… su tiempo para salir de la UEM. On Wednesday I was up in freezing Iceland and we saw how the threats of being prevented entry into the EMU had led the Icelandic government into bowing to the unjustifiable bullying of the UK and Dutch governments and violating the wishes of its own populations. A greater authority (the President) intervened and hopefully the Icelanders will tell goliath to take a walk. Today I have travelled south into the EMU – to Spain where the weather is kinder but the economic climate is very harsh indeed. The situation in Spain tells us all that the Euro system was always built on corrupted neo-liberal rhetoric and now it is buckling asunder as the first real test of its logic is causing havoc among ordinary people. I am sure those officials in their warm offices and well-paid jobs in Frankfurt and Brussels are not enduring what a significant minority of Spaniards are now going through. One statistic is enough to tell you the EMU system is a failure – 53 per cent of Spanish youth (16-19 year olds) who want to work are unemployed! So … España se está muriendo … su tiempo para salir de la UEM (Spain is dying … its time to leave the EMU).
Today the Australian Bureau of Statistics released the November Retail Sales data, which is being seen as a likely signal as to whether the RBA will increase interest rates when it meets next in February. The data shows that retail sales are holding up as the fiscal stimulus targetted at consumption gives away to a focus on public infrastructure investment. However, there are other signs that the Australian economy is not yet out of the danger zone.
What do you do when your government is selling you out? Get the titular head (president) to intervene. That is what seems to be happening in Iceland at the moment. While the president is being accused of being an old political hack who longs to be back in the limelight, the more accurate interpretation is that he is reflecting the mood of the population which have been abandoned by a government intent on big-noting itself on the world stage by pushing for EMU admission. The sources of the problems in Iceland mirror those that have been at work globally to undermine the stability of the financial system and plunge real economies into deep recession – a religious belief in the efficacy of unregulated markets and the efficiency of entrepreneurial zeal. Both beliefs are now in shatters along with many economies not the least being Iceland. It is time that Iceland invoked its status as a modern monetary economy whose government has sovereign status in its own currency and started showing leadership to advance public purpose.
In yesterday’s blog, I discussed one of the more novel ways that the conservative lobby against government spending is mobilising to present their case. In that paper, it was argued that spending “funded” by taxation is always captive to political lobby groups who ensure the government will waste spending and undermine the productivity of the economy. Alternatively, the author claimed that government spending should be disciplined by financial markets who would reduce the waste that is inherent in public outlays. While there were several flaws in the argument the one that we deal with today focuses on the assumption that financial markets allocated resources optimally.
Today I was reading some academic articles on the implications of budget deficits. In general, the amount of effort that goes into these articles doesn’t match the quality of the argument. They all have predictable formats – some proposition, then invoke neo-classical assumptions, do some mathematics (mostly second-rate in quality), then make a conclusion that was given anyway by the structure of the exercise. As a consequence there is no information content at all in these articles. Just gymnastic exercises. However, one article I read presented a new slant on the case against government spending. It also resonated with my reaction to the release of a major report on executive salaries in Australia today, which quashed hopes that shareholders would have more say in disciplining the companies they own. The debate generalises and points to the conclusion that financial markets are mostly unproductive and have conned us into thinking otherwise.
In a sea of conservative media, two articles stood out this weekend which captures a debate that should be raging but will be quickly buried under the re-emerging neo-liberal hubris unless significant new alliances are formed. In recent weeks, as different economies are showing some signs of recovery, some key players within mainstream economics have been coming out in defence of the profession. They have been accusing critics of misunderstanding what economics is all about and saying that economists have actually saved the world. I covered some of this sort of positioning in Friday’s blog. In this blog I continue that theme but from a different angle. The conclusion is that if we want real change then “one should become more radical as one grows older”. We will see what that means as we go.
Welcome to the billy blog Saturday quiz. The quiz tests whether you have been paying attention over the last seven days.
See how you go with the following five questions. Your results are only known to you and no records are retained.
Welcome to 2010. Today, in the overcast summer that we are enduring here, in between other things I am finishing off, I was in my office reading about how mainstream economics actually saved us from a major depression over the last 2 years. Far from having to hang their heads in shame, the article indicated we had all embraced Keynes and glory be the day. I also read a counter to that which outlined what further needed to be done. I concluded neither writer really had grasped what has been going on and both would benefit from exposure to modern monetary theory. Not a lot has changed overnight. Happy new year!
The year and the decade are rapidly closing out (early evening Thursday AEST). It is been an incredible year to be an economist with some of the swings in aggregates not seen before in most of our lifetimes. The degree to which nation’s have gone backwards has been staggering. For a researcher like me it has opened up so many new lines of enquiry. I always worry that my major research angle – the study of unemployment – gives me a job as long as there are others without them. But someone has to keep the topic at the top of the agenda and that is what I have devoted my academic and public career to doing. I have also been staggered this year by the sheer audacity of the mainstream economists who went to ground when the crisis emerged because their theories were shamefully wrong – but who are now popping up again – in all their arrogance – leading the charge of the deficit terrorists and undermining the capacity of governments to fight the crisis effectively. They should have just stayed in their slime. Anyway, my final post for the year has some sad things to say … and then …
In the past, when I have advocated setting the central bank policy rate to zero and leaving it there several readers have suggested that this would set off uncontrollable asset price bubbles particularly in the housing sector. Indeed, the view among mainstream economists is that lax monetary policy in the US caused the sub-prime housing crisis. It is an intuitively attractive view for those who do not really understand how the monetary system operates and the complex distributional impacts that varying interest rates have. Today’s blog considers a US Federal Reserve research paper that has just been released which rejects the notion that “loose” monetary policy was to blame. It is an interesting research exercise.