The cat is progressively getting out of the bag – Part 1

Remember on February 3, 2021, when the RBA governor Philip Lowe spoke at the National Press Club in Australia and told the audience that the Reserve Bank of Australia is not funding the federal government deficit, either in part, or, in full. This was in response to being asked whether the current situation that sees the RBA buying large swathes of government bonds are in any way consistent with Modern Monetary Theory (MMT). Well, since he gave that speech and answered questions from Australia’s journalists, a very interesting session was held by the – Economic Affairs Committee (House of Lords) – in London as part of the Committee’s investigation into the ins-and-outs of Quantitative Easing (QE). And some very revealing statements were made in those hearings which the RBA governor might reflect on. They rather directly challenge the veracity of his public statements about MMT in recent years. They also expose the way in which public officials tell the public they are not doing A but B, while doing exactly A. The cat is progressively getting out of the bag.! This is Part 1 of a two-part series explaining how the cat is escaping.

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The Weekend Quiz – April 10-11, 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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Governments must restore the capacity to allow them to run large infrastructure projects effectively

One of the major complaints that Milton Friedman and his ilk made about the use of discretionary fiscal policy was that time lags made it ineffective and even dangerously inflationary. By the time the policy makers have worked out there is a problem and ground out the policy intervention, the problem has passed and the intervention then becomes unpredictable in consequence (and unnecessary anyway). The Financial Times article (March 29, 2021) – To compare the EU and US pandemic packages misses the point – written by Ireland’s finance minister reminded me of the Friedman debate in the 1960s. Apart from the fact that the article is highly misleading (aka spreading falsehoods), it actually exposes a major problem with the way the European Commission operates. If Friedman’s claim ever had any credibility, then, they would fairly accurately describe how the European Union deals with economic crises. Always too little, too late … and never particularly targetted at the problem. The debate remains relevant though as governments move away a strict reliance on monetary policy and realise that fiscal policy interventions are the only way forward. Most governments around the world are talking big on public infrastructure projects. However, the design of such interventions must be carefully considered because they can easily be dysfunctional. Further, thinking these projects are a replacement for short-term cash injections is also not advised. I consider these issues in this blog post.

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US Congress to consider a vote on condemning MMT – signals progress

On March 25, 2021, a member of the US House of Represenatives “introduced a resolution in the House of Representatives this week condemning Modern Monetary Theory, recognizing that its implementation would lead to higher deficits and inflation”, while a “companion bill” was introduced into the US Senate (Source). The full text of the proposed legislation is available – HERE. The Bill is full of factual errors. But I thought the most significant aspect is the ‘authorities’ they call upon for justification. A parade of mainstream economists and progressive economists are quoted to give support for the Bill. And I haven’t seen one disclaimer from those mentioned disassociating themselves from some of the wild inferences that the Bill makes. They have allowed themselves to be co-opted by their silence in this rather tawdry and dishonest exercise. That is not surprising at all.

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The Weekend Quiz – March 27-28, 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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RBA shows who is in charge as the speculators are outwitted

While progressive-sort-of politicians, at least they say they are progressive, work out all the ways they can parrot mainstream macroeconomics textbooks about fiscal deficits and public debt to make themselves appear ‘credible’, even using credibility in the title of key fiscal rules they advocate, the world passes them by rather quickly. British Labour is crippled by, among other things like Europe, their belief that the City (finance) is powerful and the state has to appease the interests of the speculators. The Australian Labor Party is no different and so it goes everywhere. Give a traditional social democratic politician any latitude and they privatise, cut welfare spending, deregulate, give handouts to the top-end-of-town and more. We have four decades of this behaviour to back that accusation up. Well one of the more conservative central banks in the world – the Reserve Bank of Australia – is currently demonstrating what Modern Monetary Theory (MMT) economists have said all along – the financial markets can always be subjugated by the power of government, any time policy makers choose to exercise their capacity. It is time that these progressive types realised that and became much more ambitious and, yes, progressive, really progressive rather than adopting the sycophantic stance that the ‘financial markets will destroy our currency’, which has undermined traditional social democratic politics.

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The Weekend Quiz – March 20-21, 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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Why economists kept getting the policies right!

It is Wednesday and I am travelling most of the day. We are now entering Week 3 of the edX MOOC and I outline what students can expect this week. And some ideas about why it is wrong to think mainstream economists have got it wrong. Plus a reflection on one of Australia’s great musicians who died this week.

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We need trade unions to grow again

It is clear that the Reserve Bank of Australia (RBA) management is at odds with the elected Federal Government over the current state of the economy and what needs to be done to get through the COVID-19 pandemic. The Federal government is about to significantly wind back its fiscal stimulus, which although was insufficient at the outset, did help reduce the damage that the health responses to the pandemic caused (lockdowns, etc). The Government has the view that the private sector will now rebound quickly especially as the vaccination process has begun. The RBA though is clearly not convinced and its senior officials are wont to point out (regularly) that growth will struggle for years unless the stimulus is maintained and the government promotes an environment where wages can grow more quickly. The RBA clearly blames the Government for the record low growth in wages given the penchant of the latter to impose wage freezes and wage caps on public sector workers, which spill over into poor private sector outcomes. And that is quite apart from the damage that Government industrial relations legislation has done to the capacity of unions to gain wages growth for workers. The chances that we will break out of this malaise are close to zero. The Government is anti-union and anti-wages growth. It thinks that suppressing wages growth to historically record lows and further attacking the unions, will drive the wage share down even further (as the profit share rises). And, of course, the funding of the conservative political forces largely comes from the beneficiaries of these trends. For the vast majority of Australians the situation gets worse. Our real incomes stagnate and to maintain consumption levels we have to borrow more, even though household debt is at record levels in relation to disposable income. It is not a sustainable future but the damage will get worse until there is a pushback from the population. And one of the things holding that back is the deplorable state of the Australian Labor Party in electoral terms. We can generalise all this to most nations. The neoliberal score card: Biggest F you can find.

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The Weekend Quiz – March 13-14, 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 past keeps catching up with the mainstream

The capacity of prominent people in economics to attempt to airbrush history and forget what they said and did in the past continues to amaze me. It always has. The problem for them though is that there is a public record. Yet, the mainstream media seems to ignore that public record as they give these characters continued coverage without noting the contradictions and about turns that have been going on. The issue is the past keeps catching up with these characters but they just maintain their authority in the public debate as they freely morph between contradictory and inconsistent positions, without ever having to provide any sort of accounting for those shifts. It would clearly help if the media held these people to account because then the public would realise that some of the things that they had said in the past, which led, because they had positions of power, to devastating policy impacts on workers and their families, were false all along and should never re-enter the policy debate.

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Week 2 of the MOOC Modern Monetary Theory: Economics for the 21st Century starts today

Its Wednesday and only a short blog post day – well a collection of items I accumulate during the week. Week 2 of our MOOC – Modern Monetary Theory: Economics for the 21st Century – begins today and you can find enrolment details below. We also have some culture today – a beautiful poem which inspires optimism and some music that inspires past memories.

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The Weekend Quiz – March 6-7, 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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Real wages in Australia continue to go backwards

Last week, two major wage data releases came out from the Australian Bureau of Statistics. On Wednesday (February, 24, 2021), the – Wage Price Index, Australia – which was followed on Thursday (February 25, 2021) by the latest – Average Weekly Earnings, Australia. The two series are quite different as I note below. Both demonstrate poor wages outcomes in Australia. The ABS reported that Australia “maintained the historically low annual growth rate of 1.4 per cent for a second quarter” and that the data “showed a large proportion of the private sector wage growth came from the continued restoration of hourly wages back to pre-pandemic levels”. In other words, the cuts firms got away with last year were restored, which is a different thing to on-going growth. Private sector grow was just 0.7 per cent and public sector growth was just 0.3 per cent. The overall WPI growth was just 0.6 per cent. The public sector is clearly not demonstrating leadership with their ridiculous wage freezes and wage caps stifling wages growth not only in the public sector but also via the spillover effects to the private sector. With the quarterly inflation in the December-quarter was recorded at 0.22 per cent, real wages thus rose for Australian workers. But if we consider the annual movements private sector wages grew by 1.4 per cent while annual inflation (excluding volatile items) was 1.5 per cent, so real wages fell over the year to December 2020. Further, over the longer period, real wages growth is still running well behind the growth in GDP per hour (productivity), which has allowed profits to secure a substantially increased share of national income.

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The Weekend Quiz – February 27-28, 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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Some historical thinking about the Job Guarantee

I noted yesterday that I was appearing at a Seminar via Zoom with my MMT colleague, Pavlina Tcherneva, where we will discuss the concept of a social contract and where Modern Monetary Theory (MMT) fits into that, especially in the context of our idea of employment guarantees. The seminar – MMT and the new social contract: Lessons from Covid-19 – will be held on Saturday, February 27, 2021, from 10:00 Australian Eastern Daylight time and you can find details of how you can participate – HERE. I was thinking about what I would contribute to this workshop and rather than just rehearse the standard discussion about the Job Guarantee I have thought going back to square one would be a good place to start. This is especially a good thing to do, given that I increasingly see progressive people embrace the concept but try to do ‘too much’ with it. That is, place too much emphasis on it, especially in the context of Green Transitions. Pouring all our activist and political energy into getting a Job Guarantee up is not a sensible strategy for reasons I will explain. Second, a lot of critics, especially those who talk big on Twitter about ‘Bill Mitchell wanting people to starve’, clearly haven’t gone back to understand the roots of the concept and where it fits in. So today, I want to further clarify some significant issues that arise when both sides – pro and con – come in contact with the concept of employment buffer stocks for the first time and think they know all about.

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Have mainstream economists really embraced large deficits and central bank bond purchases?

When John Maynard Keynes wrote his essay – Economic Possibilities for Our Grandchildren – which was published in 1930 he considered that workers would be able to work just 15 hours a week because of the likely technological shifts over the 100 years from the date of his publication. He was right about the productivity gains that have been created but wrong about the benefits workers would gain from them. He thought the productivity would be more evenly shared out. He underestimated the capacity of capital to extract the gains for profits and capture the state to ensure it used its legislative and regulative capacity to suppress wages growth. Mainstream economists have aided and abetted the rising inequality and the reconfiguration of the state as a agent for capital. This bears on how we understand some of the apparent shifts in views by mainstream economists about fiscal deficits and central bank debt purchases. Yesterday, it was all bad. Today, all good. History warns us to be cautious in how we appraise these shifts. There is something to be said for consistency.

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The Weekend Quiz – February 20-21, 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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Central banks should just write off all their government debt holdings

The tensions in the public policy debate between economists is intensifying and on show in Europe, where these sort of obvious conflicts between adherence to dogma and a recognition that ‘out-the-box’ solutions are not only possible but preferred. More of these latter thought offerings are starting to appear as more people come to understand that the mainstream dogma has become more of a security blanket for reputations rather than saying anything about reality. One such proposal emerged last week in the form of a letter to the major European newspapers signed by more than 100 economists and politicians calling for the ECB to write-off its massive public debt holdings, which currently amount to around 25 per cent of total outstanding public debt. It is a good idea but some of the framing leaves a lot to be desired. At any rate, central banks everywhere should be buying up massive amounts of government debt and hitting the keyboard with zeros and writing it off. The world would be a much better place if they did that.

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The Weekend Quiz – February 13-14, 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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