There is no inevitable trade-off between saving the lives of the aged and economic prosperity

Many issues that become ‘hot topics’ in public debates are really non-questions despite the heat they raise. All sorts of experts advance views, television current affairs programs trawl over them with various of these experts making careers for themselves, politicians take up hours of their time and our time discussing them, yet, when you really break the issue down – there is nothing much to see. The seemingly very erudite debates, discussions, opinions are all based on false starting premises, which are assumed and rarely discussed. This sort of charade is all the legacy of living in the fictional world created by my profession, which has distorted public discourse so badly that we now have people saying old people should be allowed to die terrible deaths from COVID so the young people can have jobs. These are old people who worked all their lives to help build our nations, who fought in World Wars to defend our freedom from daunting enemies, old people who cared for us personally, and old people who mostly, probably, have the joy of life before them each day they open their eyes, just like any of us. The problem is that the whole construction is based on a false premise: being that there has to be widespread economic damage if we choose to protect the health of our peoples. That premise is based on the failure to understand that the currency-issuing government can attenuate any economic losses if it chooses to adopt appropriate economic policy interventions. The fact that real GDP and employment has fallen significantly this year is testament to a failure to use fiscal capacity. We should be better informed before we get into elaborate but flawed debates that essentially come down to turning one population cohort against another.

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Australian labour market – improving modestly but much more fiscal stimulus is required

The latest data from the Australian Bureau of Statistics – Labour Force, Australia, August 2020 – released today (September 17, 2020) shows that employment rose by 0.9 per cent as the economy struggled to shift back into growth mode. In part, the moderate result was due to the impact of the Stage 4 restrictions in Victoria as that state dealt with the second virus wave. Victoria was the only state or territory to endure negative employment growth in August. As the virus situation is coming under control and the lockdowns are easing, Victoria will rebound fairly quickly – how far depends on the damage done during the closures. The lack of external migration is also seeing the labour force growth moderate significantly, which allowed unemployment to decline by 86.5 thousand on the back of the modest employment boost. Participation also rose. The reality is that if we take a broader view of the labour underutilisation rate (adding in the hidden unemployment who have left the labour force since March) to the official unemployed and underemployed, we find around 19.5 per cent of the available labour supply is not working in one way or another. Any government that oversees that sort of disaster has failed in their basic responsibilities to society. It must increase its fiscal stimulus and target it towards large-scale job creation. My overall assessment is: (a) The current situation can best still be described as near catastrophic; (b) The Australian labour market needs massive fiscal policy intervention targetted at direct job creation; (c) The pre-pandemic need for a fiscal stimulus of around 2 per cent has changed to a fiscal stimulus requirement of several times that; (d) The Federal government’s attempts to date have been seriously under-whelming and we will soon see the results of their withdrawal of the unemployment benefit supplement (a ridiculous decision); and (e) Any government that oversees that sort of disaster has failed in their basic responsibilities to society.

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There is no limit to government debt issuance – if you have your own currency

Japan has a new leader of the ruling Liberal Democratic Party, who, given the majority of the LDP in the Diet will become prime minister in the coming days. He was interviewed over the weekend about the current crisis and the role that the Japanese government can play to attenuate the costs. He stated clearly that there was no limit to government debt issuance. The meaning of this statement is clear. The Japanese government should ignore claims that its public debt ratio is too high or is facing impending insolvency or bond-market revolts or any of the other manic predictions that economists who do not know better keep making. Instead, as Yoshihide Suga noted, the challenge is jobs and incomes. The only limits are real resource constraints and when there is a pandemic and rising unemployment, those constraints ease and the fiscal space for more net spending increases. At least one world leader understands that.

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British legislation must be able to override EU law – that is what independence means

Piety has no bounds it seems. The Sunday Times ran an Op Ed at the weekend (September 12, 2020) – John Major and Tony Blair: Johnson must drop shameful no-deal Brexit bill or be forced to by MPs (paywall) – which told us how angry former British Prime Ministers Tony Blair and John Major are with Boris Johnson about the Government’s intention to introduce the Internal Market Bill to ensure the so-called Withdrawal Agreement is compatible with national law. They started by appealing to the international treaty status of the Withdrawal Agreement, which outlined Britain’s terms of exit from the EU. The Op Ed called the decision by government as “shocking”. The Remainers are jumping on the ‘breach of international law’ bandwagon like there is no tomorrow. Of course, they never highlight the fact that they want to be part of an arrangement, which is created by international law and which regularly violates that law to serve its own political and elite interests. And those breaches, which include gross human rights abuses and deliberately undermining the prosperity of its own citizens through mass unemployment and more, have had severe consequences for humanity. The fact that the British government is now declaring national law will no longer be subjugated and subservient to international agreements is not in the same ball park of international violations.

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The Weekend Quiz – September 12-13, 2020 – 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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Federal government cutting spending as payroll data shows employment still in decline

On Tuesday (September 8, 2020), the ABS released the latest data for – Weekly Payroll Jobs and Wages in Australia, Week ending 22 August 2020 – which gives us the most up-to-date picture of how the labour market is coping with the on-going restrictions. This data provides more accurate estimates of the impact of the harsh Stage 4 restrictions that have been imposed in Victoria to address the Second Wave of the coronavirus. Unsurprisingly, payroll employment fell in the six-week period ending August 22, 2020 in Victoria by 2.5 per cent. But what was also surprising was that employment fell in every other state or territory bar South Australia and NT. The Victorian case is about lockdown. The other declines are about failed macroeconomic policy, which goes to the performance of the federal government. The fact that the first recovery period failed to regain the jobs lost was an indicator that the policy intervention was insufficient. The second-wave job losses tell us clearly that more needs to be done by the Federal government. I am not holding my breath.

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Tracing the roots of progressive views on the duty to work – Part 5

This is Part 5 of my on-going examination of the concept of ‘duty to work’ and how it was associated with the related idea of a ‘right to work’. In Part 4, I demonstrated that the dual concepts were long-standing ideas and the emergence of neoliberalism distorted their meaning by, one, abandoning the commitment by governments to facilitating the right to work, and, two, perverting the meaning of duty to work. Neoliberalism thus has broken the nexus between the ‘right to work’ responsibilities that the state assumed in the social democratic period and the ‘duty to work’ responsibilities that are imposed on workers in return for income support. That break abandons the binding reciprocity that enriched our societies. In this part, I examine the way in which full employment and work has been treated within the justice literature to extend the notion of reciprocity that we discussed in Part 4. In Part 5 I will consider how this bears on discussions about basic income and coercion.

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US labour market improvement continues but there is still a long way to go

On September 4, 2020, the US Bureau of Labor Statistics (BLS) released their latest labour market data – Employment Situation Summary – August 2020 – which shows that while employment continued to grow, the rebound has moderated. All the major aggregates are heading in the right direction. Employment is up, participation is up, the labour force is recovering and the unemployment rate and broader measures of labour underutilisation are falling. The problem facing the US is that the lack of economic support from the Federal government means that the huge pool of unemployment will take years to reduce and the damage will accumulate. How far the recovery can go depends on two factors, both of which are biased negatively: (a) How many firms have gone broke in the lockdown? (b) Whether the US states will have to reverse their lockdown easing in the face of a rapid escalation of the virus in some of the more populace states. I do not see appropriate policy responses in place at present. From abroad, it looks like the US government is stepping back when it should be engaging in supporting all incomes and introducing large-scale job creation programs.

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The Weekend Quiz – September 5-6, 2020 – 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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MMT blows the cover on the fictional world of mainstream economics that serves class interests

Given I presented a full analysis of the National Accounts release yesterday, I am calling today Wednesday and not writing much by way of blog posting, to give me more time to write other things that have to be done. But there is one issue that I will deal with today and regularly comes up and indicates that we are making progress. And after that we can all ‘Rise and Shine’ with some beautiful music.

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Australian economy collapses and the federal government goes missing

Well now we have a better estimate of how far short the Australian government’s fiscal stimulus was when they introduced the packages in March and April. Massively short is the answer. The latest data release from the Australian Bureau of Statistics of the – Australian National Accounts: National Income, Expenditure and Product, June 2020 (released September 2, 2020) – is now recording the first three months impact on production and income generation of the lockdowns. The Australian economy collapsed basically, contracting by 7 per cent. Household Consumption expenditure fell sharply as households dramatically increased the saving ratio. The wage share fell below 50 per cent for the first time in recorded history as government support favoured profits. The obvious conclusion is that the Federal government has not supported an ailing economy enough to avoid the damage that negative growth brings. An urgent and major shift in fiscal policy towards further expansion is definitely required. But the government announced this week that they are withdrawing financial support and the result of that policy shift will be carnage!

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Tracing the roots of progressive views on the duty to work – Part 4

This is Part 4 of my on-going examination of the concept of ‘duty to work’ and how it was associated with the related idea of a ‘right to work’. In Part 3, I extended the analysis to the Western democracies of the Post World War 2 period and found that progressive political parties and movements firmly considered the two concepts to be fundamental elements of a progressive society. In this part, I extend that analysis and consider ways in which the ‘duty to work’ has been justified, drawing on the idea of reciprocity and social obligation. I also show how the emergence of neoliberalism has broken the nexus between the ‘right to work’ responsibilities that the state assumed in the social democratic period and the ‘duty to work’ responsibilities that are imposed on workers in return for income support. That break abandons the binding reciprocity that enriched our societies.

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US Federal Reserve statement signals a new phase in the paradigm shift in macroeconomics

Regular readers will know that for the last few years I have been documenting the way that the dominant paradigm in macroeconomics (New Keynesianism) is slowly disintegrating as the dissonance between its empirical predictions and reality becomes too great to ignore and justify. The once-in-a-century pandemic hasn’t given us much to celebrate in 2020. One cause for optimism, perhaps, is that we might finally jettison the mainstream economics fictions about government deficits and debt, which have hampered prosperity over several decades. Last week (August 27, 2020), the US Federal Reserve Bank Chairman, Jerome Powell made a path breaking speech – New Economic Challenges and the Fed’s Monetary Policy Review – at the annual economic policy symposium sponsored by the Federal Reserve Bank of Kansas City at Jackson Hole. On the same day, the Federal Reserve Bank released a statement – Federal Open Market Committee announces approval of updates to its Statement on Longer-Run Goals and Monetary Policy Strategy. We have now entered a new phase of the paradigm shift in macroeconomics.

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The Weekend Quiz – August 29-30, 2020 – 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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Capital investment in Australia falls off the proverbial in the June quarter

The Australian Bureau of Statistics (ABS) published the June-quarter – Private New Capital Expenditure and Expected Expenditure, Australia – data today as part of the sequence of data releases relating to next Wednesday’s release of the second quarter National Accounts. Remember that this data is ‘backward’ looking, in that it tells us what has gone in the three months from April to the end of June. But it does provide the first signal of the impact of the first-stage lockdowns in April have had on capital formation. Today’s release confirms the worst with Total new capital expenditure falling by 5.9 per cent in the quarter and 11.5 per cent over the last 12 months. Investment in Building and structures fell by 4.4 per cent over the quarter and 9.4 per cent over the 12 month period, while investment in Equipment, plant and machinery fell by 7.6 per cent for the quarter and 13.8 per cent over the year. Crucially expected investment for 2020-21 has nose-dived (down 12.6 per cent on previous plans). By allowing the economy to go into recession and sustain mass unemployment and falling sales, the Australian government has made matters worse. Within the safe health constraints, it could have easily added another $A100 billion to its stimulus and seen unemployment drop to relatively low levels, major construction work undertaken in social housing to address the chronic shortfall, and invest in forward-looking green infrastructure. Instead, it has chosen to penny pinch and today’s figures are just the start of the damage this policy void is causing. This is another case of neo-liberal austerity white-anting the capacity of the economy to deliver prosperity for all.

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Payroll employment falling again as second-wave and inadequate policy response bites

Last week, the Australian Bureau of Statistics released the latest data – Retail Trade, Australia, Preliminary , July 2020 – which showed that retail turnover in July 2020 had risen by 3.3 per cent, the second month of improvement since it fell off a cliff in the two months from March. The exception was for Victoria, which is now in Stage 4 lockdown, which caused retail sales to fall by 2 per cent. Today, the ABS released the latest data for – Weekly Payroll Jobs and Wages in Australia, Week ending 8 August 2020 – which gives us the most up-to-date picture of how the labour market is coping with the on-going restrictions and the reimposed of harsh Stage 4 restrictions in Victoria. Unsurprisingly, payroll employment fell in the fortnight ending August 8, 2020 in Victoria by 1.6 per cent. But what was also surprising was that employment fell in every other state or territory bar Tasmania and ACT. The Victorian case is about lockdown. The other declines are about failed macroeconomic policy, which goes to the performance of the federal government. Regular readers will know that I have routinely analysed this dataset ever since it first became available in March this year. It uniqueness is that it provides the most recent data upon which an assessment of where the labour market is heading. The data shows that after a partial recovery from the downturn, payroll employment is declining again. The fact that the first recovery period failed to regain the jobs lost was an indicator that the policy intervention was insufficient. The second-wave job losses tell us clearly that that more needs to be done by the Federal government. I am not holding my breath.

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More political interference from the central bank – oh but its independent!

At last week’s National Cabinet meeting (August 21, 2020), the governor of the Reserve Bank of Australia continued to play a political role in the economic debate despite hiding behind the veil of ‘independence’ from such matters. A few weeks ago, the federal government claimed the state and territory governments were not doing enough by way of fiscal stimulus to reduce the job losses associated with the pandemic. The Federal government is essentially trying to force the political consequences of its own failure to increase its net spending by enough and the resulting real economic damage that has resulted onto the states and territories. The RBA governor seems to be playing along with this agenda. Last Friday, he called for the states and territories to double their fiscal stimulus outlays (by $A40 billion) and stop fussing about credit ratings. The problem is that if they did that, the conservatives would immediately start claiming the debt was unsustainable and would damage the states’ credit ratings. Just as they regularly do to advance their political agendas to cut the size of state governments. While the mainstream economists urge ‘fiscal decentralisation’ they do so because they know states are not currency issuers and will then be open to attacks about tax burdens etc, which then bias the political debate towards cutting services etc. In general, the spending responsibilities should be at the level of the currency-issuer. And, the RBA governor should get back to fulfilling the legal charter of the RBA – to ensure there is full employment and price stability. His institution is achieving neither – with negative inflation and massive labour underutilisation. If he really wanted to increase job creation he could signal that the RBA would purchase any debt issued by governments at all levels who announced, and, made operational, large scale job creation programs. That would work.

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The Weekend Quiz – August 22-23, 2020 – 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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Tracing the roots of progressive views on the duty to work – Part 3

This is the third part in my historical excursion tracing where progressive forces adopted the idea that it was fair and reasonable for individuals who sought income support from the state to contribute to the collective well-being through work if they could. As I noted in Part 1, the series could have easily been sub-titled: How the middle-class Left abandoned the class fundamentals, became obsessed with individualism, and steadily descended into political obscurity, so much so, that the parties they now dominate, are largely unelectable! Somewhere along the way in history, elements of the Left have departed from the collective vision that bound social classes with different interests and education levels into a ‘working class’ force. In this Part, we disabuse readers of the notion that the ‘duty to work’ concept was somehow an artifact of authoritarian regimes like the USSR. In fact, we find well articulated statements in official documents in most Western democracies.

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