Inside the Bank of England governor’s dreams – the wage-price spiral we cannot see

Many central bank officials have been trying all sorts of conditioning narratives to convince us that their interest rate hikes have been justified. Now they are actually defying the information presented in the official data to simply make things up. Last Wednesday (May 17, 2023), the Bank of England governor gave a speech to the British Chamber of Commerce – Getting inflation back to the 2% target − speech by Andrew Bailey. It came after the Bank raised the bank rate by a further 25 points to 4.5 per cent the week before. In that speech, he admitted inflation was declining and the main supply-side drivers were abating. But he said the rate rises were justified and unemployment had to rise because there was now persistent inflationary pressures coming from a “wage-price spiral”. The problem with this claim is that there is no data to support it.

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RBA Review Report ignores the real questions and proposes to entrench the failed Groupthink

Over the last few decades, I have done a lot of reading and research on the way organisations and groups deteriorate into what socio-psychologists call Groupthink, which is a system of patterned behaviour that takes the group increasingly further away from reality and sees it denying basic facts while at the same time maintaining authority for its activities and work. Academic disciplines, in particular are susceptible to this sort of dynamic, because of the hierarchical structure of the workplace and the fact that the senior professors have a vested interest in suppressing any research findings that contest the work that got them to those senior posts when they were younger. The economics profession is riddled with this organisational disease. Second, I have also researched and written about the concept of depoliticisation – which involves the hollowing out of national sovereignty and curtailment of popular-democratic mechanisms. Both these phenomena are at the centre of my rejection of many of the key recommendations of the external review of the Reserve Bank of Australia – Final Report: An RBA for the Future – which was published today (April 20, 2023). While the Report purports to providing the central bank with a pathway to the future, what is really being proposed – in the form of a new monetary policy board stacked with ‘experts’ (economists) – is less political accountability (depoliticisation) and a decision-making structure that is hindered by Groupthink.

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Latest Productivity Commission report – relies on and exploits our ignorance – to undermine our well-being

I had a sense of déjà vu this week when I read the latest release from Australia’s Productivity Commission – Advancing Prosperity – which was released on March 17, 2023 and is a five-yearly exercise conducted by the Commission on behalf of the Australian government. Frankly, if the government was looking to cut spending while advancing material well-being in the community, they could simply tell the Commission to cease doing this work and instruct the staff involved to get real jobs and do something that matters. We just get a regurgitation of GIGO, that well-practiced art of pretending to have something authoritative to say while one is grabbing money out of the till at a rate of knots to advance self-interest! The problem is that the ordinary citizen is ill-equipped to understand any of the technical hoopla that attempts to shroud these types of Report in ‘credibility’, and so is at a disadvantage when trying to determine whether they should support it through the ballot box. Neoliberalism relies on and exploits our ignorance.

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RBA governor thinks massive bank profits are good while he wants unemployment to rise

It’s Wednesday and a lot is going on. The RBA governor appeared before the Commonwealth Senate Estimates Committee today and demonstrated what a troglodyte he is, defending massive bank profits and deliberately trying to cause unemployment. Meanwhile, US data shows that inflation has peaked and is now falling. The pace of the deceleration is picking up. Meanwhile – MMTed – is active and our 4-week course began today (see details below) and we are helping a new radio show to launch next week – Radio MMT. And we cannot go a Wednesday without some great music. All in a day.

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Central banks accounting losses are rising but are of no importance to anything important

There are regular interventions from commentators over time who repeat the same thing over and over – usually some prophesy that a currency (for example, the Yen or the USD) will collapse soon, and life goes on until they come out with the same predictions, which never turn out. The mainstream media loves to give these characters a platform because the headlines are sensational and I guess that sells ‘units’ for the companies. The latest I saw was from Mr. Roubini in the Financial Times, who has been predicting the collapse of the USD regularly. Time to give him a miss I think. A related topic of hysteria that ordinary folks seem to get agitated about but clearly don’t understand even the first principles involved is the old canard – central bank losses. This gets a little more abstract for most relative to the Roubini-type currency collapse headlines but the mainstream press still manage to whip up a doom scenario that somehow the central bank is about to go broke and governments will have to bail them out and taxes and debt will rise, and, somehow, ultimately, our grandchildren will find themselves in penury trying to pay back the debts our current governments ran up. A recent Bank of International Settlements Bulletin article (No. 68)- Why are central banks reporting losses? Does it matter? (released February 7, 2023) – bears on this issue. Conclusion: nothing to see here.

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Military spending binge is working to keep economies growing

Its been around 9 months since the central banks of the world (bar Japan) started to push up interest rates. And still there are no firms signs that a recession is impending. There are some signs of a growth slowdown but that is not uniform across the globe. The US seems to be continuing to grow. While that suggests that monetary policy is less effective than the mainstream economists claim – which is no surprise to non-mainstream economists who have long understood that fiscal policy is the tool of choice for counter-stabilisation, there are other offsetting factors that are at play here. Governments around the world have seriously ramped up their fiscal outlays over 2022 on military procurements as the perceived threat from Russia and China has been magnified by military generals and their mates in the big US weapons corporations, who have taken the opportunity to get make massive extra profits. The power of the military-industrial complex (MIC) is long-standing and well understood. It explains why all the usual disaster scenarios that accompany increasing fiscal outlays by governments haven’t attracted much criticism. Too many elites benefit from the military binge. But the fiscal expenditure also helps to counteract any spending contraction by households who are negatively impacted by interest rate increases.

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The Eurozone fictions continue to propagate

There was a Financial Times article recently (January 8, 2023) – Monetary independence is overrated, and the euro is riding high – from Martin Sandbu which strained credibility and continues the long tradition of pro-Euro economists attempting to defend the indefensible – fixed exchange rate, common currency regimes. He claims that the Euro is a better system in the modern era for dealing with calamity than currency independence. However, as I explain below, none of his arguments provide the case for the superiority of the Eurozone against currency-issuing independence. Currency-issuing government can certainly introduce poor policy – often because the policy makers refuse to acknowledge their own capacity and think they have to act as if the nation doesn’t have its own currency. But the negative consequences that flow from testify to the poor quality of the polity rather than any disadvantages of the currency independence. The Euro Member States are being bailed out by the central bank and if that stopped the system would demonstrate the inherent dysfunction of its monetary architecture and nations would fail.

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The Weekend Quiz – December 24-25, 2022 – 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 – December 10-11, 2022 – 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 monetary institutions are the same – but culture dictates the choices we make

In discussions about the significant differences that we have observed over the last 30 odd years between the conduct of economic policy in Japan and elsewhere, the usual response from mainstream economists, when challenged to explain the outcomes in the former nation, is that it is ‘cultural’ and cannot be applied elsewhere. I always found that rather compromising because mainstream economics attempts to be a one-size-fits-all approach based on universal principles of maximising human behaviour. So, by admitting ‘cultural’ aspects to the discussion, this is tantamount to admitting that the ‘market-based’ micro founded approach to macroeconomics is incapable of explaining situations. That is the first black mark against the veracity of mainstream theory. But when one prods further, it becomes clear that the term ‘culture’ is fairly vacuous and blurred in this defense of the mainstream framework. I respond by pointing out that essentially the monetary system dynamics in Japan are identical to the way the system works elsewhere. The institutions might have subtle variations but essentially the operations are so similar that the ‘culture’ bailout doesn’t help resurrect the appalling lack of predictive accuracy when it comes to examining the macroeconomics of Japan. Cultural aspects, however, are crucial to understanding the differences. The trick is understanding how these monetary and fiscal institutions are managed. This is where the cultural aspects impact. And, while I have learned a lot about Japanese cultural nuances, some of the more important ‘cultural’ drivers are transportable to any nation – if only we cared enough and valued people in the same way.

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The Weekend Quiz – November 26-27, 2022 – 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 – September 10-11, 2022 – 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 – August 20-21, 2022 – 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 – July 30-31, 2022 – 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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Once again the so-called technocracy that is the Eurozone looks like a farce

So last week, the Bank of Japan remained the last bank standing, the rest in the advanced world have largely lost the plot by thinking that raising interest rates significantly will reduce the global inflationary pressures that are being driven by on-going supply disruptions arising from the pandemic, the noncompetitive behaviour of the OPEC oil cartel and the Russian assault on Ukraine. The most recent central bank to buckle is the ECB, which last week raised interest rates by 50 basis point, apparently to fight inflation. But the ECB did it with a twist. On the one hand, the rate hike was very mainstream and based on the same defective reasoning that engulfs mainstream macroeconomics. But on the other hand, they introduced a new version of their government bond-buying programs, which the mainstream would call ‘money printing’ and inflationary. So, contradiction reigns supreme in the Eurozone and that is because of the dysfunctional monetary architecture that the neoliberals put in place in the 1990s. The only way the common currency can survive is if the ECB continues to fund Member State deficits, even if they play the charade that they are doing something different. Hilarious.

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The Weekend Quiz – July 16-17, 2022 – 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 class war is over, viva the class war – inflation and all that

Political leaders have been keen to promote individualism over the last several decades because it suits the class interests they serve. Margaret Thatcher denied the existence of society. John Major, who shafted her to take over the Tories in 1990 and pressured the UK to join the EU, claimed there was a society but that he would render it “classless” so that everyone has the opportunity to shine according to their talents. Within the Tory tradition, David Cameron, who effectively through bungling paved the way for the UK to leave the EU (finally) told the people “There is such a thing as society; it’s just not the same thing as the state” and promised to create a “Big Society” where we all worked together to volunteer and provide public services as charitable endeavours. On the Labour side, in 1999, Tony Blair clarified all these claims to classlessness by declaring that “the class war is over”. Class struggle is dead. We are all on the same side now. All sharing in a commonwealth that we create together. I recall a BBC program I saw around the turn of this century that declared the ‘class system’ was dead and that we had all become elevated, together, in the middle class.

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The Weekend Quiz – May 21-22, 2022 – 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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Biodiversity Sensitive Urban Design and the silence of our political parties

Australia is in the last week of a federal election campaign, which has been marked by a disturbing absence of any policy vision by either main party which might address the most important issues confronting society and our land. Hopefully, the conservatives will get their marching orders this coming weekend (I have scheduled a rare glass of champagne around 22:00 on Saturday, when the result should be known) and the worst government in my lifetime will be gone. The problem is the Labor opposition is also short of policy mission. They have been too scared to enunciate anything much worth thinking about on climate, housing, education, health care, urban planning etc because, as the main narrative goes, they feared being wedged by the conservative government who lacks any remotely acceptable. The rival explanation for Labor’s timidity is that they are not committed to root-and-branch reform because they are inherently neoliberal themselves – a light version of the conservatives – without the extreme right tendencies on gender and those sorts of issues that dominate conservative politics. So, for whatever reason, the main challenges ahead are not being prosecuted by the major parties, which means our society will just be compounding the unsustainable evolution under the neoliberals and the price we will increasingly pay is rising.

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The Weekend Quiz – April 23-24, 2022 – 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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