Eurozone remains in much worse shape than some official statistics might suggest

On May 11, 2017, the European Central Bank (ECB) released its third Economic Bulletin for the year, the release date comes two weeks after each of their monetary policy meetings. In Issue 3, there is some interesting analysis on both the state of youth unemployment and the degree of labour market slack in the Eurozone. It doesn’t paint a very rosy picture despite the constant claims that the Eurozone is recovering well. The reality is that while the official unemployment rate is bad enough (still above the pre-crisis level and stuck at around 9.5 per cent), the broader measures of labour slack indicate that around 18.5 per cent (at least) of the productive labour resources in the Eurozone are lying idle in one form or another. The broad slack has also risen during the crisis in most nations – particularly underemployment. In other words, the Eurozone remains in much worse shape than some official statistics might suggest. And we are nearly a decade into the crisis (and so-called ‘recovery’).

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The Weekend Quiz – May 20-21, 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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Why Britain should not worry about Brexit-motivated bank relocations

On April 26, 2017, some smarta*!se journalists wrote a Bloomberg piece – The Brexit Banker Exodus Gains Momentum – with some not-so fancy graphics purporting to show where the “U.K. banking jobs might be headed” allegedly because Britain is to leave the European Union. On May 9, 2017, the increasingly terrible UK Guardian bought in on the frenzy with its article – City banks could move at least 9,000 jobs from UK due to Brexit . And so it goes. Apparently, Deutsche Bank is “leading the threatened exodus”, followed by JP Morgan and Goldman Sachs. All exemplars of virtue, not! While the threat of the ‘City’ leaving London is now used to frighten British people about Brexit, the reality is, in my view, quite different. I would be celebrating the cleaning out this infestation of unproductive enterprises, which remain one of the destructive legacies of Margaret Thatcher and, later, New Labour and its so called ‘light touch regulation’.

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Australia’s Overseas Aid cuts reveal a nation that has lost its spirit

In last week’s fiscal statement (aka ‘the budget’), the Australian government decided to make the poorest citizens in the world, including those living in close proximity to our shores, the target of its austerity mania. It decided to increase Overseas Development Aid (ODA) to match the inflation rate until 2018 and then freeze that contribution for the next two years after that. Effectively cutting real aid over the next four years at a time it forecasts strong growth in total national income. The Government claimed it was just a “pause” and follow several years of cuts in absolute levels of aid. The austerity is not only hampering growth in Australia and maintaining elevated levels of labour underutilisation, but, it is also revealing how mean we are as a nation. As one of the wealthiest nations in the world (currently we are ranked 2nd behind Switzerland for per capita wealth), we are now cutting into the resources we extend to poorer nations in our region as part of a mindless quest for surplus. The problem is not only the economic idiocy that underpins these cuts. The other, perhaps larger problem, of which the first is a symptom is that, as a nation, Australia is losing its moral compass. In this neo-liberal era, we have become an increasingly ugly nation – lacking in generosity to each other and to outsiders. We engage in criminal behaviour (indefinitely detaining refugees in prisons on remote islands; engaging in illegal invasions of foreign nations, etc) and punish poverty rather than do everything we can to reduce it and provide the equal opportunities to all that we so often congratulate ourselves as being champions of. We are a mean-spirited nation these days and an international pariah. There is no pride in holding an Australian passport. It is easy to live here if you have money. The climate is good, the beaches great, plenty of open terrain, great sport – but our national spirit is disappearing.

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The way forward for progressives

Today’s blog represents the notes that make up the conclusion of my upcoming book with Italian journalist Thomas Fazi which will be entitled – Reclaiming the State: A Progressive Vision of Sovereignty for a Post-Neoliberal World – and is due to be launched by Pluto Press in London on September 26, 2017. More details of that event and the promotion tour that will follow in due course. We have just about finalised the events through Europe and hope to see as many of you as is possible. As previously noted, this work traces the way the Left fell prey to what we call the globalisation myth and formed the view that the state has become powerless (or severely constrained) in the face of the transnational movements of goods and services and capital flows. Social democratic politicians frequently opine that national economic policy must be acceptable to the global financial markets and, as a result, champion right-wing policies that compromise the well-being of their citizens. The book traces both the history of this decline into neo-liberalism by the Left and also presents what might be called a ‘Progressive Manifesto’ to guide policy design and policy choices for progressive governments. We hope that the ‘Manifesto’ will empower community groups by demonstrating that the TINA mantra, where these alleged goals of the amorphous global financial markets are prioritised over real goals like full employment, renewable energy and revitalised manufacturing sectors is bereft and a range of policy options, now taboo in this neo-liberal world are available. In today’s blog I present some notes that will form the conclusion of the book. The manuscript is now at the publishers and it will be available for purchase in a few months.

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British labour lost in a neo-liberal haze

There was an exchange in the British House of Commons a few weeks ago (sitting on April 19, 2017), which really summarised why the Tories will win the British election and why Jeremy Corbyn has led the Labour Party there into an abyss of neo-liberal mumbo jumbo where there is no way out but loss. It was during the Parliamentary time when the Prime Minister lists her engagements for the day (a cute aspect of Westminster systems). You can follow the exchange in the Hansard entry – Volume 624. It will make your skin crawl. I guess that is what one gets from reading Parliamentary records. The upshot is that the British labour lost in a neo-liberal haze and marching forthrightly towards its Waterloo. The aftermath will not be pretty.

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Common elements linking US and UK economic slowdowns

Last week, the British Office of National Statistics (ONS) released data that revealed that quarterly growth in real GDP dropped to 0.3 per cent in the March-quarter 2017, down from 0.7 per cent in the December-quarter 2016. Household consumption growth fell in an environment of rising household debt and flat real wages. In the same week (April 28, 2017), the US Bureau of Economic Analysis released the latest National Accounts data for the US for the March-quarter 2017 – Gross Domestic Product: First Quarter 2017 (Advance Estimate). It showed that GDP grew on an annualised rate of 0.7 per cent in the first quarter of 2017, down from 2.1 per cent in the December-quarter 2016. The US result was driven, in part, by a dramatic slowdown in personal consumption expenditure and a negative contribution from government. The common elements linking the slowdown on both sides of the Atlantic are clear – growing and massive levels of household debt, flat growth in personal incomes (real wages etc) and inadequate fiscal support for growth. These elements, in part, were key features leading up to the GFC. Governments haven’t learned that relying on personal consumption expenditure for economic growth in an environment of flat wages growth means that household debt will rise quickly and reach unsustainable levels. How harsh the correction is unclear. The faltering the outlook in the US and the UK suggests that their national governments will need to increase their discretionary fiscal deficits to stimulate confidence among business firms and get growth back on track.

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MMT is what is, not what might be

One of the things I have noted with regularity is that readers and other second-generation Modern Monetary Theory (MMT) bloggers often fall into the error which we might characterise as the “When we have MMT things will be different” syndrome. Or the “we need to change to MMT principles to make things better” syndrome. Thinking that MMT constitutes a regime change is incorrect and steers one away from the core issues. In this blog, I reflect on that syndrome and some other aspects of the development of ideas, which I hope will provide readers with a clearer picture of what the core (early) MMT developers (Mosler, Bell/Kelton, Wray, Mitchell, Tcherneva, Fullwiler) had in mind when we set out in the early 1990s to construct a better way of doing macroeconomics. The point is that while MMT constitutes a regime change in economic thinking within the academy it does not constitute a regime change in the way the monetary system operates. We need to separate the operational principles exposed by MMT academics from their ideological values to really come to terms with the fact that MMT is what is, not what might be.

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Iceland should not peg its currency to the euro or any other currencies

In between reading economics articles, I read a lot of fiction novels especially when sitting around airports and flying places. I get through a lot of novels. I am currently tracking some Icelandic noir writers (for example, Arnaldur Indriðason and Ragnar Jónasson) and have been sort of ‘living in the fjords’ lately such is the imagery these great writers present of life in Iceland. I am right up north in a place called Siglufjörður at the moment surrounded by towering mountains and snow storms and enjoying it a lot. It was also where the excellent TV series ‘Trapped’ was filmed. Anyway, Iceland has been firmly in my focus. And the politics of the place is interesting at the moment because with the economy well down the recovery path, the neo-liberals which nearly ruined the place are trying to reassert their mindless policies – to wit, in this case, the Finance Minister claiming that Iceland is thinking about pegging the króna to the euro or perhaps a basket to maintain ‘stability’ (now you can laugh). Current Prime Minister Bjarni Benediktsson has rejected the plan it seems setting up an internal power struggle within the government. One of the reasons Iceland has recovered so well and left the Eurozone nations in its wake is because its currency was floating. Pegging it to the euro would be a very silly thing for that nation to do. Only a little less stupid that trying to revive their old neo-liberal plans to join the Eurozone as a Member State. If they did that then it would be a case of Dark Iceland (the theme of Ragnar Jónasson’s novels) – the economic lights would well and truly go out.

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Front National – seems confused on its monetary proposals

Earlier this year, the French collectif Ecolinks, which is a group of economics academics and students in various French institutions published their Petit manuel économique anti-FN, which carried a preface from Thomas Piketty. The group says it is opposed to the current consensus in economics yet its blog seems to be full of Paul Krugman or Wren-Lewis quotes or links to their articles (or other New Keynesians – who are the ‘consensus’, unfortunately). They are obviously worried about the political popularity of FN (Marine Le Pen’s National Front) and have thus produced their anti-FN book as a critique of FNs economic approach. They claim that FN proposes policies that represent “le repli sur une identité étriquée et une vision fantasmée de la nation, rendent cette perspective catastrophique” or in translation, “a retreat into a narrow identity with a fantasised vision of the nation, which would be catastrophic”. The book has received some coverage since its release by a French press that is increasingly worried about Le Pen’s popularity. Please do not interpret in what follows any hint of support for FN from this blog other than as a ‘cat among the pigeons’ force in European politics, anything that upsets the right-wing, neo-liberal, corporatist elites that run the show is to be welcome. I also support Marine Le Pen’s observation that the “The EU world is ultra-liberalism, savage globalisation, artificially created across nations”. That is why I hoped the Leave vote in Britain would win. It is a pity that she marries these views with other hostile views towards immigrants etc, although I am not an expert on immigration so I do not write much about it. It is also a pity that the so-called progressive Left in France (or elsewhere) has left it to the likes of Le Pen to articulate what I would consider to be progressive economic policies. Although, that assessment has to be tempered by the observation that Le Pen’s approach to economic policy is somewhat confused – in part, by her ‘political’ assessment that France is not yet ready to leave to Eurozone. At that point, some bizarre contradictions emerge and the anti-FN book correctly points them out.

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Real wages below 2009 – another dimension of EU failure

How would we assess whether a monetary system was working? There are several dimensions that warrant attention. On any dimension that we might put forward, the Eurozone has been a miserable failure. I have just read the latest – Benchmarking Working Europe 2017 – compiled and published by the European Trade Union Institute and the European Trade Union Confederation (ETUC), which documents these dimensions of failure of the European Union and the Eurozone in particular. It puts the White Paper on the future of Europe released by Jean-Claude Juncker on March 1, 2017, into better perspective. The White Paper is the European Commission’s “contribution to the rome Summit on March 25, 2017” to “mark the 60th anniversary of the EU”. It is a document bereft of any substance and should be disregarded. The ETUI and ETUC Report provides sufficient evidence to conclude that the whole monetary union shebang should be dismantled as quickly as possible.

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Big business wants government to cut funding them immediately (if only)

Maybe the Australian Government should examine all its contracts with the biggest 121 companies in Australia and cancel them. Perhaps it should, where these companies provide public infrastructure consider setting up not-for-profit public companies to compete against the private 121 (thus lowering prices) and direct all public procurement to these new public institutions. The reason I suggest that is because the Business Council of Australia, which represents the largest companies in Australia (membership equals 121) is demanding the Australian government introduce rather sharp spending cuts or “suffer the consequences”. Okay, a good place to start, might therefore be to cut all public assistance to the companies that are members of the BCA, which would generate huge reductions in government spending. Do you think they would be so aggressive if that was on the table? Not a chance. This is a tawdry lot of corporatists who have had a long history of whingeing about government intervention unless, of course, it is helping grease the profits of their membership. Why the media has given their latest calls for fiscal rectitude the coverage it has reflects on the quality of our media these days.

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US Bond Markets cannot bring down Trump

By the time this blog is published I will be heading to Malta. I will have very little spare time in the coming days so the blogs will be shorter and perhaps non-existent or as normal as the case might be. There was an article in the ABC Opinion series (March 8, 2017) – Donald Trump’s presidency might be short-lived, because ‘something’s gotta give’ – which more or less claimed that the private US Treasury Bond markets had the capacity to bring Donald Trump’s Presidency to a halt. Apparently, if the bond markets form the view that Trump won’t deliver on his promises they can somehow end his term in office. What, by driving yields up? Not likely. And even if there was a way that higher US Treasury bond yields had some link to his political tenure, the central bank could control the yields at whatever level they wanted.

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Disgraceful cut in wages for more than a million low-wage workers in Australia

In case you thought that neo-liberalism had gone and buried its head in shame after all the disasters that it has wrought after several decades of privatisation, outsourcing, pernicious welfare changes, fiscal austerity, out of control banksters, dramatic increases in income and wealth inequality, then Australia’s most recent effort will remind that it is still alive and well and morphing into something more nasty than we have previously seen (in this country). On Thursday (February 23, 2017), the Fair Work Commission, which is the judicial body empowered by the Federal Government to set minimum wages and conditions in all sectors (so-called ‘awards’) determined that the lowest-paid workers in Australia – more than a million of them (in an employed Labour Force of just over 12 million) – were getting too higher wages and incomes. Accordingly, they decided to cut wages – not just the real equivalent but the actual wage rates that these workers earn. The judges (who I guess do not work as a matter of course on Sunday) have fallen prey of this 24/7 greed for more profits and determined that Sunday work no longer justifies the existing penalty rates. Their decision to savagely cut them just means the bosses pocket more profits and workers move closer or into poverty with rising bankrupcties, mortgage and credit card defaults and the rest of it. The decision is a disaster for the lowest-paid (hospitality, retail and cafe) workers in this country and it will feed through to other sectors before long. The Federal government could easily legislate to stop the cuts. It won’t. The trade unions could rebel. They won’t. So it is really left to us – the citizens to do everything we can including boycotts of firms who exploit the decision to proctect the wages of the poor.

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The neo-liberal colony of Greece takes another step backwards

The Eurozone flash National Accounts estimates for the fourth-quarter 2016 was released yesterday by Eurostat – GDP up by 0.4% in the euro area and by 0.5% in the EU28. The annual growth rate for the Eurozone in 2016 was 1.7. The news also indicated that the Greek economy fell back into its Depression and was followed by the other basket case, Finland. Both recorded negative growth in the December-quarter, Greece -0.4 per cent, Finland -0.5 per cent. Both results reflect the on-going fiscal austerity. Spain, on the other hand, allowed by the European Commission to run large structural deficits (to keep the PPP in power) recorded another strong growth result. Perhaps if Syriza had demonstrated some spine, they too could have got away with the Spanish solution – where Brussels turns a blind eye to the blatant breach of the Stability and Growth Pact rules, while its economy starts to growth strongly. But, then history tells us that Syriza caved in almost immediately and the continued decline of the Greek situation is a direct result of the policies they were then co-opted to inflict on their own people. Deeper analysis of the Greek situation reveals how dire the future is likely to be. I present a few indicators of that future in this blog. As the neo-liberal colony of Greece takes another step backwards, it isn’t hard to understand why? Basically, the Troika conspired to destroy the prosperity of Greece as a nation and its political leadership joined that conspiracy by refusing to broach an exit from the Eurozone. Simple really.

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Market manipulation and electricity blackouts

Australia is suffering the conjunction of a number of events in recent weeks which demonstrate the poverty of the neo-liberal approach that governments on both sides of the political fence have followed over the last three decades. Electricity prices are rising and the governments have bowed to pressure from the power companies to end the favourable feed-in tariffs that promoted the widespread adoption of solar power by households. Further, our climate change denying federal government has seized on recent power outages in South Australia to attack that state’s accelerated move to renewable energy. The federal government claims it validates its decision to back coal (and they are planning to provide $A1 billion to the Adani group to build transport infrastructure for a new coal development that will never be economic. The problem with the federal narrative is that in the extreme weather Australia is now enduring (very prolonged hot spells with major bush fires) the state with about the lowest renewable mix in its electricity also had to cut power late last week. Further investigation shows that the privatised electricity generating sector has been deliberately manipulating the supply of power (maintaining spare capacity) to exploit price spikes while the captive regulator turns off power to thousands of homes and businesses. Profits before public service – that is what privatisation has delivered. And then, we have to put up with a rising ‘star’ treasurer who thinks government infrastructure spending is unfair to future generations and more privatisation is required. It is best not to put all this together – it is not good for one’s equanimity.

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The Weekend Quiz – February 11-12, 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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Greece still should exit and escape the grip of the vandals

Greece is back in the news as the IMF, the Germans and the European Commission slug it out pretending to talk tough and propose solutions to the Greek tragedy. There is no solution of course. All the debate about whether the primary surplus target should be 3.5 per cent of GDP (European Commission position) or slightly lower (IMF position) is just venal hot air. Anybody who knows anything and isn’t protecting their past mistakes would assess that a fairly large and sustained fiscal deficit is required in Greece to rebuild some of the lost capacity and to provide an inkling of hope to the youth who are facing a lifetime of diminished prospects as a result of the decisions the adults around them took. All the talk about ‘deficits mortgaging the grand kids future’ – sick. The austerity has meant the grand kids might not ever emerge given the constrained circumstances their would-be parents will face as they progress through adulthood. The reality remains – firmly – Greece should exit the Eurozone, convert any outstanding liabiliites into a new currency at parity, and stimulate its domestic economy with expansionary fiscal policy. It should continue to impose capital controls. As part of the stimulus, it should introduce an unconditional Job Guarantee at a decent wage to provide a pathway back into employment for the many that the Troika have rendered jobless.

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The Weekend Quiz – February 4-5, 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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When mainstream economists jump the shark and lose it completely

There was an Op Ed last week from an Australian academic who attacked Modern Monetary Theory (MMT) along the lines that its proponents are “a bunch of cranks” and practice “charlatanism”. He also considers us to be sellers of “snake oil” and other nasty things. It was an extraordinary public intervention given that the argument was based on assertions drawn from an intermediate mainstream macroeconomics textbook, bereft of historical understanding and bereft of any real knowledge of the way the monetary system and the institutions within it (government, central bank, commercial banks) actually work. The MMT critique went like this: (a) misrepresent MMT through attributing claims to its proponents that are not remotely to be found in the literature; (b) claim you are not misrepresenting the MMT literature by selective quotes that are not actually consistent with the misrepresentations; (c) bring in one liners from textbooks that have been demonstrated to have no real world application and are patently wrong in many key elements of the banking system and the way bond markets operate; (d) call us fools for not knowing any of this. Well, it doesn’t take long into the article to realise who the fool is. The other point is that MMT is now clearly at the stage of development where the mainstream think they have to attack us and put us down. That is the next stage in our development (following years of being totally ignored). Progress is being made.

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