Clowns to the left, jokers to the right

… and we are stuck in the middle. In some US states they are rationing street lighting because they have run out of “money” even though the electricity generators have spare capacity. Hospitals are cutting services even though there are plenty of bandages idle. In the US, the federal government is now crowing about its “historical” health care victory which imposes new taxes now and no new spending until 2014 – it is still enduring the impact of a deep recession – some victory. Private spending remains very weak in most economies and fiscal interventions dominate the modest growth in aggregate demand that we are witnessing in some countries. In almost all countries unemployment has risen sharply and will persist at higher levels for some years to come. So what does my profession say … the fiscal cuts need to be even bigger because growth is slower and the deficits are “worse” than expected. So clowns to the left, jokers to the right … or whatever.

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Saturday Quiz – March 20, 2010 – answers and discussion

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.

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Hyperdeflation, followed by rampant inflation

The title of the blog is a little misleading but was too good not to use. I get to that five-year forecast (2010-2015) later in the blog but the first part is material that sets the scene. Yes, I am writing about deficits and debts … again! But new nuances come out in the public debate which need to be addressed. The conservative assault on government support for their economies at present is multi-dimensioned and is being pushed along by two main journalistic approaches. The manic Fox new-type approach which I realise is influential but is so patent and ridiculous that I don’t care to comment on it often. Then we have the approach adopted by journalists in so-called credible media outlets such as the UK Guardian. They dress their deficit terrorism up in arguments that the middle classes, who think they are far above Fox new rabble intellectually, will find convincing. But when you bring both approaches down to basics – rubbish = rubbish.

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Today started out well but then went downhill

Today started out well – early good waves at nearby Nobby’s Reef which kept things interesting. After that things progressively went down hill at least in terms of the things I read from the popular press. We had the EMU-rest of the world conflation to deal with. Then the public and private debt conflation. Then the austerity is good for us hypothesis. And by then I decided to read other things that were more interesting – like mysql technical manuals. Anyway, here is a report of my descent into gloom today.

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iWorry about the conservatives

I can now safely call my blog – ibilly blog or billy iblog thanks to a court ruling preventing Apple from monopolising the i construction. But then I would have to change the logo and I don’t have time to do that so I won’t take advantage of the court ruling just yet. But on more substantive matters, today I have been thinking about how much momentum the conservative lobby has at present and that history is being continually re-written to give these characters the oxygen they need to warp public opinion. We are now in danger of an even greater shift to the right in the coming years than was represented by the “neo-liberal” era. It is an ugly thought. But the macroeconomics is clear – if these ideas really take over the policy making process – then we will be facing a lengthy period of economic malaise.

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Not the EMF … anything but the EMF!

What is it about Europeans? Historically, they seem to want to invade each other with regularity with mass carnage the result and sometimes some border re-alignments. They are happy when there is a freezing cold white-out (or do they just say that to avoid acknowledging it is better in the sun by the beach). When they do get to the beach – it is always at some tacky crowded place and they end up looking like cooked lobsters. They love Eurovision pop and … soccer. Need I go on? And then they decide to lumber themselves with a poorly conceived and shockingly designed common currency arrangement that hasn’t a hope of delivering sustained prosperity to all member states and continually requires damaging deflations and reductions in living standards when external crises hit. But then ….

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Would someone please put something in the water supply

When I read the financial and economic news every day I sense a global madness has emerged. Global political processes are becoming distorted by the types of debates that the conservative media companies and the mainstream economists are driving. Every day a new whacko proposition is suggested or entertained by governments. Old hatreds are also resurfacing as our economies labour on (or not labour to be more accurate!) in the face of a major private spending collapse accompanied by inadequate government fiscal responses. The collateral damage of the deficit terrorism is increasing and spreading and still the major political parties in most countries slug it out as to which one will deliver the most fiscal austerity. Would someone please put something in the water supply so that we can refocus this debate onto what is important. That was the plan in the late 1960s to chill everyone out and distinguish the meaningful from the nonsense. Something has to restore our sense of priorities. The longer this madness goes on the worse it is going to get. There is no sensible solution that will come from following the present path.

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Dumb is too kind really

I am now back in my normal office after a few days experimenting with a mobile office by the sea. Back in Newcastle I am still only a couple of minutes from the beach but somehow it was different being holed up in a little cabin. Anyway, on the way back down the coast this morning I was bemoaning the idiocy of the human race … again. Or rather cursing the vicarious way the elites exploit the lack of understanding in the community about economic matters to further their own ends. That is a better way of constructing the dilemma. Even some good intentioned souls are proposing “solutions” to non-problems which will worsen the actual problem. Other devious characters are continuing to reinvent themselves in the public sphere – presumably to get access to more personal largesse. Then whole blocks of nations are imposing penury on their citizens to make the “markets” happy while another national government has actually forgotten it is a currency-issuing government. All in a day’s work!

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Hyperbole and outright lies

Its been a big weekend for hyperbole which in this context is a polite term for outright hysterical lies. Today’s blog reviews a few of the choice selections from a weekend’s reading. It amazes me how people can even mis-represent their own research when they know the audience hasn’t even read it in detail. It also is interesting to follow the way the media commentators are trying to out-do each other in use of superlatives – how much catastrophic can a catastrophy get – sort of thing. The analogies, the adjectives … are all designed to transport uninformed readers into a particular ideological space where the conservative forces can garner more of the national pie than otherwise might be the case. Anyway, that is what today’s blog is about.

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Chill out time: better get used to budget deficits

The latest economic news from the UK and the US is hardly inspiring. Further, detailed examination of the sectoral balances in the OECD nations reveals a massive drop in private demand since 2007. The mirror image of that spending collapse has been the increase in public deficits via the automatic stabilisers (discretionary stimulus packages aside). These swings are just signs that economies are adjusting back to more normal relations (private saving, public deficits). The sharpness of the swings reflects the atypical period that preceded the crisis where growth was fuelled by private debt in the face of fiscal contraction. It will take some years for the adjustment to be completed and the danger is that ideological attacks on the fiscal deficits will derail the process. But when the sectoral balances return to more normal levels in relation to GDP then guess what? We will still have budget deficits and we all better get used to it.

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Some movement at the station

Today I reflect on my weekend of media reading. Within the never ending media assault on budget deficits which is now being regularly elevated to “the fiscal crisis of the state” I read a few stories which actually took a different tack. One said that several national leaders were going to prioritise jobs over the wishes of the financial markets while the other said that the so-called “debt moralists” (aka deficit terrorists) are not on sound economic grounds. Amidst the continual conservative onslaught at present, both articles reflect some movement at the station!

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Questions and answers 2

This is the second Q&A blog where I try to catch up on all the E-mails (and contact form enquiries) I receive from readers who want to know more about modern monetary theory (MMT) or challenge a view expressed here. It is also a chance to address some of the comments that have been posted in more detail to clarify matters that seem to be causing confusion. So if you send me a query by any of the means above and don’t immediately see a response look out for the regular blogs under this category (Q&A) because it is likely it will be addressed in some form here. While I would like to be able to respond to queries immediately I run out of time each day and I am sorry for that.

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Person the lifeboats!

Last week (February 10, 2010), the ever-louder irrational rantings of Niall Ferguson about debt got another airing in the Financial Times in his article – A Greek crisis is coming to America. My two word reaction – which might be better than writing a whole blog was – Oh really! But the article demonstrates how desperate conservative academic commentary is becoming. The inflated self-importance of these characters quite obviously craves for ever increasing attention. However, not only does Ferguson demonstrate a poor attention to detail; a confusion about which monetary system is which; and a denial of history – but he also discloses such a vivid imagination that he might productively turn his hand to writing children’s fairy tales. Except then he would have to lighten up a bit or the kid’s would be having nightmares. As for the rest of us, we should be getting the lifeboats out if he is right. For me, I am staying on dry land except in the mornings when I chase those waves!

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Europe – bailout or exit?

First, devise a monetary union that is based on flawed notions of how the monetary system operates. Second, within that union invent nonsensical rules that give the system in general or member nations in particular the no capacity to deal with a damaging economic crisis. Third, allow countries within the union to game it to their own advantage at the expense of other member nations (for example, Germany – although the advantage was at the expense of German workers). Fourth, when a crisis hits elevate the nonsensical rules to the level of the sacrosanct and commit innocent citizens to years of unnecessary economic hardship. That is the level of sophistication that Europe has reached in 2010.

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Some neighbours arrive

The other day I introduced a simple model of how a monetary economy works. The model was centred on the payments of my personal calling cards to elicit labour from the kids that live in my house. All the basic national accounting results that apply in a real economy were present. The simplicity extended to considering only two sectors – the kids (private) and the “house” (public). In terms of modern monetary theory (MMT) we start by examining the broad relationships between the government and non-government sector, where the latter comprises the private domestic and foreign sector. Some readers have suggested that the results obtained would not apply if I had have explicitly modelled the cross-border flows (that is, the external sector). Well today, I have some news … some neighbours have arrived next door to my place and the kids from each house are jumping fences.

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We are sorry

On Friday (February 12, 2010) as Eurostats released the flash estimates of fourth quarter GDP for the EU (see below), the IMF released a new staff position note entitled – Rethinking Macroeconomic Policy. The bad news is the Europe is looking more like a region that is heading for a double dip recession. The even worse news is that that cretins at the IMF are claiming they know why they messed up in the past and how to address their failure. Stay tuned for a modified version of the same. The fact is that the IMF Report reveals they are as ignorant as ever of the workings of the modern monetary economy. So this revisionist exercise doesn’t signal a major paradigm stage.

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Doomed from the start

Today I have been studying data from the EMU economies where the individual member states surrendered their currency sovereignty and comparing it to other nations which have sovereign currencies (Australia, Denmark, Japan, the UK and the US). This is part of a larger project I am involved in. While the glare of the spotlight is currently on Greece and how the EMU handles the issue, most commentators conveniently forget that this problem has been many years in the making and is both a product of initial design folly and subsequent behaviour by some member states.

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Who is in charge?

Today I was looking over some macro data from Ireland which is leading the charge among the peripheral EMU nations (the so-called PIIGS) to impoverish its citizens because: (a) the amorphous bond markets have told them too; and (b) they had previously surrendered their policy sovereignty. Their actions are all contingent on the vague belief that the private sector will fill the space left by the austerity campaign. The neo-liberals are full of these sorts of claims. More likely what will happen is a drawn out near-depression and rising social unrest and dislocation. But as long as the Irish do it to themselves then the Brussels-Frankfurt bullies will leave them to demolish their economy. It raises the question who is in charge – the investors or the government? The answer is that the government is always in charge but what they need to do to assert that authority varies depending on the currency arrangements they have in place.

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My Sunday media nightmare

Today started off as a usual Sunday – a long-ride on my bike interrupted by two punctures (why do they come in waves). Anyway, then some other things like a visit to the community garden where I have a plot. Then it was down to work and as I read news stories and academic articles I was continually confronted with the tide of hysteria surrounding the impending sovereign defaults (as we are led to believe). My principle conclusion was that these journalists etc have a pretty good job. They get paid for knowing nothing about the topics they purport to be experts about and instead just make stuff up and intersperse it with some mainstream economic ideology taken straight from Mankiw’s macroeconomic textbook. It would be an easy way to make a living. Get the text book out … turn to the chapter on debt this week (last week inflation) and start of with some “large” numbers which are “without precedent” and you are done. Easy pie! Problem is that it influences the readers who do not know these commentators are charlatans.

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On human bondage

Today I have been thinking how extraordinarily stupid human beings are. The so-called Club Med Eurozone nations are being fast tracked into a crisis by a pernicious concoction of corrupt and lazy ratings agencies, Northern European truculence, and a ridiculous monetary system that provides no fiscal support within what is really a federal system. And as the ailing governments boldly and stupidly declare a willingness to play ball with the Brussels-Frankfurt consensus bullies there are signs that social order is beginning to break down. Then I read that an American city is turning its lights off at night to save money. Then I read some goon telling everyone to short US bonds because there will be a debt meltdown. And all of this stuff stems from unnecessary constructions and constraints that we have placed on systems that should be geared to advancing general welfare.

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