Not trusting our political class is no reason to avoid introducing progressive policies

There is a consistent undercurrent against Modern Monetary Theory (MMT) that centres on whether we can trust governments. I watched the recent Netflix documentary over the weekend – American Conspiracy: The Octopus Murders – which reinforces the notion I have had for decades that there is a dark layer of elites – government, corporations, old money, criminals – that is relentlessly working to expand their wealth and maintain their power. Most of us never come in contact with it. They leave us alone and allow us to go about our lives, pursuing opportunities and doing the best we can for ourselves, our families and our friends. But occasionally some of us come into contact with the layer and then all hell breaks loose. The documentary started with a journalist being killed because he had started penetrating an elaborate conspiracy which began with the US Department of Justice stealing software from a company and then multiplied into money laundering scams (Iran contra), murder of various people who got in the way, and went right up to Ronald Reagan, George Bush and other senior politicians. It was a sobering reminder. I will write more about this topic in the upcoming book we are working on (with Dr L. Connors) but I was reading some articles over the weekend (thanks to Sidarth, initially) about the way the MGNREGA in India, which is a public job guarantee-type scheme has been corrupted as the ideology of the government shifted and it bears on this question of trust.

Read more

British government designs fiscal policy within a flawed framework – result = poor policy

This week, the UK Chancellor releases the latest fiscal statement (aka ‘the budget’) and will also have a eye to the general election which must be held before January 28, 2025. One would expect the government would stall the announcement and delay the election for as long as is possible, given the current situation and the cumulative impacts of 12 years of Tory rule, which are plain to see at all levels of British society. All the talk is of tax cuts, that typical ‘sugar hit’ approach to winning votes that soon works it way out of the system. The debate as to what the British government should now be doing is clouded, as these debates are always clouded, by the input of organisations such as the Office of Budget Responsibility, which claims its charter is to “to examine and report on the sustainability of the public finances”, yet consistently provides input which is irrelevant to the substance of the issue and just feeds the flawed political scrum. In the end, the policy choices are not based on the actual opportunities and threats that are available to and confront the currency-issuing government but rather a fictional mindset that all the players are trapped within.

Read more

Japan sinks into recession – but there is more to the story than the mainstream narrative would care to admit

Last week (February 15, 2024), the Japanese Cabinet Office released the latest national accounts estimates for the December-quarter 2023 – Quarterly Estimates of GDP for Oct.-Dec. 2023 (The First preliminary) – which showed that the economy had slipped into an official recession (two consecutive quarters of negative GDP growth) and in the process had moved from being the third largest economy in the world to become the fourth behind the US, China and Germany. According to the media release – 2023年10~12月期四半期別GDP速報 – the quarterly growth rate was -0.1 per cent (annual -0.4 per cent). Domestic demand was weak, contributing -0.3 per cent while net exports contributed +0.2 per cent. Part of the story is related to a ‘valuation drop’ because the yen has depreciated in recent months, undermining the value of exports and increasing the value of imports. But while there is some hysteria in the ‘markets’ and the mainstream economics commentary about the result, caution is required because the data will be revised (it was only preliminary) as more data comes in and it is highly possible for the negative to become a positive. But, I also take a different perspective on this from the dominant narrative in the media as you will see if you read on.

Read more

UK Autumn Statement is appalling and ties the hands of Labour – the voters face a Hobson’s choice

Last Wednesday (November 22, 2023), the Tory government in Britain released their fiscal update known as the – Autumn Statement 2023 – which basically sets the course of fiscal policy in the UK for the period ahead. The Tories continue their appalling record. But they have also locked Labor into an austerity mindset. Meanwhile, neither party resonates with the sentiments expressed by the people if the latest Ipsos survey is representative of that sentiment. The British people face a Hobson’s choice!

Read more

The Bank of Japan is light years ahead in sophistication relative to the West

Given yesterday’s detailed monetary policy analysis, I am using today to present an array of news items and some brief analytical thoughts on central bank monetary policy. The latter is based on a very interesting speech that the governor of the Bank of Japan gave in Nagoya earlier this week. The juxtaposition with the way the Western central banks are behaving at present is stunning. There is also some self promotion and some announcements. Then we get to listen to Ron Carter. A good day really.

Read more

RBA monetary policy decision represents a terminally broken policy model in Australia

Yesterday (November 7, 2023), the Reserve Bank of Australia raised its policy rate target for the 12th time since May 2022 by 0.25 points to 4.35 per cent. It was an unnecessary increase, just like the eleven increases that preceded it. And, from my perspective it represents a broken policy model. The RBA policies are transferring income and wealth from poor to rich at rates not seen before in this country. They are pretending that the inflationary episode is demand-driven (excessive spending) whereas the data shows that it remains a supply-side phenomenon and the major drivers will not fall as a result of interest rate increases. In fact, one of the major drivers – rents – are rising because of the interest rate rises – RBA is thus causing inflation. The RBA is systematically wiping out wealth at the bottom end and transferring to the top end. The cheer squad for these rate hikes are the wealthy shareholders of the major banks who are recording record profits. A broken model indeed.

Read more

Latest IMF report on Australia is food for uncritical and lazy journalists but garbage nonetheless

The IMF regularly conduct ‘missions’ to member countries, where a group of highly paid economists trot out to a capital city somewhere, hole up in some luxury hotel, and have a few meetings with Treasury officials and the like and then shoot through after the short visit back to whence they came and produce their report. On October 31, 2023, the IMF published – Australia: Staff Concluding Statement of the 2023 Article IV Mission – which attracted a lot of mainstream press attention in Australia. The message that the public received was summarised in this article – International Monetary Fund says Australia needs higher interest rates. The article carried no qualifications or reflection on the methodology. The journalists who have a high profile in the mainstream national media sanctioned without question the IMFs conclusions. That is what goes for information in these times. It is an assault on our collective intelligence really.

Read more

Neoliberalism has not been about applying Chicago-style economic theory

Scottish-born economist – Angus Deaton – recently published his new book – An Immigrant Economist Explores the Land of Inequality – in which he provides a swathing critique of the state of the economics profession, particularly in the way that it impacts on policy making and societal well-being. He is a microeconomist who made a name for himself studying consumer demand, which means he has not contributed anything significant to the field of macroeconomics, where I hang out. The title refers to his migration to the US from Britain in the 1980s and his reflections on what he found and how the economics academy has changed over this 45 years in the profession. His point is that the economics profession has lost its purpose and should return to a focus on advancing well-being. He is particularly critical of Chicago-style economics – or ‘free market’ thinking. The problem though is that the neoliberal era has not been about applying Chicago-style economic theory. The elites just say they are doing that when in fact all they are doing is utilising the immense government capacity to shift the intervention dial in their favour. The government has not given way to the free market – it has just been reconfigured to become an agent of capital.

Read more

Launching the CofFEE Financial Resilience Barometer – Version 1.0

It’s Wednesday and while there is a lot to write about, I am prioritising the release today of our latest research at the Centre of Full Employment and Equity (CofFEE). The release of what we are calling the – CofFEE Financial Resilience Barometer – Version 1.0 – is part of a research collaboration I have with Professor Scott Baum at Griffith University. We have Australian Research Council funding for the next three years to explore regional resilience in the face of economic shocks, particularly after the massive disruptions from the Covid pandemic. Today we release the first output of that research. I also consider other matters today and the usual Wednesday music segment comes with a song from a leading Palestinian singer.

Read more

The legacy of fiscal austerity in the 1990s in Australia lives on

It’s Wednesday and I spent some time this morning reading the latest IMF – Global Financial Stability Report – in which the IMF pretends to know what is going on in the world economy based on a set of erroneous assumptions about how that economy functions. But the data it provides is interesting in itself. Of interest is that fact that Australian households now have the highest debt-servicing ratios in the world as a consequence of record levels of debt and rapidly rising interest rates. What is generally overlooked in these discussions, however, are the circumstances in which the debt rose so much in the first place. In this post, I explain, among other things, how the obsessive pursuit of fiscal surpluses combined with labour market (in favour of the employers) and financial market deregulation (in favour of the bankers) in the 1980s and beyond, created the conditions whereby households could really only maintain growth in consumption expenditure by significantly increasing their indebtedness and running the saving ratio into negative territory. The legacy of that misguided shift to fiscal austerity lives on. Later in the post I make a brief comment about the Middle East and then we listen to some music.

Read more

US wealth distribution – fiscal policy increases private net worth but the poor miss out

I read an interesting report this morning, which resonated with some other work I had been looking into earlier in the week. The Australian Council of Social Services (ACOSS) released a report yesterday (September 27, 2023) – Inequality in Australia 2023: Overview – which shows that “The gap between those with the most and those with the least has blown out over the past two decades, with the average wealth of the highest 20% growing at four times the rate of the lowest”. It is one of the manifestations of the neoliberal era and is ultimately unsustainable. Earlier in the week, I spent some time analysing the latest data from the US Federal Reserve on the distribution of wealth among US households. The US data goes a long way to explaining why the recent interest rate hikes have been inflationary in themselves.

Read more

The Chilean coup just one link in a complicated right-wing economics agenda to empower capital

Several related strands have come together in the last week of work and thinking. Today (September 11, 2023), of course, is a massive day in history and I am not referring to the year 2001. Today marks the 50th anniversary of the overthrow of the Salvatore Allende’s democratically-elected government in Chile by the US CIA and there local puppets under the leadership of General – Augusto Pinochet. I have also been following a trail of the antecedents of the Powell Manifesto (thanks to Jonathan for a tip), which helps understand how the neoliberals infested every institution in the US and beyond. And the Chilean coup d’état in 1973 was followed by – Operation Condor – which together with the coup demonstrated the principle terrorist organisation in the world has been the US government and its agencies. Tracking the Powell trail also took me to old research about the so-called ‘Manne Programs in Economics for Federal Judges’ – which was a program mostly taught by Chicago School economists that indoctrinated US judges into free market economic thinking and has distorted US judicial decisions ever since. And the circle closes when we investigate the role played by the so-called – Chicago Boys – who were Chilean PhD graduates from that school, who went back to Chile and ravaged the prosperity of the people with their extreme neoliberal ideas. All interlinked events on the path to global neoliberal domination. History is worth studying and it is striking how interrelated all these things are that have come together in my work the last week or so.

Read more

The tax extreme wealth to increase funds for government spending narrative just reinforces neoliberal framing

Despite the rabble on the Right of politics that marches around driven by conspiracies about government chips in the water supply or Covid vaccines and all the rest of the rot that lot carry on with, the reality is that the well-funded Right that is entrenched in the deepest echelons of capital are extremely well organised and strategic, which is why the dominant ideology reflects their preferences. That group appears to be able to maintain a united front which solidifies their effectiveness. By way of contrast, the Left is poorly funded, but more importantly, divided and on important matters appears incapable of breaking free from the fictions and framing that the Right have introduced to further their own agenda. So, the Left is often pursuing causes that appear to be ‘progressive’ and which warm their hearts, but which in reality are just reinforcing the framing that advance the interests of the Right. We saw that again this week with the emergence of the Tax Extreme Wealth movement and with the release of their open letter to the G20 Heads of State – G20 Leaders must tax extreme wealth. This is the work of a group which includes the so-called Patriotic Millionaires, Oxfam, Millionaires for Humanity, Earth4All and the Institute for Policy Studies. It demonstrates perfectly how these progressive movements advance dialogue and framing which actually end up undermining their own ambitions.

Read more

The conflicting role played by education in social mobility and class reinforcement

Sometimes everything comes together in unintended ways. That has happened to me this week. I am moving office tomorrow, and I am also moving home, and if that wasn’t enough, I received a call from a union I help out with advice who wanted some urgent work done. The major employer had presented a sort of ‘take-it-or-leave-it’ offer that if accepted would see the workers more than 8 per cent worse off in real terms at the end of the 4-year agreement than they were when they last had their pay adjusted. This sort of offer – at a time the RBA is claiming the labour market is incredibly tight just beggars belief. Anyway, the point is that I have very little time this week for blog posting. Some years ago I read a research report that demonstrated that standard economics programs at our universities breed people with sociopathological tendencies who elevate greed above empathy. There is clearly some self-selection bias because the studies have never really isolated the impacts of the teaching programs from the tendencies of the students going into the programs. But as one who has been through the mill from go to woah (PhD) the standard mainstream curriculum is pretty grim and most students in my years just went along with it. I was thinking about this when I read a Discussion Paper (No. 1938, July 2023) from the Centre for Economic Performance at LSE entitled – Are the upwardly mobile more left-wing?. After I had read that paper, I noticed a UK Guardian article (August 6, 2023) which carried the headline – Are richer people really more rightwing? – which discussed the LSE research and I thought that was a curious perversion of the original title.

Read more

Monetary policy in the hands of the central banker sociopaths is advancing the class interests of the elites

Recently, I wrote about the conditions that dictate what impacts interest rate changes will have on aggregate spending and demand-driven inflation in direction, magnitude and temporality – see RBA governor’s ‘Qu’ils mangent de la brioche’ moments of disdain (June 8, 2023). It is highly likely in many cases, the decisions by central banks to increase interest rates, ostensibly to ‘fight inflation’ actually make inflation worse. More people are starting to understand that point even though central bankers appear to be still talking big about further interest rate rises. But the evidence is mounting against their position and ultimately that evidence is exposing the deep flaws in mainstream macroeconomics. I argue today that the problem is not only that the interest rate hikes can be inflationary but they are also facilitating a major reinforcement of the class divisions in our societies whereby the low income cohorts are transferring massive income benefits to the higher deciles. I also discuss cricket which recently has provided a demonstration of how the class divisions work. Then some music, given it is a Wednesday.

Read more

A large government presence required for energy transition does not mean massive deficits are required

There appears to be confusion among those interested in Modern Monetary Theory (MMT) as to what the implications for a green transition that will fasttrack the transition to renewable energy will require by way of government. I regularly see statements that government deficits will have to be ‘massive’ for extended periods because the private (for profit) market entities will not move fast enough to deal with the climate emergency in any effective way. The confusion inherent in these claims is that they fail to separate the ‘size’ of government from any particular ‘net spending’ (deficit) recorded by government. The two outcomes are quite separable and have to be if government action is to achieve sustainable outcomes, not only in terms of environmental goals but also price stability goals. So let’s work all that out. Failing to do so, leads MMT activists to make claims that open them up to criticism from those who understand the point I am making but have different ideological agendas. So they make erroneous claims such that ‘MMT just advocates big deficits’, or that ‘MMT thinks that deficits do not matter’. But they have been lured into that position, in part, by the social media behaviour of some MMT activists.

Read more

The New Global Financing Pact equals the old failed global financial arrangements

It’s Wednesday and I cover a few topics usually in less depth than usual and provide a musical entree. From tomorrow (June 22 to 23), the so-called world leaders are meeting in Paris for the – Summit for a New Global Financing Pact – which is being hosted by the French president. The aim, apparently, is to build a new global architecture to replace the Bretton Woods system (they left it a while!) to ‘address climate change, biodiversity crisis and development challenges’. The solution that is being proposed is to allow the financial markets to create debt and speculative derivative products to fund the new architecture because, apparently, governments do not have the financial capacity. The whole initiative is about replacing defunct financial architecture but it still proposes to rely on the same (defunct) approach to public infrastructure development and the like that has failed dramatically to reduce inequality and poverty. It has certainly massively enriched the top-end-of-town and the same result will come out of this Pact. I also comment on the latest Brexit claims and provide a brief entree into some Covid research that I found interesting. Then some music.

Read more

Beware: pension systems about to collapse. Not! More mainstream fiction

Sometimes, one thinks that the intellectual world should evolve as intelligent people take account of the dissonance between their ideas and the facts before them and adapt their views. I know that doesn’t happen much but it should. I have studied the philosophy of science deeply enough over my student and postgrad days and beyond into my career to know that intelligent people have the capacity to completely fool themselves and hang onto defunct ideas as part of a paradigm-resistance to change. We know why that happens: senior professors have their reputations and legacy at stake, they control appointments, promotions, access to research grants, publication success for junior academics, and continuity of lucrative consulting empires. But sometimes I still am amazed when I read some research paper that I know has taken months to research and write up and which has been presented and talked about in seminars and conferences, and after dinner drinks and all the rest of it, but which bears no correspondence with the underlying reality. That was the situation when I read a research paper from three economists who were claiming that taxes have to rise and pensions cut if governments are to escape insolvency in the face of ageing societies. This continues, obviously, to be a powerful framework for proselyting the neoliberal mantra and a narrative that most people cannot see their way through to a conclusion that is all a fiction.

Read more

RBA loses the plot – Treasurer should use powers under the Act to suspend the RBA Board’s decision making discretion

It’s Wednesday, and we have a few observations on recent events including a music feature. But the main issue in the last 24 hours is the decision by the Reserve Bank of Australia (RBA) to add an 11th interest rate increase at a time when inflation is falling significantly. As I noted last week, the narrative is now shifting among these characters – it is all about inflation not falling ‘fast enough’ and they still claim a wages explosion is likely unless they get inflation down more quickly. It now appears to me that the RBA has lost the plot completely. I have written regularly about this in the last 12 months, but today I have been exploring new data which shows that rising interest rates create a vicious circle of higher inflation which then precipitate further higher interest rates. My recommendation is that the Federal treasurer should use his powers under the RBA Act 1959 and overrule the RBA governor and his board and freeze interest rates. We have to stop this RBA madness somehow!

Read more

A debt jubilee is the only way low-income nations will escape the penury of debt distress (and the IMF/World Bank)

There is something deeply wrong with the world under Capitalism when the poorest countries in the world pay more out on debt servicing to loans that the wealthy countries have provided than they do on maintaining their health care services. I have been examining data derived from the World Bank WDI database and the IMF WEO database pertaining to the debt sustainability of the poorest nations in the world. Using 2019 data (most recent) 64 nations, for which coherent data is available, spend more on external debt services than they do on health care (Source). At the same time, the most recent assessment from the IMF and the World Bank, under their Debt Sustainability Program (DSA) shows that debt distress is rising fast across the low-income bloc of countries. The response of the multilateral institutions is to enter ‘agreements’ with these nations that impose fiscal austerity and enforce a range of changes such as privatisation, outsourcing and more. This strategy does not work and only serves to protect the assets of the rich countries and corporations. A debt jubilee is the only way low-income nations will escape the penury of debt distress and the austerity-obsessed clutches of the IMF and the World Bank.

Read more
Back To Top