If Africa is rich – why is it so poor?

When I was a student, that is, formally studying for degrees rather than the constant-learning approach which makes us permanent students, I was very interested in development economics and have carried that into the career phase of my work, including doing commissioned work for international agencies in Africa and Asia. One of the things I have come up against in that work has been the question of why are the nations in Africa, for example, so poor, when it is obvious to all and sundry that they possess massive resource wealth. My student days introduced me to dependency theory, which provided a solid framework for understanding the nature of underdevelopment. It stood in contrast to the mainstream development theory that was presented in most textbooks and which we would now call the neo-liberal approach. That approach is publicly enunciated by the IMF and the World Bank as if it is reality. In fact, it is a chimera! The framework of development aid and oversight put in place by the richer nations and mediated through the likes of the IMF and the World Bank can be seen more as a giant vacuum cleaner designed to suck resource and financial wealth out of the poorer nations either through legal or illegal means, whichever generates the largest flows. So while Africa is wealthy, its interaction with the world monetary and trade systems, leaves millions of its citizens in extreme poverty – unable to even purchase sufficient nutrition to live. It is a scandal of massive proportions and should become the target of all progressive governments (as they emerge).

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World Bankspeak – how to hide the failure of a mission!

As the title of my 2015 book – Eurozone Dystopia: Groupthink and Denial on a Grand Scale – indicates, I am interested in both economics and patterned behaviour within groups and the way groups erect edifices (such as, denial) to defend positions. I am also interested in the way groups use language. In an upcoming edition of the Journal of Post Keynesian Economics, I have an article written with Dr Louisa Connors entitled – Framing Modern Monetary Theory, which discusses this topic. Framing and language is a tool that reinforces Groupthink and allows group (organisations) to engage in denial even though the facts convey a different message. A 2015 analysis of World Bank Annual Reports from 1946 to 2012 is illustrative of the way in which framing, grammar and word usage can be used to clothe reality. The analysis published by the Stanford Literary Lab – Bankspeak: The Language of World Bank Reports, 1946-2012 – documents the shift in language by the World Bank between the first two decades of Annual Reports to the second two decades. They show how the Bank shifts from a language that is readily understood and considers a concrete world and offers very little prescriptive input to a narrative that becomes so opaque and filled with financial buzz words that comprehension is lost. They document the emergence of what they refer to as “Bankspeak”. Groupthink requires a certain language to reinforce the increasingly unsustainable reality that the group lives within. That is the role of the World Bankspeak! The Literary Lab analysis is worth reading because it provides a coherent analysis of the way words and sentence structures (grammar) are manipulated to shift focus, allay concern and basically, undermine accountability mechanisms that were established to ensure an institutional mission was being faithfully pursued.

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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 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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Resistance and change doesn’t come from going along with the (neo-liberal) pack

I get a lot of E-mails that accuse me of being politically naive. The accusations were rekindled by yesterday’s blog – British labour lost in a neo-liberal haze. I imagine if I wrote a blog where I outlined support for Marine Le Pen in the context of a two-way fight against the worse-of-the-worst neo-liberals Emmanuel Macron the accusations would turn uglier even. My support for Brexit was met with similar hostility from a range of (self-styled) ‘progressives’ as being naive and offensive. Why, Brexit was a conservative plot wasn’t it? How could I have missed that? Progressives are now advocating votes for Macron even though they know he is an archetype neo-liberal – the anathema of what they believe. And they tell me every day in these E-mail tirades and other blogs that I should give people like Jeremy Corbyn some slack because he knows better than me that to advocate a major departure from the neo-liberal macroeconomic narrative would be political suicide. So why don’t I just shut up and recognise that politics is beyond my grasp and I should desist. Basically that is the message I get regularly. Well, I am sorry to say, such views completely misunderstand the role of an academic and the way in which resistance is constructed.

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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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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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The Weekend Quiz – March 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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Gas reservation is not a progressive option despite scandalous profits

In the September-quarter 2016, Australia recorded negative GDP growth (-0.5 per cent). Over the last two years, employment growth has been flat and over the last 12 months, full-time employment has dived. Underemployment has risen sharply while unemployment remains at elevated levels and participation at depressed levels (meaning hidden unemployment has risen). And over the last four quarters, wages growth in Australia has been at record lows. Sounds bad. Well for some – make that most of us. But yesterday, the ABS shone a light on one cohort of income recipients – capital – profits rose in the December-quarter by 20.1 per cent. What? And wages fell by 0.5 per cent. Phew, I thought there might be some sharing of the spoils going on – you know, the top-end-of-town letting the workers in on the action a bit. This data comes as Australian workers are being shafted by rises in energy prices as a consequence of large companies, many foreign-owned, being given carte blanche to our national energy resources. A major union’s response today has been to call for a gas reservation policy to guarantee domestic supply (which is waning as we export our heads off). Unfortunately, while the call appears to be based on reason – lower prices, guarantees to local industry etc – any move to a domestic reservation policy would slow down the shift to renewables and just shift profits from export to import operations. It is not the sort of regulation that a progressive should support.

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Upward mobility declines sharply as the rich make off with the growth

Late last year (December 2016), an interesting academic research paper was released by the National Bureau of Economic Research – The Fading American Dream: Trends in Absolute Income Mobility Since 1940 – which provides stark evidence of the way in which this neo-liberal era is panning out and suppressing the opportunities for the least advantaged. One of the constantly repeating claims made by conservatives is that if governments run deficits they are really undermining the future for their children and their children. The claim is that while the current generation is living it up (deficits are tantamount in this narrative to living a profligate existence), the next generations will have to pay for it via higher taxes and reduced services.It is a bizarre argument given that each generation chooses its own tax burden and we cannot transfer real resources through time. There is truth in the argument that if the current generation imposes terminal damage to our natural environment then we are diminishing the prospects for the future. But that is not the point that the neo-liberals make. Indeed, there is a strong positive relationship between conservative views of fiscal policy (deficits) and the propensity to engage in climate change denial. Recently released research is now showing that around 50 per cent of American children born in 1980 have incomes higher than their parents compared to 90 per cent born in 1940. The so-called ‘American Dream’ is looking like a nightmare. Other research has shown that the bottom 50 per cent of the US income distribution have not enjoyed any of the growth since 1980 and that the top-end-of-town has increased its share of income from 12 per cent in 1980s to 20 per cent in 2014. These shifts are the result of deliberate policy changes and inaction by governments, increasingly co-opted by the rich to serve their interests at the expense of the broader societal well-being. Revolutions have occurred for less.

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The Left lacks courage and is riddled with inferiority complexes

When the British people voted to leave the dysfunctional European Union on June 23, 2016, I saw it as a massive opportunity for progressive forces to shed the neo-liberal chains that they have become enslaved by and narrate a new, inclusive manifesto for the future. The Brexit referendum was really a fork in the road for progressives – they could go one way and stay irrelevant and cede legitimacy to the rabid Right, or, go the other route, and reinvent themselves as the force of the future. The signs are they have opted to remain irrelevant. In doing so they have essentially conflated financial responsibility and competence with neo-liberal principles relating to the conduct of fiscal surpluses and the role of government in mediating the conflict between workers and capital. In the former sense, they have bought into the myths such as the need to run fiscal surpluses etc. In doing so, in relation to the latter, they have supported policy environments that are heavily biased in favour of capital and undermine the prospects for workers. And when the workers revolt, and, for example, use the Brexit referendum as a voice amidst their powerlessness, the progressives have turned on them accusing them of being ignorant and racist. The reality is that the lack of leadership within the political Left and their deep sense of inferiority (in the face the so-called mainstream economics experts who they mimic to sound smart) has left the door open for the Right to harness the working class anxiety and steer it in a very retrogressive direction.

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Paul Krugman’s ideas are part of the problem

It was always going to happen. Several prominent New Keynesians both in the US and the UK have been hiding behind a smokescreen they erected during the Global Financial Crisis to allow their readers to form the view that they were not part of the problem. That they were different from the more rabid anti-deficit economists and that they had a deep understanding of why the crisis occurred and what the solutions were. For a while they masqueraded under the aegis of promoting the discretionary use of fiscal deficits (increasing them nonetheless) to stimulate growth in output and employment. They were seen by many who have a lesser understanding of economics as being progressive economists. The British Labour leader even had some of them on his inner advisory team. But the masks can only stay on so long. Yesterday, one of the most prominent of these characters, Paul Krugman came out! He is not progressive at all. He is a New Keynesian with all the IS-LM baggage that they cannot let go of. In his New York Times article (January 9, 2016) – Deficits Matter Again – he well and truly shows his colours. And they (to speak American) ain’t pretty!

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The Weekend Quiz – December 24-25, 2016 – answers and discussion

Here are the answers with discussion for this Weekend’s Special Xmas 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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France Stratégie’s three options for the Eurozone ignore the elephant

I read a short discussion paper this morning – What model for the future of the eurozone? Critical actions – released by France Stratégie, which is formally known as the Commissariat général à la stratégie et à la prospective (CGSP). It is a government body attached to the Prime Minister’s office. It was created in April 2013 Its mission is to provide broad discussion parameters to aid future policy directions for the French government. The discussion paper provides nothing new and seems to avoid the realities of the European cultural and historical milieu that really dominates or constrains (whichever way you want to think about it) the possible routes back to prosperity for the continent. It lists three options for reforming the Eurozone: (a) Return to original principles (Maastricht 2.0) where nations were fiscally separate and there would be no bailouts; (b) Reinforced fiscal integration with “joint liability for sovereign debt” and control of “national parliaments’ fiscal sovereignty’ by some European-level institution (Commission/Parliament); and a (c) a US federal model. They are motivated by the conclusion that the current situation is “ineffective”, which is a euphemism for total dead-in-the-water failure. They do not broach the most obvious and, in the long-run, best solution, which is consistent with the cultural and historical realities – orderly breakup and return to true currency sovereignty. So the discussion paper really offers very little by way of a path out of the maresme that the elites in Europe have created to line their own pockets at the expense of everyone else.

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A lying government pushing economy towards recession and greater inequality

It is highly surreal listening to radio/TV commentators talking about government financial affairs (fiscal balance etc). These so-called experts are paraded before the nation and the script is generally the same. The interviewer who knows virtually nothing but has the key triggers on hand (‘budget repair’, ‘ratings downgrade’, etc ad nauseum) asks the ‘well respected expert’ about the state of affairs and the answers are always the same – fictional. This charade plays out almost daily but reaches a hysterical fever pitch at the time the Government releases its annual fiscal statement (May) or its Mid-Year Economic and Fiscal Outlook (December). The Government plays along with the charade releasing what it deems to be cleverly crafted documents, shifting revenue and spending across year lines to give one impression or another of the state of affairs. None of the charade is based on any fundamental economic understanding. None of it means anything other than a demonstration of a national scam to hide the truth from the ordinary citizen who for one reason or another relies on experts to summarise technical detail into meaningful sound bites. The nation then goes about its business in this cloud of ignorance, while the elites continue to suppress wages and living standards and march of with increasing shares of national income. They know what is going on and it is in their interests to keep the rest of us from having the same information. It is the same the world over. Well, here is what is going on with a framework that allows the reader to cut through the lies …

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Our affect is driving us back to a need for continuous fiscal deficits

The field of psychology is usually ignored by mainstream economists, which, in its typically arrogant and closed practice, adopts a series of a priori assumptions about human behaviour – the so-called Homo economicus – where were are always rational and self-interested and, as a result, always make choices that maximise our present and future well-being based on available market signals. Real world forces that condition actual human behaviour, such as cognitive biases and irrationality, in general, as well as cooperative and collective behaviour is ignored by mainstream neo-classical (free market) economic theory, because admitting its dominance in human decision-making would void the entire edifice of that theory and scuttle the authority that is given to the on-going narratives about deregulation, small government, privatisation, pernicious cutting of income support, and the rest of the economic policies that have defined this dysfunctional neo-liberal era. But humans do not behave in the way economists suggest. We are a complex mass of irrationality, custom, habit, and affect. We certainly use cognitive processes in our decision making but often we take shortcuts based on affect. These tendencies are pushing our behaviour back to what was normal before the credit binge that led to the GFC. This shift in our behaviour is associated with stagnation and entrenched mass unemployment. But the reason for these parlous outcomes is not that we have returned to more normal spending behaviour but, rather, because governments have not realised that they had to return to more normal behaviour as well. Instead of promoting the benefits of austerity (in the face of all evidence to the contrary), governments should have been promoting the benefits of continuous fiscal deficits to support non-government saving desires and maintain better employment outcomes and stronger income growth. The malaise advanced nations are stuck in at present is directly the result of ideologically-motivated choices made by governments to use to use fiscal policy properly. Neo-liberal ideology remains dominant but citizens are rebelling and something has to give.

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Australia races to the low-pay bottom while employers’ lies are exposed

Over the last 12 months, it has been increasingly obvious that the Australia has become a part-time employment nation. While the trend towards increasing part-time employment as a proportion of the total has been with us since the 1970s, the nature of that trend has been changing in recent years and belies the claims by the mainstream that it is a reflection of increased choice by workers for better life-work balance and the rising proportion of women in the workforce combining family responsibilities with income earning opportunities. The reality is different. Overall, there is a lack of working hours being generated in Australia (as elsewhere) because macroeconomic policy is restrictive (fiscal deficit to low as a proportion of GDP). That rationing of job creation is giving way to more part-time work, higher levels of underemployment (part-time workers who desire more hours but cannot find them), higher proportions of casual work, and a bias towards jobs that provide low (below average) pay. And the pressure is on to cut pay and conditions even further as employers make spurious claims about the damage penalty rates (overtime rates at weekends) cause the economy. The problem for them is that a recent (leaked) report by a Citi Research (part of Citigroup), hardly a friend of the unions and workers, has exposed the truth – cuitting penalty rates will just boost profits and will not lead to increased employment.

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The case against free trade – Part 3

This blog continues my mini-series of free trade. In Part 1, I showed how the mainstream economics concept of ‘free trade’ is never attainable in reality and so what goes for ‘free trade’ is really a stacked deck of cards that has increasingly allowed large financial capital interests to rough ride over workers, consumers and undermine the democratic status of elected governments. In Part 2, I considered the myth of the free market, the damage that ‘free trade’ causes’. The aim of this mini-series is to build a progressives case for opposition to moves to ‘free trade’ and instead adopt as a principle the concept of ‘fair trade’, as long as it doesn’t compromise the democratic legitimacy of the elected government. This is a further instalment to the manuscript I am currently finalising with co-author, Italian journalist Thomas Fazi. The book, which will hopefully be out soon, 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. In this blog (Part 3 and final) I consider the concept of ‘fair trade’ as an alternative to the current situation where modern democracies demonstrate an unwillingness to resist the ever-increasing demands of global capital to cede democratic legitimacy in favour of corporate profits.

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Australia’s new central bank governor chooses to dissemble on fiscal issues

The new governor of the Reserve Bank of Australia (our central bank) gave a speech in Melbourne yesterday (November 15, 2016) – Buffers and Options to the annual dinner of the Committee for Economic Development of Australia (CEDA). CEDA is a seedy type of organisation that typically advances the neo-liberal agenda. Please read my blog – The CEDA Report – one of the worst ever – for more discussion on this point. But that is not the topic today. The new governor has already began his tenure in disappointing fashion. I discussed his first foray into public life in this role in the blog – First appearance by Australia’s new central bank governor disappointing. His latest public intervention suggests he is hardening this stance – perpetuating the myths that a currency-issuing government is dependent on bond markets for its spending capacity and that public borrowing puts a burden on future generations. While today’s blog is about Australia, the principles elucidated are universal.

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