Europe is really having a lost decade

I am sick of reading about Europe’s lost decade. For example, in the UK Guardian article (July 27, 2012) – Spanish recession to last until 2014, IMF warns – the economics editor Larry Elliot says that the IMF is “Predicting a lost decade of growth for the eurozone’s fourth biggest economy”. The lost decade terminology emerged to describe the experience of Japan in the 1990s after its spectacularly damaging property crash. But I think it is offensive to use the term in relation to the Eurozone crisis. We are not seeing a lost decade emerge Japanese-style. Rather, we are witnessing a self-imposed humanitarian disaster driven by the ideological arrogance of the Euro elites (aided and abetted by the OECD and IMF). The experience of Japan in the 1990s was nothing compared to what these elites are doing in the name of neo-liberalism. Journalists should stop making the comparison and, instead, call the current crisis in Europe for what it is.

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British solution to unemployment – make them work for free

There was a story in the UK Guardian yesterday (July 29. 2012) – Million jobless may face six months’ unpaid work or have benefits stopped – that described how the failed neo-liberal British government is following the path that the conservatives followed in Australia in attempting to “manage” the unemployment that their flawed policy regime created. The Australian approach has failed dramatically and imposed considerable hardship on the most disadvantaged citizens in our midst. The same approach is unfolding in Britain and it to is already looming as a failure.

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Nothing good in sight for the UK economy despite the Olympics

The British Office of National Statistics have published two new data releases in the last week which show that the British economy is plunging further into a deepening recession. On July 20, 2012, it published the Public Sector Finances, June 2012, which showed that the deficit is increasing. Then it published the – Gross Domestic Product, Preliminary Estimate, Q2 2012 – yesterday (July 25, 2012), which showed that the British economy had contracted n real terms by a staggering 0.7 per cent in the June quarter. The one hope on the near horizon for the British economy might be the Olympic Games, which are being use to gloss over the savage recession that the British government has deliberately created. However, a closer understanding of the way in which events such as the Olympic Games impact on the host economy suggests that the majority of benefits are already in the data and the dismal future facing Britain will not be attenuated by the running and jumping (and the rest of it).

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Saturday quiz – July 21, 2012 – answers and discussion

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.

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Europe – one step forward … but so many backward

I am in transit most of today and so have very limited time to write. An ECB Executive Board member, one Jörg Asmussen, gave a speech at the European Policy Centre in Brussels on July 17, 2012 – Building deeper economic union: what to do and what to avoid – where he admitted that the European policy leaders “had made mistakes in the way economic policies and governance were managed inside the monetary union”. I thought that was an understatement but credit for the admission. However, his speech was then steered towards “how best to” strengthen “(p)olicies and governance” – “(w)hat to do and what to avoid”. When he mentioned that the “six pack” and the Fiscal Compact constituted “significant progress” towards what to do and what to avoid I concluded he hasn’t learned much at all from the huge mistakes that the policy elites in Europe have made. The suggestion for a fiscal union is definitely a step forward but the way in which this idea is being constructed represents several steps backwards. The Europeans seem intent on extinguishing their democracies.

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Neo-liberals on bikes …

I had an interesting conversation with a lunch visitor today about Germany (he lived and studied there) and its role in the Eurozone crisis. Yes, we talk economics even at times of rest! We discussed some of the events leading up to the Euro crisis and the important role played by the so-called progressive political parties in Germany. The conservative Christian Democrats are sounding like lunatics at the moment with the “You will have austerity and enjoy it” mantras. The focus on their harsh and destructive stance supporting fiscal austerity has taken the spotlight off the real culprits – the SPD and the Greens. We should never forget the role that they played – over the period of the Gerhard Schröder’s federal government (1998-2005) – in creating the pre-conditions that have ensured the crisis will be long and very damaging. We should also remember that Green parties have developed a tendency to be “neo-liberals on bikes” as a means of gaining power. The problem is that once they are pedalling in that direction they lose the capacity to pursue truly green policies, which extend beyond the remit of having clean building codes and sound urban design.

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The Eurozone is both a spectacular failure and a spectacular success

One of the ways I judge whether an economy is working is whether it is able to provide enough work for those who desire it (both in number of jobs and hours of work). That is, an economy that generates purely frictional unemployment with underemployment eliminated. I know that there are many that think that emphasis is old-fashioned but those opinions are mostly provided by those that have secure, well-paid jobs. The latest Eurostat European Labour Force data, May 2012 shows that the policy framework in Europe is failing dramatically against my benchmark with the unemployment rate is now at its highest level in the Eurozone since the currency union began. I judge the Eurozone to be a failed “state”, in need of a dramatic change in policy approach. At the same time I consider it to be spectacularly successful. Time to explain …

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Revisionism is rife and ignorance is being elevated to higher levels

Sometimes I read things and consider either I live in a parallel universe or the writers do. I always conclude the latter. There is an increasing number of articles and commentaries coming out which aim to re-write history in favour of the writer’s reputation or that of his/her mates. Revisionism, which includes the practice of personal reincarnation is rife at present. Everybody seemed to predict the crisis. Even those that clearly in their own writing didn’t have a clue that the trouble was coming predicted it. As part of this process, key organisations that should be learning from the crisis such as the BIS are demonstrating that they are in an educational void. They have become just another propaganda machine. And so the crisis continues as ignorance is elevated to higher levels.

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Saturday quiz – June 30, 2012 – answers and discussion

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.

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The on-going crisis has nothing to do with a supposed liquidity trap

I was going to write about the so-called fiscal cliff today and would have shown that the only thing that might fall of the said cliff would be real GDP growth should the US Congress actually not extend the tax cuts and impose the spending cuts. The US economy would follow the lead from the British economy and double-dip in 2013 as sure as day follows night (or is it the other way round). The most elementary exposition of what we might call – ECO101 Macroeconomics – would tell us that. One person’s spending is another person’s income and so on. I note that some economists are arguing that ECO101 Macroeconomics is alive and well because it has had a an impeccable record in the current crisis. In my recent blogs – Fiscal austerity damages real growth and prolongs the financial downturn and Neo-liberalism has failed but we still don’t get it – I have argued that the mainstream of my profession has failed – both in anticipating the emerging crisis and providing credible solutions to remedy it. So have I overstated that claim, given that ECO101 Macroeconomics is the go-to approach at present? The problem is that while there are some leading economists who are arguing against harsh fiscal austerity at present at the basis of their reasoning is a thoroughly mainstream approach which has helped create the problem. I don’t think their version of ECO101 Macroeconomics provides the answers. There is some common ground with Modern Monetary Theory (MMT) but an even deeper incongruence.

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Euro leaders need to eat humble pie at this summit – but they won’t!

The European leaders are preparing for yet another summit, where the good food will be served and the fine wine will be flowing. One loses count of how many summits there have been since the crisis began. They all promise to deliver the solution but usually end up with some weak worded document about fiscal integration and growth, which quickly descends into increasingly zealous statements about obedience to fiscal rules and monitoring and punishment frameworks and, if you will excuse me, the whole Spanish Inquisition thing! I don’t mean to malign the Spanish here. Rather just calling up historical patterns of behaviour that always end in pain and suffering. The latest signs are that the ECB is continuing to keep the whole boat from sinking while the Germans continue to claim they are the victims. The Euro leadership continues to be obsessed with rules. The financial markets continue to punish the whole setup. Another day in the European crisis. There is a collective denial operating at present and until facts are faced up to (which might require some humble (vegetarian) pie being eaten rather than what is probably on offer in Rome during the current summit) – nothing much is going to be achieved other than rising unemployment and social dislocation. This is truly a mad situation.

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Saturday quiz – June 23, 2012 – answers and discussion

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.

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Benchmarking macroeconomic theory against reality

I am now using Friday’s blog space to provide draft versions of the Modern Monetary Theory textbook that I am writing with my colleague and friend Randy Wray. We expect to complete the text by the end of this year. Comments are always welcome. Remember this is a textbook aimed at undergraduate students and so the writing will be different from my usual blog free-for-all. Note also that the text I post is just the work I am doing by way of the first draft so the material posted will not represent the complete text. Further it will change once the two of us have edited it. Anyway, this is what I wrote today which was highly constrained by meetings and travel for much of the day.

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The Euro crisis is all their own doing

I gave an interview today for SBS (Special Broadcasting Service), which is a national multicultural radio/television network in Australia. They wanted to know whether I thought the crisis in Europe had now stabilised given the Greeks avoided “chaos” by voting for New Democracy and more austerity. They also noted that the financial markets were turning on Spain and Italy. I responded by suggesting their question answered itself and that it would be better not to be seduced by the Euro elite spin that Greece is now firmly in the Eurozone and markets will stabilise with austerity. The reality is that the election outcome in Greece just ensures the Greek people will have to endure more debilitating austerity and their growth prospects are virtually zero. In that sense, they were let down by Syriza who promised the impossible – no austerity but retention of the Euro. Given the design of the EMU and the conduct of the ECB, as the currency-issuer, within that monetary union, austerity will be anti-growth and the problem will spread. But then the EC President Barroso is sick of outsiders lecturing the Europeans on how to run their economies. He said today – “this crisis was not originated in Europe”. It all depends on which crisis one is referring to. The Europeans have concocted their own crisis which made the initial “flu” originating in the US turn into something much more deadly. They are totally culpable in this and appear to require external education given the ham-fisted attempts they have made to solve the issue. I told SBS that the solutions proposed and implemented by the Euro elites to the non-problem merely exacerbate the actual problem which is the Euro itself.

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When 50 per cent youth unemployment is (apparently) protecting the grand kids

Over the last week, a Londoner and a Glaswegian have publicly embarrassed themselves with statements made about the current economic situation. One is an academic historian who hasn’t fully understood history. The other a politician who is seeking to deny the obvious and somehow blur his own culpability in driving the British economy back into a double-dip recession. I guess the smokescreen approach works if yesterday’s Greek vote is anything to go by. I saw a headline in Bloomberg this morning which said that “Greece avoids chaos …”, which prompted me to wonder what chaos might look like if it is not hospitals unable to get access to essential supplies, a government killing its private sector by cutting spending and not paying legitimate bills, and an unemployment rate creeping towards 25 per cent and 50 per cent for youth. The Greeks were bombarded it seems with wilful lies and even then the conservatives on just led the vote count from their main anti-austerity rival. In all the denials and bluster, what I know categorically is that in the real world where we all live – sustaining rates of youth unemployment above 50 per cent – is definitely not protecting the grandchildren.

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Selective versions of history, driven by a blinkered ideology, always fail

I read this New York Times article (June 9. 2012) – Europe Needs a German Marshall Plan – by a history professor at Harvard Charles S. Maier with some interest. And then a few days later (June 12, 2012) – the other end of the spectrum appeared – Why Berlin Is Balking on a Bailout – written by the conservative (but difficult to stereotype) German economics professor Hans-Werner Sinn. The two articles demonstrate that selective versions of history always fail, especially when they are overlaid and driven by a blinkered ideology that prevents a full understanding of why things happen. The Harvard historian understands how European reconstruction occurred and has articulated what that means for the current European malaise. The German economics professor, imbued with Ordo-liberalism, cannot see beyond his blinkers.

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Spain bank bailout – fails to address the problem

Its a public holiday in Australia – Queen’s Birthday – so all is quiet. Why the Queen of England is also the Queen of Australia and our Head of State is one of those puzzling things that escape logic. Anyway, for the record, the latest Eurozone development – the request of a 100 billion euro bailout from the Spanish government – does not address the major problem facing the Eurozone – the Euro itself. The intransigence of the EU elites has meant that they are unwilling to reform the poorly designed European monetary system and seem to think that a sequence of band-aid remedies which only buy a little time without addressing the main issue demonstrates leadership. Meanwhile, the real economies deteriorate further and unemployment rises. The current policy proposals that are abroad in the Eurozone, are, in my view, the anathema of leadership.

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We do have a choice – we just need to identify it

I went for a walk at lunchtime through a main shopping area where I am working today. In the past you saw Sale signs twice around twice a year – post Xmas and mid-year. The advertised discounts at this time were modest except for some enticement items that might have been discounted by 30 per cent or so. You may check this out going through archives of Catalogue AU. You rarely saw Closing Down/All Stock must go signs. You rarely saw massive discounts – such as 80 per cent off and the like. Times have changed and there seems to be a permanency to these sales and the discounts are huge. Previously well-to-do shopping strips are now slowly being punctuated with empty shops so the Sale/Closing Down signs are now interspersed with For Lease signs. And Australia is meant to be going through a one-in-a-hundred years mining boom and the Government tells us we are doing so well that they have to undermine aggregate demand by running a surplus to give the economy room to grow even more. The problem is that our political leaders are in denial and continually bombard us with lies to perpetuate their ideological stances which work against the well-being of the majority of citizens. It is clear that the system is failing and that means we have a choice. The problem is that we first have to identify that we have that choice.

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When a poet knows more than most economists

It is Friday and I have been reading poetry. Then I read some ECB statements and some Spanish government documents after some number crunching (not reported here). And as usual I conclude the elites in Europe still think they will bluff their way through a deteriorating situation – some 4 years or so after it began – and stick to their ideological precepts as if there is no tomorrow. The problem for them is that the rest of us including bond markets, households, private firms and banks don’t follow the script that the Troika have written. Madame Lagarde can strut around on her tax-free salary telling Greeks they should pay their taxes and that it was payback time but that does little other than to make her look poor while the situation worsens. The Spaniards, facing bank failure, crippling unemployment generally, and specifically, more than half of their 15-24 year-olds jobless and, presumably, becoming alienated and dislocated from mainstream ambitions, came up with a plan that might have eased their own problems (for a while). It seems that the plan would not violate EMU rules. The right-wing BuBa types however, obsessed with an imaginary fear that inflation is about to swamp the Eurozone and end life as we know it, responded as only they can – by posing a non-problem while leaving the real problem to deteriorate further. A poet and a playwright could not have come up with text portraying this level of paralysis and madness even if they had tried.

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The IMF bullying as usual

The head of the IMF gave an extraordinary interview to the UK Guardian (May 25, 2012) – Christine Lagarde: can the head of the IMF save the euro?. It is extraordinary because of the language used by the IMF boss and the almost shameless increase in the intensity of Troika bullying of Greece at its prepares for another round of national elections to attempt to resolve the impasse that was left after the last election. The Troika know full well that the majority of people in Greece hate austerity and support an alternative growth-oriented policy agenda. The Troika also knows that its spin that austerity means growth is not resonating with European voters who can read the newspapers and understand the blatant untruth of the fiscal contraction expansion narrative. So they are exploiting the irrational view held by the majority of Greeks that they are better off staying with the Euro. By making out that the issue is about membership of the Euro, the Troika are introducing fear into the voting process to reinforce the TINA line that austerity is the only show in town. The Greek voters will succumb to that fear because they do not appreciate that membership of the Euro is austerity under current arrangements.

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