My brief comment on the British election

It is Wednesday and I am travelling a lot today. So just a collection of short snippets today that I have collected over the last week or so. First, the British election is tomorrow and the Tories have been successful in confining the focus to Brexit. My view on the EU and Britain’s decision to exit is well known. Labour should have been leading that process given the majority of their elected MPS come from Leave majority seats. Instead, they gave out a mixed message, with many senior Labour politicians claiming they would vote remain in another referendum. This is despite both major parties guaranteeing to the people in June 2016 that they would implement the vote to leave. The information we have at present is that that position on Brexit is probably going to cost them office. Which means the Tories survive when they should not but finish the Brexit process which they should. Then Labour will have to reinvent itself to take advantage of the renewed sovereignty that Brexit will bring. To do that it has to expunge its ranks of the neoliberals. One other matters, Leonard Cohen’s last album was released recently. We hear a song from it.

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Free flows of capital do not increase output but do increase inequality

There was an IMF paper released in April 2018 – The Aggregate and Distributional Effects of Financial Globalization: Evidence from Macro and Sectoral Data – that had a long title but a fairly succinct message. It indicates that the IMF is still in a sort of schizoid process where the evidential base has built up so against the political voice and practice that the IMF has indulged itself as a front-line neoliberal attack dog that elements in its research division are breaking ranks and revealing interesting information. In part, the Brexit debate in Britain has been characterised by economists supporting the Remain argument claiming that free capital flows within Europe (and Britain) are the vehicle for strong output growth and better living standards. They claim that when Britain leaves the EU global capital flows will be more restricted in and out of Britain and that will be damaging. It is really just a rehearsal of the standard mainstream economic claims found in monetary, trade and macroeconomics textbooks. What the IMF paper does is provide what they call a “fresh look at the at the aggregate and distributional effects of policies to liberalize international capital flows” and the researchers find that, “financial globalization … have led on average to limited output gains while contributing to significant increases in inequality”. That is, the pie hasn’t really grown much as a result of all these free trade moves but a growing share is being taken by an increasingly wealthier few. And workers are the losers.

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The Weekend Quiz – December 7-8, 2019 – 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 – November 30-December 1, 2019 – 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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Impending British Labour loss may reflect their ambiguous Brexit position

Last week, the British Labour Party released its election – Manifesto 2019 – which they describe as “the most radical, hopeful, people-focused, fully-costed plan in modern times”. There is a lot to like about that Manifesto from a progressive perspective. However, in my mind, there were two unresolved tensions that I think damage the Party’s credibility. The first, is its, yes, continued embrace of neoliberal macroeconomic frames, epitomised by its so-called Fiscal Credibility Rule that has already had to be changed because so-called independent analysts agreed with my assessment that the manifesto and the ‘Rule’ were inconsistent. The second, is the Party’s position on Brexit, which I believe continues to hamper its chances of election and also brings into focus the inconsistencies in the Party’s stance and behaviour over the last 2 years. Elections are not won by counting votes up. Rather, they are won by winning seats, which means that votes are counted in specific constituencies (electorates). I have maintained the view that the Labour Party’s meandering position on Brexit, to satisfy the Europhile urban members, would damage them, given that the majority of their members of parliament were elected by Leave majority constituencies. Seats not votes win elections. It doesn’t matter if the majority of Labour voters are Remainers, if their are spatial disproportionalities in the vote spread. The latest YouGov MRP estimates of voter intention for the upcoming election indicate that my assessment may, in fact, turn out to be accurate.

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Data suggests a unilateral Greek exit would have been much better than their colonial future under the Troika

Yesterday (November 26, 2019), the news came out from the Hellenic Minister of Finance that Greece had completed its latest repayment of 2.7 billion euros to the IMF early (Source). They owed around 9 billion euros to the IMF. Greece had to go ‘cap-in-hand’ to its “European creditors” to gain permission to make the payment early, which they claim saves them crippling interest rate payments. The loans were locked in at 4.9 per cent per annum – usury rates by any definition. Celebration seems to be the message from the neoliberals. But, from my reckoning, the disaster for Greece continues. On September 30, 2019, the IMF European Director Poul Thomsem gave an extraordinary (for its shameless arrogance) speech on Greece at the London School of Economics. Entitled – The IMF and the Greek Crisis: Myths and Realities – Thomson admitted that the IMF had revised its date at which they think Greece will finally get back (in GDP per capita terms) to the pre-crisis level. When they devised these usury loan packages, they claimed that “it would take Greece 8 years to return to pre-crisis level”. Now, they have revised that projection to 2034 – yes, you read that correctly – a generation of waste and foregone opportunities. When you look at their own scenarios for a unilateral exit in 2012, it becomes obvious (and I have said this all along) that exit could not have been worse than what the Greek people are enduring and will endure for an entire generation.

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Interview with Asahi Shimbun in Tokyo – November 6, 2019

During my recent trip to Japan, where I made several presentations to various groups, including a large gathering in the Japanese Diet (Parliament), I received a lot of press interest, which is a good sign. I am slowly putting together the translated versions of some of the print media articles. Today, I provide a translation (with my annotations) of an interview I did with the centre-left newspaper – Asahi Shimbun – on November 6, 2019 in Tokyo. This is a daily newspaper and is one of the largest of five national newspapers in Japan. It has an interesting historical past but that is not the topic of the blog post today. The article opened with a statement introducing Modern Monetary Theory (MMT) and then followed a Q&A format. I have expanded the answers reported in the paper to reflect the actual answers I gave to the two journalists during the interview and to a wider press gathering at an official press conference the day before in Tokyo.

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The Weekend Quiz – November 9-10, 2019 – 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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Q&A Japan style – Part 2

This is the second part of a four-part series this week, where I provide some guidance on some key questions about Modern Monetary Theory (MMT) that various parties in Japan have raised with me. I have so far given two presentations in Kyoto and today I am in Tokyo addressing an audience at the Japanese Diet (Parliament) and doing some interviews with the leading media organisations in Japan. Many people have asked me to provide answers to a series of questions about MMT, and, rather than address each person individually (given significant overlap) I think this is the more efficient way to help them to better learn and understand the essentials of MMT and real world nuances that complicate those simple principles. In my presentations I will be addressing these matters. But I thought it would be productive to provide some written analysis so that everyone can advance their MMT understanding. These responses should not be considered definitive and more detail is available via the referenced blog posts that I provide links to. Today, the questions are about the Green New Deal and the Job Guarantee.

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The obesity epidemic – massive daily losses incurred while the policy response is insufficient

The Brexit issue in Britain has been marked by many different estimates of GDP (income) loss arising from different configurations of the Brexit. The media is flush with lurid headlines about the catastrophe awaiting Britain. As regular readers will appreciate, I am not convinced by any of those predictions. But as I said the day after the Referendum in this blog post – Why the Leave victory is a great outcome (June 27, 2016) – that when I tweeted it was a ‘great outcome’ I didn’t say that good would come out of it. I also didn’t suggest that it would be a short-term recovery of prosperity or that the workers would benefit. I was referring to the fact that class struggle now has a clearer focus within the British political debate. There is now a dynamic for a truly progressive leadership to emerge and bring the disenfranchised along with them and wipe out the neo-liberal hydra once and for all.” I think that is lost in this debate. When the British Labour Party claim the latest agreement will irrevocably damage workers’ rights or environmental protections they seem to be implying that they will never be in power again. No legislation or regulation is irrevocable in a democracy. But being part of the EU will always tie a nation to the EU’s rules which usurp any national interests. That is why I maintain strong support for the concept of Brexit. But amidst all these predictions of gloom and doom, I was listening to the radio last week and heard some statistics that are truly alarming. The on-going GDP losses from the obesity epidemic in the UK, which will increase over time rather significantly, are significant when compared to the estimates of GDP loss arising from Brexit. I wonder why that fact isn’t part of the daily narratives coming out from the Remain crowd to justify their view that the 2016 Referendum result should be disregarded so they can have another go at getting their own way!

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When old central bankers know what is wrong but can’t bring themselves to saying what is right

Last Friday (October 4, 2019), a group of former central bank governors and/or officials in Europe, issued a statement damming the conduct of the European Central Bank. You can read the full text at Bloomberg – Memorandum on ECB Monetary Policy by Issing, Stark, Schlesinger. The timing of the intervention is interesting given the change of boss at the ECB is imminent. As I explain in what follows, the Memorandum should be disregarded. Its central contentions are mostly correct but the alternative world it would have Europe follow would be a disaster for many of the Member States and the people that live within them. It would almost certainly result in the collapse of the monetary union – which would be a good outcome – in the face of massive income and job losses and the social and political instability that would follow – which would be a bad outcome. What it tells me is that the monetary union is a massive failure. It would be far better to dissolve it in an orderly manner to avoid those massive income and job losses and to support the restoration of full currency sovereignty and national central banks. That would be the sensible thing to do.

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Leading indicators are suggesting recession

In the last two days, some major leading indicators have been released for the US and Europe, which have suggested the world is heading rather quickly for recession. It seems that the disruptions to global trade arising from the tariff war is impacting on US export orders rather significantly. The so-called ISM New Export Orders Index fell by 2.3 percentage points in September to a low of 41 per cent. The ISM reported that “The index had its lowest reading since March 2009 (39.4 percent)”. This is the third consecutive monthly fall (down from 50 per cent in June 2019). Across the Atlantic, the latest PMI for Germany reveals a deepening recession in its manufacturing sector, now recording index point outcomes as low as the readings during the GFC. Again, exports are being hit by China’s slowdown. However, while export sectors (for example, manufacturing) are in decline and will need the trade dispute settled quickly if they are to recover, the services sector in Japan, demonstrates the advantages of maintaining fiscal support for domestic demand. Japan’s service sector is growing despite its manufacturing sector declining in the face of the global downturn. The lesson is that policy makers have to abandon their reliance on monetary policy and, instead, embrace a new era of fiscal dominance. With revenue declining from exports, growth will rely more on domestic demand. If manufacturing is in decline and that downturn reverberates through the industry structure, then domestic demand will falter unless fiscal stimulus is introduced. It is not rocket science.

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RBA cuts rates as a futile exercise as Dr Schwarze Null demands fiscal action

I am now back in Australia after the latest cross-country run and so am falling back to routine. Which means a relatively short Wednesday blog post. Yesterday, the Reserve Bank of Australia cut their policy interest rate by 0.25 points to 0.75 per cent, a record low level. The RBA governor cited the weakness in the labour market as the reason for the cut and continued to suggest that the Government, which is pursuing its mindless austerity goal to record a fiscal surplus as the economy tumbles towards recession, should expand fiscal policy to kick-start growth. Once again, a central bank is being pushed into ‘record-making’ policy territory because the treasury-side of government will not use its fiscal capacity responsibly. This is now a global trend and even the likes of Dr Schwarze Null is calling for more fiscal action. Another day passes that demonstrates the mainstream New Keynesian approach is rapidly being abandoned by policy makers and an era of fiscal dominance approaches. Not before time.

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Travelling all day today …

There will be no blog post today as I am travelling for the next 24 hours or so back from the US. It has been a very busy two weeks or so that has taken me to many cities and meetings with many different people. A lot of different agendas to absorb and think about. From West Africa to the struggles within the US, to the Eurozone and the chaos of Britain. But the commonality is a desire to understand MMT and apply it to better deal with the problems that face us and our planet. While I am flying I will not be attending to comments that need moderation. So it might be some time before you see your comment published (or not). I am now preparing for my next foray which will take me to Japan later this month.

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The ‘rats’ are deserting the mainstream ship – and everyone wants in

It is Wednesday today and only a short blog post. I am heading to New York city today from London. More on that tomorrow. It is clear now that journalists from all over the globe are starting to pick up on the shifts in policy thinking that I have been writing about – the admission by policy makers that monetary policy has reached the end of its effective life (not that it was ever particularly effective) and that there is a crying need for a return to fiscal dominance, which was the norm before the neoliberal era began several decades ago. We have not yet reached the stage where the dots are being fully joined – monetary policy dominance dead -> fiscal policy dominance desirable -> neoliberalism dead. But that will have to come because the fiscal policy activism will have to be aimed at addressing targets that have been neglected by the neoliberal era – real wages growth, quality and security of employment, restoration of public services, environmental care priorities, scope and quality of public infrastructure, and the like. But as the journalists are starting to file copy on this topic, some are very lazy – and just want to have it on the record that they were part of the throng. One of the laziest offerings I have read was published today in the Australian on-line newspaper, The New Daily (September 23, 2019) – The economic weapon too hot for the RBA to mention: Helicopter money – and written by finance journalist Michael Pascoe, who is usually more careful with his words. While many might think any publicity is good for the spread of our Modern Monetary Theory (MMT) work, my view is that falsely constructing MMT can add to the already stifling dissonance among the public that has been mislead for years by the framing and language of the mainstream economists.

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Is the British Labour Party aboard the fiscal dominance train – Part 2?

I am typing some of this on the train from Brighton back to London, after a day of speaking events in Brighton, where the British Labour Party conference is currently being held. I spoke at two events: (a) the GIMMS event on MMT and the Green New Deal and a video will be available soon; and (b) at an event alongside British Labour MP Chris Williamson, where were talked about how an Modern Monetary Theory (MMT) understanding can enhance the progressive policy cause and advance a transformation towards a ‘socialist’ (whatever that might be) state. It was great to see everyone at the events. The second event was attended by many people involved in the Labour Party itself and I hope that being exposed to new ideas will activate further grassroots resistance to the neoliberal system that undermines our material prosperity. So this two-part series is a reflection on the state of economic policy thinking within British Labour in the context of the paradigm shift that is going on now, around the world, in macroeconomic policy thinking. As I noted in – Part 1 – we are now seeing economists and policy makers, lining up, to tell us that a reliance on monetary policy has run its course and a new era of fiscal policy dominance is the only viable way ahead. That means that New Keynesian economics is over. That means that fiscal credibility rules that reflect an adherence to neoliberal constructs will need to be abandoned. And it seems that British Labour are lagging behind these major shifts that have been going on in economic policy thinking. Only Modern Monetary Theory (MMT) offers a consistent and credible path for Labour to make the shift into this era.

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Is the British Labour Party aboard the fiscal dominance train – Part 1?

As I type this (Sunday), I am heading to Brighton, England from Edinburgh. We had two sessions in Edinburgh yesterday (Saturday) and it was great to share ideas with some really committed people. We had to dodge a Hollywood closure of the streets (‘Fast and Furious 9 had commandeered the inner city to film a car or two swerving out of control or whatever, and I hope the city received heaps for the inconvenience to its citizens. But, with the direction now south, and tomorrow’s two events (more later), I am thinking the place of the British Labour Party in the progressive struggle. It doesn’t look good to me. The news overnight has been that the Party’s “head of policy and the author of the party’s last election manifesto” (quoting the Times today) has quit the Party claiming “I no longer have faith we will succeed”. The blame game starts and, as usual, Jeremy Corbyn’s leadership is in focus. The Times cartoon had the caption “They’ve got what it takes to form a government” with two ducks (in Brighton) looking at a sign against a wall saying “Labour Civil War Chaos”. What should we make of all this? My take is this: there is a clear paradigm shift going on in macroeconomic policy thinking. Every day (it seems) a new article pops up with someone claiming monetary policy has run its course and a new era of fiscal policy dominance is the only viable way ahead. That means that the central bank imprimatur on policy – determining whether such policy can continue to be effective and relying on interest rate adjustments etc as the primary counter-stabilisation policy – is over. That means that New Keynesian economics is over. That means that fiscal credibility rules that are neoliberal central are over. And that is why I think British Labour are looking poorly in the polls. They have taken advice from a number of characters who have pushed them into a ‘New Keynesian’ mindset and they are now ‘yesterday’s news’. They have missed the boat on these major shifts that have been going on. That is why they need a major shift in macroeconomic thinking. Only Modern Monetary Theory (MMT) offers a consistent and credible path for them to make that shift.

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The Weekend Quiz – September 21-22, 2019 – 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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ECB confirms monetary policy has run its course – Part 2

This is Part 2 of my two-part commentary and analysis of the – Monetary policy decisions – by the ECB (September 12, 2019). In Part 1, I discussed the shifts in the deposit rate and the changes to the Targeted longer-term refinancing operations (TLTROs). In Part 2, I am focusing on the decision to introduce a two-tiered deposit rate on excess reserves, which is designed to reduce the costs of the penalty arising from the negative deposit rate regime that the ECB has had in place since June 2014. But the most important aspect of the ECB decision was not the monetary policy changes, which will have relatively minor impacts on the real Eurozone economy. The telling part of the whole episode was Mario Draghi’s comments on fiscal dominance. We are entering a new era where the neoliberal obsession with so-called monetary policy reliance is becoming increasingly discredited and exposed by the evidence base. Fiscal dominance is approaching. And the only body of work that has consistently argued for this approach to macroeconomic policy making has been Modern Monetary Theory (MMT) despite what the mainstream economists who are now starting to realise their reputations are in tatters might say.

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ECB confirms monetary policy has run its course – Part 1

I will have little time to publish blog posts in the next two weeks. But as I travel around I have to sit in trains, planes and cars and that is when I tend to write when I am away from my desk(s). Today, I am in Maastricht – after travelling by train from Paris. I have two events – one on framing and language and the other on Reclaiming the State and Modern Monetary Theory (MMT) basics. Then I am heading to Berlin for a talk at PIMCO and on Friday I am presenting an MMT workshop at the European Central Bank. Last week, the ECB made its next move, the last one for current President Mario Draghi. It will also lock in Madame Lagarde for a time and represents a rather overt statement about the failure of mainstream macroeconomics. While the mechanics of their various policy decisions are interesting and are worth discussing (albeit briefly) the overall optics were more powerful. The ECB has now joined a host of central bankers around the world in, more or less, admitting that monetary policy has run its course and is being pushed into ever more desperate configurations. At the same time, the corollary is that fiscal policy makers are failing in their responsibility to use policy to avoid stagnation and elevated levels of unemployment. Despite rather significant monetary policy gymnastics, aimed at stimulating economic growth and lifting inflation rates, central bankers have largely failed. They have failed because they are wedded to mainstream theory. Fiscal policy makers are constrained by an austerity-biased ideology and/or voluntary institutional machinery that has been created to stifle fiscal initiative (destructive fiscal rules). The cracks are widening. We are approaching the period of fiscal policy dominance – finally! This is Part 1 of a two-part series on this topic. Part 2 will follow tomorrow.

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