The case against free trade – Part 4

I am travelling most of today and do not have much time. However, there were a few more issues I wanted to raise in relation to the ‘Free Trade’ mini-series of blogs but on Tuesday I ran short of time and thus I thought I would take this chance to round the discussion off. So this blog might be considered Part 4 in that series on free trade. In Part 1, I showed how the mainstream economics concept of ‘free trade’ is never attainable in reality and so what goes for ‘free trade’ is really a stacked deck of cards that has increasingly allowed large financial capital interests to rough ride over workers, consumers and undermine the democratic status of elected governments. In Part 2, I considered the myth of the free market, the damage that ‘free trade’ causes’. In Part 3, fair trade was considered along with so-called ‘free trade’ agreements. Today, some nuances and additional thoughts are provided. The aim of this mini-series is to build a progressives case for opposition to moves to ‘free trade’ and instead adopt as a principle the concept of ‘fair trade’, as long as it doesn’t compromise the democratic legitimacy of the elected government. There is also a video of my keynote presentation at UMKC in September 2016 available in this blog.

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The case against free trade – Part 3

This blog continues my mini-series of free trade. In Part 1, I showed how the mainstream economics concept of ‘free trade’ is never attainable in reality and so what goes for ‘free trade’ is really a stacked deck of cards that has increasingly allowed large financial capital interests to rough ride over workers, consumers and undermine the democratic status of elected governments. In Part 2, I considered the myth of the free market, the damage that ‘free trade’ causes’. The aim of this mini-series is to build a progressives case for opposition to moves to ‘free trade’ and instead adopt as a principle the concept of ‘fair trade’, as long as it doesn’t compromise the democratic legitimacy of the elected government. This is a further instalment to the manuscript I am currently finalising with co-author, Italian journalist Thomas Fazi. The book, which will hopefully be out soon, traces the way the Left fell prey to what we call the globalisation myth and formed the view that the state has become powerless (or severely constrained) in the face of the transnational movements of goods and services and capital flows. In this blog (Part 3 and final) I consider the concept of ‘fair trade’ as an alternative to the current situation where modern democracies demonstrate an unwillingness to resist the ever-increasing demands of global capital to cede democratic legitimacy in favour of corporate profits.

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The Weekend Quiz – November 19-20, 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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Trump might do us a favour – expose the myth of central bank independence

Prior to the ‘surprise’ victory of Donald Trump in last week’s US Presidential poll, there was an article (September 28, 2016) in the Financial Times – Trump is right to take aim at the ‘political’ Fed – arguing that Trump had “broken a cardinal rule in US presidential campaigning by openly questioning the effectiveness of the Federal Reserve”. In the Presidential debates, Trump had claimed that the US Federal Reserve banks had been “doing political things” as a result of their low interest rate policy and creating a “false economy”. The central bank governor responded by saying the bank did not take politics into account when changing monetary policy. Apparently, Trump was echoing conservative economists who think the low interest rates have pushed investors into riskier financial investments, which will crash if rates rise. It has to be said that history tells us that Republican party politicians regularly lambast the US central bank along conspiratorial lines (for example, 2011 Rick Perry’s “treasonous” allegations against Bernanke; George W Bush, Richard Nixon). What does it all mean? There was an interesting article in the Financial Times today (November 14, 2016) by Wolfgang Münchau – The end of the era of central bank independence – that claims the tide is shifting and more political interference in monetary policy is to be expected. My conclusion: if so, good. Democracy requires the elected polity takes responsibility for economic policy rather than an unelected, largely unaccountable, group of ‘economists’. But, I also add, the idea of central bank ‘independence’ is one of those neo-liberal myths that allow the elected polity to disassociate themselves from bad economic policy.

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The case against free trade – Part 2

This blog continues my mini-series of free trade. In The case against free trade – Part 1 – I showed how the mainstream economics concept of ‘free trade’ is never attainable in reality and so what goes for ‘free trade’ is really a stacked deck of cards that has increasingly allowed large financial capital interests to rough ride over workers, consumers and undermine the democratic status of elected governments. The aim of this mini-series is to build a progressives case for opposition to moves to ‘free trade’ and instead adopt as a principle the concept of ‘fair trade’, as long as it doesn’t compromise the democratic legitimacy of the elected government. This is a further instalment to the manuscript I am currently finalising with co-author, Italian journalist Thomas Fazi. The book, which will hopefully be out soon, traces the way the Left fell prey to what we call the globalisation myth and formed the view that the state has become powerless (or severely constrained) in the face of the transnational movements of goods and services and capital flows. In Part 2, I consider the myth of the free market, the damage that ‘free trade’ causes and move towards a discussion of fair trade. I will complete the series in a third part soon.

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The Weekend Quiz – November 5-6, 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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The penny drops – WSJ acknowledges UK government can never run out of money

When a News Corp newspaper starts writing articles that reflect the insights provided by Modern Monetary Theory (MMT) you know that progress in the dissemination of those ideas is being made. Even if they don’t get things exactly right. The Dow Jones & Company (owned by News Corp) daily, the Wall Street Journal carried an article last week (October 31, 2016) – Message from the Gilt Market: U.K. Can Never Run Out of Pound – which leaves no room for doubt. The London-based journalist Jon Sindreu wrote that “Among facts that take a stubbornly long time to sink in, here’s one: Countries that borrow in their own currencies never have to default on their debt”. So never again allow a person in your company to suggest otherwise. There are many like facts that seem to evade the understanding of journalists, politicians and others who desire to push the neo-liberal line. I say ‘seem’ because it is certain that many of these neo-lib banner carriers know full well they lie when they make claims about currency-issuing governments running out of money and the like. They are ideological warriors after all and in war, anything seemingly goes.

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The Weekend Quiz – October 29-30, 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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The ‘World’s Wrongest Man’ at it again – when does credibility evaporate?

The “World’s Wrongest Man”, one Michael Jay Boskin, an economics professor at Stanford and former chairperson of the Council of Economic Advisors under George W. Bush is back with another stunning piece of sophistry. He has been an outspoken Op Ed commentator (particularly in the Wall Street Journal) for many years now, and, is typically completely wrong in the predictions he makes. His latest intervention into the policy debate is via the Project Syndicate banner – which claims it publishes “the Smartest Op-Ed Articles from the World’s Thought Leaders”. Having Boskin writing for them surely negates that claim. His latest offering (October 23, 2016) – Prepare for the next recession – while you can – continues his long career for making ridiculous statements about economic matters. One thinks it is really time he did something else.

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The Weekend Quiz – October 22-23, 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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Currency-issuing governments can keystroke their outstanding debt into oblivion

It is always a good sign when some fiscal deficit terrorist or another bleeds in the media that they’re not getting enough attention. Yesterday (October 12, 2016), the Forbes Magazine published an Op Ed (although I wouldn’t call the content educational in any way) by a commentator with the Twitter username @bthebudgetguy – The Deficit Was A Big, Big Loser In Sunday Night’s Debate Between Trump And Clinton. It is not the first time the author has entertained this theme. His bleat? That the current political farce that Americans call the Presidential election campaign is ignoring the state of the fiscal balance. Oh my! What a travesty. The two liars, masquerading as Presidential candidates, have the audacity to talk about other irrelevant things and leave the most irrelevant thing I can think of neglected. But what this tells me is that the millions that the likes of the Peter Peterson Foundation and its ilk have spent on trying to scare Americans witless about the fiscal debt and the US public debt situation has been wasted. That is something to celebrate in fact.

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Reforming the international institutional framework – Part 4

This is the fourth and final part of the discussion relating to reforming the international institutional framework. In brief, the argument is that there are several essential functions that a multilateral institutional framework has to serve that need to be incorporated within any new structure. It is clear that an agency to channel development aid remains essential. Further, it is important to create an agency that will provide liquidity to nations who are unable to access essential imported resources (such as food) without invoking exchange rate crises. While these functions seem to align with the current World Bank and the IMF, a progressive approach to service delivery in these areas would not resemble the operational procedures currently in place.

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The Weekend Quiz – October 8-9, 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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Pragmatic retreats into reality by the IMF will be ephemeral

On June 26, 2016, the Bank of International Settlements (BIS) published its – 86th Annual Report, 2015/16 – claimed that “there is an urgent need to rebalance policy in order to shift to a more robust and sustainable global expansion and address accumulated vulnerabilities”. Yesterday (October 5, 2106), the IMF issued its latest – Fiscal Monitor – Debt: Use it Wisely – which as the title might suggest focuses on what it sees as a dangerous exposure to global debt, which it currently estimates to be “at 225 percent of world GDP … currently at an all-time high.” Needless to say, this latest offering from the IMF has attracted news headlines with dire warnings about impending catastrophes. Some of this emphasis is justified but overall the IMF is erring, once again, in the opposite direction to its pre-GFC prediction errors. The context is obvious – mass unemployment continues as economic growth is stalling (or modest at best) because of a combination of non-government sector spending caution and the government obsession with fiscal austerity. The latter obsession has been stoked for years by the likes of the BIS and the IMF and while they do not explicitly recognise that in these latest documents, their stilted support for more fiscal action now, amounts to an admission of prior failures driven by the neo-liberal Groupthink that pervades these institutions.

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The Weekend Quiz – October 1-2, 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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Helicopter money is a fiscal operation and is not inherently inflationary

There was a Project Syndicate article (September 2, 2016) – The Unavoidable Costs of Helicopter Money – claiming that “In fact, there are major downsides to helicopter money”. Hmm. Should I read this article was my thought at the the time. Waste a few minutes of my life. I wondered if I could pen the article in advance and then check to see how close I was. The theme would be inflation. In that I was correct. But the author really innovated a bit and, in doing so, undermined his own argument. What we learn is fairly straightforward. If a government continues to increase nominal spending growth ahead of the growth in productive capacity then there will be inflation. The argument presented is, in fact, nothing to do with the monetary operations that accompany government spending – helicopter or otherwise. The inflation risk is in the spending. If private investment expenditure outstripped the capacity of the supply-side to produce the capital equipment demanded then the same outcome. Should we caution against such expenditure? Should be make it taboo? Obviously not.

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Monetary policy has to work hand-in-glove with fiscal policy to be effective

In a paper – Fiscal Policy, Monetary Policy and Central Bank Independence – delivered to the Jackson Hole Economic Policy Symposium, hosted by the Federal Reserve Bank of Kansas City, last week (August 25-27, 2016), Princeton University academic Christopher Sims suggested that monetary policy effectiveness cannot be judged independent of the fiscal position taken by the government. He argued that the current reality has demonstrated that when central banks shift to very loose monetary policy settings these policy changes will be ineffective if the fiscal authorities are simultaneously pursuing austerity. Even conservatives like Christopher Sims are starting to understand that the dominant mantra that places all policy responsibility on central banks and, meanwhile, pursues fiscal austerity, represents a failed and deeply flawed overall strategy. That is, the core neo-liberal macroeconomics strategy is now being shown by conservatives to be ridiculous. Modern Monetary Theory has long argued that monetary policy has to work hand-in-glove with fiscal policy and if the central bank is cutting interest rates then the fiscal authority has to be increasing its fiscal deficit to make the policy changes stick. Some of the more enlightened conservative economists are now seeing this reality.

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Indexed bank reserve support schemes will not expand credit

On the Wikipedia page for economist Ricardo Reis we learn he was “Influenced by: Greg Mankiw”, which basically should tell you everything. Everything that is that would lead to the conclusion that his macroeconomics is plain wrong. Yet his connections in the profession are strong and has prestigious academic appointments, is ensconced in senior editorial positions on influential economics journals, advises central banks in the US and has regular Op Ed space in a leading Portuguese newspaper (his homenation). These facts tell you what is wrong with my profession. That someone can write articles that are just so off the mark yet have significant influence in the profession and be held out in the public debate as to be someone who is worth listening to and being reported on. I have received many E-mails in the last few days about the proposal offered by Reis at Jackson Hole last week. Many readers are still confused and actually thought the proposal had credibility. Let me be clear – bank lending is not influenced by the reserve positions of the banks. Without credit-worthy borrowers lining up to access loans, the banks could have all the reserves in the world and the central bank could invoke any number of nifty ‘indexing’ or other support payment schemes on those reserves, and the banks would still not lend. And with those credit-worthy borrowers lining up to access loans, the banks will always lend irrespective of their current reserve position or the nifty support schemes the central bank might dream up. Core Modern Monetary Theory (MMT) 101!

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Australian Treasurer embarrasses himself

The Australian Treasurer gave his first major statement in Sydney last week (August 25, 2016) since being barely re-elected in July. The speech – Staying the course – strengthening our resilience in uncertain economic times – was before an invited gathering of the business world who sat their listening to total nonsense from a man who disgraces the role he holds. Australians have always lagged behind developments in the rest of the world in many ways. It used to be blamed on the ‘tyranny of the distance’ (geography) but that excuse can no longer be used in this digital age. You realise how far behind the times our Treasurer is when you read articles such as this one in Foreign Policy (August 26, 2016) – The Stimulus Our Economy Needs. In that article, we read that “Now, the idea that governments, with or without the help of central banks, should spend substantial resources on creating jobs, both directly and through private sector incentives, is widely accepted among economists across the political spectrum”. Sound advice but lost on the Australian Treasurer. Bad luck for us. He is an embarrassment.

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The Weekend Quiz – August 27-28, 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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