The New Keynesian fiscal rules that mislead British Labour – Part 1

The British Labour Party is currently leading the Tories in the latest YouGov opinion polls (February 19-20, Tories 40 per cent (and declining), Labour 42 per cent (and rising). They should be further in front, given the disarray of the Conservatives as they try to negotiate within their own party something remotely acceptable about Brexit. When there is this degree of political capital available, in this case for the Labour Party, a party should use it to redefine policy agendas that have gone awry. To build a narrative that will advance their cause for the future decades. British Labour has a chance to break out of its recent Blairite neoliberal past and present a truly progressive manifesto to the British people that will force the Tories to move closer to the centre and squeeze the extreme right-wing elements. In part, under Jeremy Corbyn and John McDonnell, Labour is making progressive noises on a number of fronts. But ultimately, where it really matters – the macroeconomic narrative – they are remaining firmly neoliberal and this will blight their chances of pursuing a truly progressive agenda. One of the glaring mistakes the Labour Party has made is to accept advice from neoliberal economists (so-called New Keynesians) who have instilled in them a need for fiscal rules. This is a three-part analysis of the sort of advice that Jeremy Corbyn and John McDonnell are getting and why they should ignore it. I have split it into two parts because it is long and quite involved at times.

Read more

The Weekend Quiz – January 6-7, 2018 – 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

The IMF still has the same spots

Just before Xmas (December 22, 2017), the IMF proved once again that leopards don’t change their spots. Thy released a Working Paper (No. 17/286) – Australia’s Fiscal Framework: Revisiting Options for a Fiscal Anchor – that demonstrated they hadn’t learned a thing from the last decade of crisis and fiscal interventions (stimulative and opposite). The paper demonstrates no understanding of context, history, or the role that fiscal policy should play in advancing general well-being. It is a technical exercise laden with the ideology of mainstream macroeconomics that fails badly. The problem is that the mainstream political parties (on both sides of the fence – Labor and Conservative – although pretending there is a fence is somewhat far-fetched these days) will use it against each other, and, in their shameful ignorance, against the best interests of the nation and the people that live within its borders. And … on reflection using the leopard example is an insult to the leopards. The IMF is an ugly, destructive institution that should be defunded and their buildings given over to the homeless.

Read more

Lack of universal health care due to application of spurious ‘sound finance’

I have been reading several reports in the past week – ranging from studies using dodgy input-output tables to claim the regions that voted most enthusiastically for Brexit will suffer the most – part of the never ending ‘modelling’ of the alleged disaster – to reports by the historians tracking the impact of austerity on the rise of the Nazis in pre-war Germany. All interesting. I am particularly researching the way in which the Common Agricultural Policy impacted on Britain and why it will be good to be free of it. But one report struck me as fundamental to the way in which neoliberalism has led societies astray and damaged the most defenseless citizens of the world. On December 13, 2017, the World Bank and the World Health Organisation (WHO) published its latest – Tracking Universal Health Coverage: 2017 Global Monitoring Report. This is an audit report to keep track of the progress towards the UN’s 17 Sustainable Development Goals, which were agreed upon in September 2015. One of those goals is health and well-being and within that ambit comes, among other targets, universal health care provision. We learn that “at least half of the world’s population cannot obtain essential health services” and health care service deficiencies are chronic at the poorer end of the income and wealth distribution. The reason is not a lack of real resources to be deployed. Rather, these appalling results are persisting because governments apply neoliberal ‘sound finance’ principles to their spending choices (with the IMF bullying them to do so). So we find major cuts to health care service provision in nations because they claim they cannot raise enough revenue to pay for the provision. In currency-issuing nations, no matter how low the average income levels are, that sort of claim is always spurious.

Read more

The Weekend Quiz – December 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.

Read more

The Weekend Quiz – November 25-26, 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 neoliberals masquerade as progressives

One wonders what goes on in the heads of politicians sometimes. Perhaps not much other than a warped sense of their purpose in life – which for some seems to be to advance themselves rather than advance societal well-being. In recent days, fiscal debates have raged on both sides of the Atlantic. In the US, there is the Trump tax cut debate. The correct progressive response would be to focus on why these cuts will not advance anybody but the rich and will do very little if anything to create new jobs. Unfortunately, prominent Democrats such as the awful Nancy Pelosi have been spouting stuff about the tax cuts increasing the federal deficit and federal debt. At a time, when the Republicans are abandoning the deficit terrorism to advance their own interests, the Democrats seems to be reinforcing the ‘deficits are bad’ narrative. Instead, they could have seized the opportunity to say to the American people – see deficits are fine but the real issue is what we do with them. Pelosi and her ilk seem incapable of adopting that quality of leadership. In the UK, the reality is dawning on the British government that the austerity harvest is anything but what they had hoped it would be. No surprises there. Austerity undermines growth which can easily increase the fiscal deficit when the goal is the opposite. But the way that reality is being handled in the progressive press is pathetic. The UK Guardian, for example, has headlines about ‘black holes’ and is giving oxygen to reports that talk about the deteriorating fiscal situation in the UK. Readers are left with nothing but neoliberalism reinforcement of the ‘deficits are bad’ myth. A shocking indictment of the progressive debate in the UK.

Read more

The Weekend Quiz – November 4-5, 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

The Weekend Quiz – September 30-October 1, 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

The Weekend Quiz – September 2-3, 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

Fiscal policy is effective, safe to use, and markets know it

The Federal Reserve Bank of Kansas City has just hosted its annual Economic Policy Symposium at Jackson Hole in Wyoming where central banks, treasury officials, financial market types and (mainstream) economists from the academy and business gather to discuss economic policy. As you might expect, the agenda is set by the mainstream view of the world and there is little diversity in the discussion. A Groupthink reinforcing session. One paper that was interesting was from two US Berkeley academics – Fiscal Stimulus and Fiscal Sustainability – which the news reports claimed suggested that governments should be increasing fiscal expansion even though they may be carrying high levels of public debt. The conclusion reached by the paper is correct but the methodology is mainstream and so progressives should not get carried away with the idea that there is signs that some give is emerging, which will lead to more progressive outcomes. A progressive solution will only come when the neo-liberal dominance of my profession is terminated and an entirely new macroeconomics paradigm based on Modern Monetary Theory (MMT) is established. There is still a long way to go though.

Read more

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.

Read more

Latest Greek bailout – a recipe designed to fail

I have been looking at the latest Greek bailout deal between the Greek government and the European Commission/IMF), which was concluded last week (June 16, 2017) and released a further 8.5 billion euros in new loans to the Greek government which means it can make bond payments due in July. Despite all the statements from the European Commission and the IMF to the contrary, the terms of the deal with the Greek government confirms that these institutions have abandoned any pretence to being interested in serious economic policy. For the European Commission, the desired irrevocable status of the euro, as a political statement, is all it seems interested in when it comes to Greece. They just don’t want to admit that Greece cannot reasonably function in this monetary union. Just like the previous bailout agreements, this deal will fail. It actually only stalls the reality for yet another day and the only goal it serves is to keep Greece using a currency it cannot afford to use – afford in both monetary and real terms.

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 – 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

The Weekend Quiz – March 18-19, 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 Labor Party fails the fiscal test – badly

I guess the venality of the new US Presidency isn’t creating enough news for the Australian press. On January 29, 2017, the Fairfax press wheeled out the veritable debt scaremongering in this article – Scott Morrison to lift credit limit as Australia’s debt hurtles towards $500 billion – reporting that the Australian government “will be forced to lift its own self-imposed credit limit in the coming months as debt hurtles towards half-a-trillion dollars”. Instead of writing about how stupid and unnecessary this ‘self-imposed limit’ is, the journalist wanted to talk about the disaster that awaits us as the debt of the currency issuing government “hurtles” like some asteroid to its death towards half-a-trillion dollars. As I said, must have been a day that imagination in the journalistic world was lacking. The worst part of the story is not the idiocy of its logic or the fact that it links to an inane Australian Debt Clock homepage, but, rather, the reported response from the Labor Party Shadow Treasurer. The Labor party is meant to represent the workers and claims to be the progressive force in Australian politics. That ladies and gentlemen is the sick joke of all time. This is a party that has abandoned its traditional remit (to defend the well-being of workers) and instead spouts neo-liberal gibberish without knowing it.

Read more

A lying government pushing economy towards recession and greater inequality

It is highly surreal listening to radio/TV commentators talking about government financial affairs (fiscal balance etc). These so-called experts are paraded before the nation and the script is generally the same. The interviewer who knows virtually nothing but has the key triggers on hand (‘budget repair’, ‘ratings downgrade’, etc ad nauseum) asks the ‘well respected expert’ about the state of affairs and the answers are always the same – fictional. This charade plays out almost daily but reaches a hysterical fever pitch at the time the Government releases its annual fiscal statement (May) or its Mid-Year Economic and Fiscal Outlook (December). The Government plays along with the charade releasing what it deems to be cleverly crafted documents, shifting revenue and spending across year lines to give one impression or another of the state of affairs. None of the charade is based on any fundamental economic understanding. None of it means anything other than a demonstration of a national scam to hide the truth from the ordinary citizen who for one reason or another relies on experts to summarise technical detail into meaningful sound bites. The nation then goes about its business in this cloud of ignorance, while the elites continue to suppress wages and living standards and march of with increasing shares of national income. They know what is going on and it is in their interests to keep the rest of us from having the same information. It is the same the world over. Well, here is what is going on with a framework that allows the reader to cut through the lies …

Read more

The ‘post-truth’ era – nothing new in mainstream economics

The dictionary says Post Truth is the “fact or state of being post-truth; a time period or situation in which facts have become less important than emotional persuasion”. But I prefer to be direct – not to mince words – Post Truth is lying, plain and simple. It is making stuff up that is untrue, in denial of the facts, and, in cases where volition drives the lying, using strategic and well-thought out tools of psychological persuasion, fear, threats etc to make it look as though the statements are factual rather than lies. The interesting thing for me at the moment in this respect is that we are increasingly being told we are now in this Post Truth era. That social media has created this Post Truth era and that something should be done about it. Oxford English Dictionary announced recently that the Word of the Year 2016 is…, you got it, “post-truth” which they claim is a “concept … [which] … has been in existence for the past decade”. Its use has apparently “spiked in frequency this year” as a result of the Brexit referendum and the US election. Two things then are worth noting. First, there is nothing new about the idea of lying to influence public opinion. Indeed, as I will explain (briefly) the whole edifice of mainstream economics, including New Keynesian economics has been ‘post-truth’ since its inception. Second, the fact that it is getting attention now is because the establishment are starting to feel the pinch – their usual media power is losing traction with the democratising influences of the Internet – and their cosy worlds of influence are under threat from a rabble. And this applies to so-called progressive Left (the socialist politicians in Europe, the Labour politicians in Australia, Britain and elsewhere) who have so bought into the neo-liberal myth machine that they cannot understand why they are now losing support from their traditional sources (working class people). The ‘post-truth’ era is apparently upon us. But the reality is that there is nothing new about lying in mainstream economics. It is built upon a lie. It is just that the lying that is spreading on the Internet (‘fake news sites’) are damaging the establishment. That is why they are now complaining. They have never complained about the incessant lying from the economics profession.

Read more

Poor fiction from the OECD – the organisation should be abolished

In assessing the role of the multilateral international institutions such as the IMF, the World Bank, and the OECD, one has to have an idea of what their purpose is. The IMF was created to provide funding support to nations under the Bretton Woods system of fixed exchange rates when their trading accounts endangered their capacity to sustain the agreed parities. After the system collapsed in August 1971 (effectively), the IMF had no further purpose. It reinvented itself as a neo-liberal attack dog on government intervention, and, as such, has no progressive (productive) role to play and should be scrapped. Similarly, the World Bank. The OECD was created (as the Organisation for European Economic Co-operation (OEEC)) to manage the Marshall Plan funds that Canada and the US provided to reconstruct Europe at the end of World War II. It has similarly outlived its productive purpose and is now a major source of disinformation. Even in the realm of fiction, there are much better fiction writers than exist within the bowels of the OECD in Paris. Its latest entreaty, specifically – Using the fiscal levers to escape the low-growth trap – from the exemplifies the way in which the OECD chooses to perpetuate myths about government policy options, even when its message might appear reasonable to progressive eyes and ears. That is the problem really, by buying into the neo-liberal scam that mainstream economists have been running for the last 3 or 4 decades, progressive politicians and their apparatchiks have no room to move and will applaud the OECD’s current message, not realising how destructive that complicity becomes. That has been the problem all along and Trump, Brexit and the rising extremism in Europe is the outcome. Reap what you sow!

Read more
Back To Top