Here are the answers with discussion for yesterday’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.
I am now using Friday’s blog space to provide draft versions of the Modern Monetary Theory textbook that I am writing with my colleague and friend Randy Wray. We expect to publish the text sometime around mid-2014. Our (very incomplete) textbook homepage – Modern Monetary Theory and Practice – has draft chapters and contents etc in varying states of completion. Comments are always welcome. Note also that the text I post here is not intended to be a blog-style narrative but constitutes the drafting work I am doing – that is, the material posted will not represent the complete text. Further it will change as the drafting process evolves.
The Financial Times article (December 19, 2013) – The long farewell to quantitative easing – concluded such: “Quantitative easing has demonstrated to politicians everywhere that it is possible to finance government deficits simply by printing money, a fact which had become obscure in the developed economies in previous decades. The umbilical link, previously unchallenged, between running a budget deficit and the requirement to sell bonds has been broken in the mind of the political system. Who knows what the long-term effects might be”. While mistakenly thinking crediting reserve accounts is activating any printing press it is true that there is no requirement to sell bonds to run government deficits. Today I am updating my analysis of the latest flow of funds data in the US. The US Federal Reserve recently put out the latest – Z.1 Financial Accounts of the United States – aka the Flow of Funds, Balance Sheets and Integrated Macroeconomic Accounts. If the FT author had have been studying this and related data he would have known years ago that there was no functional relationship between government net spending and its habit of issuing debt to the private sector. The former is financially unconstrained while the latter is just a system of corporate welfare. But recently, the government has given the game way by being the dominant purchaser of its own debt. Hysterical (as in comical) when you think about it!
Last week, the Holden Motor Car Company, a division of General Motors announced it was intending to close its Australian operations down in 2017 after having operated on a continuous basis in one form or another since 1856. The decision has led to outbreaks of nostalgia, worries about our national identity (since when has a national identity been tied up with a foreign-owned capitalist firm?), and calls for more government subsidies to the industry that has been in decline for years. The problem is that thousands of jobs are directly and indirectly impacted by the closure (although there are some years before the full brunt will be experienced) and that is an issue that the government has to manage through appropriate policy interventions. The real issue is that the current thrust of aggregate (macroeconomic) policy does not provide one with much confidence that the government will introduce appropriate responses to the closures. I offer some thoughts by way of an introduction in this blog.
Here are the answers with discussion for yesterday’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.
Here are the answers with discussion for yesterday’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.
I am now using Friday’s blog space to provide draft versions of the Modern Monetary Theory textbook that I am writing with my colleague and friend Randy Wray. We expect to publish the text sometime in 2013. Our (very incomplete) textbook homepage – Modern Monetary Theory and Practice – has draft chapters and contents etc in varying states of completion. Comments are always welcome. Note also that the text I post here is not intended to be a blog-style narrative but constitutes the drafting work I am doing – that is, the material posted will not represent the complete text. Further it will change as the drafting process evolves.
When the Committee on Economic and Monetary Affairs (ECON) of European Parliament considered the 2012 Report from the European Central Bank, the Rapporteur of the Committee and Deputy President of the EP, Gianni Pittela tendered the – Draft Report – on June 11, 2013. The ECB presented its – Annual Report 2012 to the Committee on April 24, 2013. The ECB is accountable to the EP and this Committee was exercising its political functions under that relationship. Under the heading Monetary Policy, the draft report contained two interesting items (9 and 10). By the time the amendments were finalised you learned a lot about politics in Europe and why the current system is unworkable.
I am now using Friday’s blog space to provide draft versions of the Modern Monetary Theory textbook that I am writing with my colleague and friend Randy Wray. We expect to publish the text sometime in 2013. Our (very incomplete) textbook homepage – Modern Monetary Theory and Practice – has draft chapters and contents etc in varying states of completion. Comments are always welcome. Note also that the text I post here is not intended to be a blog-style narrative but constitutes the drafting work I am doing – that is, the material posted will not represent the complete text. Further it will change as the drafting process evolves.
There are seven graphs in the paper. An Excel spreadsheet was involved. Shonky stuff alert! R&R are back with another attention-seeking effort after they were disgraced when their Excel manipulation that just happened to generate ideologically-convenient results was discovered to be shonky (in the extreme). This time is not different though. As in all their so-called historical insights the pair conflate monetary regimes across time and at points of time, which means most of their conclusions are erroneous. While their insolvency threshold has zero credibility now they also still hang on it, if only by implication. And they claim that repression is when residents of free nations enjoy parking their savings in risk-free, interest-bearing government bonds, instead of taking risks with commercial paper. Sounds like free choice to me. Is suggest R&R take some R&R and let governments get on with expanding their deficits and reducing unemployment. The public debt ratios will take care of themselves.
I have been looking at industry employment data today for Australia, in particular, the behaviour of the manufacturing industry, which has attracted considerable press attention in the recent period as a result of announcements of substantial job losses being linked to exchange rate movements and high interest rate spreads between Australia and the rest of the world. What follows is a discussion of various features of the change in manufacturing employment over the last few decades which is a precursor to some very detailed work I am doing on shifts in industry employment (reasons, implications etc). These shifts are not unrelated to the major macroeconomic policy settings (fiscal and monetary) which are currently stifling economic activity at present. These aggregate effects manifest in disaggregated ways through such things as the composition of employment by industry. That is what I am looking at today.
There was an article in the UK Guardian (October 29, 2013) – Mainstream economics is in denial: the world has changed, which reported that the economics profession had been “stupidly cocky before the crash” and “had learned no lesson since”. It followed a – report – last week (October 25, 2013) that students at Manchester University had proposed an overhaul of orthodox teachings and economics. The latest Guardian article concludes that the economics profession is in “denial”, that is, “the high priests of economics refuse to recognise the world has changed”. I will come back to that in a moment, but evidence of this denial is swamping the debate about the upcoming Scottish decision on whether to break from Britain. So-called informed policy briefing papers have started to emerge, which will distort the choice available to the Scottish people by perpetuating basic myths about the way monetary systems operate and the choices particular currency arrangements provide government. As I’ve said before, if the medical profession offered the sort of analysis and professional opinion that my own profession offers, then they would be very few practising medics because they would have all been sent broke through malpractice lawsuits.
During the late 1980s and into the 90s when the Monetarists (mostly holed up in Britain) were boasting that the widespread privatisation and labour market deregulation strategies they had instigated were containing inflation and setting up their economies for sustained growth with reductions in unemployment my response was “what do they do they do for an encore”. It was obvious that if you scorched domestic demand and pushed up unemployment that the inflation rate would drop and the reduced imports would flatter the external balance. The question then was – what do you do next? Once growth returns in domestic demand rises on the back of increased income growth, imports start catching up and workers start demanding wage rises to make up for lost real income during the deflation and you end up with nothing much being achieved except for a extended period of lost real income, and rising inequality given the lower income groups carry the burden of the recession. The conservatives became slightly more astute in more recent years arguing that the recession provided the opportunity for nations to undergo radical restructuring so that growth could be driven by exports as a result of increased competitiveness. That’s the European model at the moment. Is it working? The IMF doesn’t think so.
In the opening sequence of the HBO series, Newsroom, the anchor is participating in a public forum at an East coast US university (in Boston). During the Q&A, he is asked by a student (“a sorority girl”) in the audience, who is suitably bright-eyed and full of American blather, “Is America the greatest country in the world?” He initially blusters but the convener of the forum pushes him for a “human moment” and what follows is 3 classic minutes of TV, starting with “its not the greatest country in the World, Professor, that’s my answer” and concluding with “So when you ask what makes us the greatest country in the World, I don’t know what the fuck you are talking about. Yosemite?”. He then said among other things that “We used to be …”, “we stood up for what was right”, “we waged wars on poverty, not poor people”, “we aspired to intelligence, we didn’t belittle it” and more. The latest shenanigans in the US Congress where the GOP representatives have become a mindless rabble is certainly testimony to the sort of things the mythical Newsroom anchor was talking about in the series. The Sydney Morning Herald article (October 16, 2013) – US shutdown stalemate enters realm of the absurd – reports on how the GOP reps do not “agree either on tactics or strategy” and Boehner announced to the press that there had been “no decisions about what exactly we will do”. This is one day before the lunatic right-fringe of their party is intent on causing mayhem. My prediction – some ridiculous deal will be done and the US government will not default. We will see. But today I am providing a little glimpse into examination processes by using what might have been a first-year answer to an examination question to highlight some important points. I hope you enjoy the little window into life at a university.
There was an interesting Working Paper issued by the ILO – Is aggregate demand wage-led or profit-led? – last year, which finally received some coverage in the mainstream economics press this week. The Financial Times article (October 13, 2013) – Capital gobbles labour’s share, but victory is empty – considered the ILO research in some detail. That lag is interesting in itself given that it was obvious many years ago that the trends reported in the ILO paper and the FT article were part of the larger story – that is, the preconditions – for the global financial crisis. If you look back through the Modern Monetary Theory (MMT) literature, dating back to the 1990s, you will see regular reference to the dangers in allowing real wages to lag behind productivity growth. It seems that the mainstream financial press is only now starting to understand the implications of one of the characteristic neo-liberal trends, which was engendered by a ruthless attack on trade unions by co-opted governments, persistent mass unemployment and underemployment, and increased opportunities by firms to off-shore production to low-wage nations. Better late than never I guess.
Here are the answers with discussion for yesterday’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.
Here are the answers with discussion for yesterday’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.
Here are the answers with discussion for yesterday’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.
Here are the answers with discussion for yesterday’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.
The hoopla over the US government voluntarily imposed debt ceiling is about to begin again with the US Treasury Secretary predicting that the government will run out of money in mid-October. He must have been listening to his President who told an audience at the State University of New York the other day, that in the face of rising demands for more government expenditure of education “At some point, the government’s going to run out of money” (Source). It is not the first time he has made that claim. Please read my blog – The US government has run short of money – for more discussion on this point. The debt ceiling is one of those ridiculous conventions that government introduce which from time to time provide some quaint, if not bizarre, theatre. But none of the conservatives will have the intestinal fortitude to really drive the US government artificially broke anyway. Anyway, all this was amusing me as I read the latest – US Federal Reserve Flow of Funds – data the other day. That data tells us that the US government can buy as much of its own debt as it chooses. Game over!