The Weekend Quiz – November 19-20, 2016 – 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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When New is Old and just another exercise in denial

There is now a so-called “New View of fiscal policy”, which, in fact, is not all that different to the “Old View” although the proponents are hell-bent on convincing us (and presumably themselves) otherwise. The iterative bumbling along of mainstream economists, dammed by reality but steeped in denial, continues. The latest iteration comes from the Chairman of the US Council of Economic Advisors, one Jason Furman, who was supervised in his doctoral studies by Greg Mankiw at Harvard. He is also “closely linked to Robert Rubin” a classic “Wall Street insider” who was Treasury secretary under Bill Clinton and a gung-ho deregulator with a seedy past (in January 2009, he was named by Marketwatch as one of the “10 most unethical people in business”). Please see – Being shamed and disgraced is not enough – for more on Rubin. Furman’s lineage is thus not good. Furman supports free trade, social security private accounts and Wal-Mart’s labour practices which allows it to offer such low prices (for junk!) (Source). Furman is part of the core ‘Democrat neo-liberal establishment’, which received its comeuppance in last week’s Presidential election. His views on fiscal policy should come as no surprise then.

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Trump might do us a favour – expose the myth of central bank independence

Prior to the ‘surprise’ victory of Donald Trump in last week’s US Presidential poll, there was an article (September 28, 2016) in the Financial Times – Trump is right to take aim at the ‘political’ Fed – arguing that Trump had “broken a cardinal rule in US presidential campaigning by openly questioning the effectiveness of the Federal Reserve”. In the Presidential debates, Trump had claimed that the US Federal Reserve banks had been “doing political things” as a result of their low interest rate policy and creating a “false economy”. The central bank governor responded by saying the bank did not take politics into account when changing monetary policy. Apparently, Trump was echoing conservative economists who think the low interest rates have pushed investors into riskier financial investments, which will crash if rates rise. It has to be said that history tells us that Republican party politicians regularly lambast the US central bank along conspiratorial lines (for example, 2011 Rick Perry’s “treasonous” allegations against Bernanke; George W Bush, Richard Nixon). What does it all mean? There was an interesting article in the Financial Times today (November 14, 2016) by Wolfgang Münchau – The end of the era of central bank independence – that claims the tide is shifting and more political interference in monetary policy is to be expected. My conclusion: if so, good. Democracy requires the elected polity takes responsibility for economic policy rather than an unelected, largely unaccountable, group of ‘economists’. But, I also add, the idea of central bank ‘independence’ is one of those neo-liberal myths that allow the elected polity to disassociate themselves from bad economic policy.

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Hyman Minsky was not a guiding light for MMT

I am currently working on a book commissioned by Edward Elgar which will form an anthology of influential Modern Monetary Theory (MMT) literature – how it evolved – with a long introduction by me tying all this literature together. It has been a simmering project for the last 18 months and I haven’t mentioned it here until now. The first task was to assemble the literature and then the next task was that the publisher (EE) has to get copyright clearance from the original holders. The second process has taken some time and I have had to alter the proposed table of contents because we cannot get copyright clearance. The reason I mention this is that the work of Hyman Minsky is not among the literature I have selected as being influential in the intellectual development of MMT. That is not to say that some of his earlier work was of no interest. Quite the contrary. But when he makes statements that appear to be consistent with MMT propositions, he is, in my view, just channelling the likes of Abba Lerner and his functional finance. But later in his career, Minsky started to articulate ideas that were consistent with ‘sound finance’, which Lerner had opposed, and, which is anathema to MMT.

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The Weekend Quiz – November 5-6, 2016 – 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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ECB – every which way but to the point

Eurostat released the latest national accounts data for the Eurozone yesterday (October 31, 2016) – Preliminary flash estimate for the third quarter of 2016 – which showed that real GDP grew by 0.3 per cent in the third-quarter 2016, unchanged from the second quarter and below the previous two quarters by 0.2 per cent. In this context, there was an interesting article in the latest ECB Research Bulletin (October 28, 2016) – The recovery of investment in the euro area in the aftermath of the great recession: how does it compare historically? – written by Philip Vermeulen, a senior economist at the central bank. I say interesting for two reasons: (a) the subject matter is inherently of interest; (b) the manner in which the article dodges around the obvious is a reflection of the institutional intellectual capture of the bank, even though the disclaimer is that the views expressed “do not necessarily represent the views of the European Central Bank and the Eurosystem”.

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The European Commission turns a blind eye to record German external surpluses

Data released by Eurostat (October 20, 2016) – EU28 current account surplus €13.5 bn – shows that the EU28 ran a significant current account surplus in August 2016 following a surplus of €11.3 billion in July. The August result is up €5.3 billion on August 2015. Net trade in goods and in services is more or less equally balanced. The stunning result is that the German current account surplus in August 2016 was €17.87 billion up from €14.43 billion in August 2015., while the next largest Eurozone Member State surplus was Italy at €3.37 billion. Germany is also running a fiscal surplus of around 1.2 per cent of GDP at present, which means the private domestic sector is saving massive amounts, which, in turn, not only results in subdued demand within Germany (and low growth) but also reduces import spending. In turn, this reduces growth in other nations. The stunning fact is that the European Commission is doing nothing about this massive imbalance despite Germany being in serial contravention of the rules relating to macroeconomic imbalances. The Brussels jackboot is quick to kick Greece but stays well away from sanctioning Germany, even though the German behaviour is much more deleterious to the viability of the common currency.

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The Weekend Quiz – October 29-30, 2016 – 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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The Eurozone ‘house of cards’ to collapse – doomed from the start

There was an interesting interview published in the financial market journal Central Banking this week with Otmar Issing, who was the ECBs first chief economist and a former European Central Bank executive board member. He predicted that as a result of the political corruption of the monetary union ideal, “the house of cards will collapse.” He was referring to the claim that the ECB has become captured by politicians and technocrats in the IMF and the European Commission such that it is now violating essential central banking principles, in addition, to Treaty obligations that were designed to safeguard the financial stability of the system. I have some agreement with his overall view that a federal solution to the Eurozone ills is not viable. But I do not agree that the ills of the Eurozone stem from recent political decisions – to pressure the ECB to engage in QE or other interventions. The reality is that the flawed design of the Eurozone, which reflected the ideological hold of neo-liberalism on the integration discussions in the 1980s and beyond, meant that the only effective fiscal capacity in the currency union was held by the ECB. If the ECB had not started buying up government bonds in May 2010, the monetary union would have collapsed about then. The whole problem is that neo-liberalism brought these Member States together into a monetary architecture that was doomed from the start.

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The ‘World’s Wrongest Man’ at it again – when does credibility evaporate?

The “World’s Wrongest Man”, one Michael Jay Boskin, an economics professor at Stanford and former chairperson of the Council of Economic Advisors under George W. Bush is back with another stunning piece of sophistry. He has been an outspoken Op Ed commentator (particularly in the Wall Street Journal) for many years now, and, is typically completely wrong in the predictions he makes. His latest intervention into the policy debate is via the Project Syndicate banner – which claims it publishes “the Smartest Op-Ed Articles from the World’s Thought Leaders”. Having Boskin writing for them surely negates that claim. His latest offering (October 23, 2016) – Prepare for the next recession – while you can – continues his long career for making ridiculous statements about economic matters. One thinks it is really time he did something else.

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The Weekend Quiz – October 22-23, 2016 – 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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The Weekend Quiz – October 15-16, 2016 – 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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The Weekend Quiz – October 8-9, 2016 – 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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Pragmatic retreats into reality by the IMF will be ephemeral

On June 26, 2016, the Bank of International Settlements (BIS) published its – 86th Annual Report, 2015/16 – claimed that “there is an urgent need to rebalance policy in order to shift to a more robust and sustainable global expansion and address accumulated vulnerabilities”. Yesterday (October 5, 2106), the IMF issued its latest – Fiscal Monitor – Debt: Use it Wisely – which as the title might suggest focuses on what it sees as a dangerous exposure to global debt, which it currently estimates to be “at 225 percent of world GDP … currently at an all-time high.” Needless to say, this latest offering from the IMF has attracted news headlines with dire warnings about impending catastrophes. Some of this emphasis is justified but overall the IMF is erring, once again, in the opposite direction to its pre-GFC prediction errors. The context is obvious – mass unemployment continues as economic growth is stalling (or modest at best) because of a combination of non-government sector spending caution and the government obsession with fiscal austerity. The latter obsession has been stoked for years by the likes of the BIS and the IMF and while they do not explicitly recognise that in these latest documents, their stilted support for more fiscal action now, amounts to an admission of prior failures driven by the neo-liberal Groupthink that pervades these institutions.

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The Weekend Quiz – October 1-2, 2016 – 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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First appearance by Australia’s new central bank governor disappointing

On September 18, 2016, the Reserve Bank of Australia ushered in a new governor, in the form of Philip Lowe. It been the deputy governor for several years and has worked at the RBA all his professional life except for a short stint with the Bank of International Settlements. He speaks Central Bank-speak. On September 22, 2016, he appeared for the first time as governor before the House of Representatives Standing Committee on Economics and delivered the RBA Annual Report 2015 to Parliament. His – Opening Statement – and the subsequent answers to questioning by the House Committee members were revealing because they indicated that the new governor clearly understood the vexed situation that the government had placed the central bank in over the last decade or so, but, at the same time, indicated he was also prepared to continue perpetuating neo-liberal myths that have created the vexed situation in the first place. Not a great start in my opinion. The full transcript of the hearing is available in the Parliamentary Transcript.

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The Weekend Quiz – September 24-25, 2016 – 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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Is there a case for a basic income guarantee – Part 3

This is Part 3 in the mini-series discussing the relative merits of the basic income guarantee proposal and the Job Guarantee proposal. While there is a lot of literature out there on the merits of introducing a basic income guarantee very rarely will you read a detailed account of the macroeconomic implications of such a scheme. It is inescapable that the basic income proposal lacks what I call an inflation anchor. That is, to provide an adequate stipend and generate full employment (ensure there are enough jobs for all who want to work), the basic income guarantee is inherently inflationary and sets in place destructive macroeconomic dynamics which make it unsustainable. To suppress the inherent inflationary bias of the proposal, the stipend has to be so low that the recipients are freed from work but not poverty. The Job Guarantee, by way of contrast, is designed to provide an explicit inflation anchor and allows the government to continuously maintain full employment and provide a decent wage to those who from time to time will be in the Job Guarantee pool. It does not rely on poverty wages or unemployment to maintain price stability. That alone is a fundamental advantage of the Job Guarantee over the basic income guarantee – it is sustainable.

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Is there a case for a basic income guarantee – Part 2

This is Part 2 in the mini-series discussing the relative merits of the basic income guarantee proposal and the Job Guarantee proposal. The topic of a basic income guarantee seems to evoke a lot of passion and in all the discussions I rarely read anyone going carefully through the macroeconomic implications of bringing in a scheme. I get lots of E-mails accusing me in varying degrees of politeness of being on a moral crusade in my opposition to basic income proposals. I wonder how much of my work over the years such correspondents have read. Not much is my conclusion. Whatever you think of the morality of having a system where some people work while others are supported in one way or another without having to work, even though they could (so I exclude the aged, sick, severely disabled here), the fact remains that a policy proposal won’t get much traction from me if it has a deep inflation bias and adopts neo-liberal explanations for economic outcomes like unemployment. I will also never support a proposal that absolves the national government from taking responsibility for providing enough work via its currency capacities and treats individuals expediently as ‘consumption units’ – to be maintained at minimum material levels. Anyway, we explore a few of those issues in this blog.

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The Weekend Quiz – September 17-18, 2016 – 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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