The EMU reform ruse – Part 3

This is the third part of my mini-series which have been evaluating one so-called progressive reform approach to the Eurozone disaster. Part 2 provided essential background, given that one of the proposals being circulated by progressives involves the weaker Eurozone nations re-establishing their own currencies and then pegging them against the Euro. I showed that attempts to maintain any form of fixed parities among the core European states has been chaotic and led to breakdown. Along the way, the weaker trading nations were subject to austerity biases and elevated levels of unemployment. Given the scope of the topic, it will take me two more parts to finalise the discussion. In this part and the final part 4 I will discuss the second proposal from German academic Fritz Sharpf, which appears to have gained some traction with the Europhile Left, much to my disappointment. Here we commence the analysis of Sharpf’s “Two-tiered European Community” proposal.

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Travelling all day today to where the wind blows and it rains a lot

I am travelling a lot today and do not have enough time to think much less write a blog. I am travelling where the wind blows strong and rain is always expected. A perfect place to write once I land and have some other things to complete. On Monday, I will post Part 3 in the series I have been working on this week on EMU reform proposals. The quiz will be back tomorrow as usual. For the moment I am listening to …

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The EMU reform ruse – Part 2

This blog continues the discussion from yesterday’s blog – The EMU reform ruse – Part 1 – where I consider the reform proposals put forward by German academic Fritz Sharpf, which have been held out by Europhile Leftists as the progressive way out of the disaster that the Eurozone has become. Yesterday, I considered his first proposal – to continue with the enforced structural convergence to the Northern model – the current orthodoxy in Brussels. Like Sharpf I agree that the agenda outlined in the 2015 The Five President’s Report: Completing Europe’s Economic and Monetary Union would just continue the disaster and would intensify the political and social instability that will eventually force a breakup of the monetary union. Sharpf’s second proposal is that the EMU dichotomise into a Northern hard currency bloc while the Southern states (and others less inclined to follow the German export-led, domestic-demand suppression growth model) reestablish their own currencies and peg them to the euro with ECB support. While it is an interesting proposal and certainly more adventurous than the plethora of proposals that just tinker at the edges (for example, European unemployment insurance schemes, Blue Bond proposals and the like), it remains deeply flawed. While it is assumed that the Northern bloc would comprise core European nations such as Germany and France, it is not clear that either would prosper under the new arrangement. France and Germany were never been able to maintain stable currencies prior to the EMU. Further, the ‘exit’ proposal ties the poorer nations into a vexed fixed exchange rate arrangement, which would always compromise their domestic policy freedom, just as it did under the earlier versions of the Snake or the European Exchange Rate Mechanism (ERM). Far better to just break the whole show up and let the nations go free with floating exchange rates.

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The EMU reform ruse – Part 1

On October 31, 2017, my blog – Europhile Left deluded if it thinks reform process will produce functional outcomes – countered some of the nonsense coming out of Europe (from the so-called progressive side) that the Eurozone hadn’t failed when judged by it bias towards mass unemployment and increasing precariousness of its citizens. I particularly noted the terrible record in terms of youth unemployment and NEETs. Yesterday’s blog – Massive Eurozone infrastructure deficit requires urgent redress – documented how much damage the austerity bias of the Eurozone has caused to essential productive infrastructure – human and physical and the ridiculous underinvestment by governments locked into mindless Stability and Growth Pact (and its recent derivatives) rules. Unphased, the Europhiles keep telling me that reform processes are underway and that we need to be patient. That the glorious vision outlined in the October 1990 European Commission Report – One Market, One Money Report, which, apparently outlined a vision of domestic-demand driven convergence bliss for the Economic and Monetary Union. I analysed that Report in detail in my 2015 book – Eurozone Dystopia: Groupthink and Denial on a Grand Scale – and have to say that anyone who holds it out as a plan for the future must have been reading a different report or affected by heavy drugs. Today, I am considering recent reform proposals put forward by German academic Fritz Sharpf, who considers the neoliberal Eurozone experiment has failed but can be resurrected without abandoning the essential mechanics of the monetary union. Tomorrow, I will start to consider a so-called progressive proposal that breaks the EMU into two tiers – a Northern hard currency zone and a ‘Southern’ zone where nations reintroduce their own currencies, but peg them against the euro with ECB support. It will not surprise regular readers to know that I disagree with Sharpf’s reform agenda.

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Household debt is part of a broader problem – be informed

The head of the Australian Prudential Regulation Authority (APRA), which was created in 1998 as part of the sham to separate regulation from policy and pretend the Reserve Bank of Australia was independent, gave a speech in Sydney yesterday (November 21, 2017) – Housing – The importance of solid foundations. The reason the speech is important is because it demonstrates the disconnect in policy making and the failure of key policy makers and regulators to connect macroeconomic dots. Australia – like the rest of the world – needs politicians and officials who understand how the macroeconomic aggregates are connected. One cannot have a conversation about household debt without recognising that it is, in part, directly related to the fiscal position of the government and the nation’s external position. While the APRA boss is correct to highlight the precarious nature of household balance sheets given the record and increasing debt levels being borne by households who are experiencing a wages squeeze and a government intent on austerity cuts, he should be educating the public on the broader context. Then there would be more acceptance of expanding discretionary fiscal deficits and a wages policy designed to bring real wages growth back into line with productivity growth. If that was the case, much of the idiotic conversations – some masquerading as ‘research’ results would disappear.

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Unemployment is miserable and doesn’t spawn an upsurge in personal creativity

Here is a summary of another interesting study I read last week (published March 30, 2017) – Happiness at Work – from academic researchers Jan‐Emmanuel De Neve and George Ward. It explores the relationship between happiness and labour force status, including whether an individual is employed or not and the types of jobs they are doing. The results reinforce a long literature, which emphatically concludes that people are devastated when they lose their jobs and do not adapt to unemployment as its duration increases. The unemployed are miserable and remain so even as they become entrenched in long-term unemployment. Further, they do not seem to sense (or exploit) a freedom to release some inner sense of creativity and purpose. The overwhelming proportion continually seek work – and relate their social status and life happiness to gaining a job, rather than living without a job on income support. The overwhelming conclusion is that “work makes up such an important part of our lives” and that result is robust across different countries and cultures. Being employed leads to much higher evaluations of the quality of life relative to being unemployed. And, nothing much has changed in this regard over the last 80 or so years. These results were well-known in the 1930s, for example. They have a strong bearing on the debate between income guarantees versus employment guarantees. The UBI proponents have produced no robust literature to refute these long-held findings.

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What matters about the Paradise Papers

A cursory glance at the World’s leading tax havens illustrates the hypocrisy of politicians getting wound up about the revelations in the recently released Paradise Papers and the Panama Papers before them. Many of the havens are within the direct legislative jurisdiction of nations such as the US (which is itself a tax haven) and the UK, for example. And we should not forget that Luxembourg, Switzerland are key European homes of tax avoidance. Remember that the current President of the European Commission “spent years in his previous role as Luxembourg’s prime minister secretly blocking EU efforts to tackle tax avoidance by multinational corporations” (Source) ably supported by the Netherlands, another nation engaged in the practice. If the politicians were truly worried about this issue they could do something about it directly with the stroke of a legislative pen. Britain could, for example, eliminate Jersey, the Isle of Man, and its Overseas Territories from this corporate scam. The US could do similarly. The EU could bring in new rules to stop Luxembourg. But they don’t stop it, which tells you everything. But, the problem of tax avoidance and evasion is not fiscal. Progressives get stuck on that point. It is largely irrelevant. The real issues are inequality, power and macroeconomic stability. That is what this blog is about.

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When neoliberals masquerade as progressives

One wonders what goes on in the heads of politicians sometimes. Perhaps not much other than a warped sense of their purpose in life – which for some seems to be to advance themselves rather than advance societal well-being. In recent days, fiscal debates have raged on both sides of the Atlantic. In the US, there is the Trump tax cut debate. The correct progressive response would be to focus on why these cuts will not advance anybody but the rich and will do very little if anything to create new jobs. Unfortunately, prominent Democrats such as the awful Nancy Pelosi have been spouting stuff about the tax cuts increasing the federal deficit and federal debt. At a time, when the Republicans are abandoning the deficit terrorism to advance their own interests, the Democrats seems to be reinforcing the ‘deficits are bad’ narrative. Instead, they could have seized the opportunity to say to the American people – see deficits are fine but the real issue is what we do with them. Pelosi and her ilk seem incapable of adopting that quality of leadership. In the UK, the reality is dawning on the British government that the austerity harvest is anything but what they had hoped it would be. No surprises there. Austerity undermines growth which can easily increase the fiscal deficit when the goal is the opposite. But the way that reality is being handled in the progressive press is pathetic. The UK Guardian, for example, has headlines about ‘black holes’ and is giving oxygen to reports that talk about the deteriorating fiscal situation in the UK. Readers are left with nothing but neoliberalism reinforcement of the ‘deficits are bad’ myth. A shocking indictment of the progressive debate in the UK.

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IMF policies undermine the health of mothers and children in the poorest nations

In our new book Reclaiming the State: A Progressive Vision of Sovereignty for a Post-Neoliberal World (Pluto Books, 2017) – Thomas Fazi and I argue that a new progressive agenda would see the abolition of the IMF and the World Bank and the creation of a new multilateral institution that is entrusted with ensuring poor nations can access necessary funds to prevent their societies collapsing. This organisation would not be a bulwark for inflicting neoliberal policies on the poorer nations, but rather, a body that assisted nations in developing first-class health, education and environmental care capacities and infrastructure in a fully employed environment. It would help insulate such nations from the vicissitudes of global finance by supporting capital controls and other anti-speculative policy tools. The current multilateral framework dominated by the likes of the IMF and the World Bank have failed categorically in this regard. Recent research, which, in part consolidates a rich body of research going back to 1987, has found that the so-called ‘structural adjustment policies’ that accompany assistance from these organisations have materially damaged child and maternal health in the nations where these conditionality programs have been imposed. The IMF likes to talk about intergenerational fairness, especially in relation to the alleged burdens that fiscal deficits leave for future generations, but then they support and implement policies that unambiguously damage the health and well-being of children in poorer nations, while allowing real resources to be sucked out of those nations to the benefit of the global rich. A criminal enterprise.

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Australian inflation outlook benign – room for fiscal stimulus

Central banks around the world have been demonstrating how weak monetary policy is in trying to stimulate demand. They have been building up their balance sheets (massively) by creating reserves in return for government and corporate paper in an attempt to push their inflation rates up. But the data suggests their efforts are in vain. Which should inform all those who think that if the government stopped issuing debt to match their deficits there would be horrible inflation to think again. Progressives should be calling for their governments to abandon the gold standard practice of issuing debt, which would change the political dialogue considerably. Australia is also struggling to push it inflation rate into the so-called policy range of 2 to 3 per cent. Last week’s Australian Bureau of Statistics inflation data release – Consumer Price Index, Australia – data for the September-quarter 2017 showed that the September-quarter inflation rate was 0.6 per cent with an annual inflation rate of 1.8 per cent (down from 1.9 per cent last quarter). The headline inflation rate has been below the Reserve Bank of Australia’s lower target bound of 2 per cent for nearly two years now. Clearly, within their own logic where an inflation rate within the 2 to 3 per cent band reflects successful monetary policy, the RBA is failing. The RBA’s preferred core inflation measures – the Weighted Median and Trimmed Mean – are also now below the lower target bound and are not showing signs of moving up. The most reliable measure of inflationary expectations has also fallen quite sharply. With the labour market data demonstrating weakness and the economy stuck in this low inflation malaise, it is clearly time for a change in policy direction.

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The Weekend Quiz – October 28-29, 2017 – 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 sham of ECB independence

One of the major claims the founders of the EMU made was that by creating an independent ECB – by which they meant ‘independent’ of the influence from the Member States or other EU bodies (such as the Eurogroup) – they were laying the foundations of financial stability and disciplining the fiscal policy of the Member States. This so-called independence was embodied in the – Treaty on the Functioning of the European Union – where Article 123 prevents the ECB from giving “overdraft facilities or any other type of credit facility” to the Member State governments (and other EU bodies); Article 124 prohibits any Member State government (and other EU bodies) from having “privileged access” to the financial institutions; and Article 125 prohibits the ECB from assuming any liabilities or “commitments” of the Member State governments (etc) – the famous ‘no bailout’ clause. But a recent report from the Corporate Europe Observatory (CEO) – Open doors for forces of finance – (published October 3, 2017) – suggests that the ECB feigns independence and is in fact captive of the largest profit-seeking financial institutions that sit on its advisory groups. In other words, the ECB has become a vehicle to advance private return and avoid regulative imposts when the TFEU outlines an entirely different role for the bank.

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British productivity slump – all down to George Osborne’s austerity obsession

Apparently, whenever some poor economic news is published about the United Kingdom, journalists have to weave in their on-going gripe about the outpouring of democracy in June last year that saw the Brexit vote to leave successful. Its hysterical really. The most recent example is from the otherwise sensible Aditya Chakrabortty from the UK Guardian (October 17, 2017) – Who’s to blame for Brexit’s fantasy politics? The experts, of course. The story has nothing much to do with the June 2016 Referendum but more about massive forecasting failures of the Office of Budget Responsibility. But somehow the story opines about the lies told about Brexit and a fiscal “bloodbath” – the latter being the description for the fact that the fiscal deficit is likely to increase a little as a result of a slower than expected economic growth outcome. The UK Guardian continually writes about these two obsessions – the first that Brexit will be a disaster and the second that the fiscal position of the British government is in jeopardy and will undermine the capacity of the government to defend the economy if a major downturn comes along (as a result of the ‘Brexit disaster’). The narratives are interlinked – Brexit is bad, it will cause deficits to rise which are bad, and the government will be powerless as a result of the rising deficits to stop the bad consequences of Brexit – which is a big bad. All propositions are largely nonsense. Brexit will be bad if the British government continues to implement neoliberal policy. Rising deficits do not alter the spending capacity of government. And as a currency-issuing government, Britain can always arrest a recession, if there is political will. The fact is that the OBR forecast errors are just part of the neoliberal lie. And the productivity growth slump the OBR has now ‘discovered’ predates the Brexit referendum by years and is all down to the misplaced austerity imposed by George Osborne in June 2010. But it is disappointing to read this sort of stuff being repeated by so-called progressive commentator. There is clearly more work to be done via education.

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Three recent interviews – transcripts and video

Today, I have translated two interviews I did while I was in Europe recently. The original interviews were in Spanish. The first interview was with Andrés Villena Oliver for CTXT and was published in the Spanish newspaper Público. It was conducted at Ecooo in Madrid on September 28, 2017. The the second interview was with journalist Marta Luengo Garcés from the progressive newspaper El Salto Diaro. It was conducted at the Principe Pio Hotel in Madrid on September 29, 2017. You can get a feel for the concerns of the progressive journalists in Spain by the type of questions they asked me. I have also included the video of an interview I did yesterday (October 16, 2017) with Steve Grumbine of the Real Progressives. That should keep readers more than busy until tomorrow.

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Wolfgang Schäuble is gone but his disastrous legacy will continue

History is often made by single, very powerful individuals acting on their own mission according to their own calling. Many of these individuals are seemingly immune to the reality around them and try to recreate their own reality – sometimes succeeding to advance the well-being of those around them and beyond, but, usually, they just leave the main stage after creating havoc. I could name names. But only one name is relevant for today’s blog – Wolfgang Schäuble, the former CDU German Minister for Finance. Schäuble resigned that role after the recent German elections and is now being feted by the mainstream press as some sort of visionary who kept the Eurozone together through his disciplined thinking and his resistance to populist ideas that would have broken the discipline imposed on Member States by the European Finance Ministers. History tells us differently. He has overseen a disastrous period in European history where its major step towards political and economic integration in the 1990s has delivered dysfunctional and divergent outcomes for the Member States. Some countries (Greece) has been ruined by the policies he championed while others are in serious trouble. Further, despite him claiming the monetary union has been successful, the fact is that the Eurozone is still together only because the ECB has been effectively violating the no bailout articles of the Treaty of Lisbon via its various quantitative easing programs since May 2010. Should it stayed within the ‘law’ of the union, then several nations would have been forced into insolvency between 2010 and 2012. The problem is that while Schäuble is now gone from the political stage, his disastrous legacy will continue.

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The Weekend Quiz – October 14-15, 2017 – 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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Prime Minister Corbyn should have no fears from global capital markets

It is clear that the British Tories are looking like the tawdry lot they are as the infighting over the leadership goes on, more often rising to the surface these days as wannabees circle the failing leader Therese May. Her performance at the Tory Annual Conference was poor, and I am not referring to her obvious difficulties with the flu (or whatever it was). I have been stricken with the flu since I left the US a few weeks ago and occasionally struggled for a voice as I gave talks every days for the 2 weeks that followed. It is obvious there is little policy substance in the Tories now and it is only a matter of time before she is ejected. At the same time, the British Labour Party leadership is showing increased confidence and are better articulating a position, that is resonating with the public. They are even starting to look like an Oppositional Left party for the first time in years and I hope that shift continues and they drop all the neoliberal macroeconomic nonsense they still utter, thinking that this is what people want to hear. A growing number of people are educating themselves on the alternative (Modern Monetary Theory, MMT) and demanding their leaders frame the debate accordingly and use language that reinforces that progressive frame. And, in that context, it didn’t take long for the mainstream media to start to invoke the scaremongering again. It is pathetic really. The New York Times article (October 5, 2017) – Get Ready for Prime Minister Jeremy Corbyn – rehearses some of these ‘fears’. It is also true that the Shadow Chancellor has expressed concern himself about these matters – without clearly stating how a sovereign state can override anything much the global financial markets might desire to do that is contrary to national well-being.

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Video of Reclaiming the State presentation, Brighton, UK September 25, 2017

I am now in Helsinki where the weather is distinctly cooler (did I say colder) than it has been down in Southern Europe the past week. I don’t have much time for writing today. Tomorrow, we will be conducting a dual book launch (see www.reclaimthestate.org for details) and on Thursday, I will be presenting a public lecture at the University of Helsinki which is open to all to attend. For today’s blog, I am now able to provide a full video (minus Q&A) of my presentation at the British Labour Party Annual Conference Fringe Event – Economics for a Progressive Agenda at Brighton (UK) on September 25, 2017.

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A former UK Chancellor attempts to save face and just becomes confused

On May 6, 1997, just 4 days after coming to office in what was to become Tony Blair’s retrogressive regime, the then British Labour Chancellor Gordon Brown announced that Labour would legislate the so-called independence of the Bank of England. The BBC claimed this was the “most radical shake-up in the bank’s 300-year history”, which gave “the bank freedom to control monetary policy”. Gordon Brown’s legacy to the British people, of course, is in his famous ‘light touch’ regulation, which he boasted about in the lead up to the GFC but went silent about soon after. But he has come out of the woodwork recently to reflect on his decision to set up the Monetary Policy Committee (MPC) within the Bank of England and abandon the practice where the Chancellor and the Governor of the Bank would meet on a monthly basis to determine interest rates. He claims that decision kept Britain out of the euro and was a great success. But then in the same speech he railed against the ‘political’ intrusion of the MPC into broader fiscal policy debates and its failure to conduct monetary policy correctly during the GFC. A very confused narrative. The point is that central banks can never be independent of treasury departments and the claims to the contrary were just part of the depoliticisation of policy that accompanied neoliberalism. Brown is also wrong that setting up a separate MPC kept the nation out of the euro. Britain realised the euro would be a disaster long before 1997.

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