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.
The newly-elected conservative Australian government has resumed office with further calls for public spending cuts. Today’s Australian Bureau of Statistics inflation data should disabuse them of this idea. The Australian Bureau of Statistics released the Consumer Price Index, Australia – data for the June-quarter 2016 today and showed that the June-quarter inflation rate was 0.4 per cent (-0.2 per cent) with an annual inflation rate of 1.0 per cent (down from 1.3 per cent last quarter). The headline inflation rate has been below the Reserve Bank of Australia’s lower target bound of 2 per cent for nearly two years now. Clearly, within their own logic where an inflation rate within the 2 to 3 per cent band reflects successful monetary policy, the RBA is failing. The RBA’s preferred core inflation measures – the Weighted Median and Trimmed Mean – are also now below the lower target bound and are trending sharply downwards. Various measures of inflationary expectations are also falling quite sharply, including the longer-term, market-based forecasts. With the labour market data demonstrating weakness and the economy stuck in this low inflation malaise, it is clearly time for a change in policy direction. I won’t hold my breath!
The latest survey data from the Bank of Japan is interesting and supports a growing awareness among policy makers that monetary policy has run its course and will have to work more closely with active fiscal policy to stimulate economic growth. These insights have been a hallmark of ideas advanced for many years now by Modern Monetary Theory (MMT) proponents (including myself). The data shows that the negative interest rate and large-scale quantitative easing programs that the Bank of Japan has been pursuing have not had their desired effect. It was clear when they were announced that they would fail to achieve their goals. I wrote about that in 2009 and 2010. But it seems that the mainstream policy debate has to be dragged kicking and screaming through a series of policy failures before any progress is made towards actual solutions that will work. The Bank of Japan Board meets later this week and I am hoping they announce their intention to work closely with the Ministry of Finance (fiscal policy) to introduce Overt Monetary Financing (OMF) where the bank provides the monetary capacity to support much larger fiscal deficits with no further debt being issued to the non-government sector. That would finally put policy on track to do something effective and productive. It would also provide some policy leadership to guide other nations towards a more prosperous future (like Britain).
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.
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.
I am here to report that the sky is still up there in the sky although a little cloudy today. The power is still on. The rivers are still flowing. And as far as I can tell, the Australian continent isn’t looking like sinking into the ocean on either side. But we have to be warned – that bastion of sagacity and purity Standard & Poor’s put our AAA government bond rating on negative watch last Thursday. The Government is claiming it has to increase the intensity of its austerity plans, economists are being wheeled out for their moment in the media claiming government borrowing will ‘cost more’, and the media is having a picnic on the predictions of chaos and despair. It reminds me of the panic that followed the War of the Worlds broadcast on American CBS radio on October 30, 1938. That broadcast suggested to ‘weak minds’ that there was an invasion from Mars underway and precipitated panic. Similarly, the media is trying to whip a sense of gravity over the S&P decision. The reality is that nothing has happened nor will. The rating is irrelevant and the media should just ignore any press release these corrupt organisations put out. They are only designed to advance the profitability of the agency and should be subject to tight product quality scrutiny. The resulting fines for incompetence would put the companies out of business. It would be better if the government just legislated them into outlaw status immediately.
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.
Journalists have a lot to answer for in this modern era of constant media reporting across multiple modes of communication. I have previously argued that the trend has become one where journalists are used as broadcasting tools for press releases – that is, stories that appear to be news commentary are really just precised versions of some corporate press release or a statement from some right wing think tank. The lack of critical scrutiny where one line statements that on the face of it are highly contentious are allowed to ‘go through to the keeper’ is now the model for modern mainstream journalism. An example of this was the Australian Broadcasting Commission’s PM current affairs radio program last night (June 27, 2016) – Investors brace for another wild ride on international markets post-Brexit. The PM program is the ABC’s premier evening news and current affairs program where issues are meant to be taken apart and some so-called experts (from all sides) are meant to be interviewed so as to enlighten the public, who otherwise might be uncertain about the meaning and/or impact of some event. At least that was the intent of the program when it started many years ago. Now, it has become, like most of the ABCs current affairs reporting, a rather pale imitation of its original brief.
This morning I was reading the – The euro area bank lending survey – for the first quarter of 2016, published by the European Central Bank (ECB). This is a quarterly survey that the ECB conducts which was first published in 2003. It seeks to assess the extent to which banks are lending and the factors that are influencing that behaviour. The results published in the April 2016 edition relate to the first three months of 2016 and “expectations of changes in the second quarter of 2016”. Of particular interest was the inclusion of several ‘ad hoc’ questions (outside the normal survey design) that were designed to gauge “the impact of the ECB’s expanded asset purchase programme” and the “impact of the ECB’s negative deposit facility rate”. The results are fairly clear if you delve into the detail. From the April 2016 bank lending survey (BLS) we can conclude that the massive asset purchasing program and the negative interest rates have not significantly increased bank lending. We know why. It is a pity that the majority of commentators have not yet worked out the answer!
In the Golden Egg by Donna Leon, which I was reading on a flight over the weekend, there was a discussion about language and meaning. The detective in question was musing about how crimes are described and concluded that when we “detach language from meaning … The world is yours”. The worst crimes become anaesthetised. In my professional domain (economics), this detachment is rife and leads to poor policy choices. One such example, which is close to the focus of my own research work over the years has been the way in which the mainstream economists have revised the concept of full employment. We now read that Australia, for example, is at “full employment” when its official unemployment rate is 5.7 per cent (1.7 per cent above its previous low in February 2008), underemployment is 8.4 per cent, and the participation rate is still a full 1 percentage below its November 2010 peak (meaning some 190 thousand workers have dropped out of the labour force). By any stretch, the total labour underutilisation rate (that is, idle but willing labour) is in excess of 16 per cent. But to some smug journalists who cannot even get their facts straight, that is ‘full employment’. Mainstream economics – detaching language from meaning and misleading a nation as a result.
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.
This blog continues the discussion of the British currency crisis in 1976. Today we discuss the growing discontent within the British government over the need to negotiate the IMF loan in 1976. While it has been held out that Britain had no alternative but to impose austerity and allow the IMF to dictate policy, the fact is that an alternative was proposed which would have been a superior option.
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.
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.
Earlier this week (May 23, 2016), the Greek public opinion polling agency – Public Issue – published its latest Political Barometer (No. 156) which reported on – Attitudes towards the European Union and the Euro. As at May 2015, the majority of Greeks polled did not believe that the EU has a future and a rising proportion now believe things would be better off in 1-2 years if Greece exited the euro and introduced its own currency (32 per cent as opposed to 18 per cent 6 months ago). Things are shifting. I also wonder what the next polls will say when the Greek people learn of the latest research that shows where all the Greek bailout money has gone? It is an appalling story really.
There was another article in the financial media this weekend running the hypothesis that the stagnant economic conditions that Australia has found itself in is a “new normal”. This is now a repeating theme. I disagree with it. It ignores some basic realities and is ideologically loaded towards an austerity interpretation of the world. The article in the Fairfax press (May 21, 2016) – Low pay growth, price rises and the new normal – claims that the “central question in macro-economics today” is whether we are “waiting … for the economy to get back to normal, or has the economy shifted to a “new normal?”. I would pose the question differently. Waiting implies that we think it is just a matter of time before the ‘market’ does its work and restores normality. Moreover, Australia like most of the rest of the world remains locked in the aftermath of what we call a ‘balance sheet’ recession. As I explained to various audiences in Spain during my recent visit, this type of event is unusual (atypical or abnormal) and requires a quite different policy response to a normal V-shaped recession where private investment spending falls, governments stimulate, confidence returns and growth gets back fairly quickly on its trend path. The losses might be large but the recession and aftermath are short. A balance sheet recession requires elevated levels of fiscal deficits being maintained for many years to support growth as non-government sector spending remains below the norm while it reduces its debt levels (via increased saving). The problem in Australia, like elsewhere, is that governments have been hectored by neo-liberal ideologues to prematurely withdraw or reduce the fiscal support and growth has stalled. A range of problems then follow.
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.
Last Thursday evening in Madrid, I was invited as a guest of the local ATTAC chapter to talk about the Eurozone at a public meeting. I say guest, because one would be excused for thinking that the local ATTAC President was in fact the guest given that he launched into a 25 minute diatribe, masquerading as the first question after my presentation, that attacked Modern Monetary Theory (MMT) for (allegedly) ignoring taxes (no: we just say they do not fund spending) and basic income (no: we just prefer employment guarantees). While it was obvious he hadn’t actually read my book (despite claiming to be commenting on it), he also claimed that I was just another apologist for capitalism and had failed to advocate any fundamental changes to the system. It was quite a performance as you might guess, but I thought it rather odd that the president of ATTAC, which takes its name from its principal advocacy of a Tobin Tax (financial transactions tax), a small little surcharge on the Wall Street excesses, rather than a head-on attack on the legitimacy of the financial markets in general, would dare criticise others for advocating policies within the capitalist realm. I have long written about the need to control financial speculation via regulation rather than through the ‘price system’ (by taxing it). Those who think that working through the price system is the way to change behaviour are operating within neo-liberal logic. It is much more effective to just work through the legal system and ban something that is damaging to the prosperity of nations. That is the MMT position on these financial market excesses – where they just involve wealth shuffling and serve no productive purpose, the state should just legislate them into oblivion. But the so-called revolutionary ATTAC (if my understanding of the president’s ravings were correct) just wants to impose a small tax on Wall Street. And, I guess they will have to go looking for the cash in Panama or somewhere!
I am now back in Australia after a very interesting 2-week visit to Spain. There were several ‘private’ events in that time, and I gave 7 public lectures over 5 days, with travel and meetings in between. It was a hectic week once the public events began, criss-crossing the rather large (by European standards) nation. I learned a lot about grass roots political movements (how they easily splinter as personalities get in the way) and about the state of European politics. I learned little about European economic policy – it is as ridiculous and damaging as ever, yet the ideologues, in the ‘pay’ of the financial and corporate elites, keep claiming everything is on track for recovery. Not! I heard about the ‘ghost’ airport, the unused Formula 1 race track, and saw the massive Arts and Sciences Complex in Valencia, all of which epitomise the excesses in the early years of the Eurozone and the unbridled capacity of Spanish politicians for corruption (the Wiki page doesn’t tell you that several corrupt pollies are already in prison over this project with more to come – see HERE and HERE and ). In the last week, a major development occurred with the signing of the so-called ‘El Pacto’ – Cambiar España: 50 pasos para gobernar juntos – which is an historic agreement between the leaders of Podemos and the United Left (IU) coalition and constitutes the manifesto to ‘Change Spain in 50 steps’ if they win government at the upcoming national election on June 29, 2016. If they don’t win government it will probably squeeze the Socialist party (PSOE) into extinction (which would be good). But ‘El Pacto’ is a dangerous document for the progressive side of politics. This blog explains why. Short summary: Syriza reprise!
Here are the answers with discussion for the Weekend 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.