Australia is becoming an Orwellian dystopia

It’s Wednesday and I am retaining my practice into 2022 of only offering a sort of short commentary or news with music service on this day, unless a major data release (like the national accounts) comes out. The title of this blog post was inspired by an interview I listened to on the radio the other day with a leading epidemiologist who noted Australia was becoming like some Orwellian dystopia as the national government elevates spin to new levels and effectively jettisons any semblance of leadership. We are now being treated as fools by our national and state governments on a daily basis and it is now approaching dangerous levels.

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The Japanese denial story – Part 1

Well, it’s 2022 already and we enter the 18th year of this blog. Regular readers will know that I have studied the Japanese economy in considerable detail over the course of my career and when it experienced one of the largest commercial asset price bubble busts in history in early 1992, the questions I was asking and the data I was looking out were important in framing the way I have done macroeconomics since. I consider Japan to be one of the nations that was early to embrace the madness of neoliberalism – credit binge, wild property speculation then crash – and the first nation to abandon it in favour of more responsible fiscal policy – which given the circumstances required on-going fiscal deficits exceeding 10 per cent of GDP at times. Its policy approach – including the relatively high deficits, the zero interest rate policy of the Bank of Japan, and then the massive bond-buying program by the same, became the target for various New Keynesian macroeconomists (including Krugman) to prophesise doom. Their textbook models predicted the worst – rising interest rates, accelerating inflation, rising bond yields and then government insolvency as bond markets bailed out and the currency plummetted. Nothing like that scenario emerged. Japan was playing out policies that ran counter to the mainstream consensus in the 1990s and beyond and I learned so much from understanding why things happened there as a consequence. This is Part 1 of a two-part discussion about why Japan demonstrates key MMT principles and how those who wish to deny that reality have to invent a parallel-universe version of MMT to make their case.

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Turkey tells us nothing about MMT – but MMT tells us a lot about why Turkey is in trouble

I have noticed a lot of Internet traffic about Modern Monetary Theory (MMT) and the situation in Turkey at present. Apparently, as the narrative goes, MMT is finally being revealed as a fraud because Turkey’s economy is going backwards and its currency is depreciating rapidly. The logic, it seems, is that if a nation enters rough economic waters and the financial markets sell its currency (although remember someone has to be buying it simultaneously) then that proves MMT is false. An extraordinarily naive viewpoint if you think about it. This viewpoint has somehow missed the train on understanding what MMT actually is and seems to think that MMT economists have seen Turkey as a policy model. In this blog post, I consider some aspects of this naivety. It won’t silence the critiques, but it, hopefully will educate those who are interested in the topic and are learning about MMT.

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The financial markets should be kept away from the climate crisis solution

It’s Wednesday and today, apart from presenting some great music, I am commenting on the ridiculous notion, that even progressive greenies propagate that we need to harness the financial resources of the markets (Wall street types) to help governments decarbonise their societies. The narrative that has emerged – that the financial CEOs with “trillions in assets” (all at COP26 because they could smell lucre) are a key to solving the climate challenge – is as ridiculous as progressives saying we need to tax them to fund schools and hospitals. Both narratives reflect the dominance of mainstream macroeconomics which has convinced us that currency-issuing governments are like big households and can ‘run out of money’. That is fiction but is part of the reason we have a climate crisis. Read on.

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When ‘new’ is really old and doesn’t get us very far – latest BIS paper

It takes a while for the mainstream organisations in economics, banking and finance to start to realise that the framework they use cannot explain the actual events in the real world, without serious revision. The problem though, is that the overall framework is flawed and the typical ‘response to anomaly’ approach, which changes a few assumptions to get ‘novel results’ is inadequate because it leaves one blind to all the possible policy solutions. The latest example is the Bank of International Settlements paper – Indebted Demand (released October 19, 2021) – which was written by three economists from Princeton, Harvard and Chicago Booth, respectively. They now recognise that rising inequality and massive household debt is a major problem for economic growth and macroeconomic stability. But, in maintaining ‘conventional’ assumptions about the government sector, they miss the vital linkages in the story, that Modern Monetary Theory (MMT) economists have been providing for the last 25 or so years. Whether these responses to anomaly represent progress or different variations in a flawed ‘chess’ strategy is a matter of opinion. My thought is they are a largely a waste of time, although marginally, they demonstrate that elements of mainstream macro theory that were considered core elements a decade ago are no longer sustainable.

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Remembering Tuesday, September 11

Last Saturday, September 11, we observed the anniversary of a terrible terrorist act, inflicted on a free people with a democratically-elected government by multinational conspiratorial forces. The terrorist attack happened on a Tuesday. It resulted in the death of thousands of innocent people and the offenders have never been brought to justice. We should etch that day – Tuesday, September 11, 1973 – in our consciences, especially if you are an American, British or Australian citizen, given the culpability of our respective governments in that despicable coup d’etat. Today, a bit of a different blog post as I remember this historical event and the way it undermined progressive thought for years. The type of economic policies introduced by Pinochet on advice from the ‘Chicago Boys’ became the standard approach for even the traditional social democratic parties in the 1980s and beyond. We still haven’t abandoned the macroeconomic ideology that accompanies this approach. And Chile, 1973, was the live laboratory. Yes, the Blairites and the Delors-types and the American Democrats, etc don’t chuck inconvenient people out of planes in the ocean to get rid of them like Pinochet did on a daily basis, but the macroeconomics invoked is not that different.

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The dying embers of New Keynesian reasoning

Lawrence Summers is a New Keynesian economist. That means something. While there are nuances that exist between members of that school of thought, mostly to do with policy sensitivities and speeds of adjustment, the New Keynesian paradigm has demonstrated clearly that it is incapable of capturing the macroeconomic dynamics in any consistent manner, despite it being the dominant approach in the profession. So, it is no wonder when Summers provides opinions the underlying logic he demonstrates is similarly flawed. Unfortunately, he keeps getting important platforms to express these opinions, which continues to blight the public policy debate. He was at it again when he started lecturing the US Federal Reserve Bank on the conduct of its asset-purchasing program.

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Has global trade peaked?

I have recently updated my trade databases as I write a book chapter on the topic. I am also curious about the dramatic growth in freight charges over the last 12 months in international shipping. I have a friend who runs a business importing cement who is now paying 5 times the freight charges now than he was a year ago. Why that would be the case is an interesting question. I have previously written about the way that the neoliberal ideology became conflated with the trends towards globalisation in supply chains. Globalisation, was then weaponised with the ‘free market’ ideology, which undermined key aspects of the benefits of trade, particularly for poorer nations. The ‘free market’ mantra became code for increasing the rate of surplus extraction from these nations by financial interests in the richer nations – a sort of more sophisticated version of the way colonialism sucked wealth from the colonies to the benefit of the metropolitan economies. But in recent years (since about 2007), a fundamental shift in the relationship between trade volumes and income growth (a relationship that is often used as a proxy for the pace of globalisation) has occurred. Some think this indicates that peak trade has been reached. There are good reasons for thinking that to be the case.

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MMT and Power – Part 2

This is Part 2 of a series that is developing here on the topic of Modern Monetary Theory (MMT) and power. I often read that Modern Monetary Theory (MMT) is defective because it has no theory of power relations. Some critics link this in their narrative to their claim that MMT also has no theory of inflation. They then proceed to attack concepts such as employment buffers, on the grounds, that MMT cannot propose a solution to inflation if it has no understanding of how power relations cause inflation. These criticisms don’t come from the conservative side of the policy debate but rather from the so-called Left, although I wonder just how ‘left’ some of the commentators who cast these aspersions actually are. The problem with these criticisms is that they have clearly adopted a partial approach to their understanding of what MMT is, presumably through not reading the literature widely enough, but also because of the way, some MMT proponents choose to represent our work. In Part 1, I examined how the economics discipline evolved from political economy to a narrow focus on the ‘economy’ as if it existed in a void of power. I also disabused readers of the notion that MMT ignores the link between money and the real econoy, which is a regular claim offered by critics from the Left. I also questioned critics who seem to want MMT to be a theory of everything. As I regularly point out MMT cannot predict who wins the football this week, but that isn’t a criticism. In Part 2, I am going to complicate things a little by expanding on the MMT is the MMT is a lens narrative as if we can neatly separate values from facts. I will also explain how power enters into the dominant theory of inflation in MMT.

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The monetary and fiscal normality of Wolfgang Schäuble – stagnation and entrenched unemployment

I have been working on an article that will come out in the press soon on inflationary pressures. It is obvious that characters like Larry Summers and Olivier Blanchard are trying to stay at the centre of the debate by issuing various lurid threats about the likelihood of an inflation outbreak in the US and elsewhere. Last week, the Financial Times published an article (June 3, 2021) by the former German Finance Minister and now President of the Bundestag, Wolfgang Schäuble – Europe’s social peace requires a return to fiscal discipline. I was initially confronted with the juxtaposition of this author, who bullied all and sundry during to the GFC to ensure an austerity mindset was maintained at great cost to the millions who were deliberately forced to endure unemployment, with the photo of John Maynard Keynes under the title of the article. The title didn’t seem to match the picture. My first impressions were correct. Lessons have not been learned.

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Criticism of failed economists is not cancel culture

Everybody is concerned with ‘herd immunity’ at present as the pandemic continues on ravaging our social and economic lives. But I have been studying the concept of ‘herd mentality’ for some years, aka – Groupthink. Mainstream macroeconomics is sustained, not by any internal logical consistency (on which it fails), by close congruency with the empirical data (on which it fails), which are the usual qualities of a dominant system of ideas, but, rather, by (using modern terminology) its long-standing and on-going cancel culture. So it is rather amusing to read one of the leading voices in that paradigm, Kenneth ‘Spreadsheet’ Rogoff, whinging on the Internet that ‘cancel culture’ is being used to undermine the reputations of one of his mates (Larry Summers). Both continue to get platforms in the world media without trouble to push their vapid ideas into the narrative. The antithesis of cancel culture it would seem. What is going on is that more people are realising that the prognostications of mainstream macroeconomics are deeply flawed, and, while many may not know the technicalities and the theoretical complexities, they can see the empirical dissonance, and that means they know a – lemon – when they see one. And social media has given more people a voice and they are using that to call these characters out for what they are. And the sense of invulnerability that pervades all disciplines riddled with Groupthink is being questioned.

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Further evidence the government should and can be doing more to help the most vulnerable

I am tied up most of today in Sydney and so am handing over the blog responsibilities to our regular guest blogger, Professor Scott Baum from Griffith University who has been one of my regular research colleagues over a long period of time. Today he is writing about the impact the Australian Government’s COVID income supplement has had on financial stress and the need for continued support for our mot vulnerable households. Over to Scott who shows clearly that the persistence of poverty is a government choice …

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The Cambridge Controversy – a fundamental refutation of orthodox economic theory – Part 2

This is Part 2 in a two part series that deals with the importance of the = Cambridge capital controversy – which saw economists associated with Cambridge University in England and MIT in Cambridge, Massachusetts argue about the validity of neoclassical distribution theory. Most recently, in response to a New York Times article about Joan Robinson, one of the key protagonists in that controversy, Paul Krugman declared the Controversy “a huge intellectual muddle” which was really unimportant in the scheme of things. That just revealed his ignorance and/or his part in an on-going denial that the basis of the framework he operates in is deeply flawed and has no scientific legitimacy. In this Part, we get down to the complexity (as best I can without becoming too technical) of the debates. The import though is clear – orthodox economics, which is still taught on a daily basis in our universities and which people like Krugman use to make money by writing textbooks about is based on a series of myths that cannot be sustained, both logically, in terms of their own internal consistency, and, in relation to saying anything about the real world we live in.

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The Cambridge Controversy – a fundamental refutation of orthodox economic theory – Part 1

Some years ago, I promised to write about the – Cambridge capital controversy – which saw economists associated with Cambridge University in England and MIT in Cambridge, Massachusetts argue about the validity of neoclassical distribution theory. I never wrote the blog posts because I considered the material was a little difficult for a blog audience. Also, while of great interest to me, the topic was not necessarily compulsory reading for those trying to come to terms with Modern Monetary Theory (MMT). But today, I relent. For two reasons. First, I think my readership has reached much higher levels of economic literacy over the last 15 years and can handle a challenge. But, more importantly, there are times when the mainstream characters, who have been claiming that there is nothing new in MMT and that they knew it all along and all the important results can be explained within an orthodox New Keynesian approach, reveal their true colours. Their hubris sees them get ahead of themselves and they show they never really understood the basics that undermine their own approach. Such was the case this week when Paul Krugman declared the Controversy “a huge intellectual muddle” and “a tortured debate that illuminated nothing much”. Well, that just goes to show how the mainstream denial functions. A body of work comes along and blows the dominant paradigm out of the water, and the response is to ignore it as a meaningless muddle. Their current attacks on MMT are just another application of that approach, which I first encountered as a student while studying the capital debates. Given the complexity of this issue and the amount of material, this will be a two-part series. Today, we learn the historical context, which will convince you that this was not idle or arcane discussion. This was a debate that went to the heart of the existence of capitalism and the defenders of that system – the mainstream economists did everything they could to defend the myths that they had erected to make the system look fair. They failed but went on anyway. Here is Part 1.

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The IMF is all at sea, stuck in its ways, and sending conflicting signals

Last week, I wrote about how the IMF is presenting a somewhat nuanced view these days. See – IMF now claiming continued inequality risks opening a “social and political seismic crack” (April 21, 2021). But, there was a warning for those who might think this suggests the institution is leaving its mainstream macroeconomics past behind them though. Rather, I think what is going on is a series of ad hoc responses to the growing anomalies that the institution faces between the observed reality and the sort of predictions it has been making based on its core paradigmatic approach. We are observing a specific form of dissonance in many of the current contributions coming out of mainstream economics. This takes two forms: (a) an incomplete response to the current situation (pandemic, GFC aftermath, climate change) where there are conflicting signals being sent; and (b) a tortured attempt to absorb pragmatic narratives within a theoretical structure that cannot consistently accept that absorption. The IMF’s latest blog post (April 20, 2021) – A Future with High Public Debt: Low-for-Long Is Not Low Forever – is a good example of both forms of this dissonance.

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Latest IMF data helps us see how political choices impact on health and economic outcomes

The IMF recently updated their – World Economic Outlook database – April 2021 – which allows for quick cross country comparisons. Some of the data series are suspect (like structural deficit estimates) for reasons that I have explained before, but many of the national accounts series are useful. I have been doing work on the relative responses to the pandemic and the impact on economic performance as well as researching the next chapter of one of the current book chapters. So today, I just present some interesting graphs and calculations. Nothing deep but the figures then provoke some deep thinking. The lessons are pretty clear: Covid elimination strategies protect health and the economy better; Austerity is highly damaging; and there is a massive shift in the world order going on and we should be learning from that. And all of the trends I examine are ultimately the result of political choices. That is the important point to keep in mind.

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US Congress to consider a vote on condemning MMT – signals progress

On March 25, 2021, a member of the US House of Represenatives “introduced a resolution in the House of Representatives this week condemning Modern Monetary Theory, recognizing that its implementation would lead to higher deficits and inflation”, while a “companion bill” was introduced into the US Senate (Source). The full text of the proposed legislation is available – HERE. The Bill is full of factual errors. But I thought the most significant aspect is the ‘authorities’ they call upon for justification. A parade of mainstream economists and progressive economists are quoted to give support for the Bill. And I haven’t seen one disclaimer from those mentioned disassociating themselves from some of the wild inferences that the Bill makes. They have allowed themselves to be co-opted by their silence in this rather tawdry and dishonest exercise. That is not surprising at all.

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Why economists kept getting the policies right!

It is Wednesday and I am travelling most of the day. We are now entering Week 3 of the edX MOOC and I outline what students can expect this week. And some ideas about why it is wrong to think mainstream economists have got it wrong. Plus a reflection on one of Australia’s great musicians who died this week.

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Week 2 of the MOOC Modern Monetary Theory: Economics for the 21st Century starts today

Its Wednesday and only a short blog post day – well a collection of items I accumulate during the week. Week 2 of our MOOC – Modern Monetary Theory: Economics for the 21st Century – begins today and you can find enrolment details below. We also have some culture today – a beautiful poem which inspires optimism and some music that inspires past memories.

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Have mainstream economists really embraced large deficits and central bank bond purchases?

When John Maynard Keynes wrote his essay – Economic Possibilities for Our Grandchildren – which was published in 1930 he considered that workers would be able to work just 15 hours a week because of the likely technological shifts over the 100 years from the date of his publication. He was right about the productivity gains that have been created but wrong about the benefits workers would gain from them. He thought the productivity would be more evenly shared out. He underestimated the capacity of capital to extract the gains for profits and capture the state to ensure it used its legislative and regulative capacity to suppress wages growth. Mainstream economists have aided and abetted the rising inequality and the reconfiguration of the state as a agent for capital. This bears on how we understand some of the apparent shifts in views by mainstream economists about fiscal deficits and central bank debt purchases. Yesterday, it was all bad. Today, all good. History warns us to be cautious in how we appraise these shifts. There is something to be said for consistency.

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