes. The authors do not tease out those implications so I thought I would.
The unemployment rate in Finland is climbing steadily and in October 2015 was 9.6 per cent (seasonally adjusted) and the employment to population ratio stood at 60.1 per cent and was trending down. Finland is fast becoming the next basket case of the Eurozone. What was once a highly supportive society is steadily being turned into a austerity-ridden backwater. The latest news, however, that the Finnish government is due to debate a proposal to provide every citizen with a basic income of €800 a month has excited the progressives – unfortunately. The proposal currently being prepared by the national agency that administers the Finnish welfare system (KELA) would offer this basic allowance in lieu of all other existing benefit payments. It would be paid regardless of whether the person received income from any other source. I have been considering the Finnish welfare system over the last month or so since my visit there in October. This is in relation to a series of queries I had from activists there who were keen on the Modern Monetary Theory (MMT) Job Guarantee proposal but were wondering how it would situate itself within the existing system of unemployment benefits in Finland. This blog captures my thoughts on both of those topics.
Last Friday (December 4, 2015), the US Bureau of Labor Statistics (BLS) released the latest – Employment Situation Summary – November 2015 – which showed that “Total nonfarm payroll employment increased by 211,000 in November, and the unemployment rate was unchanged at 5.0 percent”. According to the press reports the data was above expectations and will probably help the US Federal Reserve Bank decide to increase the policy interest rate when it next meets on December 15 and 16. The revised data for September and October also indicated that the US economy had added (net) employment above what had originally been reported. On average, the US labour market has added 237,000 net jobs per month over the last 12 months. What I was curious about was whether these were predominantly low paid jobs or not. I found that the jobs lost in low-pay sectors in the downturn have more than being 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. In other words there is a bias in employment generation towards sectors that on average pay below average weekly earnings.
Here are the answers with discussion for yesterday’s quiz. The information provided should help you understand the reasoning behind the answers. 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.
Welcome to the Billy Blog Saturday Quiz. The quiz tests whether you have been paying attention over the last seven days. See how you go with the following questions. Your results are only known to you and no records are retained.
It’s my Friday Lay Day blog and my head is firmly in the 1960s and being helped along by music from the early 1970s. I’m currently trying to trace the evolution of intellectual ideas in the French Ministry of Finance as it gained ascendancy in the late 1960s over the Planning Ministry, which was Keynesian in outlook. It is no easy task. The current situation in Europe is approaching laughable in a sort of tragic sense, given the millions of people who are unnecessarily unemployed as a consequence of the incompetence and folly of the political class. The latest manifestation of this folly was the Monetary Policy decision released by the European Central Bank yesterday (December 3, 2015) which was met with derision from commentators and the financial markets responded by pushing the value of the euro up, which will further exacerbate the ECB’s claim that it wants to increase the inflation rate.
Today I’ve been following a document trail concerning the French government decision to adopt the so-called Barre Plan in 1976. This is part of the research on doing for my next book on why the Left abandoned progressive economic strategies and became what we now think of as austerity-lite merchants. I am hoping the manuscript will be finished by April 2016 and the book will emerge a bit later in the year. while the approach that will be taking is emerging, the strategy is to pinpoint key events in history where significant economic policy changes occurred and to analyse the rationale that was used to defend those policy shifts and to assess whether the circumstances that applied at those points in time provide any guidance to current day challenges. One of the big events that lead to deep uncertainty among Social Democratic politicians and their advisers, which arguably, was a key driver in the shift of these parties to the Right, was the Stagflation of the 1970s. The phenomenon of the simultaneous coincidence of accelerating inflation and rising unemployment had not previously been witnessed in the period following the Second World War. It needs a careful analysis because much of the popular understanding of this period and the claims that it demonstrated a failure of Keynesian policy approaches are incorrect and provide no basis for rejecting fiscal intervention to maintain full employment.