Even more evidence that the US labour market is below full employment

Regular readers will know that I have been investigating how close the US is to full employment, given that various commentators and conservative types have been trying to claim it is and that, as a result, the US government should hack into the fiscal deficit and the central bank should raise interest rates. Today, I consider some more evidence of a comparative nature to advance my understanding of the situation. The Bloomberg article (March 29, 2017) – The Jobs Statistics Trump Should Be Worried About – made some good points about the state of the US labour market. It focused on the significant decline in the US labour participation rate since 2000 and the cyclical component of that decline, which is a common trend in many advanced nations and one I have written a lot about in the past. The additional evidence presented in the Bloomberg articles demonstrates that the US economy is still nowhere near full employment. This blog adds some evidence from Australia and Japan by way of comparison.

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Front National – seems confused on its monetary proposals

Earlier this year, the French collectif Ecolinks, which is a group of economics academics and students in various French institutions published their Petit manuel économique anti-FN, which carried a preface from Thomas Piketty. The group says it is opposed to the current consensus in economics yet its blog seems to be full of Paul Krugman or Wren-Lewis quotes or links to their articles (or other New Keynesians – who are the ‘consensus’, unfortunately). They are obviously worried about the political popularity of FN (Marine Le Pen’s National Front) and have thus produced their anti-FN book as a critique of FNs economic approach. They claim that FN proposes policies that represent “le repli sur une identité étriquée et une vision fantasmée de la nation, rendent cette perspective catastrophique” or in translation, “a retreat into a narrow identity with a fantasised vision of the nation, which would be catastrophic”. The book has received some coverage since its release by a French press that is increasingly worried about Le Pen’s popularity. Please do not interpret in what follows any hint of support for FN from this blog other than as a ‘cat among the pigeons’ force in European politics, anything that upsets the right-wing, neo-liberal, corporatist elites that run the show is to be welcome. I also support Marine Le Pen’s observation that the “The EU world is ultra-liberalism, savage globalisation, artificially created across nations”. That is why I hoped the Leave vote in Britain would win. It is a pity that she marries these views with other hostile views towards immigrants etc, although I am not an expert on immigration so I do not write much about it. It is also a pity that the so-called progressive Left in France (or elsewhere) has left it to the likes of Le Pen to articulate what I would consider to be progressive economic policies. Although, that assessment has to be tempered by the observation that Le Pen’s approach to economic policy is somewhat confused – in part, by her ‘political’ assessment that France is not yet ready to leave to Eurozone. At that point, some bizarre contradictions emerge and the anti-FN book correctly points them out.

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When fake knowledge peddled by macroeconomics starts to fail the ‘investors’

Last Tuesday, in Maastricht, I gave one of two lectures I presented in a series (the other was on the previous Monday night). The first lecture, which was public, focused on the Eurozone disaster and I outlined why an orderly breakup of the failed monetary union would be in the best interest of all (I will post video of that lecture next Monday). The next lecture, which was to staff and students only, focused on the failure of macroeconomics and I juxtaposed fake news with the fake knowledge of mainstream macroeconomics. I want to expand a little on that topic. The Wall Street Journal published an article last week (March 6, 2017) – Everything the Market Thinks About Inflation Might Be Wrong – which bears on the validity of Modern Monetary Theory (MMT) relative to mainstream monetary economics. What I would call actual knowledge (MMT) and fake knowledge (mainstream theory). The article is not without its issues but it correctly notes that the underlying basis of orthodox inflation theory is false and fails to explain movements in inflation.

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US Bond Markets cannot bring down Trump

By the time this blog is published I will be heading to Malta. I will have very little spare time in the coming days so the blogs will be shorter and perhaps non-existent or as normal as the case might be. There was an article in the ABC Opinion series (March 8, 2017) – Donald Trump’s presidency might be short-lived, because ‘something’s gotta give’ – which more or less claimed that the private US Treasury Bond markets had the capacity to bring Donald Trump’s Presidency to a halt. Apparently, if the bond markets form the view that Trump won’t deliver on his promises they can somehow end his term in office. What, by driving yields up? Not likely. And even if there was a way that higher US Treasury bond yields had some link to his political tenure, the central bank could control the yields at whatever level they wanted.

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Gas reservation is not a progressive option despite scandalous profits

In the September-quarter 2016, Australia recorded negative GDP growth (-0.5 per cent). Over the last two years, employment growth has been flat and over the last 12 months, full-time employment has dived. Underemployment has risen sharply while unemployment remains at elevated levels and participation at depressed levels (meaning hidden unemployment has risen). And over the last four quarters, wages growth in Australia has been at record lows. Sounds bad. Well for some – make that most of us. But yesterday, the ABS shone a light on one cohort of income recipients – capital – profits rose in the December-quarter by 20.1 per cent. What? And wages fell by 0.5 per cent. Phew, I thought there might be some sharing of the spoils going on – you know, the top-end-of-town letting the workers in on the action a bit. This data comes as Australian workers are being shafted by rises in energy prices as a consequence of large companies, many foreign-owned, being given carte blanche to our national energy resources. A major union’s response today has been to call for a gas reservation policy to guarantee domestic supply (which is waning as we export our heads off). Unfortunately, while the call appears to be based on reason – lower prices, guarantees to local industry etc – any move to a domestic reservation policy would slow down the shift to renewables and just shift profits from export to import operations. It is not the sort of regulation that a progressive should support.

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The Weekend Quiz – February 26-26, 2017 – 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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Australia’s household debt problem is not new – it is a neo-liberal product

One of the defining features of the neo-liberal era has been the buildup of private debt, particularly household debt. The banks and policy makers all assured us that this was fine because wealth was being built with the debt until, of course, it came tumbling down for many as a result of the GFC. Recent commentary on Australia’s record household debt problem and the increasing number of Australian households that are now on the brink of insolvency and cannot pay their bills seems to think this is a new outcome – the result of record low interest rates as thew central bank (RBA) tries to curb the descent into recession. The fact is that the problem emerged in the 1980s as neo-liberalism took hold of the policy process. We have to understand that period to fully appreciate the household debt problem now.

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The Weekend Quiz – February 18-19, 2017 – 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 – February 11-12, 2017 – 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 predicts well – Groupthink in action

This blog will be a bit different from my normal fare. It provides insights into how entrenched a destructive and mindless neo-liberal Groupthink pervades the economics profession. For the last several years I have been on the ‘expert’ panel for the Fairfax press Annual Economic Survey. Essentially, this assembles a group of well-known economists in Australia from the market, academic and institutional (for example, union) sectors and we wax lyrical about what we expect will happen in the year ahead. To be fair, there is a large element of chance in the exercise as there is in all forecasting. So I am never one to criticise when an organisation such as the IMF or the OECD or some bank economist gets a forecast wrong. The future is uncertain and we have no formal grounds for even forming probabilistic estimates, given we cannot even assemble a probability density function (an distributional ordering of all possible events ) to extract these probabilities. So guess work is guess work and you have to be guided by experience and an understanding of how the system operates and the elements within the relevant system interact. What I do rail against is the phenomenon of systematic bias in forecast errors. For example, the IMF always predicts stronger growth than occurs when it is advocating imposing austerity (thereby underestimating the costs of the policy). The systematic bias in their errors is traceable to the flawed models they use to generate the predictions, which, in turn, reflect their ideological slant against government deficits and in favour of fiscal surpluses (as a benchmark). As luck would have it, in the 2016 round of the Fairfax Scope survey, I was fortunate enough to achieve the status of Forecaster of the Year (shared with 2 other members of the panel) – see Scope 2017 economic survey: Stephen Anthony, Bill Mitchell; and Renee Fry-McKibbin tie for forecaster of the year – for detail. I tweeted over the weekend that as a result “MMT predicts well”. There was a lot underlying that three-word Tweet and it intersected with recent events that demonstrate how far gone mainstream macroeconomics is – it is in an advanced state of denial and has lost almost all traction on the real world.

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Australian Labor Party fails the fiscal test – badly

I guess the venality of the new US Presidency isn’t creating enough news for the Australian press. On January 29, 2017, the Fairfax press wheeled out the veritable debt scaremongering in this article – Scott Morrison to lift credit limit as Australia’s debt hurtles towards $500 billion – reporting that the Australian government “will be forced to lift its own self-imposed credit limit in the coming months as debt hurtles towards half-a-trillion dollars”. Instead of writing about how stupid and unnecessary this ‘self-imposed limit’ is, the journalist wanted to talk about the disaster that awaits us as the debt of the currency issuing government “hurtles” like some asteroid to its death towards half-a-trillion dollars. As I said, must have been a day that imagination in the journalistic world was lacking. The worst part of the story is not the idiocy of its logic or the fact that it links to an inane Australian Debt Clock homepage, but, rather, the reported response from the Labor Party Shadow Treasurer. The Labor party is meant to represent the workers and claims to be the progressive force in Australian politics. That ladies and gentlemen is the sick joke of all time. This is a party that has abandoned its traditional remit (to defend the well-being of workers) and instead spouts neo-liberal gibberish without knowing it.

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When mainstream economists jump the shark and lose it completely

There was an Op Ed last week from an Australian academic who attacked Modern Monetary Theory (MMT) along the lines that its proponents are “a bunch of cranks” and practice “charlatanism”. He also considers us to be sellers of “snake oil” and other nasty things. It was an extraordinary public intervention given that the argument was based on assertions drawn from an intermediate mainstream macroeconomics textbook, bereft of historical understanding and bereft of any real knowledge of the way the monetary system and the institutions within it (government, central bank, commercial banks) actually work. The MMT critique went like this: (a) misrepresent MMT through attributing claims to its proponents that are not remotely to be found in the literature; (b) claim you are not misrepresenting the MMT literature by selective quotes that are not actually consistent with the misrepresentations; (c) bring in one liners from textbooks that have been demonstrated to have no real world application and are patently wrong in many key elements of the banking system and the way bond markets operate; (d) call us fools for not knowing any of this. Well, it doesn’t take long into the article to realise who the fool is. The other point is that MMT is now clearly at the stage of development where the mainstream think they have to attack us and put us down. That is the next stage in our development (following years of being totally ignored). Progress is being made.

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The Weekend Quiz – January 21-22, 2017 – 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 – January 14-15, 2017 – 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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Paul Krugman’s ideas are part of the problem

It was always going to happen. Several prominent New Keynesians both in the US and the UK have been hiding behind a smokescreen they erected during the Global Financial Crisis to allow their readers to form the view that they were not part of the problem. That they were different from the more rabid anti-deficit economists and that they had a deep understanding of why the crisis occurred and what the solutions were. For a while they masqueraded under the aegis of promoting the discretionary use of fiscal deficits (increasing them nonetheless) to stimulate growth in output and employment. They were seen by many who have a lesser understanding of economics as being progressive economists. The British Labour leader even had some of them on his inner advisory team. But the masks can only stay on so long. Yesterday, one of the most prominent of these characters, Paul Krugman came out! He is not progressive at all. He is a New Keynesian with all the IS-LM baggage that they cannot let go of. In his New York Times article (January 9, 2016) – Deficits Matter Again – he well and truly shows his colours. And they (to speak American) ain’t pretty!

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Foreign sales of US government debt are largely irrelevant

Happy New Year to all readers. I will not write much today (to reflect to on-going holiday spirit!). But, there was an article in Bloomberg media (December 30, 2016) – Beware the Foreign Exodus From Treasuries – stirring up fear about the recent sales of foreign-held US government debt. I guess it was a slow news day or something because there is very little in the story that is relevant to assessing whether the US government can run an appropriate fiscal policy stance. The fact is that the foreign sales of US government debt are largely irrelevant for the US government’s capacity to maintain its net spending program. The sales are in US dollars and only the US government itself issues those dollars. To think that a foreign purchaser of a US Treasury debt liability are ‘providing dollars’ to the US government is to completely misunderstand the nature of the transaction. This blog considers the current data and explains how to think correctly about these matters. The question that financial commentators really should be asking is why should the US government extend that corporate welfare (risk-free bonds with income flow) to domestic bond-buyers and foreign governments/private investors. There is no financial reason (in terms of facilitating fiscal policy) for the bond issuance. It is just a form of welfare spending which helps the top-end-of-town.

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The Weekend Quiz – December 31-January 1, 2016-17 – 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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Australians have plenty of reasons to be ashamed – ODA is one of them

The Australian Federal Department of Foreign Affairs and Trade (DFAT), which oversees the Overseas Development Assistance (ODA) our nation extends to those less fortunate nations released new data last week in the wake of the Mid-Year Economic and Fiscal Outlook that the Treasurer launched on December 18, 2016. The data allows us to ascertain the shifts in ODA that will occur as the federal government continues its obsessive pursuit of a fiscal surplus. The austerity is not only killing growth in Australia (recall that September-quarter real GDP growth was negative) and increasing the national poverty rate but is also revealing how mean we are as a nation. As one of the wealthiest nations in the world (currently we are ranked 2nd behind Switzerland for per capita wealth), we are now cutting into the resources we extend to poorer nations in our region as part of a mindless quest for surplus. The problem is not only the economic idiocy that underpins these cuts. The other, perhaps larger problem, of which the first is a symptom is that, as a nation, Australia is losing its moral compass. In this neo-liberal era, we have become an increasingly ugly nation – lacking in generosity to each other and to outsiders. We engage in criminal behaviour (indefinitely detaining refugees in prisons on remote islands; engaging in illegal invasions of foreign nations, etc) and punish poverty rather than do everything we can to reduce it and provide the equal opportunities to all that we so often congratulate ourselves as being champions of. We are a mean-spirited nation these days and an international pariah. There is no pride in holding an Australian passport. It is easy to live here if you have money. The climate is good, the beaches great, plenty of open terrain, great sport – but our national spirit is disappearing.

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Moving on from the post-modernist derailment of the Left

“The linguistic construction of post-capitalist hegemony opens a space for the engendering of the public sphere”. Sounds ominous and deep. Sounds knowledgeable. Then what about the next sentence: “The illusion of praxis carries with it the discourse of the public sphere.” amd the next: “The emergence of normative value(s) opens a space for the ideology of the public sphere.” I could write a whole essay about that topic in the style that typified the so-called post-modernist explosion in social sciences in the 1970s and beyond. Aah, Pomo, the nonsensical shift in literary endeavour that has set the Left back as much as the embrace of Monetarism and, more generally, neo-liberalism. This blog continues to add to the material we are working on as part of my next book (with co-author, Italian journalist Thomas Fazi), which 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. This material will be part of the final section of the book, which we are sort of calling a ‘Progressive Manifesto’, designed to guide policy design and policy choices for progressive governments. We also hope that the ‘Manifesto’ will empower community groups by demonstrating that the TINA mantra, where these alleged goals of the amorphous global financial markets are prioritised over real goals like full employment, renewable energy and revitalised manufacturing sectors is bereft and a range of policy options, now taboo in this neo-liberal world are available. The book will be published in 2017 by Pluto Books, London. This blog examines the way the Left became entranced with post-modernism and fell into the trap of disappearing into crevices of meaningless at the expense of a focus on class struggle and a coherent critique of capitalism. We argue that critique is an essential part of the revitalisation of the Left political struggle against neo-liberalism and the restoration of the Left as a political force.

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France Stratégie’s three options for the Eurozone ignore the elephant

I read a short discussion paper this morning – What model for the future of the eurozone? Critical actions – released by France Stratégie, which is formally known as the Commissariat général à la stratégie et à la prospective (CGSP). It is a government body attached to the Prime Minister’s office. It was created in April 2013 Its mission is to provide broad discussion parameters to aid future policy directions for the French government. The discussion paper provides nothing new and seems to avoid the realities of the European cultural and historical milieu that really dominates or constrains (whichever way you want to think about it) the possible routes back to prosperity for the continent. It lists three options for reforming the Eurozone: (a) Return to original principles (Maastricht 2.0) where nations were fiscally separate and there would be no bailouts; (b) Reinforced fiscal integration with “joint liability for sovereign debt” and control of “national parliaments’ fiscal sovereignty’ by some European-level institution (Commission/Parliament); and a (c) a US federal model. They are motivated by the conclusion that the current situation is “ineffective”, which is a euphemism for total dead-in-the-water failure. They do not broach the most obvious and, in the long-run, best solution, which is consistent with the cultural and historical realities – orderly breakup and return to true currency sovereignty. So the discussion paper really offers very little by way of a path out of the maresme that the elites in Europe have created to line their own pockets at the expense of everyone else.

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