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Fiscal sustainability 101 – Part 3

In this blog I will complete my analysis of the concept of fiscal sustainability by bringing together the discussion developed in Part 1 and Part 2 into some general principles. The aim is to provide a blueprint to cut through the deceptions and smokescreens that are used to deny fiscal activism and leave economies wallowing in persistently high levels of unemployment. So read on.

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Fact and fiction … NSW Budget

I wrote this for the Fairfax press early this morning before a 10km run around the Vondelpark in the heart of Amsterdam – in cold pouring rain. They call it high summer. Anyway, the opinion piece was confined to 500 words. I could have said a lot more but you can extrapolate each line accordingly. I also did an ABC radio interview hiding under a tree in the park – the juxtaposition of talking to Sydney about the NSW Government’s failure to deliver adequate services and being among the wonderful urban amenities (for example, public transport and bike paths) and public spaces provided by the Dutch was not lost on me. Pity public spending can’t fix the lousy weather over here. Anyway, now I am off to work for the day over here. Part 3 of the fiscal sustainability series coming next – for Wednesday.

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Fiscal sustainability 101 – Part 2

This is Part 2 of my little mini-series on what we might conceive fiscal sustainability to be. In Part 1 we considered a current debate on the National Journal, which is a US discussion site where experts are invited to debate a topic over a period of days. By breaking the different perspectives that have been presented to the discussion, we can easily see where the public gets its misconceived ideas from about the workings of public deficits and the dynamics of the monetary system – its leaders. My aim in this 3-part series is to further advance an understanding of how a fiat monetary system operates so that readers of this blog (growing in numbers) can then become leaders in their own right and provide some re-education on these crucial concepts. So read on for Part 2.

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Fiscal sustainability 101 – Part 1

Greetings from Amsterdam where I am spending the next few days talking about what drives spatial changes in unemployment at a Tinbergen Institute regional science workshop. The spatial econometric work that I am outlining tomorrow provides the conceptual framework for the construction of the Employment Vulnerability Index, which received a lot of press earlier in the year. But while I was flying over here I thought about the concept of fiscal sustainability which is now getting a lot of press. So this is the first of a multi-part series on what constitutes a sustainable fiscal policy. Its that time again. Time to debrief!

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W comes before V

The talk at present is that while we are hoping for a V we might have to accept a W. Its all about shape. The shape of the future. The shape of the recovery! In Post-Lehman World Will Mean W-Shaped Recoveries we read that Japan’s former economic and fiscal policy minister, Hiroko Ota said that “The worst is over but I can’t say the economy is heading for a recovery at all”, Japan’s recovery may be W-shaped instead of V-shaped. There are some very real reasons why W might rule over V. They all relate to the lack of understanding of the characteristics of a fiat monetary system and the opportunities that such a system presents the sovereign government. Unfortunately, the ignorance (or wilful neglect) among policy makers may force millions of people to endure unnecessary hardship.

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Today’s mantra – 13.4 per cent wasted labour

Today’s ABS Labour Force data confirms one thing. Whatever else the commentators say about the figures are not as bad as expected or that employment is still growing or whatever – there are 13.4 per cent of the willing and available labour resources not being fully utilised by this economy. Around 657 thousand have no jobs at all and another 866 thousand have a job but want more hours and cannot find the work. 1.5 million wasted workers is an appalling state that demands urgent action – like direct public sector job creation. Each day that we waste the capacity of those workers is another day of income and opportunity lost down the drain. It should be the absolute number one policy priority. And what it tells me is that the budget deficit is way to low as a percentage of GDP at present.

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Animal spirits – optimism that may not last

Its winter here in Newcastle! Today my shark-o’clock morning surf expedition was freezing! Full wetty and still cold! But for northern hemisphere readers pleased be warned that freezing means a water temperature of 19 degrees celsius and air temperature of 14 celsius. Anyway, the sudden sensation of cold reminded me of my mortal origins. One thing led to another and I was soon thinking of animal spirits! This is what JM Keynes said drives the business cycle up and down. And today (and yesterday) we have been reminded of the role that sentiment might play in economic life. The news is probably good and suggests that this downturn might be more moderate for Australia than the global experience would have indicated. But it might also be bad. Ahh, economics!

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