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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They never wrote about it, talked about it, and, did quite the opposite – yet they knew it all along!

During the GFC, a new phenomenon emerged – the ‘We knew it all along’ syndrome, which was characterised my several mainstream New Keynesian macroeconomists coming out and claiming that some of the insights provided by Modern Monetary Theory (MMT) economists were banal and that their own theoretical framework already accommodates them. The pandemic has brought a further rush of the ‘We knew it all along’ syndrome. Apparently, mainstream macroeconomics is perfectly capable of explaining the fiscal reality the world has found itself in and there is no need to MMT, which, by assertion, is saying nothing new. These sorts of statements are not coming from Facebook or Twitter heroes who might have done a few units in economics or even acquired a degree in the discipline. They are coming from senior professors in the academy. The curious thing, which really lifts their cover, is that if you examine the academic literature you won’t find much reference to these sorts of ‘insights’ at all. What you find, and what students are taught, are a completely different set of propositions with respect to fiscal policy. So if they ‘knew it all along’ why didn’t they ever write about it? Why is their published academic work replete with conclusions that run contrary to the conclusions MMT economists make? You know the answer. These ‘knew it all along’ characters have just been caught out by the poor empirical performance of their paradigm and now they are trying to salvage their reputations and position by trying to blur history. They really should be sacked.

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The Weekend Quiz – September 11-12, 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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European growth positive but weak

It’s Wednesday, so just a few items that have passed me by this week. Eurostat published the latest national accounts data yesterday (September 7, 2021) that reveals that key Eurozone states are still lagging behind where they were before the pandemic. In some cases (Italy and Spain), they hadn’t even got back to pre-GFC levels of activity before the pandemic stuck. So a double hit to these nations in the space of a decade or so. That damage will be immense and demonstrates once again the dysfunctional nature of the currency union. Then I consider the latest nonsense from the Business Council of Australia – which is just a special pleading organisation for the top-end-of-town. They think it is time to go back to the deficits are bad narrative (except when their members are receiving corporate welfare that is). And to calm down after that we have some jazz, of course.

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As the mainstream paradigm breaks down

On September 2, 2021, the Head of the BIS Monetary and Economic Department, Claudio Borio gave an address – Back to the future: intellectual challenges for monetary policy = at the University of Melbourne. The Bank of International Settlements is owned by 63 central banks and provides various functions “to support central banks’ pursuit of monetary and financial stability through international cooperation”. His speech covers a range of topics in relation to the conduct of monetary policy but its importance is that it marks a clear line between the way the mainstream conceive of the role and effectiveness of the central bank and the view taken by Modern Monetary Theory (MMT) economists. I discuss those issues in this blog post.

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Australian national accounts – growth 3 months ago but no guide to current situation

Time series data is somewhat difficult to use at present because of the dramatic impact the pandemic (and the lockdowns) has had on behaviour. It is difficult to conduct precise statistical work that spans this period and in the future, econometricians like me will have to use special techniques to isolate these observations if we are to get anything meaningful from the data over longer horizons into the future. National accounts data is also fraught at the best of times because of the lags in collection and publication. It tells us where we were three months ago and three months before that. So while today’s data release from the Australian Bureau of Statistics of the – Australian National Accounts: National Income, Expenditure and Product, June 2021 (released September 1, 2021) – shows that the Australian economy grew by 0.7 per cent in the March-quarter after growing by 1.9 per cent in the March-quarter 2021. The annual growth rate of 9.6 per cent is relatively meaningless given the base effect noted above. Household consumption growth is positive but subdued. Business investment while positive has tapered somewhat. The external sector undermined growth as exports fell sharply. The public sector contributed 0.7 points to growth, which means that without that fiscal support (at both federal and state level), there would have been zero growth. With the NSW and Victorian economies now enduring a long lockdowns the next quarter will record negative growth and there is clearly a need for increased fiscal support.

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Brexit is delivering better pay for British workers (on average)

I find it amusing when some self-styled ‘progressive’ commentator, usually writing in the UK Guardian newspaper, bemoans Brexit and points to claims by business that there is a shortage of workers. The ‘shortage’, of course, is results from not being able to access unlimited supplies of cheap foreign workers as easily as before. When I see a shortage of workers, I celebrate, because it means employers will have to break out of their keep wages growth low mentality to attract labour; that they will have to offer adequate skills training to ensure the workers can do the work required; and, that unemployment will be driven as low as can be. What is not good about that? Brexit has done a lot of things, one of them being to provide the British working class to arrest the degradation in their labour market conditions that neoliberalism has wrought in a context of plenty of low wage labour always being in surplus. A similar thing will come from the pandemic in Australia where our external border has been shut for nearly 18 months now.

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The Weekend Quiz – August 21-22, 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 – August 14-15, 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 ideology that the RBA operates within needs a review not it legislative charter

There are calls for the Reserve Bank of Australia to be forced to undergo a major review of its operations, given that it has failed to achieve its own stated inflation targets for many years now. The RBA is resisting that call. The Australian Labor Party, which is in opposition at present, is trying to politicise the issue by claiming it will review the RBA once it becomes government. The problem is that the call to review the RBA is being made by those who would make the worst aspects of the central bank worse. Further, the legislative structure that defines the RBA and its charter already allows the RBA to pursue employment as a goal with equal priority to inflation. The fact that it hasn’t done that is because it adopted the NAIRU myth and used the unemployed as a tool to discipline inflation rather than a policy target to be maximised. That occurred in the 1980s and beyond as neoliberalism became dominant. The problem is not the legislative structure that the RBA operates within. The problem is that it is part of a broader ideology that has demonised discretionary use of fiscal policy and prioritised interest rate changes, which has reduced our growth rates, undermined employment, suppressed wages and more. The Labor Party has echoed that same ideology and is just being hypocritical now. That ideology is what needs a ‘review’. And urgently.

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The Weekend Quiz – August 7-8, 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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Inflation is coming, well, it could be, or, it might happen, gosh …

One could make a pastime observing the way that so-called ‘expert’ commentators change their commentary as the data unfolds. As one rather lurid prediction fails, their narrative shifts to the next. We have seen this tendency for decades when we consider the way mainstream economists have dealt with Japan. The words shift from those implying immediacy (for example, of insolvency), to those such as ‘could’, ‘might’, ‘perhaps’, ‘under certain conditions’ and more. The topics shift. The commentariat were obsessed with ‘this time is different’ during the GFC and the ‘debt insolvency threshold’ rubbish that the likes of Reinhardt and Rogoff propagated. That is, until they were sprung for spreadsheet incompetence. More recently, we have apparently forgotten how many governments were about to go broke and the mania has shifted to inflation. The data shows some price spikes earlier in the year which set of the dogs. Now, things might be shifting again. It is a pastime following all this. Short memories, no shame is the only requirement that is required to be a mainstream economics commentator. Prescient knowledge is not included in that skill set.

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The pandemic exposes the damage that neoliberalism has caused

Australia is now locked into a new phase of the pandemic where NSW is in danger of allowing the virus to run free throughout the population due to the incompetence of the conservative state government. For the duration of the pandemic up until now, the NSW government has been lecturing the other states (mostly run by Labor governments) about how they had a superior health system (health is organised along state/territory lines in Australia) and how they valued freedom more than the dictatorial Labor states that go into lockdown very quickly if a case threatens. It turns out NSW has just been lucky to now and the latest outbreak has revealed their ‘freedom first’ approach is a false freedom. Sydney has been locked down for weeks now and cases are still rising and it seems the contact tracers have lost control. But the hubris from the NSW government has really exposed a much deeper malaise that has been evident for years now as a result of the way neoliberalism has reconfigured the public sector and the role of government. The pandemic is just exposes the erosion of government capacity to provide public services and infrastructure and deal with public emergencies. That is one of the important revelations to come out of the pandemic.

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Has global trade peaked?

I have recently updated my trade databases as I write a book chapter on the topic. I am also curious about the dramatic growth in freight charges over the last 12 months in international shipping. I have a friend who runs a business importing cement who is now paying 5 times the freight charges now than he was a year ago. Why that would be the case is an interesting question. I have previously written about the way that the neoliberal ideology became conflated with the trends towards globalisation in supply chains. Globalisation, was then weaponised with the ‘free market’ ideology, which undermined key aspects of the benefits of trade, particularly for poorer nations. The ‘free market’ mantra became code for increasing the rate of surplus extraction from these nations by financial interests in the richer nations – a sort of more sophisticated version of the way colonialism sucked wealth from the colonies to the benefit of the metropolitan economies. But in recent years (since about 2007), a fundamental shift in the relationship between trade volumes and income growth (a relationship that is often used as a proxy for the pace of globalisation) has occurred. Some think this indicates that peak trade has been reached. There are good reasons for thinking that to be the case.

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Booming growth in Britain (Brexit?) but child poverty rises (austerity)

It’s Day 14 today and later this afternoon I am to be released from my stint in quarantine as a result of shifting myself from Newcastle to Melbourne 2 weeks ago. NSW (where Newcastle is located) is now an area of extreme risk according to the Victorian government, given the growing COVID outbreak in Sydney, and any resident travelling back into Victoria was required to do the 14 days in strict Iso. So today is my ‘freedom day’ after being stuck inside my residence for 2 weeks. Woo! Given my extensive CPI report yesterday, I am not treating today as my normal Wednesday work pattern and so apart from some great music, I offer a few observations on things that have come to mind recently.

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Calling the British PAC, IFS – it is time we all moved on from the debt and deficit hysteria

The BBC in Britain carried a story yesterday (July 25, 2021) – UK will be paying for Covid for decades, say MPs – that began with the assertion that “Taxpayers will bear the costs of Covid ‘for decades'”. I guess there is some truth in that statement – families will remember their loved ones that died from the virus and those who are stricken with Long COVID will probably endure the negative effects for the rest of their lives. In that sense, if they are also ‘taxpayers’ they will be ‘paying’ the ‘costs’ of the pandemic. But, of course, that is not what the BBC article was wanting its readers to absorb. The intent was to lie to British citizens that somehow their tax burdens would have to rise to offset the deficits that the British government has run dealing with the collapsing economy. I know the BBC was just reporting on a document released by the House of Commons Committee of Public Accounts – COVID 19: Cost Tracker Update (released July 25, 2021). But the role of the public broadcaster is not to act as a press releasing agency for such politicised organisations, which, given the absence of any alternative voice in the article, is exactly what it did. The demise of critical scrutiny in economics commentary by national broadcasters everywhere is a major problem and makes them indistinguishable from scandalous media organisations run by private sector owners.

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British House of Lords having conniptions about QE – a sedative and a lie down is indicated

When I studied British politics (as one unit in a politics minor) at university, I was bemused by the role of the House of Lords. I know it is a curiously British institution that would be hardly tolerated anywhere else. But the fact that it serves as a part of the British democratic system continues to amaze me. Recently, the Economic Affairs Committee has been investigating (if that is what they get up to) Quantitative Easing because, apparently, some of the peers were worried about the “operational independence” of the Bank of England and the “economic effects” (read: inflation fears) among other concerns. They published their first report last week (July 16, 2021) – 1st Report – Quantitative easing: a dangerous addiction? – and it is littered with errors. The government has until September 16, 2021. The reply does not have to be long – they could just submit this blog post and get on doing things that matter, although the Tories are currently finding it hard to get their head around that essential task at the moment.

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Reading Beardsley Ruml carefully

Many social media commentators that have become interested in Modern Monetary Theory (MMT) regularly cite sections of the article written by businessman and former Chairman of the Federal Reserve Bank of New York Beardsley Ruml – Taxes for Revenue Are Obsolete – which appeared in the January 1946 edition of the American Affairs journal. The article was actually a speech that he made “before the American Bar Association during the last year of the war”. Some claim that the content provides an early underpinning for Chartalism, upon with MMT is, in part, derived. I disagree. If you read his work carefully, rather than selectively quoting convenient sentences, and, that work includes his more substantial book that was published in 1945 and from which the article cited above was derived, you would get no MMT succour. He was basically lobbying for zero corporate taxation and he expressed rather orthodox views about fiscal policy at the time, which are very non-MMT in substance.

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The Weekend Quiz – July 17-18, 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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British Labour remains unelectable – Part 104

It is Wednesday and I am now unable to get home to Melbourne as a result of the border closure between Victoria and NSW. That closure is the result of the incompetence of the conservative NSW government who thought they could beat the Delta variant of COVID and leave Sydney open for business. They have now learned that their claim to be the world’s best virus containing government were hubris and so regional NSW is also suffering, what will be a very long lockdown. Victoria has sensibly closed its border as have the other states to NSW, which now is an isolated, pariah state. Pity the NSW Labor opposition is so weak. Anyway, today is a few snippets about the British Labour party being so weak, some reflections on monetary sovereignty, and a note that the barbarians are trying to kill off social sciences in our universities. Then some happiness via some great bass playing.

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