When two original MMT developers get together to discuss their work

Last week, Warren Mosler and I had one of our regular catchups and we discussed at length the state of play in Modern Monetary Theory (MMT). We are quite protective of it. We mused about how we started out on this Project and where it has gone. As old stagers do when they get together. We also reflected and compared notes on what the state of MMT is now, given the increasing visibility of the ideas in the mainstream media all around the world and the proliferation of social media activists who have chosen to identify and promote our ideas. There were aspects of that development that we identified as being of concern for us and other aspects which we considered to be a cause for optimism (celebration is too strong a word). We thought it would be a good idea to take a breath and document what we considered to be the essence of MMT – as a sort of checklist for people who want a fairly precise account of the body of work. I agreed to write this document after input from Warren. So, this is what we mean by MMT. What follows is my account of our conversation expanded to add meaning where required.

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British data confirms strong FDI continues despite Brexit chaos

Wednesday and a shorter blog post so that I have a little more time to do other things. I don’t know what topic attracts the most hate E-mails that I receive on an almost daily basis: my position on the Eurozone, my position on the EU generally, my position on Brexit, my position of surrender monkey social democrats (parties and people), or my work on Modern Monetary Theory (MMT). I guess I could count and build up a frequency distribution but I just prefer to delete them these days – the first few words give the game away. Save your time. This week, I have had a torrent of such E-mails telling me more or less “see, you claimed Brexit would be good, but it is a disaster”. Last time I checked Brexit hasn’t happened yet. All that we are witnessing is a conservative government of considerable incompetence in disarray after being bullied by the neoliberal, corporatists in Brussels into a ridiculous ‘agreement’ that changed hardly anything. But there were some interesting data releases in the last few weeks that bear on the Brexit question. I have been looking into them.

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Australian workers losing out under neoliberalism

The current conflict in France, while multidimensional, is a reflection that the neoliberal austerity system is not working for ordinary people. All sorts of cross currents feed in to this discontent, some of which (for example, distaste for foreigners/migrants) are clearly not to be encouraged. Most of the claims of the Gilets Jaunes are about the alienation, exclusion and poverty that they feel living in the neoliberal, corporatist EU world. A lot of so-called progressives are out there claiming this is a right-wing ruse advancing climate denial and anti-migrant sentiment. But I consider that to be a typical elite response to any EU discontent to avoid discussion of exit and the paint the critics as being stupid and/or racist. A replay of the Brexit accusations from the Remainers. But the writing is on the wall for the Eurozone countries. People will only tolerate being put down and oppressed for so long. And all is not well elsewhere. Even when a nation has its own currency and has the capacity to avoid the sort of stagnation that many European nations are now wallowing in, the universality of the neoliberal austerity bias is making life hard for not only the low-income cohorts, but, increasingly for the lower tiers of the ‘middle class’ (defined in income terms). Australian workers are feeling that pinch in the land of plenty.

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The Weekend Quiz – December 8-9, 2018 – 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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The Weekend Quiz – December 1-2, 2018 – 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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Franco-German ‘agreement’ is another European dead-end

The latest ‘reform’ proposals from Europe might be taken as a sick joke if the players were not serious. On Sunday, November 18, 2018, the French President gave a speech at the traditional commemorative ceremony in the German Bundestag to mark the Volkstrauertag (National Day of Mourning), which has been part of German life since 1922 (originally to mark those who died during World War 1). His speech (Jacques Chirac was the last French president to address the Bundestag on June 27, 2000). His speech was two days after the respective finance ministers signed an ‘agreement’ to establish a “Eurozone budget”, which the French finance minister hailed as being a “major political breakthrough”. While that summation is questionable, it certainly is not a major economic breakthrough. It is a dud. As dud as all the reform proposals that have come before it. Just like the fake window dressing in Eniskillen in preparation for the G8 Summit in June 2013. Macron might have felt he was a big player on the world stage but the Germans have his measure as they have had of all French Presidents over the last several decades. The French really were the drivers of the Eurozone and they thought they were destined to restore their prominence in Europe. The Germans knew otherwise. And so it goes with the latest ‘agreement’. There is nothing in it that will save the Eurozone from crisis or restore sustained prosperity. Another European dead end.

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The Weekend Quiz – November 24-25, 2018 – 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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Japan still to slip in the sea under its central bank debt burden

President Trump banned a CNN reporter only to find his position overturned by the judicial system. Well CNN is guilty of at least one thing – publishing misleading and alarmist economic reports about Japan. In a CNN Business article last week (November 13, 2018) – Japan’s economy has a $5 trillion problem – readers were told that the Bank of Japan has no “dwindling options to juice growth if a new crisis hits” because “it’s now sitting on assets worth more than the country’s entire economy”. The real story should have been that the Bank of Japan continues to demonstrate the categorical failure of mainstream macroeconomics and, conversely, ratify the core principles of Modern Monetary Theory (MMT). That is what the Japanese experience since the early 1990s tells us. And all the stories about special cases; cultural peculiarities, closed markets, etc that the mainstream economists wheel out when another one of their predictions about how Japan is about to sink into the sea as a result of its public debt levels, or that interest rates are about to go through the roof because of the on-going and substantial fiscal deficits; or that inflation is about to accelerate because of the massive monetary injections; and more, are just smokescreens to divert our attention from the poverty of their analytical framework. The Japanese 10-year bond trade is called the ‘widow maker’ because hedge funds who try to short it lose big. The Japanese monetary system is my real-time, non-linear economic laboratory which allows all the key macroeconomic propositions to play out live. And MMT is never very far off the mark. Try juxtaposing New Keynesian theory against Japan – total dissonance.

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Eurozone fiscal rules bias nations to stagnation – exit is the remedy

It is Wednesday and I am doing the final corrections to our Macroeconomics textbook manuscript before it goes off to the ‘printers’ for publication in March 2019. It has been a long haul and I can say that writing a textbook is much harder than writing a monograph not only because the latter are more exciting in the drafting phase. The attention to detail in a textbook that runs over 600 pages is quite taxing. Anyway, that is taking my attention today. I also plan to write some more about Brexit in the coming weeks and Japan (tomorrow). But today, I have updated some ECB data on household and corporate borrowing and the cost of borrowing to see what sort of recovery is going on. With nations such as Germany now recording negative growth in the third-quarter, it is clear that the Eurozone is stalling again. The explanation doesn’t require any rocket science. It is all there in the behaviour of the non-government sector (saving more overall) and fiscal rules that are too tight to offset that saving desire. The reliance on monetary policy is an ineffective tool to provide the offset in non-government saving overall. Fiscal policy has to be reinstated to the primary position and that means nations such as Italy must consider exiting the dysfunctional monetary union that biases nations to recession and stagnation.

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The flexibility experiment in Portugal has largely failed

Portugal has been held out by the Europhile Left as a demonstration of how progressive policies can manifest in the European Union, even with the Fiscal Compact and the Stability and Growth Pact (SGP). In 2015, after the new Socialist government took over with supply guarantees from the Left Bloc (Bloco de Esquerda) and the Portuguese Communist Party (PCP) and The Greens (Partido Ecologista “Os Verdes”), it set about challenging the austerity mindset that has blanketed the European continent in stagnation. Things improved in 2016 with increased government spending. But by 2017, the European Commission had reasserted its austerity mindset and the supposed flexibility that the Left were hoping and which Portugal had briefly embraced in 2016 was gone. And we learned that the neoliberal bias of the Eurozone and its fiscal rules dominates any progressive ambitions that a nation state might entertain. Another blow for the Europhile Left. The lesson: start looking at and supporting exit if you are truly serious about restoring a progressive policy agenda in Europe.

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The Weekend Quiz – November 17-18, 2018 – 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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British growth strengthens in September quarter 2018

On Thursday (November 8, 2018), the British Office of National Statistics (ONS) released the – GDP first quarterly estimate, UK: July to September 2018 – data, the first release under their new publication model, which is designed to improve “the accuracy and reliability” of the initial (formally denoted the “preliminary”) release. The next update will come in December and the expectation is that there will be less revisions, which is a good thing for those trying to assess where things are at. Remember, also that national accounts data is a rear-vision view of the economy – where its been rather than necessarily where it is at, although the two ‘views’ are obviously linked. The third-quarter national accounts data shows that Britain grew by 0.6 per cent, with “all four sectors” contributing to what is a strong result. But, under the headline, are mixed trends: household consumption spending continues to grow with rising debt, although wages growth appears to be moving finally; business investment was negative; and net exports “contributed 0.8 percentage points” with a strengthening of exports. What the data tells us at this stage is that Britain continues to defy the claims that a meltdown is imminent as a result of Brexit. There appears to be a resilience that is driving relatively strong growth. And, for all those who have been hammering the point that Britain is the worst-performed (in growth terms) of the EU Member States, they will have to revise their scripts. Britain is now growing much faster than many other European economies.

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The Weekend Quiz – November 10-11, 2018 – 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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US labour market continues to improve but questions remain

Today is the mid-term elections in the US and it seems that the media is focused on how many seats the Democrats will win. As a progressive this doesn’t particularly interest me much given that the claims the Democrats have been making in the last few months about fiscal policy. Trump is out there demonstrating what expansionary fiscal policy can do when there is idle capacity. And last week’s (November 2, 2018) release by the US Bureau of Labor Statistics (BLS) of their latest labour market data – Employment Situation Summary – October 2018 – showed the employment impacts of that fiscal approach. Total non-farm employment from the payroll survey rose by a very strong 250,000 and the unemployment rate was steady at 3.5 per cent. Inflation remains subdued. The strong employment growth has also stimulated participation, which meant that the growth in the labour force has outstripped the strong employment growth and unemployment rose slightly in October. But that is the sort of dynamic that a high pressure economy exhibits and eventually the cyclical participation effects exhaust and the strong employment growth starts mopping up the last of the cyclical unemployment and underemployment. There is still some way to go for that to be the case. While the US labour market is reaching unemployment rates not seen since the late 1960s, the participation rate is still well below the pre-GFC levels and a substantial jobs deficit remains. There has also been a hollowing out of the occupational employment structure around the median pay occupations which confirms the bias towards low-pay jobs in the recovery. The employment-population ratio rose by 0.2 points in October. Taken together, the US labour market continued to improve in October but remains some distance from full employment.

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Italy should lead the Member States out of the neoliberal Eurozone dystopia

The widely read German news site, Spiegel Online, published an amazing article last week (November 1, 2018) – Italy Doubles Down on Threat to Euro Stability – which confirms to me that very little progress has been within the Eurozone by way of cultural understandings since the GFC. That, in turn, tells me that the monetary union will not be able to get out of austerity gear and is now more exposed than ever to breakup when the next crisis comes. The current Italian situation is the European Commission’s worst nightmare. It could combine with the ECB and the IMF to bully Greece partly because of the size of the Greek economy but also because they had the measure of Tsipras and Syriza. They knew the polity would buckle and become agents for their neoliberal plans. But the politicians in Italy may turn out to be a different proposition – one hopes so. And Italy is a large economy and one of the original accessions to the Community. So the stakes are higher. But what the Commission is demanding of Italy in the present situation of zero economic growth and massive primary fiscal surpluses is totally irresponsible. It will not even achieve the stated Commission aims of reducing the public debt ratio. The likelihood is that the Commission’s strategy, if they succeed in bullying the Italian government into submission, will push the ratio up further. And meanwhile, Italy wallows in a sort of neoliberal dystopia. Italy should lead the other Member States out of this neoliberal disaster.

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The Weekend Quiz – November 3-4, 2018 – 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 Twitter echo chamber

It is Wednesday so just a few things to report and discuss. I have noted in recent weeks an upsurge in the Twitter noise about Modern Monetary Theory (MMT) and various statements along the lines that MMT economists are male chauvinists, mindlessly attack other heterodox economists because we are a religious cult, that we thrive on conflict, that only the US has a sovereign government and more. Quite amazing stuff. And these attacks are coming mostly from the so-called heterodox side of the economics debate although not exclusively. It is quite an interesting exercise to try to understand the motivations that are driving this social media behaviour. Things that would never be said face-to-face are unleashed with regularity these days. There appears to be a sort of self-reinforcing ‘echo chamber’ that this squad operate within and it seems to lead to all sorts of bravado that would be absent in face-to-face communication. None of the attacks seem to have any substance or foundation. They just reflect an insecurity with the way that MMT is creating awareness and challenging progressives to be progressive. And, they just make the Tweeters look stupid. I thought I would document some of the recent trail of nonsense to let you know what is going on in case you haven’t been following it. It is a very interesting sociological phenomena.

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British fiscal statement – no end to austerity as the Left face plants

Last night in Britain (October 29, 2018), the British Chancellor released the – Budget 2018 – aka the 2018 fiscal statement (my terminology, to avoid triggering the flawed household budget analogy). The detailed analysis is being done by others and I haven’t had enough time to read all the documents produced by the Government and others yet anyway. But of the hundreds of pages of data and documentation I have been able to consult, the Government is trying to win back votes while not particularly changing its austerity bias. That is fairly clear once you dig a little into the outlook statement produced by the Office of Budget Responsibility (OBR). The Government’s strategy is also unsustainable because it continues the reliance on debt accumulation in the non-government sector, which will eventually hit a brick wall as the balance sheet of that sector becomes overly precarious. Nothing much has been learned from the GFC in that respect. The Government can only cut its debt by piling more onto the non-government sector. Second, the response of the Left has been pathetic. The Fabians, for example, has put out a document that uses all sorts of neoliberal frames and language, making it indistinguishable from something the mainstream macroeconomists would pump out – the anathema of the constructs and language that the Left should be using. There is a reason the political Left has fallen by the wayside over the last 3 or so decades. And their penchant to write and speak like neoliberals is part of the story.

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US growth robust but doubts remain

Last Friday (October 26, 2018), the US Bureau of Economic Analysis published their latest national accounts data – Gross Domestic Product, 3rd quarter 2018 (advance estimate) , which tells us that the annualised real GDP growth rate for the US remains strong at 3.5 per cent (down from 4.2 per cent in the June-quarter 2018). Note this is not the annual growth over the last four-quarters, which is a more modest 3 per cent (up from 2.9 per cent in the previous quarter). As this is only the “Advance estimate” (based on incomplete data) there is every likelihood that the figure will be revised when the “second estimate” is published on November 28, 2018. The US result was driven by a growing household consumption contribution (2.7 points) with the personal saving rate falling by 0.4 points. Further, the government spending contribution was also strong (0.6 points up from 0.4) with all levels of government recording positive contributions. Real disposable personal income increased 2.5 percent, the same increase as in the second quarter. While private investment was strong it was mostly due to unsold goods (inventories). Notwithstanding the strong growth, the problems for the US growth prospects are two-fold: (a) How long can consumption expenditure keep growing with slow wages growth and elevated personal debt levels? Most of the consumption growth is coming because more people are getting jobs even though wages growth is flat. (b) What will be the impacts of the current trade policy? It is a work in progress.

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The Weekend Quiz – October 27-28, 2018 – 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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