There is no detailed blog today as I am travelling from Brussels to Sydney. I will resurface again on Tuesday after the long flight. When I wrote my blog on Friday documenting the austerity tour around Porto I forgot to mention a few things. This blog adds some more observations I have made of conditions in this part of the world at present.
Its my Friday lay day blog and I am on the austerity trail. I have been in Porto, Portugal for the last few days, ostensibly taking a short break by the beach. There has been no swell at all. The beach area to the south of the Douro River is like beach areas everywhere. They give little hint of what austerity has done to this country. Porto is the northern capital of Portugal and a town of around 240 thousand people (in 2012) with the wider region containing around 1.4 million people. It is considered one of “the major urban areas of Southwestern Europe.” But it is also disintegrating as an urban centre with an extraordinary number of derelict buildings and many shops closed as austerity ate into incomes and spending. There are decaying buildings everywhere some with for sale signs on the front. The urban infrastructure is falling apart – the main market is being held up with scaffolding and weeds overtake sporting arenas. In many respects, it looks like a city in the poorest nations rather than being part of Europe. Around a third of the inner city population has left. A large number of people in the greater urban area have left. The mobile are dominated by the young and the educated with the skills leaving behind an elderly population. There is little hope for the city under the current policy structures. A nation and its cities destroyed by austerity. There is no exaggeration here. I invite people to see for themselves. An extraordinary outcome of an out of control recession cult ideology reinforced by neo-liberal Groupthink ruining the prosperity of a people. I had quite a day yesterday as I went on a field trip around Porto organised by the – The Worst Tours.
I am heading south today to the periphery of the Eurozone and will spend the rest of the week down in the sun. We will see what I come up with. My next blog will come from the South – in deep austerity land! Today, though, I have little time. So I have posted the Presentation I gave in London last Thursday plus a Radio interview I did in London on Friday. They might be of interest to those who could not make it to the event on Thursday. We launched my latest book – Eurozone Dystopia: Groupthink and Denial on a Grand Scale – in Maastricht yesterday and a video record of the proceedings will be available in due course. But for now it is off to the beach!
Today, is the official launch of my new book – Eurozone Dystopia: Groupthink and Denial on a Grand Scale – in Maastricht, which is an appropriate geographic location given the book proposes to dismantle the Eurozone. It just happens to be the place (Maastricht University), where we established CofFEE-Europe (a sister centre to my research centre in Australia). There are two excellent guest speakers (see below) and I am very grateful that they agreed to accept the invitations. The upshot is that I haven’t all that much time today. Over the next few days I will address some points that were raised in question time or at the reception (aka cup of tea and cakes) after the event in London last Thursday evening. There is still work to be done if the progressive side of politics is to fully understand Modern Monetary Theory (MMT) and the implications of it for policy development and choice.
Its my Friday lay day blog and today it comes from a dark London (given the hour). At present, there is an event going on in Australia that sums up what is wrong with our conception of the economy. The right-wing News Limited press and the conservative Fairfax financial newspaper along with a management consulting firm that has had its snout in the privatisation trough around the world (and given my location – was one of the ‘approved suppliers’ of support services as the British government moves to privatise the National Health Service) have organised what they call the ‘National Reform Summit 2015’. It brings together big business, the co-opted trade union movement and welfare agencies, academics who propagate neo-liberal fiscal myths, and government officials who are intent on pushing more deregulation and reduced government involvement in the economy. It beggars belief that this stuff can pass muster. But it is no surprise, given that the right-wing media is organising the show and can make money by pumping out ridiculous headlines that it knows will scare but the content will not be understood by the average reader. So as the neo-liberal Groupthink is not challenged publicly at the Summit, the organisers have carefully screened the invited participants to sing from the same hymn sheet. The cartoon that follows says it all really.
Greetings from London in the early morning! If we went back a few years and dug out all the predictions and scare campaigns that were being issued by mainstream economists and their conservative ‘think tank’ conduits about the impending disaster that would accompany the near zero interest rate regimes that the US Federal Reserve Bank had implemented it would make a great comedy sketch. There should be no surprise with the massive predictive failures of the mainstream economists in this regard. They clearly did not understand the underlying dynamics that govern the way the central bank interacts with the commercial banks. The problem is that these conservative forces are so dumb they don’t have adaptive learning mechanisms and so even in the fact of evidence contrary to their Groupthink they keep pumping out the same nonsense. The other problem is that they tend to be well funded by the right-wing establishment that they exhibit disproportionate influence on the public policy debate. That influence has turned to demands that the US Federal Reserve Bank (the central bank) increase interest rates and reverse its quantitative easing – apparently because hyperinflation is just around the corner. Nothing could be further from the truth. At present the US economy is some way into a very slow and relatively tepid recovery. But it has still some way to go and while interest rate changes have a relatively weak impact on overall growth any anti-growth noise is undesirable. It is also not justifiable given the central bank’s own logic.
There will be no detailed blog today as I am in the midst of inter-contintental travel, which is one of those terms from the C19th that sounds exotic but is in reality pretty awful. Somewhere in the next 24 hours I will surface and start typing again. A new blog will appear Thursday sometime. But while I am gone you can listen to some music, if you like.
The Project Syndicate recently (August 6, 2015) published an Op Ed by conservative Edmund Phelps – What Greece Needs to Prosper. The article was widely syndicated by the conservative media and represents part of the conservative narrative to conveniently revise history when the facts violate the conservative ideological agenda. It is an appalling article. We are now in a phase of “Austerity denial”, where conservatives attempt to massage history to avoid the unpalatable conclusion that the massive austerity that has been imposed on certain countries by the IMF and its partners in crime (in Greece’s case the European Commission and the ECB) has caused huge declines in GDP (levels and growth rates) and deliberately led to millions of people becoming jobless with associated rises in poverty rates. That causality is undeniable.
Its my Friday lay day. This week I have written a few (very) long blogs on what I consider to be significant topics. I have been writing on topics that have a direct bearing on what is happening within the British Labour Party over the last few weeks as a way of providing an economic knowledge base for activists who wish to defend their position against the attacks from the Tory-lites (New Labour). Anyway, after a few days of heavy writing I am not going to write much today (in blog space) and will fill this blog up with music, advertisements, promotions and a cartoon. But there is an issue that has come up this week in Australia which goes to the heart of the neo-liberal attack on our democratic rights which I can write about succinctly. The decision by a court to overturn an approval for a coalmine development has caused our neo-liberal government to go into ‘conniptions’ and accuse community groups of being “radical green activists” engaging in “vigilante litigation”. Read on to learn how the neo-liberal way is that when the government is caught acting outside the law to help their corporate business mates the solution is simple – change the law to make it easier for business to bypass acceptable approval processes.
As background research to one of my book projects I have been reading a recent biography of François Mitterrand by Philip Short. Its title “Mitterand: A Study in Ambiguity” points to the capacity of Mitterand himself to blow with the wind but only when it suited his sense of personal ambition. Hiding behind his statesmanship was a man with “infinite shades of deviousness, an aesthete and intellectual, a sensualist, a crook”. The story of Mitterrand and his famous turn to austerity in March 1983 is very important to understand because it is used by progressives to justify their ‘austerity-lite’ stances with respect to economic policy. The New Labour politicians that are attacking Jeremy Corbyn’s policy proposals fit into this camp. The ‘left’ narrative is that the demise of Keynesian policy options was inevitable in the face of globalisation of capital and the growing importance of Transnational Corporations (TNCs). But, my argument is that there was nothing inevitable at all about Mitterrand’s poorly contrived shift into austerity. The progressives who advocate the inevitability thesis conflate the development of the TNCs with the emerging dominance of the neo-liberal ideology (which is concoction from economists intent on pushing the textbook competitive free market model with minimal state intervention). The development of the TNCs didn’t undermine the capacity of currency-issuing nation states. That has been accomplished by the imposition of the neo-liberal ideology and is reversible if the politics can be won. That is what I see as Jeremy Corbyn’s challenge – to win the politics. There is plenty of strong economic argument to help him do that.
The conservative forces including those ‘Tories’ that are within the British Labour Party (aka New Labourites) continue to gather their forces to counter the growing threat posed by Jeremy Corbyn to their secure world as neo-liberal, Tory-lite hopefuls. They are part of a phalanx of critics, including mainstream economists who seek to diminish his credibility. At the extreme end of this bunch are the evil ones who have accused Corbyn of being antisemitic and a friend to Islamic terrorists. I am reliably informed that the same tactics have been deployed against Bernie Sanders in the US. It tells us that desperation has replaced any sense of decency or reason. It also tells us that the Tory-lites are finally seeing the evidence that their day in the sun has gone and they are being cast into irrelevance. Not before time, I should add. But all is not clear on the Corbyn front either. Today, I want to discuss what appears to be a major economic policy proposal – the so-called People’s Quantitative Easing (or PQE). There are elements of a good idea in this proposal but the QE reference and the resulting language is all wrong, in that it betrays as lack of understanding of the difference between a monetary
policy operation and a fiscal policy intervention. The concept should be re-framed so that a consistent narrative can be provided and that a good policy proposal gains the wings it needs. PQE is a wealth generating policy which is in contradistinction to QE which just shuffles wealth portfolios.
The economic news yesterday from Japan that the economy had contracted in the second-quarter 2015 by 0.4 per cent (Real GDP) on the back of a sharp drop in exports (-4.4 per cent) and private consumption (-0.8 per cent). The economy is 0.7 per cent larger in real terms than this time last year but that is somewhat misleading because of the 1.9 per cent decline in the June-quarter 2014 after the Government introduced its latest sale tax hike fiasco. The only positive contributors to growth in the June-quarter 2015 were inventories and the public sector (both consumption and investment). The continuing declines in real wages and pessimistic consumer expectations are undermining the capacity of the private domestic sector to sustain growth. Without the growth in public spending the quarterly decline in real GDP growth would have been much worse. It is likely that the slowdown in China is impacting negatively on Japanese exports. But with China trying to stabilise around a mean-shift downwards in its growth rate, the future for all export-led growth strategies (that have been relying on China to sustain much higher rates of growth) doesn’t look good. In the same way that China appears to be rebalancing its total output in favour of domestic spending, the same strategy should be adopted by Japan to wean itself of its reliance on continued strong growth in exports. One thing that Japan might re-assess is its – National Pension Scheme – which is not only fairly meagre in income payments but also forces workers to contribute during their working lives. Given Japan is a currency-issuing nation, it could easily increase the pension payment and reduce or eliminate the contribution, thus providing more certainty to workers in retirement.
Its my Friday lay day with respect to blog writing but at the risk of today’s publication looking like an advertising catalogue, I thought I have better write something. There are a number of topics I am delving into at present so deciding what I was interested in writing about today took a little coin-tossing (in virtual space that is). So some notes on corporate greed and management lies. Familiar themes for me. In a week where we learned that wages growth in Australia is at record lows and real wages are skating along the zero growth line despite on-going productivity growth, the big business barons want the government to scrap weekend our wage system and instead allow the ‘market’ (inverted commas!) to rip. This is code for cutting wages for a range of occupations and sectors. Business is also continuing to lie about the state of the economy claiming massive skill shortages exist, which then lead them to recommend more lenient use of short-term migrant visas – which is code for bringing in non-unionised workers from abroad who will work for minimum rates and be susceptible to illegal scams that violate those minimum rates. Even the Government has noted the skills shortage argument which is part of the relentless public relations assault on workers’ conditions does not accord with the evidence. But then since when have the right-wing allowed the facts to get in the road of their ideological push to destroy unions and drive wages down as low as they can.
The New Labour group are clearly getting desperate in Britain and Blair himself has come out again to vilify Jeremy Corbyn and predict a Labour annihilation at the next general election. Clearly Blair and his cronies haven’t understood that their time in the sun is over. They recreated the Labour Party into a Tory mirror image on key issues and the grass roots of the Party is now reclaiming the lost ground. The UK Guardian article (August 12, 2015) – Syriza’s Greece: the canary in the cage for Corbyn’s Britain? – illustrates how stuck in the neo-liberal mud the British economic debate has become. It tries to claim that Corbyn is a throwback to the past and the policies that old Labour tried in the 1970s failed and would fail again. Clearly, the writer and most of the commentators which resonate the same message haven’t really understood the difference between a currency-issuing government and one bound by a mania for fixed exchange rates and fiscal surpluses. Increasingly, the attempts by Corbyn’s support base to appear to be ‘fiscally responsible’ tells me that he will not succeed in altering the debate if he continues to promote ideas that equate fiscal responsibility with deficit elimination. Fiscal responsibility is equated with achieving full employment with price stability – and in the current climate that would require a fiscal deficit some percent of GDP larger than what it is at present. Corbyn’s camp should be talking about that rather than deficit elimination, which is a ridiculous policy target to aspire to.
With the Chinese yuan now falling and the Australian dollar going with it, domestic inflation pressures will rise in Australia in the coming months. This doesn’t augur well for Australian workers who were told today that wages growth in the last quarter (June) was at the lowest on record. The Australian Bureau of Statistics published the latest – Wage Price Index, Australia – for the June-quarter today and annual private sector wages growth fell to 2.2 per cent (0.5 per cent for the quarter). This is the third consecutive month that the annual growth in wages has recorded its lowest level since the data series began in the December-quarter 1997. In the 2015-16 fiscal statement, the Government assumed wages growth for 2014-15 would be 2.5 per cent rising to 2.75 by 2017. On current trends, that is highly unlikely to occur, which means the forward estimates for taxation revenue are already falling short and the fiscal deficit will be larger than assumed. Depending on how we measure inflation, the annual wages growth translates into a small real wage rise or fall. Either way, real wages are growing well below trend productivity growth and Real Unit Labour Costs (RULC) continue to fall. This means that the gap between real wages growth and productivity growth continues to widen as the wage share in national income falls (and the profit share rises). The flat wages trend is intensifying the pre-crisis dynamics, which saw private sector credit rather than real wages drive growth in consumption spending. The lessons have not been learned.
There was an interesting – Letter to the New York Times – last week (August 3, 2015) from an Irish academic (Stephen Kinsella) in response to an Op Ed by the German economist Hans-Werner Sinn (July 24, 2015) – Why Greece Should Leave the Eurozone. I found it interesting because for the last few weeks, since the latest – Irish national accounts data (July 30 2015) showed Ireland to be the fastest growing Eurozone nation I have been investigating what has been going on. The Op Ed by Sinn did not appear to accord with the data that I was examining. The subsequent ‘Letter’ confirmed that. The bottom line is that Ireland is not an example of a “supply-side” internal devaluation inspired recovery. In fact, it is an example of a straightforward “Keynesian” quantity adjustment aided by Ireland’s very open economy and the fact that is has been favourably disposed to growth elsewhere supported by on-going fiscal deficits.
Its my Friday lay day and I end this week feeling infinitely better (how would I measure that?) than this time last week. The human capacity is pretty phenomenal. This week the Productivity Commission of Australia released its draft report on how to reform the Australian industrial relations system – Workplace Relations Framework (11.7 mbs). The Productivity Commission grew out of the old Tariff Board (then Industries Assistance Commission) and so administered the trade protection policy of the Federal government in the C20th. As ideological preferences changed, it morphed into its current guise, which is to give advice to government on how to deregulate, privatise, outsource and other trash the conditions of workers. As we awaited this current report, the only interesting question was not what they would recommend but what spurious route and flaky evidence they would call upon to attempt to justify their inevitable embrace of more deregulation and wage cutting in the labour market. As it turned out, the Commission disappointed. They couldn’t even find enough flaky evidence to support their conclusions so in the best traditions of the right wing they just offered up the tripe without any coherent argument and then managed to fit all that into a 1001-page tome. I imagine there is low job satisfaction in that part of government having to come up with this sort of nonsense and pretend you do serious work.
Apparently, voters hate fiscal deficits, associate them with squander and want them to be cut, so that nations can live within their means. Any attempt to run foul of that essential wisdom will come to grief. So all you ‘left’ types – yes, those in the British Labour Party that means you – forget your little grass roots rebellion and confirm to the austerity norm. The UK Guardian article (August 4, 2015) – Anti-austerity message will not win over UK voters, poll shows – reports on a poll conducted internally by the British Labour Party that allegedly “shows Britain’s voters do not back an anti-austerity message but instead believe the country must live within its means and make cutting the deficit its top priority.” If you believe that you would believe anything.
Two articles in the UK Guardian this week summarise what is going on with the British Labour Party at present. The first (August 3, 2015) – Jeremy Corbyn’s supporters aren’t mad – they’re fleeing a bankrupt New Labour – refutes the notions propagated by the previously dominant ‘New Labour’ factions that the Left of the Party are in some way mad, deluded, or otherwise sick. Instead, it argues the Left are part of a new “grassroots political movement” reacting to the bereft nature of New Labour which is without a “clear vision, or a set of policies, or even a coherent distinct set of values”. The second article (August 3, 2015) – Corbyn’s economic strategy would keep Tories in power, top Labour figure says – provides proof of concept. It is written by the Shadow Labour Chancellor Chris Leslie and reflects an abysmal understanding of macroeconomics that only a deluded free-marketeer would dare suggest had anything to do with reality. The article demonstrates that the top echelons of the British Labour Party parliamentary wing are caught in the destructive neo-liberal Groupthink economics that not only caused the GFC but has also led to austerity being the norm for policy makers these days. And there is no doubt that it is a failed doctrine and not worthy of a progressive opposition. The new “grassroots political movement” is reacting sensibly to the intellectual carnage at the top end of their Party and lets hope it is triumphant and purges these ideas from Labour forever. But, first, it must break out of the neo-liberal framing that is pervasive in its first major statement.
Its my Friday lay day blog and I am limping into the weekend to rest up some more. There was an interesting article in the Washington Post (July 31, 2015) – Why Italy is the most likely country to leave the euro. This accords with the view I outlined in my book – Eurozone Dystopia: Groupthink and Denial on a Grand Scale – that a large economy such as Italy should demonstrate leadership in the Eurozone and pave the way for the weaker nations to restore their own growth. We would not have witnessed the torturous brutality that was dealt out to Greece recently if the Troika were dealing with Italy. The question is whether Italy is likely to provide that leadership. On July 22, 2015, Eurostat released the latest government debt data for the Eurozone which showed that – Government debt rose to 92.9% of GDP in euro area – which, of course is well above the 60 per cent threshold allowed for by the Stability and Growth Pact (SGP). In the last 12 months “fourteen Member States registered an increase in their debt to GDP ratio at the end of the first quarter of 2015, twelve a decrease and in Estonia there was no change.” In the last quarter, fifteen states increased their debt ratios. Greece shows up as having the highest debt ratio but the largest reduction over the last year. But the interesting thing about the data is that Italy has the second-large public debt ratio (at 135.1 per cent) and is among the nations with the largest increases. On the numbers, Italy is being left behind, stuck in recession with high unemployment and a rising public debt ratio which will surely bring it into conflict with the Excessive Deficit Mechanism before too long.