Welcome to the billy blog Saturday quiz. The quiz tests whether you have been paying attention over the last seven days. See how you go with the following six questions. Your results are only known to you and no records are retained.
I am back in the land of semi-austerity and the sun is shining warmly. That is one of the advantages of living in Australia. We have mindless politicians like everywhere else but at least one can luxuriate near the beach in the sun. Let me just say at the outset that I am not against forecasting. I do it myself almost everyday and acknowledge that it is an art rather than a science – in other words forecast errors are par for the course. But a problem arises when ideology drives the forecasting process and that the forecasts are then used to perpetuate that ideology via policy development. If the underlying model of the economy that is reflective of that ideology is indelibly wrong then the policies advocated may damage the economy rather than improve it. The forecast errors will also be a sign that the underlying theory is deficient. That is exactly what occurs when the IMF produces its World Economic Outlook. If you trace the WEO forecasts for the last several years you will see how inaccurate they have been. But that hasn’t stopped the IMF from demanding fiscal austerity which has worsened the crisis. They continue to strut the world stage – bullying and claiming authority. The participating governments should terminate the IMFs tenure immediately by writing to the IMF saying that the first act of fiscal consolidation is to terminate their funding. The organisation serves no useful purpose.
I have been in the Lands of Austerity for the last 12 days or so and decided I had to devise an elaborate escape plan which would get me out of here. I needed to avoid ECB/IMF/EU officials who might be watching borders in an effort to repress freedom. Anyway, I have come up with a plan.
Over the last week or so I have been in Europe and talking to all sorts of people. In the streets the decay is clear and I am in a relatively rich part of Europe (Maastricht). Unsold properties are multiplying and the there are lots of shopping space vacant in the main centres. It is very apparent to me but when I ask people about this some express surprise – not having noticed it themselves. I concede that when you come here once a year you note the changes but the reality is fairly stark. If we put this anecdotal evidence together with the way in which the Euro bosses are behaving and the overall quality of the policy debate in Europe at present it is clear to me that there is a great sense of denial in Europe. Nowhere is this more apparent than in Germany. Their growth model has failed and must change. But it will be very difficult to achieve the sort of national awareness that will render that change possible. The Eurozone was always going to fall apart as a result of its basic design flaws from its inception. But the German strategy – which they consider to be a source of national pride – actually ensured that once the basic design flaws were exposed by the collapse of aggregate demand, things would be much worse than otherwise.
Regular readers will note that I have consistently advocated the abandonment of the Euro and especially the immediate exit of Greece, Spain, Portugal, Ireland and Italy to push things along. The basic design flaws in the ideologically-constructed monetary union were always going to bring it down. It wasn’t a matter of if but when. The when was always going to be the first major negative aggregate demand shock that the union experienced. Come 2008 we saw very starkly how quickly the region unravelled and now the situation is getting worse not better. Not many commentators agreed with me and most argued that with some tinkering and some harsh austerity the zone could rescue itself. The problem is basic though and has little to do with behaviour of the member states, although I will write tomorrow how the conduct of the Germans has exacerbated the crisis. It is clear that governments like Spain were more frugal than Germany’s government prior to the crisis and they now have 20 per cent unemployment and worse. As the crisis deepens though more commentators are now arguing for a Greek default and/or both default and exit. The sooner the southern states get out of the bind they are and free of the pernicious ideology of the EU/IMF/ECB troika the better. Tomorrow is not a day too soon.
When the Liberal Democrats went into coalition with the British Tories I was surprised how readily and brazenly their leadership was prepared to compromise the underlying principles of the party for power. While the Party Constitution claims they stand for – “a fair, free and open society” balancing “the fundamental values of liberty, equality and community, and in which no-one shall be enslaved by poverty, ignorance or conformity” and “that the role of the state is to enable all citizens to attain these ideals, to contribute fully to their communities and to take part in the decisions which affect their lives” it is clear that they have become partners in a policy regime that is the anathema of those ideals. By entering the coalition they have allowed a pernicious regime to be inflicted on the British people – one which is driving unemployment up and incomes down. The Liberal Democrats are having their Annual Conference this weekend in Birmingham and it is clear if the utterances of some of their members are anything to go by that the Party is struggling with their identity. The Deputy Leader for example said (September 17, 2011) that the job of the Liberal Democrats was “to rein in the ruthless Tories”. The reality is that it is the government that is ruthless and the Liberal Democrats are part of that government and give it the air it needs. I was unfortunate to listen to a BBC interview today with Liberal Democrats leader Nick Clegg and it left me with the impression that there is little to distinguish the coalition partners on the main economic issues. Both parties are infested with neo-liberalism and both fail to understand basic macroeconomics – that spending creates income.
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.
Welcome to the Special Land of Austerity – billy blog Saturday quiz. The quiz tests whether you have been paying attention over the last seven days. See how you go with the following six questions. Your results are only known to you and no records are retained.
The laboratories are multiplying. We are in an interesting period – I say that in an intellectual sense only – where stark policy decisions have been taken based on certain theoretical economic claims and regular data is arriving which allows us to assess the viability of those claims. So as a researcher it is interesting. As a person I don’t find it interesting that governments are prepared to gamble with peoples’ lives in a self-serving way to appease the elites that fund them. For many years we have had Japan as an Modern Monetary Theory (MMT) laboratory. I gave a talk here in Maastricht yesterday and asked how any mainstream economic theory could explain Japan over the last two decades or so. By any standards if the mainstream macroeconomic theories were of any value then Japan should have very high interest rates and accelerating inflation and the government should have gone broke. It hasn’t and that tells you the value of mainstream theory. Now we have various fiscal austerity experiments being undertaken and the data is coming in daily to tell us that the claims made about the certainty of a “fiscal contraction expansion” are spurious. The most recent British labour force data released this week provides a very interesting laboratory terrain. Two geographic regions within the same nation, two governments (of different status) and two very different economic policy approaches. Result: one side of the border the labour market deteriorates, the other side it improves. So this blog is a tale of those two labour markets – one south of a border the other north. The data provides further evidence that fiscal austerity damages economic prosperity.
Its hard to know where to start today. I opened my hard copy version of the Financial Times this morning and every page was “Greek yields off the scale”; “Greece default talk”; “Number of Americans in poverty at highest in 50 years”; “Rome set to identify next asset sales”; Fears of Greek collapse prey on French banking”; “Brics to debate possible eurozone aid”; and so it went. You couldn’t make this stuff up. To avoid sinking into an inconsolable depression, I closed the orange pages and, maybe foolishly, turned my attention to the Wall Street Journal. That came up with gems such as “Limiting the Damage of a Greek Default”; “Exit Strategy Goes Right Out the Door for Euro-Zone States”; “Yields in Italian Bond Auction Highlight Financing Challenge”; “China Not Seen as Knight Riding to Rescue of Italy”; at which point I wondered – given my current geographic location – what happens if I get stuck here? And then, to ease the day’s burden I wondered why the WSJ spells the Eurozone with a hyphen. That seemed to calm things down. Researching the use and mis-use of hyphens splitting words in two. But the thought kept lingering – this is so bizarre that you couldn’t make all this stuff up.