Who is going to pay?

I am working on a book at present on the way recessions entrench growing disadvantage beyond the costs that the actual crisis period imposes on the unemployed and others. The idea is that the neo-liberal era has systematically been associated with a trend towards erosion of working conditions and a rising inequality in outcomes far beyond anything that could remotely be justified by disparate individual or sectoral productivity trends. It is clear that the rise of the financial sector has been generated a massive redistribution of national income in most countries away from workers and productive sectors. As part of this research I am delving beyond the usual “economic” analysis that I might take of recessions. I am also trying to document how recessions occur and how the recessions of the last 40 years have reflected a growing disregard by our governments for their legitimate responsibilities to advance public purpose. In turn, this disregard has seen them turn a blind eye to corruption and incompetence in the private sector while we were being told that by privatisation and deregulation they had solved the macroeconomic problem and we would enjoy unparalleled prosperity. It was a con job of major proportions and now the question should be who is going to pay for all the damage they caused?

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The public sector and free information are essential for collective well-being

I have been in Sydney today for Day 1 of the Australian Society of Heterodox Economists’ (SHE) Conference. I always go down as a solidaristic gesture but I admit to not being fully engaged in some of the topics given there is an underlying hostility among many heterodox economist to getting the macroeconomics right before you delve into various microeconomics topics. I do not find it appealing to analysing demographic cohorts distinguished by sexuality, gender, race as if they are “independent” and can be understood without recourse to acknowledging their relationship to capital and without understanding the macroeconomic constraints that bear upon their decision-making environment. But during the day I was thinking about why societies voluntarily go along with state imposed restrictions on their freedoms which clearly entrench the disadvantage of individual members within these societies. I was thinking of this within the context of the choice nations have to exit the euro and the pressure being put on such nations to remain within the zone even though the status quo is devastating private well-being. I was also thinking about the forces that are working within the US to misrepresent the true nature of the financial crisis and allow government support for the elites who have committed gross fraud to override basic job creation support for the unemployed. I was also thinking about this in the context of the debate about the morality of WikiLeaks and the growing government attacks on that organisation.

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Saturday Quiz – December 4, 2010 – answers and discussion

Here are the answers with discussion for yesterday’s quiz. The information provided should help you work out why you missed a question or three! If you haven’t already done the Quiz from yesterday then have a go at it before you read the answers. I hope this helps you develop an understanding of modern monetary theory (MMT) and its application to macroeconomic thinking. Comments as usual welcome, especially if I have made an error.

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All macroeconomic policy should be accountable through the ballot box

It was the last day of the 12th Path to Full Employment Conference/17th National Unemployment Conference in Newcastle, which I host. The papers were interesting all day and I will report on some of them another day. But overnight, the big news was that the US Senate has finally succeeded in forcing the US Federal Reserve Bank to release details of more than 21,000 transactions it made as a reaction to the rapidly escalating global financial crisis. The lending rose to $US3.3 trillion at its peak and dwarfs the volumes involved in QE1 and QE2 amounts. This is relevant to a debate in the banking literature about the separation of monetary policy functions (setting interest rates) and the broader monetary interventions we have been witnessing in this crisis, which bear close similarity to fiscal policy functions. The question is which macroeconomic policy functions should be accountable to the ballot box. My view is all of them!

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CofFEE Conference 2010 – Day 1 Report with update

Today is the first day of the 12th Path to Full Employment Conference/17th National Unemployment Conference in Newcastle, hosted by my research centre. As host I am tied up in the event but here are some snippets. All of the presentations in the parallel sessions have been very interesting. I also note some economic news out from the Australian Bureau of Statistics today for October 2010 which provide more news that the Australian economy is growing only modestly. More tomorrow. UPDATE: Audio file now available.

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The Australian economy loses to the snail

Three months ago, I wrote that Australia continues to grow but the signs are not all good in response to the moderating National Accounts data for the June quarter and associated data releases. My position in the national debate was lambasted as heretical and my competence was questioned because as all the bank economists, politicians, and related officials know Australia is close to full capacity and full employment and is about to burst at the seams courtesy of the “once-in-a-hundred” years commodities prices boom. My response, if only that was true! Sure enough, unemployment rose last month and there have been many signs that my judgement that the fiscal withdrawal and rising interest rates were cruelling growth was sound. Today’s Australian Bureau of Statistics release of the National Accounts data for the September quarter should shut those who are talking things up continually up. The Australian Bureau Statistics shows the Australian economy is growing barely faster than the zero line of no growth. And our so-called mining boom is not sufficient to generate a positive net exports contribution. The reality does not match the direction of policy or the rhetoric that is being used to justify the withdrawal of fiscal support. Bad luck if you are unemployed, underemployed or one of those that will certainly lose their jobs as employment growth stalls, again!

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When you haven’t got a Plan B

The UK is still in the grip of a serious slowdown and the British government has begun its fiscal austerity program which will savage net public spending and cause wide spread job losses. But the Chancellor is still boasting that Plan A – scorch the economy – will be maintained and he has sought legitimacy for his position in the release by the UK Office for Budget Responsibility (OBR) of its Economic and Fiscal Outlook November 2010 yesterday (November 29, 2010). When one examines the OBR document in detail one could be excused for thinking it was a “colouring-in” exercise with a difference – you know, draw nice colourful bar charts to tell the story that you want based on assumptions that will not survive empirical scrutiny in coming months and years. The problem for Britain is that there does not appear to be a Plan B. It is all or nothing and while the “lab rat” nature of the policy experiment is intellectually interesting for researchers such as myself I don’t want to glean enjoyment from what will be the increased suffering of millions. Plan A will fail because the assumptions and projections are unrealistic. When you haven’t got a Plan B then that failure will be very costly.

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Kicking the can down the road outside the Roach Motel

My friend Marshall Auerback has described the EMU has the Roach Motel – a very North American term but one which resonates everywhere. The full article – is recommended reading. Very amusing and perspicacious. He says – “The Germans might occupy the penthouse suite, but it’s the penthouse suite of a roach motel” which is apposite. The latest decisions of the EU finance ministers after an emergency meeting in Brussels over the weekend will just hold the ultimate crisis at bay for a little while longer. The EMU is currently surviving because the ECB has stepped in as the “missing” fiscal agent and keeping the bond markets at bay. While the ECB is the only entity in the EMU which has currency sovereignty and can “fiscally fund” member state deficits permanently, the underlying logic of the monetary system will continue to ensure these on-going crises will spread across the union. The EU bosses are just buying time and “kicking the can down the road a bit” at the moment. Ultimately, to survive the system has to add a unified fiscal authority and abandon the fiscal (Maastricht) rules (not politically possible) or accept the experiment has failed and dissolve the union. The latter option is clearly preferred and while the can is being kicked down the road apiece the EU leaders should be dismantling the Roach Motel and setting the captives free.

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Saturday Quiz – November 27, 2010 – answers and discussion

Here are the answers with discussion for yesterday’s quiz. The information provided should help you work out why you missed a question or three! If you haven’t already done the Quiz from yesterday then have a go at it before you read the answers. I hope this helps you develop an understanding of modern monetary theory (MMT) and its application to macroeconomic thinking. Comments as usual welcome, especially if I have made an error.

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