Monetary policy has failed – we must reprioritise fiscal policy

Remember back in early 2009, when the then head of the European Central Bank Jean-Claude Trichet (boasted that the “euro … is a success … it helps to secure prosperity in participating states”. He was still making these claims in October 2018. At an event in honour of he and former German finance minister Theodor Waigel, organised by the Banque de France, Trichet said that “the euro is a historic success … in terms of credibility, resilience, adaptability, popular support and real growth during its first 20 years is impressive”. He particularly singled out the “delivery of price stability”. Well the latest data confirms beyond doubt that the ECB has failed to deliver on its price stability charter. Further, the descent back into recession in Italy and probably Germany in the December-quarter 2018 tells us that this reliance on monetary policy to stimulate growth while maintaining ridiculous levels of fiscal rectitude has undermined growth and unnecessarily condemned millions to unemployment and rising poverty.

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The mindless and myopic nature of neoliberalism

A short blog post as per my usual Wednesday behaviour these days. Fiscal austerity manifests in many ways, all of them unpleasant, destructive and unnecessary. Here is one of the more insidious ways that mindless cuts in government programs have long-term damaging impacts. In 2013, the Queensland State Government was taken over by a conservative extremist as Premier who thought it was a good idea to hack into sexual health programs targetted at indigenous communities. Over a few short years, this was just one of a huge number of social and health cuts that were made by that particular state government. More than 14,000 public service jobs were cut (a huge relative number). The State government fiscal deficit fell from a predicted $A6 billion in 2013-14 to $A2.58 billion. But like all these austerity cuts which deliver short-run reductions in public spending, the longer-term effects of the cuts lead to much higher amounts of public spending. Neoliberalism is not only mindless but myopic. I have made this point often in regard to infrastructure cuts. In the end, the government has to spend much more fixing the crisis the initial cuts create. Not a sensible strategy at all. The ‘chickens’ (manifestation) of those cuts in Queensland a few years ago are now coming home to roost. As predicted at the time, there is now a health crisis in the form of a STD epidemic moving across the north of Australia from east to west, purely because this idiot wanted to ‘save’ a few pennies. Now serious public cash is being required to put a brake on the health crisis he created. There are countless examples across the world over this neoliberal era of this same phenomena. Myopic and mindless.

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When two original MMT developers get together to discuss their work

Last week, Warren Mosler and I had one of our regular catchups and we discussed at length the state of play in Modern Monetary Theory (MMT). We are quite protective of it. We mused about how we started out on this Project and where it has gone. As old stagers do when they get together. We also reflected and compared notes on what the state of MMT is now, given the increasing visibility of the ideas in the mainstream media all around the world and the proliferation of social media activists who have chosen to identify and promote our ideas. There were aspects of that development that we identified as being of concern for us and other aspects which we considered to be a cause for optimism (celebration is too strong a word). We thought it would be a good idea to take a breath and document what we considered to be the essence of MMT – as a sort of checklist for people who want a fairly precise account of the body of work. I agreed to write this document after input from Warren. So, this is what we mean by MMT. What follows is my account of our conversation expanded to add meaning where required.

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US labour market moderated in November and considerable slack remains

Last week’s (December 7, 2018) release by the US Bureau of Labor Statistics (BLS) of their latest labour market data – Employment Situation Summary – November 2018 – showed that total non-farm payroll employment rose by 155,000 and the unemployment rate was essentially unchanged at 3.7 per cent. Participation was steady. While the US labour market is reaching unemployment rates not seen since the late 1960s, the participation rate is still well below the pre-GFC levels and a substantial jobs deficit remains. Other indicators suggest there is still considerable slack in the labour market, especially outside the labour force (marginal workers) and among the underemployed. Taken together, the US labour market moderated in November but remains some distance from full employment.

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Australian workers losing out under neoliberalism

The current conflict in France, while multidimensional, is a reflection that the neoliberal austerity system is not working for ordinary people. All sorts of cross currents feed in to this discontent, some of which (for example, distaste for foreigners/migrants) are clearly not to be encouraged. Most of the claims of the Gilets Jaunes are about the alienation, exclusion and poverty that they feel living in the neoliberal, corporatist EU world. A lot of so-called progressives are out there claiming this is a right-wing ruse advancing climate denial and anti-migrant sentiment. But I consider that to be a typical elite response to any EU discontent to avoid discussion of exit and the paint the critics as being stupid and/or racist. A replay of the Brexit accusations from the Remainers. But the writing is on the wall for the Eurozone countries. People will only tolerate being put down and oppressed for so long. And all is not well elsewhere. Even when a nation has its own currency and has the capacity to avoid the sort of stagnation that many European nations are now wallowing in, the universality of the neoliberal austerity bias is making life hard for not only the low-income cohorts, but, increasingly for the lower tiers of the ‘middle class’ (defined in income terms). Australian workers are feeling that pinch in the land of plenty.

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The Twitter echo chamber

It is Wednesday so just a few things to report and discuss. I have noted in recent weeks an upsurge in the Twitter noise about Modern Monetary Theory (MMT) and various statements along the lines that MMT economists are male chauvinists, mindlessly attack other heterodox economists because we are a religious cult, that we thrive on conflict, that only the US has a sovereign government and more. Quite amazing stuff. And these attacks are coming mostly from the so-called heterodox side of the economics debate although not exclusively. It is quite an interesting exercise to try to understand the motivations that are driving this social media behaviour. Things that would never be said face-to-face are unleashed with regularity these days. There appears to be a sort of self-reinforcing ‘echo chamber’ that this squad operate within and it seems to lead to all sorts of bravado that would be absent in face-to-face communication. None of the attacks seem to have any substance or foundation. They just reflect an insecurity with the way that MMT is creating awareness and challenging progressives to be progressive. And, they just make the Tweeters look stupid. I thought I would document some of the recent trail of nonsense to let you know what is going on in case you haven’t been following it. It is a very interesting sociological phenomena.

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Left-liberals and neoliberals really should not be in the same party

This week’s theme seems to be the about how the so-called progressive side of the economic and political debate keeps kicking ‘own goals’ (given a lot of this is happening in Britain where they play soccer) or finding creative ways to ‘face plant’ (moving to Europe where there is more snow). Over the other side of the Atlantic, as America approaches its mid-term elections, so-called progressive forces who give solace to the New Democrats, aka Neoliberal Democrats are railing against fiscal deficits and demanding that the left-liberals in the Democratic Party be pushed out and that the voters be urged to elect candidates who will impose austerity by cutting welfare and health expenditure and more. And then we have progressive think tanks pumping out stuff about banking that you would only find in a mainstream macroeconomic textbook. This is the state of play on the progressive side of politics. The demise of social democratic political movements is continuing and it is because they have become corrupted from within by neoliberals. And then we had a little demonstration in London yesterday of the way in which the British Labour Fiscal Rule will bring the Party grief. The Tories are just warming up on that one.

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The Weekend Quiz – October 20-21, 2018 – 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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Reflections on the 2nd International MMT Conference – Part 1

I have very little free time today. I am now in Dublin and am travelling to Galway soon for tonight’s event (see below). Last evening I met with some Irish politicians at the Irish Parliament and had some interesting conversations. I will reflect on the interactions I have had so far in Ireland in a later blog post. But today (and next time I post) I plan to reflect briefly on my thoughts about the Second International Modern Monetary Theory which was held last weekend in New York City. Around 400 participants were in attendance, which by any mark represents tremendous progress. The feeling of the gathering was one of optimism, enthusiasm and, one might say without to much license, boundless energy. So a big stride given where we have come from. Having said that, I had mixed reactions to the different sessions and the informal conversations I had over the three-day period, which might serve as a cautionary warning not to get to far ahead of ourselves. This blog post is Part 1 of my collection of some of those thoughts. They reflect, to some extent, the closing comments I made on the last panel last Sunday.

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The Weekend Quiz – September 22-23, 2018 – 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 divide between mainstream macro and MMT is irreconcilable – Part 2

This is Part 2 of a three-part response to an iNET article (September 6, 2018) – Mainstream Macroeconomics and Modern Monetary Theory: What Really Divides Them?. In Part 1, I considered what we might take to the core body of mainstream macroeconomics and used the best-selling textbook from Gregory Mankiw as the representation. The material in that textbook is presented to students around the world as the current state of mainstream economic theory. While professional papers and policy papers might express the concepts more technically (formally), it is hard to claim that Mankiw’s representation is not representative of what current mainstream macroeconomics is about. Part 1 showed that there is little correspondence between the core propositions represented by Modern Monetary Theory (MMT) and the mainstream. Yet, the iNET authors want to claim that the differences between the two approaches to macroeconomics only really come down to a difference in “assignment of policy instruments” – jargon for MMT prefers fiscal policy while the mainstream prefers monetary policy as the primary counter-stabilising tool. Given the lack of conceptual and theoretical correspondence demonstrated in Part 1, it would seem surprising that there is really only just this difference in policy preference dividing MMT from the mainstream. If that was the case, then what is all the fuss about? Clearly, I consider the iNET article presents a sleight of hand and that the differences are, in fact, significant. So, in Part 2, I am tracing how the iNET authors came to their conclusion and what I think is problematic about it. This discussion will spill over into Part 3.

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The divide between mainstream macro and MMT is irreconcilable – Part 1

My office was subject to a random power failure for most of today because some greedy developer broke power lines in our area. So I am way behind and what was to be a two-part blog series will now have to extend into Wednesday (as a three-part series). That allows me more time today to catch up on other writing commitments. The three-part series will consider a recent intervention that was posted on the iNET site (September 6, 2018) – Mainstream Macroeconomics and Modern Monetary Theory: What Really Divides Them?. At the outset, the iNET project has been very disappointing. Very little ‘new’ economic thinking comes from it – its offerings are virtually indistinguishable from the New Keynesian consensus that dominates my profession. The GFC revealed how impoverished that consensus is. It has also given space for Modern Monetary Theory (MMT) to establish itself as a credible alternative body of theory (and practice). The problem is that the iNET initiative has been captured by the mainstream. And so the Groupthink continues. The article I refer to above is very disappointing. It claims to offer a synthesis between Modern Monetary Theory (MMT) and mainstream macroeconomics by way of highlighting “what really divides” the two schools of thought. You might be surprised to know that according to these authors there is not much difference – only that mainstream economists think that monetary policy should be privileged to look after full employment and price stability and MMT economists (apparently) think fiscal policy should have that role. The authors claim that for the on-looker these minor differences are opaque in terms of outcomes (if the policies are applied properly) and suggest that there is really no reason for any debate at all. Accordingly, the New Keynesian consensus is just fine and the mainstream economists knew all the MMT stuff all along. It is an extraordinary exercise in sleight of hand engineered by constructing the comparison in terms of two ‘approaches’ that cull the main aspects of each. The real issue is why would they waste their time. Degenerative paradigms (or research programs in Imre Lakatos’ terminology) typically try to absorb challenging paradigms that, increasingly have more credibility and appeal, back into the mainstream through various dodges – ‘special case’, ‘we knew it all before’, ‘really nothing new’, etc. This is Part 1 of my response. It won’t be an easy three-part series but stick with it and I hope it gives you a lot of insights into the abysmal state of the mainstream macroeconomics profession.

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Bank of Japan once again shows who calls the shots

On August 1, 2018, the 10-year Japanese government bond yield, shot through the roof (albeit a very low one). Yields shifted from 0.05 per cent on July 31 to 0.129 on August 1, which was the largest one-day rise since July 29, 2016 (when the yield rose 0.101 per cent). The Financial Times article (August 1, 2018) – Japanese bond market jolted as traders test BoJ resolve – wrote that “traders wasted no time in testing the Bank of Japan’s resolve to loosen its target range for the debt benchmark”. So what was that all about? And what key point does it demonstrate that seems to be lost on mainstream economists who continually claim that government debt is, or can become a problem once bond markets demand higher yields? The Japanese bond market has shown once again that private bond traders cannot set yields on government bonds if the central bank intervenes. Next time you hear some mainstream economist claiming a currency issuing government is running deficits at the will of the investors (read bond markets) politely tell them they are clueless. Japan once again provides the real world Modern Monetary Theory (MMT) laboratory – every day it substantiates the underlying insights contained within MMT and refutes the core mainstream propositions. The bond market over the last month or so demonstrates that the Japanese government is increasingly net spending by using credits created by the Bank of Japan, whatever else the accounting structures might lead one to believe. With inflation low and stable, these dynamics surely put paid to the various myths that a currency-issuing government can run out of money and that central bank credits to facilitate government spending lead to hyperinflation.

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The conservative polity is fracturing – an opportunity for the Left

Regular readers will know that I have spent a lot of time writing about the demise of the Left political parties as they became subsumed with neoliberal economic ideology, which blurred the political landscape as the ‘centre’ moved to the Right. That topic was the focus of our current book – Reclaiming the State: A Progressive Vision of Sovereignty for a Post-Neoliberal World (Pluto Books, September 2017). The neoliberal infestation has left these parties with declining electoral support, fractured internal organisations and cultures, and a seeming inability to abandon their flawed economic narratives. But there is a mirror image to this demise and that is playing out on the conservative side of politics. In Australia in the last week (but building for years) the far right conservative elements from within the government have brought down their own leader and our Prime Minister in a spiteful clash of ideologies between the more moderate elements in their party and the extremes out on the right. The internal tensions that drove this suicidal mission are being played out around the world. Think about the way that Trump is compromising the Republican party. Think about how Brexit is splitting Tory ranks in Britain. And so on. The problem for the conservatives is that citizens are realising that the neoliberal economic approach has failed to deliver on its promises. And that economic model is ‘owned’ by the conservatives. The adoption of neoliberal economics by social democratic parties is not part of their DNA. It is largely because their ranks have been infested by careerists who have come from the ‘elites’ and have little resonance with workers. The gaps in the policy space that these fractures have created is being occupied by extremist groups. It will be much easier for progressive parties to reclaim that space than it will be for the conservatives who are in the process of a death spiral. But to do that, the social democratic movements has to abandon every vestige of neoliberal economics – the concepts, policies and language and framing. That is the challenge.

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Public infrastructure investment must privilege public well-being over profit

One of the principle ways in which so-called progressive political parties (particularly those in the social democratic tradition) seek to differentiate themselves from conservatives is to advocate large-scale public infrastructure investment as a way of advancing public good. You can see evidence of that in most nations. Nation-building initiatives tend to be popular and also are less sensitive to the usual attacks that are made on public spending when income support and other welfare-type programs are debated. Capital worked out long ago that public spending on infrastructure provided untold benefits by way of profits and influence. In the neoliberal era, the bias towards ‘competitive tendering’ and public-private partnerships has meant that private profit tends to dictate where and what public infrastructure is built. The problem is that large-scale projects tend to become objects of capture for the top-end-of-town. Research shows that these ‘megaprojects’ typically deliver massive cost overruns and significantly lower benefits than are first estimated when decisions are being made about what large projects to fund. Further, evidence suggests that this is due to corrupt and incompetent behaviour by private project managers (representing their companies) and empire-building public officials. They lie about the costs and benefits so as to distort the decision-making processes in their favour. Any progressive government thus must be mindful of these tendencies and behaviours. A progressive policy agenda needs to be more than just outlining a whole lot of nice sounding public infrastructure projects that the government will pursue. The whole machinery of public procurement that has emerged in this neoliberal era needs to be abandoned and replaced with decision-making processes and rules that privilege the advancement of public well-being over profit.

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The Weekend Quiz – August 18-19, 2018 – 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 neoliberal ‘progressives’ and their bankster mates are becoming rattled

You know, an Italian won the British Open golf championship yesterday (the first Italian to ever win a golf major) because of the uncertainty surrounding Brexit negotiations. The causality is impeccable. I am sure about that, although it might take me a while to work it out. But if a British golfer cannot win their Open Championship (Rose tied for second, two shots back) then it must be because of Brexit. Everything else that goes wrong is, so why not the golf? It is the same when three former US policy makers, central bankers, Wall Street-types, claim that the US no longer “have to tools to counter the next financial crisis”. They know full well that that statement is a blatant lie. But they say it. To remain relevant as their stars dim? To do service to their conservative mates? All of the above and more. But the media grab the headline and the American public and the public in general is dealt another piece of neoliberal misinformation that helps entrench the hold on power by the elites. But things are changing, and these entrenched elites and the vested interests they serve don’t like it a bit.

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The Weekend Quiz – July 14-15, 2018 – 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 BIS should be defunded and then dissolved

On June 24, 2018, the Bank of International Settlements (BIS) released their – Annual Economic Report 2018 – which contains their latest analysis of the global economy including the risks they think the current growth process faces. It is full of myth and like previous statements from the BIS it only serves to perpetuate the policy mentalities that caused the global financial crisis. These multilateral organisations (including the BIS, IMF, World Bank, OECD etc) have become the harbingers of the neoliberal ideology. In doing so, they have breached their original charter. They should be dissolved and replaced with new institutions within a revised international framework. We sketched that framework in our current book – Reclaiming the State: A Progressive Vision of Sovereignty for a Post-Neoliberal World (Pluto Books, 2017).

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The Weekend Quiz – June 23-24, 2018 – 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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