Bolivia – defiant and prosperous as a result

There was a UK Guardian article yesterday (October 15, 2014) – Evo Morales has proved that socialism doesn’t damage economies – that recounted the recent economic history of Bolivia. There has been growing awareness in the Western press of what has been happening there given that the President Evo Morales has been once again re-elected for a third time, against the opposition of the financial elites in the so-called ‘first world’. A New York Times article (February 16, 2014) – Turnabout in Bolivia as Economy Rises From Instability – also noted the way in which Bolivia resisted the GFC to become a growth powerhouse in Latin America. The experience of Bolivia is a classic case of what can be achieved if a nation defies the international elites (such as the IMF and Wall Street) and carves out a path using its fiscal capacity to increase social capital and public infrastructure. When a nation can increase the real minimum wage by 87 odd per cent in a span of 8 years and see unemployment fall and real per capita income head for the stars then you know the mainstream neo-liberal mantras are wrong. Bolivia defied them and has prospered.

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MMT – lacks a political economy?

There was a ‘Guest Editorial’ published on the UK site Renewal last week – Modern money and the escape from austerity – by one Joe Guinan, who lists himself as a Senior Fellow at The Democracy Collaborative and Executive Director of the Next System Project. He is a journalist by background. Renewal is a “A quarterly journal of politics and ideas, committed to exploring and expanding the progressive potential of social democracy”, so it would seem to be wanting to head in the right direction, which reflects my values. The article’s central message is that “Modern monetary theory destroys the intellectual basis for austerity but needs a more robust political economy”. It is a serious embrace with our ideas and it is welcome that Modern Monetary Theory (MMT) is entering the progressive debate in a thoughtful manner and being advanced by others than the small core of original developers (including myself) who, in turn, built the ideas on the back of others long gone. The problem is that I don’t necessarily agree with many of the propositions advanced in the article. Here are a few reasons why.

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Rising long-term unemployment a sign of policy failure

While the Australian government ramps up its war on terror rhetoric and sending our armed forces to Iraq again, thus providing a major political diversion from their virtually complete policy failure on the socio-economic front, the data keeps coming which highlights the failure of successive federal governments in this regard, the current regime included. The latest – Poverty in Australia report, published by the Australian Council of Social Service (ACOSS) – shows that poverty is rising in Australia with 13.9 per cent of all people living below the poverty line (17.7 per cent of children). The poverty rate has risen by 0.9 per cent since 2010.

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Saturday Quiz – October 11, 2014 – answers and discussion

Here are the answers with discussion for yesterday’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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Friday lay day – ABS funding should be appropriate and access free

Its my Friday lay day blog and my mini-topic today is a left-over from yesterday’s commentary on the latest Labour Force data from the Australian Bureau of Statistics. The last few months data has been very volatile and the ABS has finally admitted that their seasonal adjustment techniques have not delivered realistic estimates of employment (and hence unemployment). This matters because many sectors and people use the summary aggregate statistics produced by the ABS, such as the headline unemployment rate for all manner of purposes, some of which are more important than others. The Federal Treasurer’s response to the issue has been predictably asinine. This is a person who has cut the national statistical agency’s budget by more than $68 million in the last year. His solution – force a user-pays regime onto the ABS so that we will have to pay to access their data to work out what is going on in our nation. It has been done before by conservative Australian governments, in part to reduce the flow of information but also, more mindlessly, to ‘save’ money – in a currency that the government issues! That is how mindless neo-liberal bean counters get.

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Australian labour market – deteriorating

Today’s release of the – Labour Force data – for September 2014 by the Australian Bureau of Statistics provides a major revision to the data set, which corrects for the extraordinary (and unbelievable) rise in part-time employment and the decline in unemployment that was published in the August release. For more explanation see below. Today’s more realistic results confirm what we have known for some time – the labour market continues to be in a weak state. Total employment fell by 29,700 this month and unemployment rose by 11,000. The rise in unemployment would have been worse had not the participation rate fell by 0.2 percentage points, which just means that hidden unemployment has risen. To complete the story, total hours worked fell by nearly 1 per cent. The revisions to the data confirm that claims last month that the economy was improving and the that the Government’s strategy (what strategy you may ask!) is working are false. The sudden jump in employment published last month was a statistical artifact and has vanished into the reality of the situation.

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The myopia of neo-liberalism and the IMF is now evident to all

The IMF published its October – World Economic Outlook – yesterday (October 7, 2014) and the news isn’t good. And remember this is the IMF, which is prone to overestimating growth, especially in times of fiscal austerity. What we are now seeing in these publications is recognition that economies around the world have entered the next phase of the crisis, which undermines the capacity to grow as much as the actual current growth rate. The concept of ‘secular stagnation’ is now more frequently referred to in the context of the crisis. However, the neo-liberal bias towards the primacy of monetary policy over fiscal policy as the means to overcome massive spending shortages remains. Further, it is clear that nations are now reaping the longer-term damages of failing to restore high employment levels as the GFC ensued. The unwillingness to immediately redress the private spending collapse not only has caused massive income and job losses but is now working to ensure that the growth rates possible in the past are going to be more difficult to achieve in the future unless there is a major rethink of the way fiscal policy is used. The myopia of neo-liberalism is now being exposed for all its destructive qualities.

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The German experiment has failed

In the last week, several new data releases have shown that the Eurozone crisis is now consolidating in the core of Europe – France, Italy and … yes, Germany. The latter has forced nonsensical austerity on its trading partners in the monetary union. And, finally, the inevitable has happened. Germany’s factories are now in decline because the austerity-ravaged economies of Europe can no longer support the levels of imports from Germany that the latter relied on to maintain its growth and place it in a position to lecture and hector the other nations on wage and government spending cuts. The whole policy approach is a disaster and is exacerbating the flawed design of the euro monetary system. The leaders should find a way to dismantle the whole charade and allow nations to seek their own paths to prosperity with their own currencies. The German experiment has failed.

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Non-government debt lessons are not being learned

There were two related articles in the Melbourne Age this weekend, a descriptive account of credit card debt vulnerability across Australian households – Default looms for millions of Australians (October 5, 2014), and an attempted analytical piece – If we are so wealthy, why are we in so much debt? (October 4, 2014). The latter is so intent on pushing an anti federal fiscal deficit angle that it fails to tie in the fact that its two central objects – the massive build up of private debt and the pursuit of fiscal surpluses are intrinsically related. The article attempts to rail against both without remotely understanding their connection. But that is what you expect from journalists who try to venture into areas they have lots of opinions but know little about.

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