The Weekend Quiz – September 16-17, 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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Paradigm shift – not from the CORE Econ Project – as mainstream as you will get

Next Friday (September 22, 2017), I will be presenting at a panel on developments associated with the proposed MMT University and our new MMT Macroeconomics textbook, which will be published by Macmillan in April 2018. The panel will present during the First International MMT Conference, to be held in Kansas City. In part, my contribution will be to discuss the general pedagogical concerns that we (Randy Wray, Martin Watts and myself) had as we wrote the textbook over what turned out to be several years. We were confronted with the situation that we want our textbook to be used as widely as possible in the first and second years of a typical undergraduate program, but also didn’t want to fall into the trap of compromising what we considered to be a unified body of theory based upon Modern Monetary Theory (MMMT) for what other colleagues (particularly, mainstream academics) would claim to be necessary material to prepare a student for the labour market. We now have what we believe is a very strong two-year sequence in macroeconomics, firmly founded on MMT principles, with a good balance between discursive narrative, historical context, empirical challenge, and formal (mathematical) reasoning. When one compares it to other post-GFC developments in the pedagogy of macroeconomics, some of which have received the headlines in the past week, I think the curriculum embodied in our text is progressive, consistent, and doesn’t fall into the typical neoliberal default regarding governments and the monetary system.

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The role of literary fiction in perpetuating neo-liberal economic myths – Part 2

In The role of literary fiction in perpetuating neo-liberal economic myths – Part 1, I noted introduced the idea that fictional literature plays a significant role in framing false economic concepts and, thus, can promotes neo-liberal biases among the readership, even when the plot of the narrative is ostensibly about something other than economics. In other words, what parades as fiction becomes a powerful tool for spreading ideological propaganda, often in a very subliminal or subtle way. In Part 2, I demonstrate that further and provide correct Modern Monetary Theory (MMT) interpretations of popularised economic statements that the characters in the book in focus (The Mandibles) weave into their conversation as if they are accepted facts. The lesson is clear. To further advance Modern Monetary Theory (MMT) ideas, novelists who are sympathetic to the cause should construct their narratives consistent with the MMT principles, where economic matters are touched upon in their work. This will help to counter the misconceptions that arise in literary fiction when authors engage with flawed neo-liberal arguments about the monetary system. It might also help educate book reviewers who often, knowingly or unknowingly, reinforce the myths in the main text.

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ECB is running out of debt to buy – more smoke and mirrors needed

There was a Bloomberg report yesterday (September 6, 2017) – Draghi’s Claim of QE Flexibility Is Attracting Doubters – that made me laugh. The sort of laugh that comes when you just realise there is parallel language spoken out there that makes no sense and reinforces stupidity with stupidity. Much like most of mainstream economics commentary. The journalist was trying to argue that times is up for the ECB’s Quantitative Easing strategy because they are running out of debt to buy. Whew! That sounds like a catastrophe. The point is that the elephant in the room is ignored. The ECB is already massively violating the Treaty of Lisbon constraints on funding government deficits. It is time they realised that without that ‘quasi fiscal support’ (given the ECB is effectively the only functioning federal fiscal authority by default in the Eurozone), the system will collapse under the weight of austerity. Leadership demands they take the next step and allow the ECB to openly fund deficits using Overt Monetary Financing (OMF). But the lack of leadership tells us they will not take this obvious step. The grinding nature of Eurozone economic history will continue as a result – and then the next crisis will hit.

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Progressives should move on from a reliance on ‘Robin Hood’ taxes

There was an article in the International Politics and Society journal (August 27, 2017) – Robin Hood had the right idea – which continues to demonstrate, how in my view, the Left has gone down a deadend path with respect to financial market reform and re-establishing a credible progressive agenda. The sub-title of the article ‘Why the left needs to deliver on the financial transaction tax’ indicates that the author, Stephany Griffith-Jones, who has long advocated positions I am sympathetic to (particularly with respect to development economics), thinks a financial tax is a viable strategy for the Left to push. The problem is that none of these ‘Robin Hood solutions’ are viable and are based on faulty understandings of the way monetary systems operate.

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Central banks still funding government deficits and the sky remains firmly above

There was an article in the Financial Times last week (August 16, 2017) – Central banks hold a fifth of their governments’ debt – which seemed to think there was a “challenge” facing policymakers in “unwinding assets after decade of stimulus”. The article shows how central banks around the world have been buying huge quantities of government (and private) bonds and holding them on their balance sheets. Apparently, these asset holdings are likely to cause the banks headaches. I don’t see it that way. The central banks, in question, could write the debt off any time they chose with no significant consequence. Why they don’t is the question rather than whether they will become insolvent if the values crash (they won’t) or whether the yields will skyrocket if they sell them back into the non-government sector (they won’t). Last week (August 15, 2017), the US Department of Treasury and the Federal Reserve Board put out their updated data on Foreign Holders of US Treasury Securities. Other relevant data was also published which helps us trace the US Federal Reserve holdings of US government debt. Overall, the US government holds about 40 per cent of its own total outstanding debt – split between the intergovernmental agencies (27.6 per cent) and the US Federal Reserve Bank (12.4 per cent). In some quarters, the US central bank has been known to purchase nearly all the change in total debt. That folks, is what we might call Overt Monetary Financing and the sky hasn’t fallen in yet as a consequence.

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When neo-liberal masquerades as anti-establishment

Regular readers will know I was doing some speaking engagements in New Zealand a few weeks ago. Please read my blogs – Travelling all day today but here is something to watch and listen to and Reflections on a visit to New Zealand – for more coverage of that visit. New Zealand is in the midst of a national election campaign and it seems that one of the aspiring parties – The Opportunities Party (TOP) – which is trying to carve out a niche for itself as an ‘anti-establishment’ party in opposition to neo-liberalism – obviously determined that the Modern Monetary Theory (MMT) message that I introduced many progressive New Zealanders to during my visit threatened their own credibility (which is a reasonable perception). So, to kill off the threat TOP went on the attack, although as you will read they found it impossible producing a credible critique of MMT and still maintain their alleged anti-neoliberal stance. Whatever, I would hope not too many New Zealand voters get lulled into believing that TOP is somehow a progressive force. Their macroeconomic narrative is strewn with neo-liberal falsehoods that are like neon-signs advertising their roots!

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The Weekend Quiz – August 19-20, 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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Australia – real wages growth zero and the rip-off of workers continues

When the Australian Bureau of Statistics released its latest wages data in May (for the March quarter) we learned that real wages were falling as a result of nominal wages failing to keep pace with the modest inflation rate. Today (August 16, 2017), the ABS released the – Wage Price Index, Australia – for the June-quarter 2017. For the sixth consecutive quarter, annual growth in wages has recorded its lowest level since the data series began in the December-quarter 1997. Nominal wages growth in Australia was just 1.9 per cent in annual terms and equal to the inflation rate of 1.9 per cent. So on the back of real wage cuts in the March-quarter, workers enjoyed zero real wages growth in the June-quarter. This is in the context of on-going productivity growth, which means that the profit share in national income rose again as real unit labour costs plunged. But employment growth also remains flat. This represents a major rip-off for workers. The flat wages trend is also intensifying the pre-crisis dynamics, which saw private sector credit rather than real wages drive growth in consumption spending. Further, the forward estimates for fiscal outcomes provided by the Australian government are now not achievable, given the flat wages growth. There is no way the tax receipts will rise in line with the projections, which assumed much stronger wages and employment growth than will occur under current austerity-type fiscal settings.

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Jacques Delors – a failed leader not a champion of a prosperous Europe

It is amazing how history is revised when it is convenient. It is also amazing how the same events, that from my perspective are rather clear, can be diametrically interpreted by others, who want to run a different agenda. A good example of these phenomena can be found in a recent UK Guardian article (August 11, 2017) – Jacques Delors foresaw the perils of austerity. How we need his wisdom now. When I saw the headline I thought it must have been an article seeking to elicit some sort of deep irony. Jacques Delors – perils of austerity – wisdom – all in the same title. Ridiculous. Through the lens I view the work of Jacques Delors I can only see the abandonment of a progressive social vision, the unnecessary surrender to neoliberalism, and then, a bit later, as an inevitable consequence of these shifts – the disastrous and dysfunctional creation of the Eurozone with all its embedded and destructive austerity biases. The unfortunate fact is that the UK Guardian article was deadly serious. Oh dear!

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The Weekend Quiz – August 5-6, 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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Reflections on a visit to New Zealand

Last Friday, I gave a public lecture organised by the strategy group Strategy2040 and the full presentation is available on YouTube – Thinking in a Modern Monetary Theory Way (I made it available in yesterday’s blog). After that presentation I was invited to a ‘Roundtable’ meeting (although the layout was rectangular) which comprised about 30 or so people (mostly economists as I gather) being given the opportunity for 90 minutes to question me about the presentation etc – to tear me apart really. There was a call from an former senior central banker in the audience to have Chatham House rules governing the meeting. I declined acceptance of that constraint. Opinions should be owned. But what the meeting taught me was that, despite the GFC and the failure of the mainstream macroeconomics to predict it, deal with it when it arrived and then change its approach in the aftermath, very little has changed within the mainstream narrative. The same myths are being propagated and academic and senior policy economists seem blithe to reality.

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The Weekend Quiz – July 29-30, 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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Hungary and Poland would be insane joining the Eurozone

There was an interesting article (July 18, 2017) – The Political Fiction of Economic Control – that has, seemingly, been the motivation for people sending me heaps of E-mails, some, demanding that I admit that Modern Monetary Theory (MMT) is bereft in this specific area of discussion. The article was allegedly written by a Polish journalist with a past that included working at the “Adam Smith Research Centre”, a ‘free market (not!)’ think tank in Warsaw, and a Hungarian economist Lajos Bokros who was formally a Socialist Minister of Finance from 1995 to 1996. But there is a lot of first person in the article (I’m, My, I etc) and only Bokros’ picture and bio is featured. Bokros is best-known for implementing the controversial Bokros Package, which was a “a series of austerity measures” described as “neoliberal shock therapy” based on the erroneous assumption that the Hungarian government would run out of money and have to declare bankruptcy. So it is no surprise that these characters (or Bokros, if he really wrote the article) would support the Eurozone and claim that surrendering a national currency in the case of Hungary and Poland was inevitable if these nations were to progress. The arguments used to make their case, reappear over and over again. They are always incorrect no matter what form they appear.

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There is nothing much that Milton Friedman got right!

“If we want to ensure more people are well-employed, central banks alone will certainly not suffice” is a quote I am happy to republish because I consider it to be 100 per cent accurate. The only problem is that the way I think about that statement and construct its implications is totally at odds with the intent of its author, who claimed it was “an important lesson of Friedman’s speech”, which “remains valid”. The quote appeared in a recent Bloomberg article (July 17, 2017) – What Milton Friedman Got Right, and Wrong, 50 Years Ago – written by journalist Ferdinando Giugliano. It celebrates the Presidential Speech that Friedman gave to the American Economic Association on December 29, 1967 at their annual conference in Washington D.C. In terms of the contest of paradigms, the speech is considered to be the starting point proper of the Monetarist era, even though it took at least another 5 or 6 years (with the onset of the OPEC oil crises) for the gospel espoused by Friedman to really gain ground. The problem is that Friedman was selling snake oil that became the popular litany of the faithful because it suited those who wanted to degrade the role of government in maintaining full employment. It was in step with the push by capital to derail the Post War social democratic consensus that had seen real wages growing in proportion with productivity, reduced income inequality, jobs for all who wanted to work and a strong sense of collective solidarity emerge in most advanced nations. This consensus was the anathema of the elites who saw it as squeezing their share of national income and giving too much power to workers to negotiate better terms and conditions in their work places. Friedman provided the smokescreen for hacking into that consensus and so began the neo-liberal era. We are still enduring its destructive consequences.

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The Weekend Quiz – July 22-23, 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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Austerity will not work for France right now

It didn’t take long from Emmanuel Macron to get started on his neo-liberal agenda. That should be no surprise, given he championed the insidious El Khomri Law when he was Minister of Economy and Finance in the second Manuel Valls Cabinet. In a major speech in Paris on Monday (July 17, 2017), Macron, demanded that local governments in France slash spending by 13 billion euros by 2022 as part of an effort to cut the French fiscal deficit. Why they would want to be cutting the fiscal deficit with growth creeping along and the unemployment rate stuck close to 10 per cent, among other problems facing the French nation is another matter. Clearly, they are under pressure from the Excessive Deficit Mechanism given that the overal fiscal deficit remains around 3.5 per cent (above the 3 per cent threshold) and doesn’t look like coming down any time soon. And it is clear that Brussels will not turn a blind eye to France, as it did for Spain when it allowed the deficit to rise to support growth as part of the strategy to get the conservatives re-elected. The elites in the Eurozone have their boy in power in France so no further political support is required. But austerity will not work for France right now.

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A government can always afford high-quality health care provision

The Commonwealth Fund, a New York-based research foundation that analyses health care systems, recently released an interested international comparison of the performance of such systems across a number of criteria (July 2017) – Mirror, Mirror 2017: International Comparison Reflects Flaws and Opportunities for Better U.S. Health Care. Health care is one of several policy areas where the debate descends into fiasco because the typical application of mainstream economics obscures a widespread understanding of how the monetary system operates and the opportunities that system provides a currency-issuing government. Once an understanding of Modern Monetary Theory (MMT) is achieved the choices available in health care policy become more obvious and better decision-making is likely. The Commonwealth Fund report provides useful information in this regard, although the MMT understanding has to come separately.

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The conservative opposition to full employment legislation in the US

In 1946, with the Second World War at an end, the world governments turned to the question of how to maintain the full employment that the prosecution of the War had brought in the peace. It was clear that governments could choose whatever unemployment level they wanted through the manipulation of fiscal and industry policies and so the only question was the political will to maintain the full employment state. In the US, the political debate led to the Employment Act 1946, which demonstrated that the parameters of the conflict between conservative and the more liberal forces over what constituted full employment and what responsibility the currency-issuing government had for maintaining high levels of employment. We can see through successive attempts in the US to legislate for full employment how the economic profession has influenced the political process and how we have reached the point today where governments pay lip service to fulfulling their responsibilities as the fiscal agency to maintain sufficient jobs for those who desire to work.

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Disturbing pay trends in Britain

Earlier this month (July 3, 2017) the British Office of National Statistics (ONS) released a research report – Wage growth in Pay Review Body Occupations – which basically summarises what has gone wrong with the world under neo-liberalism. While the Report is about the UK, which has particular characteristics, the trends identified are almost universal and reflect the dominance of the ‘free-(not!)-market’ austerity mentality that has crippled progress around the world. It also helps us understand why the British economy is stalling again and why the latest data on household spending is so disturbing. These trends have nothing to do with Brexit. They are all down to misguided government policy (austerity) and erroneous strategies that seek to generate fiscal surpluses when the non-government sector needs to also run surpluses (and the two aspirations are not simultaneously achievable). British workers are paying for this incompetence. The economists who gratuitously hand out the spurious advice, unfortunately do not lose their jobs.

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