Here are the answers with discussion for yesterday’s quiz. The information provided should help you understand the reasoning behind the answers. 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.
There was an interesting article by US historian Jackson Lears in the in the London Review of Books (July 16, 2015) – The Long Con: Techno-Austerity. I recommend people regularly reading the LRB because it has some fabulous articles. In this case, the review by Jackson Lears is of the recent book by Steve Fraser – The Age of Acquiescence: The Life and Death of American Resistance to Organised Wealth and Power (published by Little, Brown). I have taken time to write about this because I had to read the book being reviewed myself first. There is also an excellent review of the book by Naomi Klein in the New York Times – ‘The Age of Acquiescence,’ by Steve Fraser (March 16, 2015). So what is it about?
Here are the answers with discussion for yesterday’s quiz. The information provided should help you understand the reasoning behind the answers. 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.
Here are the answers with discussion for yesterday’s quiz. The information provided should help you understand the reasoning behind the answers. 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.
At the London event last week, I indicated that governments should not issue any public debt as the benefits of doing so are small relative to the large opportunity costs. The Modern Monetary Theory (MMT) position is that there is no particular necessity to match public deficits with debt-issuance for a currency-issuing government and deficits should be accompanied by monetary operations which we now call Overt Monetary Financing (OMF). Surprisingly there was some arguments by audience members that governments should continue to issue debt, largely, as I understand them, to provide a safe haven for workers to save for the future. So the idea is that we maintain the elaborate machinery that is associated with the public debt issuance just to provide a risk free asset that workers can use to park their hard-earned savings in. It is a strange argument given the massive opportunity costs associated with debt issuance. A far simpler solution is to exploit the currency-issuing capacity of the government to guarantee a publicly-owned National Saving Fund. No debt would be required.
As background research to one of my book projects I have been reading a recent biography of François Mitterrand by Philip Short. Its title “Mitterand: A Study in Ambiguity” points to the capacity of Mitterand himself to blow with the wind but only when it suited his sense of personal ambition. Hiding behind his statesmanship was a man with “infinite shades of deviousness, an aesthete and intellectual, a sensualist, a crook”. The story of Mitterrand and his famous turn to austerity in March 1983 is very important to understand because it is used by progressives to justify their ‘austerity-lite’ stances with respect to economic policy. The New Labour politicians that are attacking Jeremy Corbyn’s policy proposals fit into this camp. The ‘left’ narrative is that the demise of Keynesian policy options was inevitable in the face of globalisation of capital and the growing importance of Transnational Corporations (TNCs). But, my argument is that there was nothing inevitable at all about Mitterrand’s poorly contrived shift into austerity. The progressives who advocate the inevitability thesis conflate the development of the TNCs with the emerging dominance of the neo-liberal ideology (which is concoction from economists intent on pushing the textbook competitive free market model with minimal state intervention). The development of the TNCs didn’t undermine the capacity of currency-issuing nation states. That has been accomplished by the imposition of the neo-liberal ideology and is reversible if the politics can be won. That is what I see as Jeremy Corbyn’s challenge – to win the politics. There is plenty of strong economic argument to help him do that.
The economic news yesterday from Japan that the economy had contracted in the second-quarter 2015 by 0.4 per cent (Real GDP) on the back of a sharp drop in exports (-4.4 per cent) and private consumption (-0.8 per cent). The economy is 0.7 per cent larger in real terms than this time last year but that is somewhat misleading because of the 1.9 per cent decline in the June-quarter 2014 after the Government introduced its latest sale tax hike fiasco. The only positive contributors to growth in the June-quarter 2015 were inventories and the public sector (both consumption and investment). The continuing declines in real wages and pessimistic consumer expectations are undermining the capacity of the private domestic sector to sustain growth. Without the growth in public spending the quarterly decline in real GDP growth would have been much worse. It is likely that the slowdown in China is impacting negatively on Japanese exports. But with China trying to stabilise around a mean-shift downwards in its growth rate, the future for all export-led growth strategies (that have been relying on China to sustain much higher rates of growth) doesn’t look good. In the same way that China appears to be rebalancing its total output in favour of domestic spending, the same strategy should be adopted by Japan to wean itself of its reliance on continued strong growth in exports. One thing that Japan might re-assess is its – National Pension Scheme – which is not only fairly meagre in income payments but also forces workers to contribute during their working lives. Given Japan is a currency-issuing nation, it could easily increase the pension payment and reduce or eliminate the contribution, thus providing more certainty to workers in retirement.
In Chapter 24 of The General Theory of Employment, Interest and Money, Concluding Notes on the Social Philosophy towards which the General Theory might Lead, John Maynard Keynes confronted the issue of the “arbitrary and inequitable distribution of wealth and incomes” in capitalist economies. The argument he advances in that Chapter of his 1936 book contains guidelines for the progressive left that some just cannot seem to grasp. In short, governments (as our agents) do not need the savings of the rich to ensure that society prospers. There was another interesting contribution in 1946 from the American statistician and economist – Beardsley Ruml – who wrote that “Taxes for Revenue are Obsolete”. The progressive left would be advised to study his work and stop building political policy platforms on the claim that governments needs to make the rich pay their fair share of taxes so that adequate public services and infrastructure can be provided. The incomes and taxes paid by the rich are largely irrelevant to the capacity of a national, currency-issuing government to provide first-class public services and infrastructure. It is time to re-frame the debate and the way in which progressive political forces state their policy aspirations. This bears on the current interesting struggle in Britain for the leadership of their Labour Party.
Here are the answers with discussion for yesterday’s quiz. The information provided should help you understand the reasoning behind the answers. 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.
Here are the answers with discussion for yesterday’s quiz. The information provided should help you understand the reasoning behind the answers. 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.
The Economist Magazine, never one to resist the urge to promote flawed ‘free market’ analysis, does not seem to have learned any lessons from its erroneous coverage of the GFC. It the latest version of what has to be one of the worst-named columns ‘The Economist explains’ (given explanation usually requires knowledge to be imparted) – Why long-term unemployment in the euro area is so high (August 2, 2015), all the usual myths about the labour market are propagated and the obvious ignored because it doesn’t fit the ideological position of the magazine. It purports to ‘explain’ differences in the behaviour long-term unemployment in the Eurozone relative to the US (it is higher in the former) in terms of mobility and generosity of unemployment benefit payment regimes (lower and higher in the former). The real reason – a failure to generate sufficient employment growth as a result of different fiscal policy settings is not canvassed.
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.
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.
Earlier this week, the US National Oceanic and Atmospheric Administration published its – Global Summary Information – June 2015 – which reported that in the period January to June 2015, the globally-averaged land and sea surface temperatures were the highest for those months since the data was first collected in 1880 (135 years). I am not a climate change expert but the array of data that I have looked at from a statistical perspective tells me that what the experts are saying with respect to global warming and climate change is probably correct – it is happening and it is happening relatively quickly. The conservative Australian government remains in denial of the global trends with respect to climate change. It is introduced various policies that have made us a national disgrace – such as, abandoning the mining and cut taxes introduced by the previous government, defunding a research institute set up to provide information about climate change, and instructing a public ‘Green Bank’ to not fund wind or solar projects. This week, the government has been castigated by a British Tory MP, who said that its approach to climate change was not that of a ‘conservative government’ and bordered on delusion. But the most important piece of data this week has been the latest figures from China that show that dramatic restructuring away from coal consumption is rapidly taking place which will undermine the viability of the Australian coal sector in the coming decade. So the ‘market’ is going to force change in Australia when it would be much better for government to plan an orderly transition away from coal.
Australia has a grand Greek tradition. My hometown of Melbourne is the third-largest Greek speaking city in the World as a result of the Post World War 2 migration. In 2011, Thessaloniki – Greece’s second largest city had a population of 1,104,460 (the overall Metropolitan Area). According the last Australian Census of Population and Housing (2011), there were 123,462 Males and 128,755 Females (total 252,217) who spoke Greek at home although 378,270 people of Greek ancestry were accounted for. Most of them live in Melbourne. Growing up in Melbourne meant there was always a ‘Greek’ element present in my childhood particularly at school as new migrants arrived. But that cultural affinity with Greece is about as close as Australia will ever come to mimicking it. Australia can never become “Asia’s version of Greece” because we do not use an “Asian currency”, we retain total control over our central bank (the currency issuer), and we do not issue public debt in a foreign currency (like the euro as Greece does). The only way we could become like Greece is if we were to join the Eurozone … and then pigs might fly!
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.
There was an article in yesterday’s Australian Financial Review (July 12, 2015) – Left and right labels wear thin, lose definition – which as the title suggests tried to argue that it is hard “to know who or what is left or right wing any more”. The article used a number of examples, including the so-called Communist government of China bailing out its (farcical) share market and the Greek ‘far left’ government agreeing to austerity and on-going debt demands from the creditors, to suggest that it is no longer easy delineating what is left and what is right and dubbing policies accordingly (one way or another) “provides little illumination”. This is a recurring theme in recent years and part of the neo-liberal attempt to blur what it going on and treat ideological stances as reality or factual assessments. It is still very clear to me what is a left-wing position. The rest of the article provides in his own words “little illumination” about the issue. The argument in this blog is that the categories remain influential and meaningful but are blurred through ignorance as to how the monetary system operates. Left-wingers fall prey to right-wing policies because they have bought the TINA myth. That is the only way one could explain the Syriza disaster, for example.
It appears the Germans (with their Finish and Slovak cronies) have lost all sense of reason, if they ever had any. Germany has the socio-pathological excuse of having suffered from an irrational ‘inflation angst’ since the 1930s and has forgotten its disastrous conduct during the 1930s and 1940s and also the generosity shown it by allied nations who had destroyed its demonic martial ambitions. Finland and Slovakia have no such excuse. They are just behaving as jumped-up, vindictive show ponies who are not that far from being in Greece’s situation themselves. Sure the Finns have a national guilt about their own notorious complicity with the Nazis in the 1940s but what makes them such a nasty conservative ally to the Germans is an interesting question. It also seems to be hard keeping track with the latest ‘negotiating offer’ from either side. But the trend seems obvious. The Greeks offer to bend over further and are met by a barrage of “it is going to be hard to accept this”, followed by a Troika offer (now generalised as the Eurogroup minus Greece which is harsher than the last. And so it goes – from ridiculous to absurd or to quote a headline over the weekend – From the Absurd to the Tragic, which I thought was an understatement. There are also a plethora of ‘plans’ for Greece being circulated by all and sundry – most of which hang on to the need for the nation to run ‘primary fiscal surpluses’, with no reference to the scale of the disaster before us (or rather the Greek people). It is surreal that this daily farce and public humiliation (like the medieval parading of a recalcitrant in stocks) is being clothed as ‘governance’. Only in Europe really.
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.
Its my Friday lay day blog and I have been working on various things today. But for this little blog I am still trying to work out an impression of what is going on in Greece and the Brussels. There is little uncertainty on the Troika side although the various elements of that position are still nuanced. The sheer antagonism of the Baltic States towards Greece is a newly revealed element which is interesting. If their logic prevails then it really is a race to the bottom unless the nation is Germany. Representing the desired benchmark by massive mediocrity if not near disaster (as in Latvia, Lithuania etc) seems to be the new normal in EU debates. Spare the thought. The Baltics should be joining Greece in a solidarity pact to oppose austerity and seek fundamental changes to the EU Treaties instead of siding with the Troika’s death wish for Greece. But there is quite a bit of uncertainty in trying to guage the Greek position. One is led to the most obvious, simple and consistent interpretations of that position – that Syriza is a fractured coalition and those currently in positions of authority (Prime Minister etc) are surrender monkeys who have miscalculated dramatically. But that would tell us that they are so acting with such venality towards their people as to be almost an unbelievable narrative. Looking deeper into the plot doesn’t provide anything consistent, just dead ends and speculation. We are close to finding out though.