RBA governor adopts a political role to his discredit

Last week, the Reserve Bank of Australia governor, Philip Lowe, confirmed that the claim that the central bank is independent of the political process is a pretense. The Governor was adopting a political role and made several statements that cannot be analytically supported nor supported by the evidence available over many decades. He is insistent on disabusing the public debate of any positive discussion about Modern Monetary Theory (MMT), which, of course, I find interesting in itself. More and more people are starting to understanding the basics of MMT and are realising that that understanding opens up a whole new policy debate, that is largely shut down by the mainstream fictions about the capacities of the currency-issuing government and the consequences of different policy choices. People are realising that with more than 2.4 million Australian workers currently without enough work (more than a million officially unemployed) that the Australian government is lagging behind in its fiscal response. They are further realising that the government is behaving conservatively because it still thinks it can get back to surplus before long and so doesn’t want to ‘borrow’ too much (whatever that means). An MMT understanding tells us that the government can create as many jobs as are necessary to achieve full employment and the central bank can just facilitate the fiscal spending without the need for government to borrow at all. They are asking questions daily now: why isn’t the RBA helping in this way. The denial from the RBA politicians (the Governor, for example) are pathetic to say the least.

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Wages growth in Australia at record lows

Last week was a very busy data release week and so I am still catching up. Last Wednesday (August 12, 2020), the Australian Bureau of Statistics (ABS) released the latest- Wage Price Index, Australia – (June-quarter 2020). The ABS reported that the June-quarter result was “the lowest annual growth in the 22-year history of the WPI”. Private sector grow was just 0.1 per cent and public sector growth was 0.6 per cent. The overall WPI growth was just 0.2 per cent. With annual inflation in the June-quarter recorded at -0.3 per cent, real wages grew. But the inflation result was distorted the federal government decision to offer free child care in the early period of the pandemic (now rescinded). The reality is better reflected in the core inflation rate (excluding volatile items) of 0.4 per cent. Taking that measure, real wages fell overall in Australia in the June quarter. Further, over the longer period, real wages growth is still running well behind the growth in GDP per hour (productivity), which has allowed profits to secure a substantially increased share of national income.

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The Weekend Quiz – August 15-16, 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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Fundamental lack of leadership vision in Australia’s response to the pandemic

Today, the Prime Minister of Australia indicated that the ‘effective’ unemployment rate in Australia is heading to 13 per cent as a result of the harsh lockdowns that have just begun in Victoria as it reels under a second wave of coronavirus (Source). The effective rate incorporates the official estimate (based on activity tests – search and willingness), the number of workers who have dropped out of the labour force due to a lack of opportunities, and those on wage subsidies who are not working at all. The Stage 4 Melbourne lockdown for the next six weeks will cut GDP by a further 2.5 per cent. While economists fuss about microeconomic losses, the daily output and income losses from the unemployment and underemployment are massive, not to mention the huge personal, family and community losses. A responsible government, which issues its own currency and can procure any productive resources that are idle, would be doing everything it could to ensure these losses do not occur. It is not rocket science. The Federal government could ensure those who are unable to work due to the lockdown maintain their current incomes. The overwhelming impression I am getting as we enter the fourth month of this crisis is that the federal polity in Australia is lost. The scale of the disaster has so confronted the neoliberal DNA of the major parties that they are failing to articulate a coherent and viable short- and medium-term plan to deal with the crisis. The challenge is for the government to abandon its inclination to see a ‘return to surplus’ as a benchmark it aspires to. That mentality is making this disaster a catastrophe. We can do much better.

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Latest data – largest quarterly output decline in recorded US history – but Europe is worse

The US Bureau of Economic Analysis (BEA) released the – Gross Domestic Product, Second Quarter 2020 (Advance Estimate) – data last week (July 30, 2020). It shows that the US economy has declined by 9.49 per cent between the March- and June-quarters. On an annual basis the decline was 9.54 per cent. This is the largest quarterly contraction in recorded history. Consumption expenditure declined by 10.1 per cent in real terms and business investment by 17.4 per cent. The collapse in consumer expenditure was mostly concentrated in services (-22.6%), which reflected lockdowns and the unwillingness of consumers to continue normal practices. Personal saving as a percentage of disposable personal income jumped dramatically from 9.5 per cent in the March-quarter to 25.7 percent in the second quarter. That is a testament to the endemic uncertainty that the pandemic has created. The contribution of net exports actually rose, not because exports rose (their individual contribution was -9.38 points), but because of the slump in imports – a smaller leakage from the expenditure system (adding 10.1 points t growth!). Overall, there is no trend – just a massive mess. How the second wave of the virus impacts is anybody’s guess but lots more deaths and more disruption is certain.

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The Weekend Quiz – August 1-2, 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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Setting things straight about the Job Guarantee

We need to get a few things straight. And this is partly for those out there who seem to think that the extent of literature on Modern Monetary Theory (MMT) or the Job Guarantee within MMT is confined to collections of Tweets that allow 280 characters or Unicode glyphs. One doesn’t become an expert on ‘full employment’ or ‘political economy’ because they have suddenly realised there is a major crisis in the labour market and have decided to strategically place their organisations for self-serving purposes to be champions of full employment. There is an enormous literature on the Job Guarantee and I have been a major contributor along with my valued colleagues. This is a crucial time in history and one of the glaring deficiencies in the current crisis and economic management in general is the lack of an employment safety net. This is what MMT has to say about that safety net and stabilisation framework.

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The Weekend Quiz – July 25-26, 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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RBA governor denying history and evidence to make political points

Today, the Australian Treasurer is out in force telling us that the fiscal situation is dire and that they have to start making cutbacks. Meanwhile in the real world, the unemployment rate continues to rise, businesses continue to fail, and the lowest paid workers, are being forced to continue working in dangerous health situations because they cannot ‘afford’ to stay at home like the better paid workers and protect their health. Its doesn’t bear scrutiny. My research centre released an updated report this week that also bears on the situation. The current fiscal stimulus is probably, at least $A100 billion short of where it should be, yet the government is announcing cuts. It will not turn out well. Meanwhile, across town, the Reserve Bank governor has been trying to deny the RBA has the currency capacity to allow the Treasury to keep spending without issuing debt. Already, the Labor party are making political points out of the rising public debt, which just makes them unelectable really, rather than savvy. The RBA governor’s intervention also just proved he is prepared to deny history and evidence to make political points, which had the other consequence of demonstrating how lacking in ‘independence’ the central bank is from the political process. And so it goes on.

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An old central banker trying to come to terms with MMT – not quite getting there

Last week (July 14, 2020), a former deputy governor of the Reserve Bank of Australia (RBA), Stephen Grenville wrote an article – Modern Monetary Theory and mainstream economics converging. The title suggests a gathering of minds between two paradigms – the degenerative mainstream macroeconomics and the emerging Modern Monetary Theory (MMT). I wouldn’t represent what is happening in that way. Convergence implies a harmonious process. The reality is that some of the mainstream economists have realised that their approach is deeply flawed and events over many years have demonstrated those flaws, while ratifying the empirical content of central MMT propositions. Our position has been consistent over 25 years. Now, the mainstream is fracturing and economists are trying to save face and remain relevant by suggesting, in various ways, that they knew all of the MMT insights all along, or variants on that theme. They didn’t. They were deeply opposed and hostile to key MMT insights that are now becoming widely acknowledged as correct. In trying to maintain this image of convergence, Stephen Grenville’s article, while quite insightful in many ways, misleads his readership and mispresents key MMT elements.

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The Weekend Quiz – July 18-19, 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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Governments are now in an ideological bind

Today’s blog post is a draft for another deadline I have this week, this time writing for a European publication on the state of affairs in the Eurozone. I have four major pieces of work to finalise this week so, as in yesterday, I am using this time to progress those goals. For many regular readers it will be nothing new. But, putting the arguments together in this way might just provide some different angles for people who haven’t thought about things in this way before. Regular transmission will resume on Thursday (probably).

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Making better investment decisions using MMT as a knowledge base (long)

This is a draft I am working on for a leading US publication. For many regular readers it will be nothing new. But while there are several things I am probing at the moment which I would normally use my blog space to tease out, time is short this week (really) and so I have to combine things. In other words, the blog space and time today is being used to fulfill commitments with very tight deadlines. But, putting the arguments together in this way might just provide some different angles for people who haven’t thought about things in this way before.

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The Weekend Quiz – July 11-12, 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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We can have full employment again in a green world

Last Saturday, the Weekend Australian, Rupert Murdoch’s daily national newspaper, had a relative Modern Monetary Theory (MMT) avalanche, with two core MMT-style articles published and two that were supportive rather than hostile. That tells you something about the way the world is shifting. I have received a bit of flack for publishing an Op-Ed piece in that newspaper from those who style themselves as Leftists. It is the same old argument – dealing with the devil. And the same old reply – if you want to influence policy then you have to talk to those who make policy. It is easy plotting revolutions over lunch. There has been a lot of groundwork laid over the last several months to bring people into the conversation. It is quiet stuff. Discreet. And as things unfold I will make some of the developments public. At present, all I can say is that I have a document before the Prime Minister today and there is a lot of behind-the-scenes workshops/briefings going on at state-level. And, while activists spend a lot of time ‘pressuring’ this person and that person on social media, the big shifts that are going on at present, including the publication of Noel Pearson’s piece and my article, are not being helped by aggressive social media confrontations. Sometimes it is better to work in a subtle way and exploit networks where they are available. That is not to say that activism to promote MMT is not appreciated and helpful. But we do need to pick our path. Anyway, a number of people asked me to publish my article here because they cannot get behind The Australian’s paywall. So here is the penultimate version which is a few hundred words longer than the actual article, which I cannot provide due to copyright restrictions. I also cannot provide Noel Pearson’s accompanying and complementary article but it was magnificent.

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The Weekend Quiz – July 4-5, 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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Australian minimum wage case decision – a scandalous indictment of our system

On June 19, 2020, Australia’s wage setting tribunal, the Fair Work Commission handed down its – Decision: Annual wage review – which saw the National Minimum Wage (NMW) rise by just 1.75 per cent per cent from July 1, 2020. However some of the flow-on increases (awards linked to the NMW), which would normally have been adjusted on the same date have been staggered (November 1, 2020 for Group 2 Awards and February 1, 2021 for Group 3 Awards). The new minimum wage will be $753.80 per week or $19.49 per hour (a measly 35 cents per hour extra). In terms of any inflation measure you want to choose, the FWC’s decision represents a real wage cut for the lowest paid workers (Group 1) and even larger cuts for the other Groups as a result of the staggered wage rises. There is certainly no joy for workers when the mindless pursuit of austerity by the federal government slows growth (before the pandemic), which the government’s own wage setting tribunal then uses as a pretext (the slow growth) to cut real wages. Meanwhile the major employer groups argued for zero nominal rise while enjoying growth in profits with rising productivity growth. A scandalous indictment of our system.

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Apparently the government has no money but then has plenty

Things are obviously getting desperate out there in financial media commentary land. If one could express written text in graphical terms then there are a number of financial journalists out there that look – like a rabbit caught in the headlights – that is in a state “of paralyzing surprise, fear, or bewilderment.” A good example of this increasingly observed syndrome is an article in The Australian newspaper today (June 30, 2020) by Adam Creighton – Never forget that governments have no money – it is always ours (subscription required). This sort of journalism is becoming an almost daily occurrence as it becomes obvious that capitalism is now on state life support systems and the extremities of government intervention are demonstrating very clearly what Modern Monetary Theory (MMT) economists have been saying – and the only ones that have been saying it – for 25 years or so. I often note that Japan has already pushed the fiscal and monetary policy parameters beyond the limits most countries have explored in peacetime and mainstream economists have systematically predicted various scales of disaster and have always been wrong. Now all countries are at extremes and still no fiscal disaster. But the mainstream mouthpieces – these financial journalists who seem to think the stuff they read in first-year text books from mainstream economics programs are in same way the basis for expertise and knowledge – are in advanced states of dissonance. Drivel follows.

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Governments should do everything possible to avoid recessions – yet they don’t

In May 2020, the IMF published a new Working Paper (No 20/73) – Hysteresis and Business Cycles – which provides some insights into what happens during an economic cycle. The IMF are somewhat late to the party as they usually are. We have known about the concept and relevance of hysteresis since the 1980s. In terms of the academic work, I was one of the earliest contributors to the hysteresis literature in the world. I published several articles on the topic in the 1980s that came out of my PhD research as I was searching for solutions to the dominant view in the profession that the Phillips curve constraint prevented full employment from being sustained (the inflation impacts!). The lesson from this literature in part – especially in current times – is that governments should do everything possible to avoid recessions. The hysteresis notion tells us clearly that the future is path dependent. The longer and deeper the recession, the more damaging the consequences and the longer it takes to recover while enduring these elevated levels of misery. Organisations like the IMF have never embraced that sort of reasoning, until now it seems. They certainly didn’t act in this way during the Greek disaster. But, better late than never.

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The Weekend Quiz – June 27-28, 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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