Its my Friday lay day blog and today a short topic on banking. The Fairfax economics editor Peter Martin had a good story yesterday (October 22, 2015) – Westpac, Commonwealth Bank protect mortgage profits no matter what – which bears on the lack of competition that exists within the Australian financial sector.
I was on a panel last night discussing the causes of poverty in Australia. The panel was rather diverse with housing, welfare and other representatives. There was a crowd of around 400 I believe. The format was difficult given that the panel of six was assembled in line at a table so could not see each other easily. But the real problem was that the facilitator, a national journalist, who had the role of asking questions to the panellists, chose to assert the standard neo-liberal macroeconomic myths in response to statements I made with respect to the causes and solutions to poverty. I was confronted with as-if facts such as “they have to get the money from somewhere before they can spend” in response to questions about public debt eventually becoming too large and foreigners funding our national (currency-issuing) government. I thought a facilitator was not meant to have an agenda but in this case holding out these neo-liberal myths perpetuated the standard agenda which guarantees that poverty will continue to worsen. There is a lot of work to be done before people will identify these neo-liberal myths as non-knowledge and readily understand that national, currency-issuing governments such as in Australia have no financial constraints and they spend out of ‘thin air’. Once that knowledge is accepted a whole new world opens up that allows us to see the path to reducing poverty and inequality.
Growth in material living standards, which is just one measure of overall (average) prosperity and contestable at that, depends on productivity growth. How national income is distributed, real wages growth in relation to productivity growth, and the employment rates also impact on how this average is reflected in the fortunes of individuals. Strong productivity growth is only a necessary condition for improved material living standards. In this period of fiscal austerity with suppressed overall growth rates and labour market deregulation that undermines working conditions and reduces the incentives to invest in best-practice technology labour productivity is falling – as will living standards in the coming years. The world is locked into an idiotic race-to-the-bottom. It is a curious period really. The hypocrisy of governments, aided and abetted by the right-wing think tanks, who claim they are cutting into public spending to reduce the drain on living standards of our children and grandchildren, is clear to see. What they are really doing is undermining the future prosperity of the next several generations at the same time that they push millions into unemployment and poverty now. Why are we so stupid that we tolerate this nonsense?
I have been going back through my snippets library looking at what economists and politicians said back earlier in the crisis and comparing the predictions with reality to try to understand better why Europe is lagging behind. I have been compiling national profiles for various nations lately to ensure I remain cogniscant of the detailed developments that have been occurring. It takes some organisation. I have been concentrating by interest on Finland, Spain and Portugal lately. It astounds me when I read or hear that the Eurozone has been a success because the currency is stable. Even that last statement is false given the monetary union is fighting deflation at present with recessed output levels and entrenched mass unemployment. The current statements coming out of European leaders accord almost directly with the same sort of things they were saying in 2010 as the region was plunging deep into recession. It seems that they have learned nothing. Some of the past leaders have retired with handsome pensions and will not be held to account for their policy incompetence. Others remain in office and their public statements demonstrate that they cannot see beyond the blindness of the Groupthink that defines the patterned behaviour of the elite European policy-making institutions.
This week is – Anti Poverty Week 2015 – in Australia and there are many events and happenings on to mark the time and to highlight the issue of poverty. I will be appearing on a panel on Wednesday afternoon in Newcastle (see below). I was thinking about what I might say in my short presentation next week as I read a report in the UK Guardian (October 17, 2015) – Wealth therapy tackles woes of the rich: ‘It’s really isolating to have lots of money’ – that appealed for sympathy from the rest of us for the top-end-of-town, who have to undergo psychological counselling because they are stressed out being wealthy. Apparently, they also have to engage in “stealth wealth” which means they “are hiding their wealth because they are concerned about negative judgment”. I immediately felt bad for them. Oh, the pain the top 1 per cent feel owning around 50 per cent of all the assets in the world! What a shocking plight they face. In the context of this week’s focus on Anti-Poverty, I couldn’t quite rouse the sympathy the story was seeking to elicit. Sorry!
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.
Its my Friday lay day blog and I am catching up on things that I put to one side while I was away in Finland. But I have been doing some research on the impacts of the massive refugee flows into Northern Europe from the military conflicts in the Middle East. A more detailed analysis will appear later. The very difficult problem facing Europe, in particular, at present, and the World, in general is how to cope with the millions of people that are being displaced from their homelands by war, terrorism and/or environmental degradation. It is no easy task to deal with. The seemingly unending flow of refugees into Turkey and then greater Europe is challenging the archaic decision-making processes of the European Union. Once again it brings into relief the need for a ‘federal’ European government that can make binding decisions across the Member State space and provide fiscal backup to ensure those decisions are viable from a resource perspective. There was a Reuters report (October 15, 2015) – Refugee spending will drive our economy, Germany says – which noted that the refugee flows could underpin an economic boom in Germany, the first nation to announce it would settle large numbers of the asylum seekers. Here is part of the framework I am developing to consider this issue.
Today’s release of the – Labour Force data – for September 2015 by the Australian Bureau of Statistics shows that the Australian labour market went backwards this month after stalling last month. Employment growth was negative (drop of 5,100 thousand) and the participation rate fell by 0.2 points. The net result was that the labour force fell faster than employment and so unemployment fell by 8,100 thousand. The unemployment rate remained unchanged at 6.2 per cent. This is one of those times when falling unemployment is not a good signal. The unemployment rate would have risen to 6.3 per cent had not the participation declined. The teenage labour market went backwards again in September and their situation remains parlous. We are still waiting to see how much damage the the forecasted decline in private investment will bring. But with a weakening labour market and the Federal government intent on cutting its net spending over the next 12 months, the outlook looks rather depressing.
When Jeremy Corbyn first came into prominence to take over the leadership of the British Labour Party, his offsider, now Shadow Chancellor John McDonnell started talking about “deficit deniers” and he and the Labour Party were avowedly not so inclined, as if questioning the fiscal surplus obsession was a demonstration of stupidity. In fact, for a political group claiming to be the ‘end of austerity’, who aimed to seize control of the Party from the neo-liberal Blairites – those austerity-lite mavens – I thought he was sounded distinctly neo-liberal himself. His defenders who also understood perhaps a bit of Modern Monetary Theory (MMT) wrote to me and said we should be patient – that this was just a political ploy designed to snare the Conservatives in their own hubris. After all, George Osborne has categorically failed to achieve his goals of fiscal cutbacks. I noted that it was actually good that he had ‘failed’ because the U-turn Osborne made in 2012, albeit rather subtle, saved the British economy from a triple-dip recession and has allowed it to continue to grow. Britain is not an example of a successful austerity implementation. It looks rather Keynesian to me. John McDonnell decided he had better make a U-turn of his own in the last few days. This one won’t save the nation and will probably sink British Labour further into the mire. Why McDonnell supported Osborne’s crazy ‘Charter of Budget Responsibility’ two weeks ago is one question. It showed a monumental lack of understanding of what it would mean for the nation to lock the government in, legally, to achieving overall fiscal surpluses. The U-turn now betrays a capricious approach to policy and one that will fail to cut through and offer a truly progressive path. Very sad really.