The public macroeconomic mind map matters

I am currently in Darwin, which is in the Northern Territory of Australia (see map below). I will report on developments here in due course. But knowing that I would not have time to write a blog personally today (meetings and travel oblige!) I asked Victor Quirk, our guest blogger to offer some of his ideas on matters economic. He very kind obliged with the following essay which I think you will find very interesting. So thanks to Victor. I will be back tomorrow talking about turncoats who turn out to be nothing of the sort. Over to Victor …

Read more

Greece to leave the Eurozone and become a German colony

The Euro leaders are having another Summit in Brussels today – another one – the 17th in two years. I think they are getting used to the nice wine and sumptuous food that is served up. Little ever comes from these summits that is of any productive import. This time they plan to set in concrete balanced budget rules to be embedded into the national legislation of EU member states yet at the same time propose job creation and growth strategy. The job creation strategy is allegedly going to focus on the youth of Europe who are becoming unemployed and excluded in increasing numbers as time goes by. The lunacy is that Europe’s youth started losing their jobs some years ago yet the leaders are now expressing concern. Also over the weekend, there was a leaked German proposal for today’s summit detailing how Greece should leave the Eurozone and become a German colony. My how audacious our Teutonic friends have become!

Read more

Food speculation should be (mostly) banned

Last year, Cyclone Yasi wiped out about 75 per cent of national banana production in Australia and drove the price of bananas up to around $A15 to $A17 per kilo depending on where you lived. They are usually less than $A3-5 per kilo. But all banana lovers complained about the imposition on their real standard of living even though Australians allocate only 10 per cent of their total expenditure to food and, obviously, much less to banana consumption. So imagine what it is like for the most disadvantaged citizens to see prices rise by 60-odd percent over 18 months on their basic food stuffs, especially when they allocate upwards of 60-70 per cent of their total expenditure to food, and they spend all their meagre income? Not a good outcome that is for sure. While the financial market excesses caused the crisis in the first place, and the policy folly of our governments is prolonging it, one of the worst features of the neo-liberal years of financial deregulation has been the speculation on food which has driven prices up dramatically, impoverished and starved millions. Food speculation is something I would ban as part of a new oversight of the financial markets aimed at restoring the real economy and ensuring economic activity worked to improve the human condition.

Read more

The costs of unemployment – again

One of the extraordinary things that arose in a recent discussion about whether employment guarantees are better than leaving workers unemployed was the assumption that the costs of unemployment are relatively low compared to having workers engaged in activities of varying degrees of productivity. Some of the discussion suggested that there were “microeconomic” costs involved in having to manage employment guarantee programs (bureaucracy, supervision, etc) which would negate the value of any such program. The implicit assumption was that the unemployed will generate zero productivity if they are engaged in employment programs. There has been a long debate in the economics about the relative costs of microeconomic inefficiency compared to macroeconomic inefficiency. The simple fact is that the losses arising from unemployment dwarfed by a considerable margin any microeconomic losses that might arise from inefficient use of resources. in this blog, I discuss some of those issues.

Read more

Labour market deregulation will not reduce unemployment

Underlining the current obsession with fiscal austerity is an equally long-standing obsession with so-called structural reform. The argument goes that growth can be engendered by deregulating the labour market to remove inefficiencies that create bottlenecks for growth even when fiscal austerity is slashing aggregate demand and killing growth. The 1994 OECD Jobs Study the provides the framework for this policy approach. The only problem is that it failed even before the crisis emerged. But with policymakers intent on slashing aggregate demand, which they know will kill growth, they have to offer something that they can pretend will generate growth. The structural reform agenda has zero credibility in the same way that fiscal austerity has zero credibility.

Read more

Britain needs more hours of work not less

A striking characteristic of the last few decades has been the way the so-called “progressive” political parties have adopted policy frameworks and thinking that were previously the exclusive domain of the conservatives. Nothing could be more obvious than the way in which all the major parties around the world now speak neo-liberal economics as if it was the only way of thinking about the economy and economic policy. Slowly but surely the options that parties are willing to consider have been narrowed down and policy is now conducted in a straitjacket which cannot deliver prosperity for all as well as advancing environmental objectives. It is understandable that during recessions expectations become downgraded by workers about the types of jobs they will except, by consumers about the level of spending they can sustain, and by firms about what investment projects will be viable in the period ahead, etc. But it is strange that when the prevailing economic paradigm not only caused the great recession but is prolonging it at great cost, that the major parties remain locked down in the neo-liberal mire – blinded to other options. It is clearly time to think outside of this box and that is what I try to promote in this blog. But we also have to be careful that when we go wandering we are still on solid macroeconomic ground.

Read more

Back to William Beveridge requires a commitment to true full employment

I have been digging back in time and re-reading Unemployment: a problem of industry by William Beveridge (published 1909). Beveridge is most known for his 1944 book – Full Employment in a Free Society and the related Social Insurance and Allied Services – (1942 aka the Beveridge Report). The point is that to understand the motivation for the Beveridge Report you also have to appreciate the earlier document and the role that it played in labour history in the UK (and elsewhere). Why am I considering this? The British Labour Party is appealing to the 1942 Report as a motivation to introduce radical reform to the British welfare system. They think that by attacking the most disadvantaged citizens in Britain at a time when unemployment is so high and poverty is rising that they will gain some traction with the electorate. The word despicable comes to mind. However, it is clear they are just remaining faithful to their earlier corrupt past.

Read more

Whatever – its either employment or unemployment buffer stocks

Since I published Wednesday’s blog – MMT is biased towards anti-crony – there seems to have been a fair bit of commentary on other sites some bordering on personal attacks (against me). I’ll steer clear of that level of discussion. I also note that John Carney over at CNBC responded with this article – Can the Government Guarantee Everyone a Job? – saying that if the notion of employment buffers is a central aspect of Modern Monetary Theory (MMT) then “it would mean that MMT is wrong”. I found his response interesting but essentially a rehearsal of the mainstream errors that arise when you haven’t really come to terms with what MMT is adding to macroeconomic theory. So today’s blog is a supplement to the Wednesday’s blog (and many others) and aims to provide some more context especially to those interested in the evolution of ideas and schools of thought. The point is that whatever else happens we are left with a choice – employment or unemployment buffer stocks. MMT provides the theoretical insights to show that employment buffers are superior whether you like them or not.

Read more

MMT is biased towards anti-crony

There has been a couple of interesting articles written by John Carney who is a Senior Editor at CNBC.com on Modern Monetary Theory (MMT) – starting with Monetary Theory, Crony Capitalism and the Tea Party (December 22, 2011) and followed up with Modern Monetary Theory and Austrian Economics (December 27, 2011). I am happy that our work is penetrating in to the mainstream business and economics commentary space. It is good that John Carney has spent some time coming to terms with MMT and its departure from the failed mainstream macroeconomics. But some problems remain with his analysis. The issues he raises relate to political matters rather than the economics of MMT. In that context, MMT is neither anti- or pro-crony. But if you delve deeper and really understand the MMT macroeconomic framework then you realise that MMT is biased toward anti-crony.

Read more

Some hard truths for 2012

Some new research has given me hope that the politicians will soon be in a position to use the fiscal tools at their disposable to solve the economic crisis. We might call it the pigeon recovery. The ABC News reports that Pigeons can count and so I propose we round up a bunch of them from some of those nice European buildings ship them (humanely) to Brussels and the Eurotower and let them count up the unemployment numbers (well they might have to go to Eurostat in Luxembourg). Then they could calculate the real GDP and income losses and by way of a new Google Pigeon-to-English translator convey to the politicians the urgency of the situation and that jobs are created when people or governments spend and that income is created as a consequence and people become more prosperous. Then some homing pigeons could fly some Modern Monetary Theory (MMT) material to the offices of the politicians to give them something to read instead of the latest nonsense from the IMF or some other institutions that have forgotten that unemployment matters and financial ratios are of limited relevance. Once the pigeons have done their work – the Euro leaders will sit down and realise that an orderly break-up of the monetary union is the best long-term strategy for all of them. Speaking of which here are some “hard truths” for 2012.

Read more

A dose of truth is required in Europe

I was going to write about the True Finns today to report some research I am doing at present aimed at exposing how the “left” political parties have ceded legitimate progressive issues to fringe parties who then meld reasonably sensible economic issues with offensive social and cultural stances to create a popular but highly toxic political force. The True Finns who gained 19 odd per cent of the vote in the April 2011 national election exemplify this trend. The Euro crisis is accelerating the growth of the popularist political forces in Europe who are anti-Euro (pro-nationalist) and who will not (I suspect) tolerate the Euro elites impinging on national affairs and imposing a decade or more of enforced austerity. There are political movements/parties all over Europe now (for example, Vlaams Belang, Le Pen, Lega Nord etc) which fit this mould. It would be far better for the mainstream progressive parties around Europe to take the initiative and retake control of the policy debate on what should be bread-and-butter issues for the left. Sadly, these mainstream left parties have become totally co-opted by the neo-liberal agenda and speak the same economic voice as the conservatives. The problem then is that the public debate is distorted by untruths which further reinforce the malaise. A dose of truth is required in Europe.

Read more

UK labour market – when “stabilising” means outright deterioration

The British Office of National Statistics released their Labour Market Statistics for December 2011 yesterday and it showed that employment continues to collapse in the UK and unemployment rises. I was at the airport this morning and heard a commentator invoke the words of Albert Einstein. They are very apt in this current economic climate – “The significant problems we face cannot be solved at the same level of thinking we were at when we created them”. The British Employment Minister gets empirical evidence that the Government’s economic strategy is causing massive damage to the economy (who would have thought) and told us that the collapse in employment and vacancies, the rise in unemployment and the record levels of youth unemployment are signs that the “labour market is stabilising”. The UK nor Europe nor anywhere will get out of this mess using the sort of thinking that created the crisis in the first place. Until we work that out and attack this political evil millions are heading for poverty.

Read more

Don’t send more workers into the mine when the canaries start dying

As the economic crisis has dragged on and deepened, it has changed complexion. It clearly started out as a balance sheet crisis which means it originated from the excessive borrowing of the private sector driven by personal greed and an overzealous and often criminal financial sector. Hence the term GFC. It quickly moved into a real crisis (meaning it affected real GDP growth, employment and incomes) because governments around the world reacted too cautiously in terms of their fiscal intervention. However, it was clear that the fiscal responses that were introduced saved the world from another Depression. China’s fiscal intervention helped many nations including Australia. Now the crisis is all down to incompetent government policies – not before the crisis but now. Governments are now following strategies that defy the most basic principles of sound fiscal management – it is irresponsible to cut net public spending at at time when unemployment is rising. Or in other words, you don’t send more workers into the mine when the canaries start dying.

Read more

It is a disagreement about facts not ideology

In the wake of the decision by students at Harvard University to boycott an introductory economics lecture conducted by textbook writer Greg Mankiw, I thought this New York Times article (November 5, 2011) – Wanted: Worldly Philosophers – was interesting. It provides a much more reasoned assessment of what the issues might be than the response presented in the Harvard Crimson (the student daily) – Stay in School (November 3, 2011). The latter was signed “The Crimson Staff” and a link took us to an outlined photo of a “male” and the filename was entitled – noface_131x131.jpg. So no-one was even game to own up to the viewpoint. The male photo also suggests some inherent bias. I agree with the Crimson – walkouts should not be about ideology. But they are justified if a lecturer is offering material that is patently false and attempting to hold it out as the way the economy operates. That is why I would encourage students to walk out of mainstream macroeconomics lectures right around the globe. It is a disagreement about facts not ideology.

Read more

The ideology that caused the problem cannot be its solution

All the economic news at present is bad. Eurostat released its latest labour force data which shows that the Euro area unemployment rate has risen to 10.2 per cent in September 2011 (0.1 rise over the year) which shows how persistent the crisis is in that region and that is is slowly getting worse. The OECD has released a Special G20 Briefing Note which declares the world economic outlook to be gloomy and decisive action is needed although their policy recommendations will make things gloomier. A major financial company (MF Global) has gone bankrupt, partly as a result of their bond market exposure in Europe (haircuts?) and most disturbingly, the ILO has just released a – G20 Briefing – which was co-published by the OECD and predicts a “massive jobs shortfall among G20 members by next year” if the current slow-down in the world economy continues. There is a major demand (spending) shortfall in the advanced economies and only one sector that can do something about it – the public sector. But politicians are being pressured to spend less. I cannot understand how we have been so caught up in an ideology that caused the problem in the first place and is now being seen as the solution despite all evidence to the contrary.

Read more

The scourge of youth unemployment

The International Labour Organisation (ILO) released their updated this week (October 19, 2011) – Global Employment Trends for Youth: 2011 Update – which reminds us of how long the current policy failures will continue to generate negative consequences. That is, the world will be enduring the costs of the policy failures for decades to come by denying our youth the opportunity to fully participate in the economy. The increasing incapacity of our economies to provide sufficient work in hours and quality to meet the requirements of our youth is one of the major characteristics of the neo-liberal era. It is a deliberate, policy-induced outcome – that is, governments are squarely to blame for the malaise. At a time when neo-liberals use rising dependency ratios to justify their attacks on budget deficits but then fail to realise that our unemployed youth are a major casualty of the fiscal austerity – that is, our future workforce. The scourge of youth unemployment is condemning our future workers to a low-wage, unstable and productive employment history.

Read more

A Way Forward

Sometimes, not often, I read some economic analysis that is sound. In the constant barrage of mainstream economics telling us that budget deficits are causing the crisis to linger; that interest rates are about to rise sharply because there is too much public debt; that inflation is about to go hyper because bank reserves have risen; that taxes will soon sky-rocket to pay back the debt; and all the rest of the lies that students are forced by lecturers around the world to rote learn, to find a well-reasoned piece of analysis is very refreshing. My attack dog propensities subside and I am able to think about what is being written – seeing where I agree and disagree and even learn some things. Such was my experience this morning when I read a new Report from the US-based The Way Forward Moving From the Post-Bubble, Post-Bust Economy to Renewed Growth and Competitiveness. It will not be a case of common sense prevailing because the forces against this type of clear thinking are many and powerful. But it is evidence that views that are not incompatible with Modern Monetary Theory (MMT) are being developed and thrown into the public debate. In this case, the authors also have some public profile. The ideas in this Report would provide a Way Forward.

Read more

Some further thoughts on the OWS movement

I have been following the Occupy Wall Street developments with interest because ultimately I consider the only reasonable way entrenched elites become unseated is if there is mass action by citizens. I do not think military coups are a very sound way to lay the groundwork for grassroots democracy. I also like the idea of a “leaderless resistance movement with people of many colors, genders and political persuasions” although politics doesn’t take long to creep in and steer movements like these in particular ways. In the last day or so I have become aware that there is some notion among the “occupiers” that the evil they are opposing is fiat currency rather than corporate power particularly that of the financial monoliths. While power does lie in the monetary system the only way of ensuring that this power is democratised is if the currency-issuing entity is freely elected and accountable to us. That is a necessary but not sufficient condition for the advancement of economic development. My input to the OWS movement is by understanding Modern Monetary Theory (MMT) we can appreciate how governments are necessary for the development process and that we have to concentrate on making the fiat currency system work for us and prevent it from being hi-jacked by the so-called 1 per cent.

Read more

One quarter shorter, three quarters deeper

Yesterday, October 5, 2011, the UK Office of National Statistics released their Quarterly National Accounts, June 2011 for the second quarter. The data revealed an economy that barely grew at all in the period from April to June. It also showed that households are continuing to reduce their overall consumption. The data also revised earlier releases and we now learn that the UK recession was deeper (for three quarters) than previously thought but was one quarter shorter. The data release continues to demonstrate that the policy settings (which are pushing towards contraction) are completely wrong for the spending trends that are being revealed in the private and external sectors. If the British economy goes back into recession there will be only one cause – the wilfully irresponsible management of fiscal policy.

Read more

Playing Ball is not a better way

On Monday, September 26, 2011 the British Shadow Chancellor gave a speech (his first major speech in that role) to the Labour Party Conference in Liverpool. The Full Transcript of the Speech is courtesy of the New Statesman. Balls ended his speech by saying “There is a better way” and I agree – the current macroeconomic policy settings in the UK are destructive and will be regretted. The problem is that Balls’ path to prosperity is not that better way which means the British people are in the same boat as a lot of electorates – caught between the devil and the deep blue sea. Playing Ball is not a better way.

Read more
Back To Top