Australian labour market – the dismal picture unfolds further

Last month, employment growth was basically flat (slightly negative). Participation decreased. The signs were ominous. This month, the dismal picture unfolded further. Today’s release of the – Labour Force data – for February 2016 by the Australian Bureau of Statistics show that those ominous signs have worsened. Total employment growth was zero (well 300 net jobs). A pathetic result. Unemployment fell but only because the participation rate fell by 0.2 points – thus the idle labour arising from the weak employment growth just left the labour force and is now hidden unemployment. Working hours fell further – the trend is flat and has been for the last few years. The teenage labour market continued to deteriorate with the adjusted unemployment rate (taking into account the sharp fall in participation since the downturn) of 29.1 per cent rather than the official estimate for February 2016 of 17.8 per cent. Overall, with private investment forecast to decline further over the next 12 months, the Australian labour market is looking very weak and the Federal government should be introducing a rather sizeable fiscal stimulus in its upcoming fiscal statement. This should include large-scale public sector job creation which would ensure teenagers regained the jobs that have been lost due to the fiscal drag over the last several years.

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Britain and the 1970s oil shocks – the failure of Monetarism

This blog provides another excerpt in the unfolding story about Britain and the IMF. We pick up yesterday’s story with Britain mired in inflation and rising unemployment as the OPEC oil price rises impact in late 1973. The Tories under the leadership of Edward Heath were trying to deal with internal divisions between the traditional One Nation Conservatists (Heath) and the emerging, right-wing Monetarists. Edward Heath resisted the Monetarists through his term of office and used very traditional ‘Keynesian’ remedies in an attempt to reduce unemployment (for example, the ‘Dash for Growth’) but maintained the usual Tory hostility towards trade unions. His efforts in stimulating growth were stymied by the oil price rises, which spawned a major inflationary outbreak. The Tories blamed the unions and OPEC for the inflation, which, in part, was correct, but then invoked a period of damaging austerity which left the nation in a sorry state. They lost office in February 1974. In this blog, with Harold Wilson back in charge for the second time and his party becoming increasingly infested with Monetarist thinking, we consider the inflation problem in some detail, the lack of any credible evidence to support the Monetarist causality, as a means to understanding how disappointing Prime Minister James Callaghan’s famous 1976 Black Speech to the Labour Party Conference was in terms of maintaining the credibility of the British Labour Party then – and how it opened the way, not only for Margaret Thatcher to wreak havoc, but also for the emergence of the insidious New Labour, which continues to hobble progressive elements in the Party today. It was a major turning point in Left history and needs careful deconstruction.

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The Heath government was not Monetarist – that was left to the Labour Party

This blog provides another excerpt in the unfolding story about Britain and the IMF and the Monetarist sell-out by the British Labour Party once it was reelected in February 1974. As I noted in this blog – The British Monetarist infestation – I am currently working to pin down the historical turning points, which allowed neo-liberalism to take a dominant position in the policy debate. In doing so, I want to demonstrate why the ‘Social Democrat’ or ‘Left’ political parties, who still have pretentions to representing the progressive position (but have, in fact, become ‘austerity-lite’ merchants), were wrong to surrender to the neo-liberal macroeconomic Groupthink. This is a further instalment of my next book on globalisation and the capacities of the nation-state. Today, we trace the tensions within the Tory Party during the period 1970 to 1974, when the old school “One National Conservatism” represented by Edward Heath came into conflict with the growing Tory Monetarists, who would eventually be the bulwark of Margaret Thatcher’s pernicious regime later in the 1970s.

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British Labour Party surrenders … back to its Monetarist roots

Last week, the shadow British Chancellor, John McDonnell confirmed that the British Labour Party under Jeremy Corbyn will not be part of a progressive realignment of the public debate regarding fiscal policy. By that I mean, they have chosen, probably for misplaced ‘political’ concerns (leaving aside total ignorance), to reinforce in the public mind the neo-liberal myths relating to the capacities of a currency-issuing government to spend and advance prosperity. I have no doubt that John McDonnell desires, genuinely, to advance the material well-being of the working class in Britain. His public career to date would suggest that. But like many on the Left, he has been seduced by the neo-liberal snake oil into believing that fiscal rules that bind a currency-issuing government to balance, in total or in part, the fiscal situation and that such a government should submit itself to the dictates of a technocracy full of mainstream economists, is a necessary requirement of responsible fiscal management. His most recent statements really amount to surrender. The British Labour Party is staying faithful to its Monetarist roots, which were established in 1974 under Harold Wilson’s second tilt at the top job. The distractions of New Labour and now Jeremy Corbyn has not really changed anything. This is a neo-liberal party no matter what they claim and their advice and underpinnings are firmly neo-liberal.

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The neo-liberal class warfare on the poor and the rest of us

I read a report just released yesterday (March 9, 2016) – The uneven impact of welfare reformby the Centre for Regional Economic and Social Research, which is located at the Sheffield Hallam University in Britain. It showed that the British Government is successfully prosecuting a class war against the disadvantaged and, increasingly, against segments of ‘middle’ Britain. It confirms the view I formed in 2010 when the Conservative government was elected and announced its first fiscal statement in June of that year that it was intent on pursuing some unfinished business – to wit, entrenching the attacks on workers and income support recipients and redistributing national income in favour of capital. These attacks were somewhat interrupted by the urgency to deal with the meltdown associated with the GFC. Leopards don’t change their spots and the Conservatives are intent on finishing off the agenda that began back in the 1970s with the attacks on unions and public services. I was thinking about the report as I was reflecting on a radio program I heard the other day about how the Australian National Library is being forced to make severe cuts to its archival services among other things in response to federal government austerity plans. Mindless is the first word that came into my head when I was listening to the program. In the case of Britain, the attacks are being dressed up as ‘welfare reform’. In the case of Australia, the spending cuts are being dressed up as ‘efficiency dividends’. The neo-liberal nomenclature is an attempt to obscure what is really going on – a massive attack on society, its disadvantaged, and its cultural institutions. Neo-liberals hate society and anything that provides inclusive access to all in the benefits that society can deliver. These cuts are deliberately targeted to reduce social inclusion and undermine information access.

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The Monetarism Trap snares the second Wilson Labour Government

This blog provides another excerpt in the unfolding story about Britain and the IMF. As I noted in this blog – The British Monetarist infestation – I am currently working to pin down the historical turning points, which allowed neo-liberalism to take a dominant position in the policy debate. In doing so, I want to demonstrate why the ‘Social Democrat’ or ‘Left’ political parties, who still have pretensions to representing the progressive position (but have, in fact, become ‘austerity-lite’ merchants), were wrong to surrender to the neo-liberal macroeconomic Groupthink. This is a further instalment of my next book on globalisation and the capacities of the nation-state, which I am working on with Italian journalist Thomas Fazi. We expect to finalise the manuscript in May 2016. In the last instalment, I traced back and demonstrated that Britain was engulfed in Monetarist thinking long before Margaret Thatcher took over. She really just put the ‘(rancid) cream on the top of the (inedible) cake’. I showed that the British Labour Party were infested with the Monetarist virus in the late 1960s and James Callaghan’s famous 1976 Black Speech to tge Labour Party Conference was just a formal recognition of that disease. It really just consolidated what had been happening over the prior decade. This historical journey also helps us understand that it was not the OPEC oil crisis in the early 1970s that provided the open door for governments to reject Keynesian policy. In Britain, the Treasury and Bank of England had fallen prey to Monetarist ideas following the elevation of Milton Friedman onto the world stage. These subsequent events just helped keep the insurgency moving until total dominance in the contest of ideas was won. Today, we start with the Bank of England’s so-called Competition and Credit Control (CCC), which was introduced in September 1971. This formalised the growing emphasis among the banking sector and economists that the central bank had to ‘control’ the money supply. It failed – but empirical failure doesn’t matter when people are becoming swamped with propaganda that says otherwise.

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The BIS adds to the financial turbulence and should be disbanded

In 2014, it was apparent that the Bank of International Settlements (BIS) had made itself part of the ideological wall that was blocking any reasonable recovery from the GFC. I wrote about that in this blog – The BIS remain part of the problem. I was already concerned in 2013 (see this blog – Since when did the BIS become the Neo-liberal Ministry of Misinformation?). Things haven’t improved and the latest statements from the Bank in the BIS Quarterly Review (March 6, 2016) – Uneasy calm gives way to turbulence – demonstrates two things that are now obvious. First, that the neo-liberal Groupthink that created the crisis in the first place, and, which has prolonged the malaise continues to dominate the leading international financial institutions. Second, not only are these institutions (and I include the OECD, the IMF, to BIS, among this group) impeding return to prosperity as a result of their continued adherence to failed macroeconomics, but worse, their patterned behaviour actually introduces new instabilities that ferment further crises. Someone should be held accountable for the instability these organisations cause, which, ultimately leads to higher rates of unemployment and increased poverty rates.

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We are being led by imbeciles

After yesterday’s marathon blog, today will be easier going (and shorter). I was reading John Maynard Keynes recently – circa 1928 – that is, 8 years before the publication of the General Theory with his Treatise on Money intervening. He was railing against the principles and practice of ‘sound finance’, which he noted had deliberately caused billions of pounds in lost income for the British economy. He urged the Treasury and the Bank of England to abandon their conservative (austerity) approach to the economy and, instead, embark on wide-scale fiscal stimulus to create jobs and prosperity. He concluded that with thousands of workers idling away in mass unemployment that it was “utterly imbecile to say that we cannot afford” to stimulate employment via large-scale public works – building infrastructure etc. He considered the policy makers who opposed such options were caught up in “the delirium of mental confusion”. The stark reality is that 88 years later, he could have written exactly the same article and would have been ‘right on the money’. We are being led (euphemism) by imbeciles.

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Finland would be better off outside the Eurozone

Towards the end of last year, I wrote a blog – Finland should exit the euro. I had been undertaking some detailed research on the plight of this relatively small Eurozone nation for a number of reasons. First, it had recently undergone a major industrial decline as Nokia/Microsoft missed market trends and went from world leader to irrelevance. Second, Finland was a vocal proponent of the view that Greece should be pillaried into oblivion by the Troika – to ‘take their medicine’ (more crippling austerity). Third, the data trends were unambiguously pointing to Finland descending into the Eurozone ‘basket case’ category itself as its own conservative government imposed harsh fiscal austerity on the tiny, beleagured nation. Two things are clearer than ever about the Eurozone. First, it is a dysfunctional mess and efforts to reform it so far have only made matters worse. Second, any single nation (and all together) would be unambigously better off exiting the mess and restoring their own currency sovereignty and letting their exchange rate take up some of the adjustment. The following text covers an article that I have written for a Finnish Report coming out in May 2016 to be published by the Left Forum Finland, which is a coalition formed by the political party Left Alliance, the People’s Educational Association (KSL) and the Yrjö Sirola Foundation.

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The Weekend Quiz – February 27-28, 2016 – answers and discussion

Here are the answers with discussion for this week’s 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.

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The British Monetarist infestation

I have been on the search for historical turning points again today. The famous Mitterand austerity turn in 1983 is one of these points. Another, which I will consider today, was the British Labour Prime Minster James Callaghan’s speech to Labour Party Conference held at Blackpool on September 28, 1976 was laced with pro-Monetarist assertions that have been used by many on the Left as being defining points in the decline of the state to run independent domestic policy aimed at maintaining full employment. This is a further instalment of my next book on globalisation and the capacities of the nation-state, which I am working on with Italian journalist Thomas Fazi. We expect to finalise the manuscript in May 2016. Today, I am writing about the background events that turned Britain on to Monetarism. Margaret Thatcher was, in fact, a ‘johnny-come-lately’ in this respect. The British Labour Party were infested with the Monetarist virus in the late 1960s and Callaghan’s 1976 Speech just consolidated what had been happening over the decade prior. Further, it was not the oil crisis in the early 1970s that provided the open door for governments to reject Keynesian policy. In Britain, the Treasury and Bank of England were captivated by the ideas of Milton Friedman some years prior to the OPEC price push.

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The Weekend Quiz – February 20-21, 2016 – answers and discussion

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.

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The European circus continues

Yesterday, I briefly examined how a pack of big-noting financial market traders were trapped in stupidity by patterned behaviour and self-reinforcing group dynamics (aka Groupthink). Today, we consider the neo-liberal Groupthink that continues to trap political leaders and policy makers in Europe into a web of denial and stupidity.

In both case, innocent people have suffered huge negative impacts while, by and large, the idiots have escaped fairly unscathed. The recent data from Eurostat shows that growth is fairly flat in the Eurozone and industrial production is in recession. It also shows that the banking system is in deep jeopardy and the so-called reforms that were introduced post-GFC are not considered robust by investors. With massive bank deposit flight going on and banking share prices plunging, it is clear that the ‘markets’ have lost faith in the financial viability of the Eurozone. Meanwhile. Mario Draghi winds the key up in his back and tells the world that everything is fine and the ECB is on top of the situation. With chaos descending on the monetary union again, the ECB cannot even achieve its single purpose – a stable 2 per cent inflation rate. It has failed to even achieve that over the last four years. One couldn’t write this sort of stuff if they were trying.

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The Weekend Quiz – February 13-14, 2016 – answers and discussion

Here are the answers and 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.

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Ultimately, real resource availability constrains prosperity

There are many misconceptions about what a government who understands the capacity it has as the currency-issuer can do. As Modern Monetary Theory (MMT) becomes more visible in the public arena, it is evident that people still do not fully grasp the constraints facing such a government. At the more popularist end of the MMT blogosphere you will read statements such that if only the government understood that it can run fiscal deficits with impunity then all would be well in the world. In this blog I want to set a few of those misconceptions straight. The discussion that follows is a continuation of my recent examination of external constraints on governments who seek to maintain full employment. It specifically focuses on less-developed countries and the options that a currency-issuing government might face in such a nation, where essentials like food and energy have to be imported. While there are some general statements that can be made with respect to MMT that apply to any nation where the government issues its own currency, floats its exchange rate, and does not incur foreign currency-denominated debt, we also have to acknowledge special cases that need special policy attention. In the latter case, the specific problems facing a nation cannot be easily overcome just by increasing fiscal deficits. That is not to say that these governments should fall prey to the IMF austerity line. In all likelihood they will still have to run fiscal deficits but that will not be enough to sustain the population. We are about to consider the bottom line here – the real resource constraint. I have written about this before but the message still seems to get lost.

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Is exchange rate depreciation inflationary?

One of the first things that conservatives (and most economists which is typically a highly overlapping set) raise when Modern Monetary Theory (MMT) proponents suggest that increased deficits are essential to reduce mass unemployment is the so-called balance of payments constraint. Accordingly, we are told that the capacity of a nation to increase domestic employment is limited by the external sector. And these constraints have become more severe in this age of multinational firms with their global supply chains and the increased volume of global capital flows. I will address the specific issue of a balance of payments constraint on real GDP growth (that is, the limits of fiscal stimulus) in a future blog. But today I want to consider the so-called Exchange Rate Pass-Through (ERPT) effects of that are part of the balance of payments constraint story. The mainstream narrative goes like this. Higher wage demands associated with full employment and/or stronger imports associated with higher fiscal deficits lead to external imbalances due to rising imports and loss of competitiveness in international markets (eroding export potential). In a system of flexible exchange rates, the currency begins to lose value relative to all other currencies and the rising import prices (in terms of the local currency) are passed-through to the domestic price level – with accelerating inflation being the result. If governments persist in pursuing domestic full employment policies the domestic inflation worsens and the hyperinflation is the result, with a chronically depreciated currency. Real standards of living fall and a general malaise overwhelms the nation and its citizens. I am sure you have heard that narrative before – it is almost a constant noise coming from the deficit phobes. Like most of the conservative economic claims and I include the austerity-lite Leftist parties in this group, it turns out that reality is a bit different. Here is some discussion on that issue.

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The capacity of the state and the open economy – Part 1

Wolfgang Merkel wrote in his recent Op Ed (February 5, 2016) – Economy, Culture And Discourse: Social Democracy In A Cosmopolitanism Trap? – that “we are dealing with a partially deliberate, partially careless surrender of the state’s capacity to regulate and intervene in an economy that structurally creates socio-economic inequality and erodes the fundamental democratic principle of political equality”. I highlight, the “partially deliberate, partially careless surrender” description of what has occurred over the last several decades as neo-liberalism has gained traction. Today’s blog continues my series that will form the content for my next book (due out later this year) about the impacts of globalisation on the capacities of the nation state. Our contention (I am writing this with Italian journalist and author Thomas Fazi) is that there has been no diminuition in the power of the state to impact on the domestic economy. The neo-liberal era has seen many commentators deny that proposition, yet, knowingly advocate use of these powers to further advantage capital at the expense of labour. The state is still central to the picture – it just helps capital more and workers less than it did during the full employment period in the Post World War II decades.

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Australian PBO – hard to take seriously – is it vaudeville or what?

The Australian government is currently engaging the population in an agonising discussion about taxation reform and proposed spending cuts. It is almost vaudeville when the Treasurer, or the Opposition Shadow Treasurer or some business leader gets up and gives us their ‘two bob’s worth’ of nonsense. We have a “revenue problem”, “no we don’t, we have a revenue problem”, “we need to raise taxes”, “no we don’t we need to cut spending”. Then the government appoints a former investment banker as Treasury Department head and he starts raving on about how government should limit its spending to a maximum of 25 per cent of GDP without any argument being provided as to why that limit is meaningful, how it is derived, how it can be achieved if desirable, and all the rest of it. Sounds like a good idea. The Eurozone has destructive fiscal rules (Stability and Growth Pact) that we just whipped out of thin air and sounded important. We may as well, like dumb sheep, follow the race to the bottom. Meanwhile, real GDP growth falls further below trend and the disadvantaged workers endure elevated levels of unemployment and hardship. It is enough to drive one to drink. And then yesterday, the Australian Parliamentary Budget Office (PBO), which is one of those neo-liberal concoctions introduced by governments around the world to deflect responsibility for decisions from the politicians and frame the public debate in a particular way, published a new report (February 3, 2016) – National fiscal outlook – Report no. 01/2016. The mind boggles how people can write this stuff and go homeat night and take themselves seriously.

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The ECB could stand on its head and not have much impact

As the Bank of Japan began its hopeless quest to stimulate growth with negative interest rates (see my blog yesterday – The folly of negative interest rates on bank reserves), the latest data from the ECB came out on lending to households and non-financial institutions. It tells an interesting story. The story has to be framed within the knowledge that oil prices have now fallen by some 77 per cent. But the major factor that is not usually mentioned when commentators talk about ECB policy changes and the likely impacts is the on-going and manic fiscal austerity in the Eurozone, which puts the whole region in a recession-type straitjacket, where monetary policy changes, weak in impact at best, have little hope of achieving anything positive. The logic of the reliance on monetary policy for counter-stabilisation is also built on a failure to understand what drives the economic cycle. The belief that banks will suddenly lend just because the central bank imposes a tax on their reserve deposits (negative interest rates) or offers them cheap loans to on-lend to households and firms is misplaced. Banks do not loan out their reserves and firms will not borrow from banks no matter how cheap the money is if there are no profitable opportunities to pursue. It is time the authorities abandoned their neo-liberal myths and got real. The Eurozone needs a massive fiscal expansion and it needed it 7 or 8 years ago. The ECB is the only institution in the flawed system that can provide the financial resources to make that happen and it could, with Brussels approval, bypass the ‘no bailout’ clauses in the Treaty to make that happen. It won’t, and the Eurozone will muddle on with increased poverty rates and rising social instability. What folly!

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The folly of negative interest rates on bank reserves

On Friday (January 29, 2016), the Bank of Japan issued a seven-page document – Introduction of “Quantitative and Qualitative Monetary Easing with a Negative Interest Rate” – which left me confounded. Do they actually know what they are doing or not? For years, the liquidity management conducted by the operations desk at the Bank has been impeccable, in the sense that they have maintained near zero interest rates in the face of growing fiscal deficits. There was always some doubt when they were the early users of quantitative easing which many claimed was to provide the banks with more reserves so that they would increase their lending to the private domestic sector in order to stimulate growth, after many years of rather moderate real performance to say the least. Of course, banks are not reserve constrained in their lending so the the only way that this aspect of ‘non-conventional’ monetary policy would be stimulatory would be if investment and purchasers of consumer durable were motivated to borrow at the lower interest rates that the asset swap (bonds for reserves) generated. The evidence is that the stimulus impact has been low and that there are many other factors other than falling interest rates governing whether borrowers will approach their banks for loans. In their latest announcement, the logic appears to be that by reducing reserves they will induce banks to lend more. Go figure that one out!

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