Saturday Quiz – February 21, 2015 – answers and discussion

Here are the answers with discussion for yesterday’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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Recessions can always be avoided and should be

Recessions are very costly events. The income losses come quickly and sustain for several periods after the worst has occurred. Unemployment rises sharply and if government doesn’t take appropriate action (job creation), it takes a very long time to return to previous levels. The losses of income are huge and are lost forever. The related pathologies such as increased rates of family breakdown, increased crime rates, increased alcohol and substance abuse, increased suicide rates, increased incidence of mental and physical problems, the lost opportunities for skill development and work experience among the young, make the costs of enduring recession very high. These costs dwarf any of the estimated costs of so-called structural rigidities (micro imbalances) that have been produced by researchers over the years. Mass unemployment is the single greatest source of income loss. It is amazing therefore that policy makers do not prioritise the avoidance of recession yet expend vast energy talking about structural reforms etc. The fact is that recessions can always be avoided and should be. Governments can always adjust fiscal policy settings to ensure there is sufficient total spending in the economy to avoid recession, irrespective of what the private sector spending patterns are.

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Henry George and MMT – Part 1

I get several E-mails (regularly) from so-called Georgists who want to know how the Single Tax proposal of Henry George, outlined in his 1879 book Progress and Poverty, fits in with Modern Monetary Theory (MMT). I have resisted writing about this topic, in part, because the adherents of this view are vehement, like the gold bugs, and by not considering their proposals in any detail, I can avoid receiving a raft of insulting E-mails. But, more seriously, I see limited application. In general, the Georgists I have come across and the literature produced by those sympathetic to the Single Tax idea, is problematic because there is a presumption that national governments need tax revenue to fund their spending. Clearly, this is an assertion that MMT rejects at the most elemental level. But there is some scope for considering their proposal once one abandons the link between the tax revenue (which they call rent) and government spending capacity. The question that arises, once we free ourselves from that neo-liberal link, is whether a land tax has a place in a government policy portfolio with seeks to advance full employment, price stability and equity. The answer to that question is perhaps. I am writing about this today and tomorrow (with an earlier related post – Tracing the origins of the fetish against deficits in Australia) as part of my research into the life of Clyde Cameron, given I am presenting the fourth Clyde Cameron Memorial lecture tomorrow night in Newcastle. I hope this three-part blog suite is of interest. In some parts, the text is incomplete.

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Saturday Quiz – February 7, 2015 – answers and discussion

Here are the answers with discussion for yesterday’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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Crikey, why is it is honourable to deliberately increase unemployment?

Knighthoods are handed out as part of the anachronistic Commonwealth honours system. They are an ultimate symbol of cultural snobbery in the UK and cultural cringe in the former British colonies, such as Australia. The Australian government effectively abandoned the system in 1983 because it insulted our sense of independence even though the Monarch of England remains our head of state (why?). It was formally abandoned by agreement with the British government in October 1992. But the creepy conservative government that took over again in September 2013 decided to reinstate the system of imperial honours, specifically to resume the award of Knight and Dame in March 2014. This demonstrated how out of touch the conservatives were. The criticism reached fever pitch a few weeks ago – on Australia Day (January 26, 2015) when it was announced that Prince Phillip (the Queen of England’s husband) would receive a Knighthood, the nation’s highest honour, from the Australian government. Why? Because our Prime Minister is unbelievably stupid but that is another debate beyond of the topic of today’s blog. This UK Guardian article – How giving Prince Philip a knighthood left Australia’s PM fighting for survival – will fill you in on that decision if you are interested. Now a so-called media watchdog, the Australian media site Crikey thinks the Federal Treasurer should be awarded a Knighthood if he can further undermine economic growth and deliberately cause unemployment and underemployment to rise further, not that they said it like that.

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Germany has a convenient but flawed collective memory

There is a lot of discussion at present about the historical inconsistency of the German position with regard any debt relief to the Greek government. Angela Merkel has reiterated over the weekend that there would be no further debt relief. Why she is now a spokesperson for the Troika that does not include the German government is interesting in itself. In this context, I recall a very interesting research study published in 2013 – One Made it Out of the Debt Trap – by German researcher Jürgen Kaiser, who examined the London Debt Agreement 1953 in great detail. After becoming familiar with the way the Allies handled the deeply recalcitrant Germany and its massive debt burden in that period, one wonders why the German government is so vehemently against giving relief to Greece. This is especially in the context that the only mistake that Greece made was joining the Eurozone and surrendering its own capacity to deal with a major financial crisis. The ‘mistakes’ of the German nation before the London Agreement have been paraded before us all again with the 70th anniversary of the liberation of the Auschwitz death camp featuring in world events last week.

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Saturday Quiz – January 31, 2015 – answers and discussion

Here are the answers with discussion for yesterday’s quiz. The information provided should help you understand the reasoning behind the answers. 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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Conceding to Greece opens the door for France and Italy

The economics news is currently dominated by the Greek election results and their implications, and, rightly so. Without assuming anything about how much Syriza will compromise (although I suspect too much), the voting has demonstrated that a large proportion of voters in Greece have rejected the basis of the European Commission strategy. The Greek voters know from personal experience, what armchair commentators like me know from theory, that fiscal austerity fails to achieve its aims. It is not rocket science – spending equals income and if you hack into it then the economy contracts. A private spending resurgence is not going to happen when sales are falling, unemployment is sky-rocketing, and incomes are being lost. The basis of Keynesian economics – that when the private economy is caught in a malaise the way out is for government deficits to kick-start economic activity, which, in turn, engenders confidence among private spenders and allows a sustainable recovery to occur – has been amply demonstrated by the GFC in all nations. Where that strategy has been employed the nations have been recovering (at a macroeconomic level). Where it has been defied, such as the Eurozone, the economies have stagnated. Thinking ahead (speculating) the election results have clearly shocked the cosy ECOFIN club, which has smugly swanned around Europe over the last 6 or so years dishing out misery to the disadvantaged citizens in the Member States. But I doubt that they will agree to a 50 per cent write-off in Greece’s debt because then the citizens of Spain, Italy and, even France, would line up for the same. Then it is game-over for the Eurozone. More likely, if Syriza sticks to its promises, then there will be an organised way to ease them out of the game. Greece will win either way.

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Saturday Quiz – January 24, 2015 – answers and discussion

Here are the answers with discussion for yesterday’s quiz. The information provided should help you understand the reasoning behind the answers. 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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Friday lay day – neo-liberalism has compromised the concept of a citizen

Its my Friday lay day – which means I don’t write as much as I usually do and perhaps focus on different issues to my normal considerations. Remember back to 2007. In March 2007, an Australian citizen named David Hicks pleaded guilty to charges that he intentionally provided material support or resources to an international terrorist organisation engaged in hostilities against the United States. It set in place his return to Australia after he was illegally detained by the US, tortured and incarcerated at the Guantanamo Bay gulag without trial for more than five years, and deprived of his rights as an Australian citizen by the very government that is entrusted with defending our rights – our own Federal government. Upon his return to Australia he was incarcerated for a period of 9 months before being finally released. Today, the ABC news report (January 23, 2015) – US agrees David Hicks is innocent, lawyer says – reported that the US government has admitted that David Hicks was not guilty of any crime and a full pardon will be forthcoming. Why is this important?

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Rising inequality – fundamental changes required

I am currently working in Sri Lanka at a very interesting time in the nation’s history. Ten days ago the nation elected a new president and ousted the bevy of officials that had been linked to the previous, rather dictatorial and seemingly corrupt regime, that had held a iron grip on power for years. The daily newspapers in Colombo each day are now devoting multiple pages to discoveries that are coming to light about the ways of the previous regime. Some previous officials have had their passports confiscated amid rumours of other politicians and their families making quick getaways to Middle Eastern nations to avoid prosecution. Arrests are being made to roundup the corrupt former government officials. The editorial this morning said that the past government had allowed “a certain person, who was accused of corruption amounting to billions of rupees, to leave the country soon after the presidential election results were announced”. I guess everyone knows who Mr Certain Person is. There was a cute report about the discovery of a ‘double cab’ (truck) which had gone missing from the Presidential secretariat’s car pool being found hidden in a saw mill. What you find in the poorer nations is that the corruption is fairly transparent and crude in its implementation and is often enforced by a martial regime. In the more advanced nations, the corruption is more subtle and harder to detect. Oxfam’s latest report (January 19, 2015) – Wealth: Having It All and Wanting More – considers the manifestations of this corruption and its pervasive nature.

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Saturday Quiz – January 17, 2015 – answers and discussion

Here are the answers with discussion for yesterday’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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Saturday Quiz – January 10, 2015 – answers and discussion

Here are the answers with discussion for yesterday’s quiz. The information provided should help you understand the reasoning behind the answers. 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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Bank of England Groupthink exposed

I am travelling a lot today so do not have much time. Apart from my usual projects that are on-going, I started reading the – Court of Directors’ Minutes 2007 – 2009 – that were released yesterday (January 7, 2015) by the Bank of England, after the UK Treasury Select Committee (House of Commons) demanded the Bank act in a more transparent manner in its November 8, 2011 Report – Accountability of the Bank of England. The minutes and accompanying data demonstrate that the Bank and the supporting financial oversight bodies were caught up in the myth of the Great Moderation and the governance of the Bank was captive to a destructive neo-liberal Groupthink. The Bank helped cement the pre-conditions to the crisis, didn’t see it coming, and delayed on essential action, thus ensuring the crisis was deeper and more prolonged than was necessary.

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Germany should be careful what it ‘allows’

The German Magazine Der Spiegel ran a story over the weekend (January 3, 2015) – Austritt aus der Währungsunion: Bundesregierung hält Ausscheiden Griechenlands aus dem Euro für verkraftbar (Exit from the Monetary Union: Federal government considers Greece’s exit from the euro is manageable). This so-called “radical change of position” is presumably designed to impart external pressure on the Greek democratic process, which is about to elect a new national government presumably on January 25, 2015. The claim is that the German government is prepared to make Greece expendable because it thinks it has shored up the rest of the Eurozone so that what happens to Greece is immaterial. I think Germany should be careful what it ‘allows’.

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Saturday Quiz – January 3, 2015 – answers and discussion

Here are the answers with discussion for yesterday’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 sham of central bank independence

Let it be noted that the Japanese government 10-year bond yield hit 0.33 per cent overnight. That tells you that all the scaremongering that has been going on over the last twenty years about hyperinflation, the Japanese government running out of money, the bond markets dumping the yen, and the rest of it were self-serving lies designed to advance a particular ideological position at the expense of the broader social well-being. A year ago, the yields were 0.88 per cent – so they are going in the opposite direction to that predicted by many mainstream economists, blinded by their irrelevant textbook theories about how markets work. In that neo-liberal textbook fairyland, the yields should be sky high now, inflation accelerating out of control and the government forced to admit it had run out of money. Get over it, it won’t happen because the real world doesn’t operate like that. Students of macroeconomics are continually being taught a myth, which is detrimental to their education and life experiences. Many turn into the future doomsayers and sociopaths in organisations such as the IMF, the European Commission and other like policy making institutions. They always rave on about the need for more central bank independence to insulate monetary policy from political decision-making as if that will foster the well-being of the population. The idea of central bank independence is a sham and in the last week there has been stark evidence to support that view.

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Saturday Quiz – December 20, 2014 – answers and discussion

Here are the answers with discussion for yesterday’s quiz. The information provided should help you understand the reasoning behind the answers. 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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Friday lay day – public spending is not necessarily matched by tax revenue in the long-run

It is my Friday lay day and that means brevity, even if that is a relative concept. I have received several E-mails lately about claims that Modern Monetary Theory (MMT) economists are zealots who overstate their case and are nothing much more than Keynesians with some fancy jargon. It is lovely how complete strangers feel it is their place to write abusive E-mails to you as if you are some sort of inanimate object. But that is not the point here. Several of these E-mails noted that a prominent Australian economist had largely dismissed MMT, despite his progressive leanings, because “it doesn’t change the basic equation that, in the long run, public expenditure is paid for by taxes”. Apparently, this criticism was made in the context of the Russian problems at present, which I may or may not deal with in another blog, depending on whether I get time to research a few things. The Russian situation is not central to my research at present and I do not have a lot of time to really delve into it. But what about this “long run” failing of MMT?

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Saturday Quiz – December 13, 2014 – answers and discussion

Here are the answers with discussion for yesterday’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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