Finland – more austerity is not the answer

Finland has been one of the Eurozone nations taking a hardline on Greek austerity and have consistently refused to support on-going bailouts of Greece. At the weekend, Finland went to the polls and tossed out the incumbent government and put in its place a centrist party that stood on a platform of a wage freeze and further spending cuts, allegedly to restore Finland’s competitive position. If that prospect wasn’t bad enough, the Centre Party will have to enter a coalition with the party that came second in the polls – the Finns Party, which is a ragbag anti-immigration group that wants Greece kicked out of the Eurozone. It is possible that Finland’s Parliament will not support any further European Union bailouts for Greece. Apparently Finn’s are buying the line that further and intensified austerity is necessary because of rising labour costs have undermined Finland’s capacity to compete in international markets as the demise of Nokia, so the narrative goes, illustrates. The last thing that Finland needs right now is more austerity.

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IMF – labour market regulations do not undermine potential growth

On the eve of the Annual Spring Meetings of the IMF and the World Bank in Washington last week, German Finance Minister Wolfgang Schäuble wrote an article in the New York Times (April 15, 2015) – Wolfgang Schäuble on German Priorities and Eurozone Myths – justifying the German stance with respect to the Eurozone crisis. He argued that the Eurozone was pursuing the correct response by placing a focus on “structural reforms”. He said that the IMF boss was in accord with this assessment and further structural reforms were necessary, including “more flexible labor markets”. He included labour market reform as part of a push for “modernization and regulatory improvements”. In denial of the basic rule of macroeconomics that ‘spending equals income’, Schäuble said that fiscal stimulus “is not part of the plan”. He might have read the complete text of the latest IMF World Economic Outlook (April 2015) – Uneven Growth: Short- and Long-Term Factors – before he sought comfort in the imprimatur of the IMF. That organisation seems to say one thing here and another there! It has become schizoid as it confronts the fact that its Groupthink sees itself as a major part of the neo-liberal free market (help the rich) putsch whereas its research economists find out that the facts don’t match the political (ideological) stance. The IMF should be defunded and recreated to serve positive purposes.

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Saturday Quiz – April 18, 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 skies above Britain predicted to fall down … again. Don’t fear!

You may not remember the prediction by the American Arthur Laffer in his Wall Street Journal Op Ed (June 11, 2009) – Get Ready for Inflation and Higher Interest Rates. As the US government deficit rose to meet the challenges of the spending collapse and the US Federal Reserve Bank’s balance sheet shot up as it built up bank reserves, he predicted “dire consequences … rapidly rising prices and much, much higher interest rates over the next four years or five years, and a concomitant deleterious impact on output and employment not unlike the late 1970s”. You may have forgotten that prediction because it was in a sea of similar nonsensical claims by mainstream economists locked in a sort of mass hysteria and only their erroneous textbooks to give them guidance. It is 2015, nearly six years after Laffer humiliated himself in that Op Ed. Inflation is low and falling generally. Interest rates remain very, very low (note his use of “much, much” to give his prediction some gravity). Gravity forces things to crash! But the doomsayers have learned very little it seems.

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Latest military expenditure data reveals the hypocrisy of austerity

Yesterday, the Stockholm International Peace Research Institute (SIPRI) released their latest data for – World Military Expenditure 1988-2014. In their – Press Release – we learn that total World military spending has fallen in the last three consecutive years although it “levelled off” in 2014. While the global trends are interesting (the shifting patterns between the big geo-blocks), I was interested in what was happening in the Eurozone in the era of austerity. I was also interesting in juxtaposing the military expenditure and social expenditure dynamics. What you learn is that Greece maintains its position as one of the largest relative spending nations on military items, spending nearly twice the proportion of its GDP compared to Germany and the Netherlands, two nations that lead the charge on imposing austerity. Further, the nations that are pushing the hardest for more austerity are those that benefit the most from Greek military expenditure. The hypocrisy is amazing.

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Unemployment makes you sick

An interesting study published in The European Journal of Public Health recently November 2014) – Length of unemployment and health related outcomes: A life course analysis – provides fairly unambiguous evidence that the changes in labour markets under neo-liberalism towards higher entrenched unemployment rates, increased casualisation of work, the lockout of graduates and the widespread deskilling of the workforce are eroding the health outcomes of the population. While most studies of the link between unemployment and health have focused on cohorts that endure continuous long-term joblessness (unbroken spells exceeding 12 months), this study is novel because it studies whether accumulated spells of shorter-term unemployment over a person’s lifetime are detrimental to their health. The reason that is relevant is because under neo-liberalism, many individuals are forced to eke out an existence in low paid jobs interspersed with spells of unemployment. The evidence in the former case (continuous) long-term unemployment is clear – unemployment makes the person sick and they get sicker the longer they are unemployment (both physically and mentally). The new study shows that long-term unemployment generated over a person’s life through a series of accumulated spells of shorter-term unemployment also is bad for public health and well-being. It means that the emphasis on austerity which causes cyclical effects to be worse (entrenched mass unemployment) is bad but also the main structural bias in growth periods towards casualised, precarious work is also bad for our health.

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Friday lay day – The Troika is the enemy and its either exit or capitulation

Its the Friday lay day blog. Lay day means rest, sometimes. The Greek government paid €450 million back to the IMF bloodsuckers yesterday which apparently calmed markets (Source). How can a so-called bankrupt country afford to pay that sort of cash? Well it can by causing more unemployment and poverty. The Government is trying to appease the Troika (IMF, ECB and the European Union) so that they will given them more cash in the coming weeks. Appeasement is an appropriate word here. Just as in the historical context, it means going along with something evil that will ultimately backfire and cause more grief. But then according to the US economist James Galbraith, in his latest apology (April 7, 2015), Syriza is – The Real Thing: An Anti-austerity European Government. Funny about that. Unless it is flying below all perception, Syriza seems trapped by an anti-democratic force that is intent on squeezing any notion of abandoning austerity from its agenda. And, try to square Galbraith’s claims against the insights provided by Alain Badiou and Stathis Kouvelakis in this interchange (April 3, 2015) – Dangerous Days Ahead.

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Monetary policy is largely ineffective

Australia is demonstrating at the moment the monumental bind that neo-liberal (Monetarist) thinking has reached with respect to macroeconomic policy. By extolling the virtues of monetary policy as the only viable counter-stabilisation tool and eschewing the use of fiscal policy (biasing it towards austerity and the falsely virtued goal of fiscal surpluses), the policy making environment has created an economy that is susceptible to asset price inflation (particularly housing) and stagnant growth with rising unemployment. This experience is common across other economies and to break out of the destructive malaise, there will have to be a major shift in policy awareness – away from the exclusive use of monetary policy to work against the private spending cycle and towards fiscal policy as the only effective counter-stabilisation tool the government has available. The global financial crisis was caused by the elevation of monetary policy and the stagnation that has followed continues the problem.

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Friday lay day – worst sustained British productivity performance since 1948

Its the Friday lay day blog and a public holiday to boot. So not much today. I wrote earlier in the week a blog about the latest British employment data – Employment growth in the UK but of dubious quality. It was part of a series of blogs I have written documenting the gap between the political hubris coming from the Conservatives about how successful their austerity strategy has been and the reality on the ground. Yes, Britain is growing in the sense that real GDP growth is no longer negative. But in this environment of weak growth the essential conditions for longer term prosperity are being eroded. On Wednesday this week, more information came out to support this hypothesis. The British Office of National Statistics (ONS) published the latest – Labour Productivity, Quarter 4 (Oct to Dec) 2014 – Release – which showed that “labour productivity fell by 0.2% in the fourth quarter of 2014” and is the worst sustained performance since 1948 (no growth in the last seven years). Some claim to success. I remind readers that rising material standards of living in any nation rely on productivity growth. Without it societies with ageing populations are headed for mediocrity or worse.

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Welfare generosity increases commitment to work

In Australia successive governments (Labor and conservative) have refused to lift the unemployment benefit in line with inflation. As a result the real benefit has fallen dramatically and the unemployment benefit recipients now live well below the accepted poverty line. There have also been attacks on those who live on single parent pensions, disability pensions and other forms of income support associated with disadvantage and dislocation from the labour market. In the US, the Congress cut entitlements to unemployment benefits long before the damage from the crisis was over. In Britain, both sides of politics talk tough about cutting welfare benefits and the Conservatives has indicated that it will cut benefits significantly to force people to find employment. In the Eurozone, massive damage is being inflicted on the most disadvantaged workers as the austerity mavens hack into welfare payments. All these policy ventures are informed by the intellectually bankrupt profession that I belong to. In universities around the world, mainstream economists prattle on about ‘corner solutions’, which in English means that the provision of income support associated with unemployment subsidises the same and leads to less search effort and welfare dependency. The claim is that if benefits are cut people will search for jobs and ‘fiscal stress’ will be relieved. There is a sanctimonious moralism about it all as well buttressed by terminology such as “lifters and leaners”, “dole bludgers”, “job snobs”, “cruisers” as if those in disadvantage without work have chosen that state as a deliberate strategy to bludge on the rest of the population. The problem for all of this is that the credible research comes to the exact opposite conclusion: employment commitment is highest where the generosity of the welfare state is the highest. The neo-liberals need to go suck that for a while.

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Wage rises are required – real wages must grow in line with productivity

There was an interesting article in the UK Guardian last weekend (March 29, 2015) – Why falling inflation is a false pretext for keeping wages low – which examined wage trends in the UK and the validity of the argument that “Falling inflation now provides employers with a pretext for keeping wage settlements low”. Employer groups never support wage increases and are continually trying to suppress real wages growth below productivity growth so that they can enjoy a greater share of national income. As part of my research to discover the nature of the ideological shift accompanying the emergence of Monetarism as the dominant policy paradigm I have been examining wage distributions. This is part of a book I will complete next year (fingers crossed) on the demise of the political left. In this blog we examine the shifting relationship between labour productivity growth and real wages growth since 1960. The results are illuminating and open up a broad research front about which I will write more as time passes.

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ECB should start funding government infrastructure and cash handouts

I was a signatory to a letter published in the Financial Times on Thursday (March 26, 2015) – Better ways to boost eurozone economy and employment – which called for a major fiscal stimulus from the European Central Bank (given it is the only body in the Eurozone that can introduce such a stimulus). The fiscal stimulus would take the form of a cash injection using the ECB’s currency monopoly powers. A co-signatory was Robert Skidelsky, Emeritus Professor, Warwick University, renowned Keynesian historian and Keynes’ biographer. Amazingly, Skidelsky wrote an article in the UK Guardian two days before the FT Letter was published (March 24, 2015) – Fiscal virtue and fiscal vice – macroeconomics at a crossroads – which would appear to contradict the policy proposal we advocated in the FT Letter. The Guardian article is surrender-monkey territory and I disagree with most of it. It puts the progressive case on the back foot. What the hell is going on?

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Syriza must stay left of the line – more is at stake than Greece

There were regional elections in the autonomous community of Andalusia (Spain) over the weekend which saw the Spanish Socialist Workers’ Party (PSOE) hold onto power. The results showed that the left-wing political party – Podemos – which received nearly 8 per cent of the Spanish vote (5 seats) at the European Parliament elections in May 2014, was third in the Anadulusian election, gaining 15 of the 109 seats. The parallels with Syriza in Greece are now routinely being made. I am forming the view, however, that unless things change rather dramatically in Greece, Syriza may actually end up only undermining progressive agendas in Europe as they self-destruct under the iron fist of the Troika (I do not use the terms “the institutions” or the “Brussels Group”). This is of great interest to me at present because I am sketching out a 2016 book project at present with a co-author, which broadly focuses on the demise of the left and social democratic movements in the World, although we might pare the scope down with more discussion to concentrate on Europe. Of particular interest is the morbid inferiority of the French left relative to the Germans in the Post World War II period and the way in which American Monetarism has infiltrated and built on that inferiority. Much of the design of the monetary union can be understood through that sort of lens. So a broad canvas right now but that is always the case. Of immediate interest, though, is the possibility that Syriza will set progressive causes back rather than become the spearhead for a sweeping change in Europe and the end of this destructive era of neo-liberalism.

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Fiscal surplus by 2017-18? A mindless goal guaranteed to cause havoc and fail

Its sad when politicians lie just to get political points as they face declining popularity. We saw last week that the Australian Prime Minister started attacking indigenous Australians for living in areas that they have occupied, one way or another, for somewhere up to 80,000 years. He claimed these settlements were “lifestyle” choices and people could no longer expect government support if they wanted to indulge in such choices. 80,000 years for a culture that has a deep connection with the ‘land’ is quite story compared to the Anglo settlement in Australia of 226 years for a culture that connects via iPhones! The PM was playing into the hands of the racist Australians who think the indigenous population here are skivers and drunks and should get no state support. They ignore that this cohort is one of the most disadvantaged peoples of the World. In the last few days, the PM has been lying about the state of government finances and pledging to that “the government will have the budget back in balance within five years”. There was no mention of what this might imply for the real economy. I am surprised that the conservatives haven’t learned from the previous Labor Government who made continual promises of surpluses but failed each time – largely because they didn’t understand that they cannot control the fiscal outcomes no matter how hard they try. And when they do try and run against the spending desires of the non-government sector, they just cause havoc and damage and fail to achieve their goals anyway. Stupid is not the word for these sorts of promises.

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Spanish labour market – not so dynamic

There was an article published by a Spanish research group (aligned with the University of Navarro) last week (March 14, 2015) – Spain’s Labor Market grows more dynamic – that reports on a special survey (150,000 respondents in 800 Spanish firms) which purports to show that the “labour mobility maintained its upward march to reach 18.8 per cent in the second half of 2014”. That is, within the sample “nearly one in five workers changed jobs during the period”. The results are unable to confirm whether the increased mobility is the result of better “efficiency” in matching workers to jobs or “higher job insecurity or staff turnover linked to lower retention rates and less training for short-term hires”. There is a world of difference between these alternatives. They also find that job creation rates are still low and falling and only 1.5 per cent higher than job destruction rates leading to the conclusion that “job creation remains tenuous”. I decided to look at another source of data which can shed light on the state of the Spanish labour market – the so-called Gross Flows data, which tracks quarterly movements (in Spain’s case) between the major labour force categories – employment, unemployment and inactivity. The results do not suggest that the Spanish labour market has improved much.

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Friday lay day – Faut-il donc haïr l’Allemagne?

Its my Friday lay day blog where I plan to write less here and more elsewhere. Today, a brief discussion of two interesting articles that I read recently. The blog title – Faut-il donc haïr l’Allemagne? (must we hate Germany?) – was the question posed recently by the French economist – Jacques Sapir – as a reaction to the way Germany (particularly its Finance Minister) handled the Greek request for less austerity and more flexibility in the recent Eurogroup encounters. His February 20, 2015 article (in French) – Haïr l’Allemagne? – concludes that the actions of Angela Merkel and Wolfgang Schäuble towards Greece have “repeated the sins” (“Les péchés répétés”) of the past and opened up old wounds that will further undermine the democracy in Europe. Sapir concludes that “Alors, disons-le, cette Allemagne là est haïssable”. What does that mean?

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Australian labour market – weakness continues

Today’s release of the – Labour Force data – for February 2015 by the Australian Bureau of Statistics shows that the Australian labour market remains weak. While employment growth was modest the unemployment rate only fell by 0.1 percentage points as a result of a declining participation rate. Employment growth remains well below the underlying population growth with the result being an upward bias in the unemployment rate. The falling participation rate reflects a rising hidden unemployment rate as workers have given up looking for work. The broad ABS labour underutilisation rate – the sum of unemployment and underemployment – will now be heading towards 16 per cent (it is published in next month’s release). While the Australian Treasurer might deny that the teenage labour market is in crisis, the data tells a different story.The teenage labour market is in a parlous state and requires an urgent policy problem that the Federal government refuses to recognise or deal with. They are so obsessed with cutting fiscal deficits and shoring up the position of the Prime Minister and Treasurer that they cannot see the future damage they are causing as a result of the appalling state of the youth labour market and the weak labour market in general.

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Never impose austerity in a slump

In September 2013, when the current Conservative government took office in Australia we were told that “At last, the grown-ups are back in charge” (Source). It was the arrogance of the victors who also presumed a sort of divine right to rule as conservatives. They strutted around the media and public events claiming that now was the time to sort things out and to impose fiscal austerity. The economy was already slowing and unemployment had started to rise again as the Labor government had gone back to their now neo-liberal orthodoxy after the success of the fiscal stimulus in 2008 and started cutting into discretionary public spending. They lost office but left an economy that was faltering again and heading towards slump not boom. The conservatives took over with a mission to achieve a fiscal surplus and unleash private spending on the back of the confidence they claimed would accompany the fact that the ‘adults’ were back. They should have read John Maynard Keynes who worked out long ago that a government should never impose austerity in a slump. They didn’t and things have got worse. It was obvious they would. Keynes was right.

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Lacklustre British economy all down to Conservative incompetence

Not much has really changed in Capitalism despite massive changes in technology, market reach, etc. The underlying behaviour is stable – chicanery, bleeding the state for all the advantages that capital can gain while berating workers (unions) and welfare recipients, rigging financial, share and product markets, lying about state finances to gain more access to public handouts, lobbying government to socialise risk and privatise profit, paying off politicians to engage in corrupt behaviour where conflicts of interest dominate, and more. I was reading about the famous – South Sea Company – today, which was a public-private partnership that began life in 1711. It was a total scam and had all of the elements noted above. Its collapse in 1720 on the back of corrupt and incompetent behaviour (GFC anyone?) caused one hell of a recession in the UK. The only thing it managed to do in any significant volume with its trade monopoly between the UK and South America was to buy and sell slaves and, even then, it messed that up financially – quite aside from the repugnance of the venture itself. Interestingly, its collapse led to the rise of the, then private Bank of England, becoming the Government’s banker, and ultimately, its dominant role as the central bank. What is the contemporary relevance of the South Sea Bubble and its collapse? There are many angles that resonate in the current debate, but the point today is that the current recovery in the UK is the slowest in 300 years – that is since the glacial recovery following the collapse of the South Sea Company. And George Osborne thinks he is a champion.

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Greece goes back into depression – having never left it

Last Friday (March 6, 2015), Eurostat unveiled the latest – National Accounts estimates for the fourth-quarter 2014. All the Greek news this week will be about the – Letter – that the Greek Finance Minister sent to the president of the Eurogroup, in which he outlined 7 reform proposals. But it should be firmly focused on the fact that the Greek economy is back into depression having recorded two successive quarters of negative real GDP growth (despite the September-quarter data suggesting otherwise). The latest National Accounts data for Greece shows it contracted in the December-quarter 2012 significantly and the accompanying Labour Force data confirms that the unemployment rate is rising again and participation is falling. That is the disaster that the Eurogroup should be addressing. While they claim that internal devaluation will spawn growth through a burgeoning exports sector, the December-quarter 2014 data shows that exports contracted over the last three months of 2014. How long do the Greek people have to wait before the trade-led recovery nonsense is consigned to the nonsense bin?

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