US labour market – quantitative gains but qualitative losses

On Friday (December 6, 2019), the US Bureau of Labor Statistics (BLS) released their latest labour market data – Employment Situation Summary – November 2019 – which reveals a labour market that that is still adding jobs. The November performance was very strong in quantitative terms. The payroll employment change was well above the year’s average and the official unemployment rate remains at very low (relative) levels. The employment-population ratio is steady indicating that the labour market is producing jobs growth in line with population growth. The Broad labour underutilisation ratio (U-6) remains high (but fell in November by 0.1 points) even though the official unemployment is now hovering around levels not seen since the late 1960s. The worry is that the jobs being added represent a significant hollowing out of jobs in the median wage area (the so-called ‘middle-class’ jobs), which is reinforcing the polarisation in the income distribution and rising inequality. There is no hint, yet in the data, that a recession is coming any time soon.

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The Weekend Quiz – December 7-8, 2019 – 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 growth outlook remains poor

The latest release by the Australian Bureau of Statistics of the – September-quarter 2019 National Accounts data (December 4, 2019) – confirms what we have been tracing for several quarters – the Australian economy is grinding to a halt, households are trying to increase saving, the Government’s tax cuts from July seem to have been largely saved to run down debt rather than spent, business investment is weak, and government spending and the terms of trade boost to exports are the only thing between now and a recession. And, the government is in denial, thinking its fiscal surplus obsession is more important than protecting incomes and growth. The problem is that if you don’t do the latter, you can kiss the former goodbye anyway. The data shows that annual GDP growth of 1.7 per cent is around 1/2 the historical trend rate. This is a very poor on-going result. The weaker performance started in the last 6 months of 2018 and has continued into the first six months of 2019. However, due to a fairly strong terms of trade, Real net national disposable income rose, which signifies rising material living standards. But those terms of trade gains will prove to be ephemeral. Overall, the quarterly growth rate was just 0.4 per cent. Net exports were strong (terms of trade effect) and government consumption expenditure was strong courtesy of some policy measures in disability, health and aged care coming on-line. Their boost will also dissipate fairly quickly. Longer-term worries include the weakening household consumption growth and the on-going negative business investment growth. The data now lets us appraise whether the small tax cut stimulus the government introduced from July have been very effective. In an environment where household debt is at record levels, the risks of unemployment are rising, and wages growth remains stagnant, it is no surprise that the households are using their tax savings to reduce their risk levels. This is borne out by the rising saving ratio. The overall picture is not good and the future is looking rather dim at present. A major shift in fiscal policy towards expansion is now definitely required.

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Q&A Japan style – Part 5a

This is a discussion about Modern Monetary Theory (MMT) and the bond-issuing options for a currency-issuing government such as Japan and Australia. We will consider the three options that such a government has and discuss each from an MMT perspective. What an MMT understanding allows is a thorough appreciation of the consequences of each option. The conclusions we reach are quite different from those presented in mainstream macroeconomics, mostly due to the fact that we do not consider the bonds to be necessary to fund government spending beyond tax revenue and construct the operations of the central bank and the commercial banks to accord to the way they operate in reality rather than in the fictional world of the mainstream. This discussion also recognises the political dimensions of government rather than the technical way we often consider things in MMT. This is the first-part of a two-part answer which I will conclude on Thursday. Today, we consider the emergence of the so-called ‘reflationists’ in Japan who advocated large-scale, non-standard monetary policy in the late 1990s as a solution to the ‘Great Stagnation’ that had beset the Japanese economy.

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European Union – business as usual as the madness continues

At the weekend, the German Social Democratic Party elected a new leadership from the Left of the Party, in the hope of resurrecting their disastrous political standings (Source), In rejecting the other main contender, current Finance Minister Olaf Scholz, the decision has apparently threatened the GroKo (Große Koalition), the coalition between Merkel’s CDU/CSU union and the SPD, which, arguably, has been the reason for the declining fortunes of the SPD. They have, in effect, abandoned their charter and become part of the neoliberal, austerity machine. The new leadership rejects the basis for the GroKo. At present, the SPD is only marginally ahead of the far-right AfD with the Union and Greens ahead of them. The same political dislocations are happening throughout Europe although the antagonism to the neoliberal austerity orthodoxy is more manifesting in chaos than a defined direction away from the major political parties (Britain is currently a good example of that). Meanwhile, the orthodoxy continues in the European Commission and in its – Autumn 2019 Economic Forecast: A challenging road ahead – they are requiring the majority of Member States to inflict more austerity on their nations even though a recession is looming. That is, business as usual as the madness continues.

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The Weekend Quiz – November 30-December 1, 2019 – 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 historical beginning of the MMT team – from the archives

It is Wednesday, so only some snippets, although as it turns out the blog post is quite long. I am also travelling a lot today. I have recently come across the complete archive of the PKT Discussion List, which was an E-mail listserv in the early 1990s that brought Warren Mosler, Randy Wray and myself together. In this blog post, I provide some of the interchanges that formed the basis of our subsequent partnership in developing MMT to where it is today. The discussion below is incomplete because I have not yet pieced all the archive together in a coherent way (it is quite fragmented in the form I currently have it in). But I think it might be interesting for you to see what was being said back in the 1990s. There will be more on this another day. No music today (ran out of time) but, tonight, my band is playing in Melbourne (see below) and live music is always better than YouTube videos anyway.

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Interview with Asahi Shimbun in Tokyo – November 6, 2019

During my recent trip to Japan, where I made several presentations to various groups, including a large gathering in the Japanese Diet (Parliament), I received a lot of press interest, which is a good sign. I am slowly putting together the translated versions of some of the print media articles. Today, I provide a translation (with my annotations) of an interview I did with the centre-left newspaper – Asahi Shimbun – on November 6, 2019 in Tokyo. This is a daily newspaper and is one of the largest of five national newspapers in Japan. It has an interesting historical past but that is not the topic of the blog post today. The article opened with a statement introducing Modern Monetary Theory (MMT) and then followed a Q&A format. I have expanded the answers reported in the paper to reflect the actual answers I gave to the two journalists during the interview and to a wider press gathering at an official press conference the day before in Tokyo.

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Invoking neoliberal framing and language is a failing progressive strategy (British Labour)

Over the years it’s been clear to me that we live in a fictional world when it comes to economic matters. The mainstream has created this world that bears little relationship to reality and which serves the interests of a few at the expense of the majority. But the way in which this fiction is inculcated in the framing and language of our public debates leads the majority to think that the conduct of economic policy is somehow in their best interests, even if, at times, governments claim we have to swallow a bitter pill in order to get well again. The bitter pill always punishes the lower to middle-income groups, rarely the top-end-of-town. The fiction is so deeply ingrained that even progressive political campaigns are framed within it. I have railed against that all my career because I cannot align a belief that democratic choice requires accurate information with the reality that we make these choices in a fog of fiction. I have always considered the role of the progressive forces in politics, as a matter of priority, should be to be the agents of education, so that these democratic choices reflect our realities. I have never supported so-called ‘progressive’ parties that choose, for ‘political’ purposes, to lie to the electorates by adopting neoliberal framing and language as a way of minimising any difficulties that might arise, initially, from the dissonance that accompanies exposure to the truth, after years of believing in lies. It seems that the British Labour Party continues to promote a false narrative to support and otherwise stellar plan for national renewal. But, as history tells us, a plan built on false financial foundations, falters when circumstances change and the false foundations become the issue rather than the plan.

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Australia – wages growth continue at record low levels – further evidence of policy failure

Last Wednesday (November 13, 2019), the Australian Bureau of Statistics (ABS) released the latest- Wage Price Index, Australia – (September-quarter 2019). Both private and public sector wages growth was just 0.5 per cent in the September-quarter – keeping growth at record lows. Over the year to September 2019, overall wages growth was 2.2 per cent and in decline. With the annual inflation rate running at 1.7 per cent, workers were able to enjoy some real wages growth. However, 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. And, as the federal government continues to sabotage the economy as a consequence of its obsession with recording a fiscal surplus, the moderating wages growth will likely undermine it planning targets. In the last fiscal statement, the government was forecasting annual wages growth would be 2.75 per cent rising to 3.25 per cent. At the current rate, nominal wages will be lucky to top 2 per cent in 2019-20, which means the tax revenue estimates in the fiscal plans are likely to be over-stated. And, if the mainstream narrative was remotely correct, why is employment growth flatlining when wages growth is at record lows?

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The Weekend Quiz – November 16-17, 2019 – 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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Australia labour market deteriorating – symbolises massive Federal government policy failure

After yesterday’s disastrous wages growth data release, today’s Australian Bureau of Statistics release of its latest data – Labour Force, Australia, October 2019 – confirms, as if we need confirmation, that the Australian economy is weakening and the labour market is is poor shape. The culprit – the Australian government which is starving spending by its obsessive pursuit of a fiscal surplus. It is likely that the economy will thwart that ambition anyway – in the wrong way – by reducing tax revenue below that projected. Meanwhile the well-being of millions of Australian workers is being abused by our elected officials. Employment growth was negative. Full-time employment fell sharply. The participation rate fell. Unemployment rose even though the participation rate fell. Hidden unemployment is up. Underemployment is up. The broad labour underutilisation is at 13.8 per cent with an upwards bias. The unemployment rate is 0.8 percentage points above what even the central bank considers to the level where inflationary pressures might be sourced from the labour market. My overall assessment is The current situation can best be characterised as deteriorating from an already weak state. The Australian labour market remains a considerable distance from full employment and the gap is widening. This persistence in labour wastage indicates that the policy settings are to tight (biased to austerity) and deliberately reducing growth and income generation. There is clear room for some serious fiscal policy expansion at present. The Federal government is willfully undermining our economy with its irresponsible policy position.

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Japan announces a stimulus as the Right take over Bolivia

Just a short blog post today (short in research) as I devote Wednesday’s to other writing and I have to travel a lot today. More a collection of snippets that I come across over the course of a day’s work. Today, we think about Bolivia and the right-wing thugs that have overthrown a legitimate government advancing the well-being of its people. We also see senior progressive politicians falling into a myriad of lies and misconceptions about the monetary system and handing political initiative to the right wing as a consequence, even though they think they are being clever in their framing. And we think of Japan a little. And then some music offerings or two.

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The evidence from the sociologists against economic thinking is compelling

One of the stark facts about the academic economics discipline is its insularity and capacity to deliver influential prognoses on issues that affect the well-being of millions with scant regard to the actual consequences of their opinions and with little attention to what other social scientists have to say. The mainstream economists continually get things wrong but take no responsibility for the damage they cause to the well-being of the people. A 2015 paper – The Superiority of Economists – published in the Journal of Economic Perspectives (Vol 29, No. 1) by Marion Fourcade, Etienne Ollion and Yann Algan is scathing in its assessment of the economics discipline. They say that mainstream economists largely ignore contributions by other social scientists and consider them inferior in technological sophistication, have a “predilection for methodological and theoretical precision over real-world accuracy”, largely ignore”the basic premise of much of the human sciences, namely that social processes shape individual preferences”, and parade an arrogance and superiority that masks the sterility of their analysis. In this context, I thought the 2015 Report from the Joseph Rowntree Foundation – Sociological perspectives poverty – was a breath of fresh air in its approach to understanding poverty. The empirical base it presents refutes most of the major assumptions and conclusions of economists who work in the field of poverty. A mainstream professor who was supervising my economics graduate program once said to me: “Bill you are a bright boy but you should be doing sociology”, which was an example of the negative control mechanism designed to weed out dissidents (like me). It didn’t work. But I always considered the disciplines of sociology and anthropology (not to mention psychology, political science, social welfare etc) to be important in my journey to become ‘well read’. Most economists, however, do not think that. Perhaps that is why I was able to be part of the development of Modern Monetary Theory (MMT).

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Q&A Japan style – Part 3

This is the third part of a four-part series this week, where I provide some guidance on some key questions about Modern Monetary Theory (MMT) that various parties in Japan have raised with me. Today I am in Tokyo and doing a day of press interviews and some TV filming to promote MMT within the Japanese media. I had been very clear in press interviews already (yesterday) that I hope they they represent our ideas correctly to the people of Japan. For example, at yesterday’s press conference, after my lecture in the Japanese Diet (Parliament), I said that I didn’t want any of the many journalists present to leave the room and write that ‘MMT thinks that deficits do not matter’ or that ‘MMT was about governments printing money and spending it’. I hope the message gets through. As I noted in Parts 1 and 2, many people have asked me to provide answers to a series of questions about MMT, and, rather than address each person individually (given significant overlap) I think that answering them in some depth is the more efficient way to help them to better learn and understand the essentials of MMT and real world nuances that complicate those simple principles. These responses should not be considered definitive and more detail is available via the referenced blog posts that I provide links to. Today, the question is another one about the Green New Deal and the Job Guarantee with a diversion into basic income.

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Q&A Japan style – Part 2

This is the second part of a four-part series this week, where I provide some guidance on some key questions about Modern Monetary Theory (MMT) that various parties in Japan have raised with me. I have so far given two presentations in Kyoto and today I am in Tokyo addressing an audience at the Japanese Diet (Parliament) and doing some interviews with the leading media organisations in Japan. Many people have asked me to provide answers to a series of questions about MMT, and, rather than address each person individually (given significant overlap) I think this is the more efficient way to help them to better learn and understand the essentials of MMT and real world nuances that complicate those simple principles. In my presentations I will be addressing these matters. But I thought it would be productive to provide some written analysis so that everyone can advance their MMT understanding. These responses should not be considered definitive and more detail is available via the referenced blog posts that I provide links to. Today, the questions are about the Green New Deal and the Job Guarantee.

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Q&A Japan style – Part 1

This is the first part of a four-part series this week, where I provide some guidance on some key questions about Modern Monetary Theory (MMT) that various parties in Japan have raised with me. The public discussion about MMT in Japan is relatively advanced (compared to elsewhere). Questions are asked about it and answered in the Japanese Diet (Parliament) and senior economics officials in the central bank and government make comments about it. And political activists across the political spectrum are discussing and promoting MMT as a major way of expressing their opposition to fiscal austerity in Japan. The basics of MMT are now as well understood in Japan as anywhere and so the debate has moved onto more detailed queries, particularly with regard to policy applications. So as part of my current visit to Japan, I was asked to provide some guidance on a range of issues. In my presentations I will be addressing these matters. But I thought it would be productive to provide some written analysis so that everyone can advance their MMT understanding. These responses should not be considered definitive and more detail is available via the referenced blog posts that I provide links to.

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The Weekend Quiz – November 2-3, 2019 – 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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US economy continues to grow, albeit at a slower pace

The US Bureau of Economic Analysis (BEA) released the – Gross Domestic Product, Third Quarter 2019 (Advance Estimate) – data yesterday (October 30, 2019). It shows that the US economy “increased at an annual rate of 1.9 percent in the third quarter of 2019” which was slightly slow than the 2 per cent recorded in the June quarter. As this is only the “Advance estimate” (based on incomplete data) there is every likelihood that the figure will be revised when the “second estimate” is published on November 27, 2019. Underlying the headline figure, however, are shifting expenditure patterns in the US. Household consumption growth is declining and the contribution to growth was down from 3.03 points in une 2019 to 1.93 points. The personal saving rate rose from 8 per cent of disposable income to 8.1 per cent as households tightened up in the face of record levels of debt and sluggish wages growth. Total investment continued to be a negative drain on growth (-0.27 points compared to -1.16 points. Net exports also subtracted from growth (0.08 points compared to 0.68 points in the June-quarter). The increase in disposable personal income was lower (4.5 per cent) than in the June-quarter (4.8 per cent), although in real terms, the growth was 2.9 per cent compared to 2.4 per cent. Overall, and notwithstanding the continued growth, the question for the US growth prospects centre on what will happen to consumption expenditure growth. How much more will it decline and the saving rate rise?

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Leopards do not change their spots

Only a short blog post today as it is Wednesday. My father, in fact, used to say that ‘leopards do not change their spots’, when referring to people who in one period behaved one way and then when sprung would pretend they were reformed. I was thinking about that when I noted that the queue to the magical reinvention door is getting longer by the day. This is the process, whereby a person, who previously advocated neoliberal macroeconomic policy interventions from the sidelines (as an academic economist or media commentator) and/or executed them from a position of power (say, as a Treasurer or Minister of Finance), starts attacking present day governments, who inherited their own fiscal surplus obsessions, and are, like they did themselves, driving their economies into the ground as a result of the same obsessions. Who is in the spotlight today? None other than the former Australian Treasurer, Paul Keating who was reported in the press this morning (October 30, 2019) – Paul Keating slams Liberal party ‘surplus virus’ (paywall) – as being critical of the current government for keeping the “Australian economy ‘idling at the lights'” as a result of “running Australia’s budget like a ‘corner shop'”. He urged the government to stimulate the economy with fiscal policy. Now before we get too excited, and this applies to all the goons who come out claiming they wanted fiscal stimulus all along, these characters typically blow their cover and reveal their true DNA when they reflect on their own track records on the subject. But it is an interesting, if not amusing, pastime watching these characters try to revise their CVs to look like they ‘knew it all along’ as they try desperately to retain relevance and get on the right side of history. We are not that stupid though.

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