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.

Read more

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.

Read more

The Weekend Quiz – July 8-9, 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.

Read more

Inflation abating in the Eurozone signals failure of ECB ideology

The latest inflation data from the Eurozone tells us once again how wrong mainstream monetary theory is. Eurostat released its latest estimates (June 30, 2017) – Euro area annual inflation down to 1.3% – which has according to the press confounded the ECB, who has been trying to push the inflation rate up to around 2 per cent (a soft target). Like many economic things that confound the pundits, if you are familiar with Modern Monetary Theory (MMT) you won’t be surprised at all. All the baying at the moon that the ECB has been doing (courtesy of mainstream monetary textbook) won’t shift the inflation rate. Expanding bank reserves won’t shift the inflation rate. The real cause of the declining inflation rate is a lack of spending relative to productive capacity. And it is clear that the ECB has limited capacity to influence that gap. That is a matter for fiscal policy, which remains in austerity mode in the Eurozone as the leaders continue to talk about nothing.

Read more

Something is rotten in the state of … Britain

When I was trawling through the British fiscal statements in 2010 and 2011, hidden in all the detail (an obscure Annexe) was a very explicit statement that told me that the British government was inflicting austerity on the economy and relying largely on the growth of non-government indebtedness to offset the fiscal drag and restore the growth cycle. In the same documents but more visible (in the main fiscal statement), the Government was claiming that the non-government debt position that had deteriorated sharply in the lead up to the crisis was unsustainable as a growth strategy. The mainstream press didn’t pick up on the contradiction. Now, the same press seems alarmed with the latest data from the British Office of National Statistics that shows that the Government’s strategy has been working like a charm – the non-government saving ratio has plunged, household debt escalated sharply, non-mortgage debt has accelerated and to top of the impending disaster – real household disposable income growth has been negative for three successive quarters (the first time since the mid-1970s). None of these trends are surprising. I predicted them 6 or 7 years ago. I have been watching the results steadily unfold. But for the mainstream commentators it is all a big headline – ‘look at what we have discovered’ … As Marcellus in Hamlet notes as the dead king’s ghost appears in the palace – “Something is rotten in the state of Denmark” although he might have been referring to modern-day Britain under the Tories (apologies to William Shakespeare).

Read more

France has received its orders from the masters

The 19 Member States of the Eurozone cover some 4,422,773 km2 of territory, much of that is densely populated. The geographic area of Australia covers 7,682,300 km2 and is mostly sparsely populated. The reason density matters is because it impacts on the resources that need to be expended to provide infrastructure across the geographic space. In the past month, the French people have elected a new President and a dramatically different National Assembly. In his election campaign, Emmanuel Macron spoke of being part of a major reform process for the dysfunctional Eurozone. To create some federal fiscal capacity including the idea of debt-mutualisation (issuing Euro-level debt) to match spending on public infrastructure etc, which could help to revitalise the stagnation that besets many regions across the currency union. In 2012, François Hollande was also elected on a reform ticket. The same day he was elected he visited Angela Merkel in Germany. The reform process ended before it started. He went away with no uncertainty about what the Germans would tolerate as masters of the union. Well within a short-time of being elected, Emmanuel Macron has also received his instructions from the Germans, this time in the guise of remarks made by Bundesbank boss Jens Weidmann. The orders are clear. Germany will never tolerate the creation of anything like a functioning federal fiscal capacity. End of story. Macron now knows the limits of his volition. What are the limits of being confined to a straitjacket?

Read more

The Weekend Quiz – June 24-25, 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.

Read more

Deepening the Economic and Monetary Union – no solution in sight

Periodically, the European Commission puts out a new report or paper on how it is going to fix the unfixable mess that the Eurozone continues to wallow in. I say unfixable because all of the proposed reforms refuse to confront the original problem, which, at inception, the monetary union builders considered to be a desirable design feature – a lack of a federal fiscal capacity. They now know that this is the major issue but cannot bring themselves to deal with it directly. The politics won’t allow that. Everyone knows that Germany will veto such a development immediately and that would be the end of it. The latest report (May 31, 2017) – Reflection paper on the deepening of the economic and monetary union – maintains the inertness that was characteristic of previous ‘grand’ statements, such as the White paper on the future of Europe and the way forward (March 1, 2017) and the The Five Presidents’ Report: Completing Europe’s Economic and Monetary Union (June 22, 2015). So not much has happened in 2 years, despite the unemployment rate still hovering around 9.5 per cent, other than many workshops, conferences, reports, speeches, meetings in salubrious surrounds where the catering is the highlight and the conclusions moribund.

Read more

The Weekend Quiz – June 17-18, 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.

Read more

When economists ignore the elephant called reality and applicability

I have sat through many economic seminars in my time where there is a sense of suspended reality necessary so the presenter can run through the exercise of bringing their latest research idea to the academic community. This suspended reality normally relates to the a priori assumptions made to condition the exercise and the framework within with the exercise is conducted. It typically involves ignoring the elephant in the room called reality and applicability. The ruse goes like this – assume a, b and c (where none of these assumptions capture the most important aspect of the object of study); then use these analytical tools (none of which reflect how the actual mechanisms being studied operate); and QED we show this. I no longer go to seminars like this – life is too short. An example of this sort of exercise appeared recently in summary form on VoxEu site (June 6, 2017) – Japanese frugality versus Italian profligacy? – written by an MIT academic. Perhaps the salient aspect is that the author was previously a Central Bank governor in Cyprus (2007-12) and a member of the Governing Council of the European Central Bank (2008-12). That experience may have led to his clouded judgement. But more so is the fact that he is a Friedmanite! One of them! That explains everything. The blindness. The failure to see the obvious. The neo-liberal ideology.

Read more

The Weekend Quiz – June 10-11, 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.

Read more

Being lectured about the problem by those who created the problem

There are many examples of high profile players in the political arena trying to revise history and reinvent themselves to suit the new climate they are operating in. Tony Blair is a notable example in recent months where he sought to influence the upcoming British election by casting aspersions on the current Labour Party leadership. His past record is so abysmal that anyone in their right mind would just go away and stay silent. But this sort of person – the revisionist reinventers – have a thick hide and a sense of entitlement that most of us couldn’t imagine. I read an article in the American Prospect Magazine last week (June 1, 2017) – The Democrats’ ‘Working-Class Problem’ – written by Stanley B. Greenberg, an American pollster who “works with center-left political parties in the United States and abroad” and so claims to have insights into why people vote the way they do. This was a classic example of being lectured about a problem when the lecturer is himself part of the problem but, seemingly, fails to see that.

Read more

A credit rating agency spinning its usual nonsense

There is a lot of talk among the economics journalists about the impending collapse of China, apparently drowning in mountains of unsustainable debt. Don’t hold your breath. The Chinese government fully understands its capacity as the monopoly issuer of its currency and demonstrated during the GFC how to effectively deploy that capacity. That doesn’t mean that the Chinese economy might record slower growth in the period ahead – but as Japan demonstrated in the 1990s after it experienced a massive property bubble burst – slower growth is not collapse. Appropriate use of fiscal policy can always prevent collapse if there is a will to do so. Further, Australia’s net foreign debt has risen significantly over the last few decades and now exceeds $A1 trillion. Most of it is non-government and the private banks have been at the forefront of the increase as they have been racking up loans from foreign wholesale funding markets. With China slowing, there is a possibility that the conditions for servicing these private loans may deteriorate. A chief of a credit rating agency (S&P) has been getting airplay in Australia the last few days claiming that this increased vulnerability arising from the foreign debt exposure requires the federal government to get into surplus as quickly as possible to provide it with the capacity to “absorb shocks” arising from a correction in the banking sector. His insights are nonsensical. Exactly the opposite is the case.

Read more

Humans are intrinsically anti neo-liberal

Over the course of my academic career and even outside of that I have often been regaled with the claim (as if it is science) that capitalism is the ‘natural’ system for humans because our nature biases us to competitiveness and selfishness. So Marx’s famous epithet in his Critique of the Gotha program (1875) – “from each according to their ability to each according to their need” – was dismissed as being against our natural tendencies – a denial of basic human nature. It then followed that planned economies and economies where governments intervened strongly to ensure equitable distribution of opportunities and outcomes, was in some way contrived and would surely fail because our human nature would find ways to thwart such interference. This has been a compelling and dominant narrative over the last several decades as neo-liberal think tanks, biased media outlets, and politicians from both sides of politics (homogenised into a common economic mantra) reinforced it continuously in print, spoken word and policy. We shifted from living in societies where collective will and equity was deemed important organising principles to living in economies where every outcome was in the hands of the individual – including mass unemployment – and the concept of systemic failure that could be ameliorated by state intervention was rejected. State intervention was cast as the devil. It is no surprise that economic outcomes for a rising proportion of the population deteriorated as we shifted from society to economy – from collectivism to individualism. It turns out that the research into human nature, motivation, decision-making etc largely rejects the ‘competitive selfish individual’ narrative. We are intrinsically cooperative and care about equity. Our basic propensities appear to be collective and cooperative. Funny about that.

Read more

The Weekend Quiz – May 20-21, 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.

Read more

Why Britain should not worry about Brexit-motivated bank relocations

On April 26, 2017, some smarta*!se journalists wrote a Bloomberg piece – The Brexit Banker Exodus Gains Momentum – with some not-so fancy graphics purporting to show where the “U.K. banking jobs might be headed” allegedly because Britain is to leave the European Union. On May 9, 2017, the increasingly terrible UK Guardian bought in on the frenzy with its article – City banks could move at least 9,000 jobs from UK due to Brexit . And so it goes. Apparently, Deutsche Bank is “leading the threatened exodus”, followed by JP Morgan and Goldman Sachs. All exemplars of virtue, not! While the threat of the ‘City’ leaving London is now used to frighten British people about Brexit, the reality is, in my view, quite different. I would be celebrating the cleaning out this infestation of unproductive enterprises, which remain one of the destructive legacies of Margaret Thatcher and, later, New Labour and its so called ‘light touch regulation’.

Read more

Australia’s Overseas Aid cuts reveal a nation that has lost its spirit

In last week’s fiscal statement (aka ‘the budget’), the Australian government decided to make the poorest citizens in the world, including those living in close proximity to our shores, the target of its austerity mania. It decided to increase Overseas Development Aid (ODA) to match the inflation rate until 2018 and then freeze that contribution for the next two years after that. Effectively cutting real aid over the next four years at a time it forecasts strong growth in total national income. The Government claimed it was just a “pause” and follow several years of cuts in absolute levels of aid. The austerity is not only hampering growth in Australia and maintaining elevated levels of labour underutilisation, but, it is also revealing how mean we are as a nation. As one of the wealthiest nations in the world (currently we are ranked 2nd behind Switzerland for per capita wealth), we are now cutting into the resources we extend to poorer nations in our region as part of a mindless quest for surplus. The problem is not only the economic idiocy that underpins these cuts. The other, perhaps larger problem, of which the first is a symptom is that, as a nation, Australia is losing its moral compass. In this neo-liberal era, we have become an increasingly ugly nation – lacking in generosity to each other and to outsiders. We engage in criminal behaviour (indefinitely detaining refugees in prisons on remote islands; engaging in illegal invasions of foreign nations, etc) and punish poverty rather than do everything we can to reduce it and provide the equal opportunities to all that we so often congratulate ourselves as being champions of. We are a mean-spirited nation these days and an international pariah. There is no pride in holding an Australian passport. It is easy to live here if you have money. The climate is good, the beaches great, plenty of open terrain, great sport – but our national spirit is disappearing.

Read more

The Weekend Quiz – May 13-14, 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.

Read more

Australian government in contractionary bias when stimulus is needed

This will be my only commentary on last night’s fiscal statement (aka ‘the budget’) from the Australian Treasurer unless I make another one. There were few surprises and lots of tricks all aimed at presenting a government that has abandoned its extreme right-wing ‘hit the poor the most’ past (as in 2014 and 2015) and decided to quell the deficit and debt hysteria that the right-wing of its party had determined was the best way to win votes. The conservatives are still in office but now they just claim that “the government has to live within its means” and spreads the adjustment profile by which it claims it will force the government to do that over a longer time period (2020-21 the first fiscal surplus is projected). It is big on claims about infrastructure development but, in fact, it tricks the population into believing that cuts are increases. It talks about fairness but introduces compulsory drug and alcohol testing for income support recipients because apparently you “can’t go to work if you are smashed”. It also includes projections that are required to get the surplus projection which are simply unbelievable, which means the 2020-21 surplus is just a token. Even the Treasurer has stopped short of promising its realisation saying the figure is just a “projection”. The government is cutting spending on universities despite saying it wants Australia to be a clever country. And in making changes to secondary education funding in general it is squeezing into the natural territory of whining Labor Party opposition and giving them nowhere to go. That Party has become trapped by its own adherence to neo-liberalism and now just looks stupid. In summary, it still delivers contraction in the year ahead at a time when Australia is growing well below trend and domestic spending growth flat. In other words, to be a fair and responsible policy document it should have increased the deficit over the next few years to stimulate employment growth and bring down unemployment and underemployment.

Read more

Eurozone recovery is much weaker than the headline figures might suggest

It is fiscal statement (aka ‘budget’) frenzy in Australia at present, with the Treasurer about to bring down the annual policy strategy tonight. There is so much claptrap in the press and electronic media that I have tried to avoid saying anything about it. I may stick to that. I have been trying to understand the French election results though. That has occupied my attention a bit given the success of Macron (where a record number of voters stayed away and he barely scraped through the first round). He will be proven to be duplicitious I think. He is a Eurocentric neo-liberal who is anti-union, largely, anti-regulation and state intervention and believes the ‘market’ and an incentivised middle-class will do the trick for France. He is caught up in the Europe thing and so cannot see that the Eurozone straitjacket will ensure a growing underclass is retained. There was some interesting research published by a private investment bank (BOAML) – Job Quality and Escape Velocity – which provides a rather sombre view of the much-touted Eurozone ‘recovery’ over the last three years.

Read more
Back To Top