Friday lay day – Australian RBA Governor concludes government policy is failing

Its my Friday lay day blog and today a brief discussion about property price bubbles and how the Reserve Bank of Australia (our central bank) has fallen out with the Australian government. This week, the simmering tension between the Governor of the RBA and the Conservative Australian government more or less came out into the open when the Governor told the nation that the fiscal strategy of the Government was failing and a higher deficit was required given the circumstances. The RBA Governor has also come clean on the issue of house prices in Australia which he said he was “acutely concerned” about and called them “crazy” again, a direct contradiction of the claims by the Government that there is no problem and people should just “get a better paying job” if they wanted to buy a home. It is rare for a central banker to be so pointed about the failure of Government policy.

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The myopia of fiscal austerity

When I was studying in the UK during the dark Thatcher years there was a rat plague in Manchester. The reason was traced to the public spending cuts that had led to the reduction in rat catchers/baiters who had worked on the canals that go through Manchester. Later that year (December 1982), there were widespread collapses in the Manchester underground sewers which caused effluent in the streets, traffic chaos and long-term street closures. Major inner city roads were closed for a good 6 months while repairs were rendered. The reason – cut backs in maintenance budgets. The repairs ended up costing much more than the on-going maintenance bills. That experience brought hometo me the myopia of austerity. While the austerity causes massive short-term damage, it is clear that it also generates a need for higher public outlays in the future as a response to repairing or attending to the short-run costs. The latest focus in Britain is on rising waiting lists in hospitals and increasing violence in prisons. All these examples of austerity compound and reverberate throughout society in countless little ways that accumulate to one huge mess. The Thatcher years were highly destructive for the well being of the British people contrary to the myths that the conservatives pump out. The current period will be of a similar ilk. And spare a thought for the long-term damage in places like Greece! It is beyond belief.

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Why no-one should vote for the Australian Labor Party

It is a public holiday in Australia today – Queen’s Birthday, a reflection of our past as a colony. Not a lot has actually changed and we still cannot shed the monarchy. Anyway, not many people reflect on the monarchy today given it is deep winter and football matches are on as part of the holiday. But in keeping with the holiday spirit, I will only write a short blog today. The topic is why no-one should vote for the Australian Labor Party although the argument is applicable to all parties like it, who formerly represented the interests of workers and who are now dominated by politicians who have embraced the neo-liberal macroeconomic myths as if they are truths and, if that wasn’t bad enough, have become active proselytizers of this destructive religion. I might write a few words about the on-going Eurozone saga too, given the extraordinary comments by leading European politicians overnight. Then I will head like thousands of others to the football!

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The ‘fiscal space’ charade – IMF becomes Moody’s advertising agency

The IMF has taken to advertising for the ratings agency Moody’s. It is a good pair really. Moody’s is a disgraced ratings agency and the IMF has blood on its hands for its role in less developed nations and for its incompetence in estimating the impacts of austerity in Europe. Neither has produced research or policy proposals that can be said to advance the well-being of nations. Moody’s has shown a proclivity to deceptive behaviour in pursuit of its own advancement (private largesse). The IMF struts around the world bullying nations and partnering with other institutions to wreak havoc on the prosperity of citizens. Its role in the Troika is demonstrative. Anyway, they are now back in the fiscal space game – announcing that various nations have no alternative but to impose harsh austerity because the private bond markets will no longer fund them. They include Japan in that category. Their models would have drawn the same conclusion about Japan two decades ago. It is amazing that any national government continues to fund the IMF. It should be disbanded.

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Central bank politicians who evade democratic scrutiny and election

Last month, the Schweizerische Nationalbank (SNB), the nation’s central bank recorded some large ‘book’ losses after it had abandoned its attempt to stop the Swiss franc (CHF) from appreciating against the euro. It started trying … as a way of protecting its manufacturing sector but abandoned the strategy on January 15, 2015. It had been buying euro in large quantities with francs and on April 30, 2015 the SNB released the – Interim results of the Swiss National Bank as at 31 March 2015 – which showed that its first-quarter 2015 losses were 30 billion CHF or around 29 billion euros. They lost CHF 29.3 billion on its “foreign currency positions” and CHF 1 billion on its gold holdings. This has raised the question, once again, whether central bank losses matter. The answer is always that they do not matter at all given the central bank can never become illiquid as it issues the currency (under some arrangement or another). So the commentators who whip up a lather about impending doom arising from central bank bankruptcies are to be ignored. But central bank officials also publicly express concern about their capital holdings. Why would they introduce that concern into the public domain when they know full well that they cannot go broke. The answer is that they are politicians themselves except they evade democratic scrutiny and election.

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The incommensurate aims of the Greek people

I am continually amazed at the arrogance of the Eurozone leaders who in the face of palpable professional failure hold a straight face and continue to advocate the same disastrous policies as if nothing had happened over the last 7 years. I don’t believe they suffer from – cognitive dissonance. I think they know full well what they are doing and they personally do very well out of the chaos their policies are causing. But it is almost certain that the Greek people are suffering from a cognitive disorder brought on by historical experience and, more recently, by the media onslaught that has erroneously claimed that there would be catastrophic consequences if Greece dared to leave the Eurozone and restore currency sovereignty. The stated aims of the Greek people are incommensurate and there doesn’t appear to be a broad debate going on in Greece, which might make that inconsistency transparent.

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Structural reform – code for smash the worker resistance

The ECB had another lavish annual talkfest in Portugal over the weekend just gone in the guise of their – Forum on Central Banking. Like all these EU-type gatherings there was plenty of fine food and wines. They even provided footage along those lines. The President of the ECB Mario Draghi gave the opening speech – href=”http://www.ecb.europa.eu/press/key/date/2015/html/sp150522.en.html”>Structural reforms, inflation and monetary policy – on May 22, 2015. There was also talk about how “structural and cyclical policies … are heavily interdependent” but then a denial of the same. The message from the President was like a record stuck on the turntable – “to accelerate structural reforms in Europe … even in a weak demand environment”. Well here is my message – similarly like a stuck record – structural imbalances occur because of weak demand and the best time to assess structural policy is when you have first attained full employment by appropriate setting of fiscal deficits, not before. It is madness to deliberately constrain fiscal balances to levels that ensure high and entrenched unemployment and rising underemployment and then expect citizens to support microeconomic policies that further undermine their welfare and damage what job security they have. But that is the EU way and that is why the Eurozone is a massive basket-case failure.

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The rise of non-standard work undermines growth and increases inequality

One of the on-going themes that emerges from the neo-liberal commentariat is that fiscal deficits undermine the future of our children and their children because of the alleged higher implied tax burdens. The theme is without foundation given that each generation can choose its own tax structure, deficits are never paid back, and public spending can build essential long-lived infrastructure, which provides benefits that span many generations. The provision of a first-class public education system feeding into stable, skilled job structures is the best thing that a government can do for the future generations. Sadly, government policy is undermining the future generations but not in the way the neo-liberals would have us believe. One of my on-going themes is the the impact of entrenched youth unemployment, precarious work and degraded public infrastructure on the well-being and future prospects of society as neo-liberal austerity becomes the norm. This theme was reflected (if unintentionally) in a new report, release last week by the OECD – In It Together: Why Less Inequality Benefits All. The Report brings together a number of research findings and empirical facts that we all knew about but are stark when presented in one document.

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Friday lay day – Greek pension myths

This is my Friday lay day blog where brevity is the aim. There was an article in the UK Guardian yesterday (May 21, 2015) – Fight to save the Greek pension takes centre stage in Brussels and Athens – which described the personal consequences of the pernicious austerity for recipients of state pensions in Greece. The State Pension system is one of the beachheads in the current struggle between Syriza and the Troika. The latter want further cuts to the entitlements provided to retirees as part of their demolition of living standards in Greece. The former are resisting but are on the path to oblivion given they will not be able to honour their electoral mandate to introduce stimulus policies while remaining in the Eurozone. But I was triggered to examine the latest data on pensions given the popular perception that Greeks get life too easy.

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Demand and supply interdependence – stimulus wins, austerity fails

My Phd research, was in part, exposing the myths in conventional or mainstream economics arguments that claim that structural imbalances in the labour market arise independently of the economic cycle and hence, aggregate spending. The mainstream used this assertion to draw the conclusion that government policy could little to bring unemployment down when mass unemployment was largely ‘structural’ in nature. Instead, they proposed that supply-side remedies were necesary, which included labour market deregulation (abandoning employment protection etc), minimum wage and income support cuts, and eroding the influence of trade unions. At the time, the econometric work I undertook showed that so-called structural imbalances were highly sensitive to the economic cycle – that is, the supply-side of the economy was not independent of the demand-side (the independence being an article of faith of mainstream analysis) and that supply imbalances (for example, skill mismatches) rather quickly disappeared when the economy operated at higher pressure. In other words, government fiscal policy was an effective way of not only reducing unemployment to some irreducible minimum but, in doing so, it increased the effectiveness of the labour force (via skill upgrading, higher participation rates etc) – that is, cleared away the so-called structural imbalances. A relatively recent paper from researchers at the Federal Reserve Board in Washington – Aggregate Supply in the United States: Recent Developments and Implications for the Conduct of Monetary Policy – finds new US evidence to support the supply-dependence on demand conditions. It is a case of stimulus wins whereas austerity fails.

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Friday lay day – Greece back in recession but austerity works doesn’t it?

Its the Friday lay day blog and here are some snippets from the week. The Hellenic Statistical Authority (EL.STAT) released the latest – Quarterly National Accounts ( 1st Quarter 2015 ) – on May 13, 2015. After all the claims that austerity was working and the Greek economy was growing again, we now learn that Greece is back in recession, having recorded two successive quarters of negative real GDP growth. Whatever way one spins it, the policy framework employed by the Eurozone is a failure. The national accounts data released by Eurostat which coincided with the Greek release – GDP up by 0.4% in the euro area and the EU28 – also shows that the German economy slowed considerably in the first-quarter 2015 and Finland, one of the fiercest supporters of austerity entered official recession. The Finnish response was they had to cut public spending harder because they would be in breach of the Stability and Growth Pact rules relating to size of the deficit and the volume outstanding public debt. These nations are so caught up in neo-liberal Groupthink that they cannot see how ridiculous their policies and supporting dialogue have become.

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Friday lay day – Latvia, the miracle of 10 per cent population shrinkage

Its my Friday lay day blog. I try to devote the major part of Fridays to writing other things (some book projects I am working on and some journal articles and other things). That is the logic of the lay day. I cut the time I devote to the blog in half (down to around 1 hour) in recognition of that logic. Today, I was examining the recent population data from Latvia to see what the latest trends were. Most countries would not judge success by the number of its population that leaves, especially when the departing souls are among the young and talented. But the so-called Latvian ‘miracle’ does just that. When the Latvian government aided and abetted by the IMF and the EU stooges imposed the harshest austerity of all on the people and real GDP growth followed, the neo-liberals were beside themselves with joy. Austerity works they screamed. Well not for the 10 per cent of the population who left. And now, the peak of the ‘miracle’ appears to be over as growth slows and the residual of a privatised, socially damaged society remains. I wouldn’t be holding out this little nation as a success story. More like a disaster if the reality is to be correctly appraised.

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Iceland’s Sovereign Money Proposal – Part 1

In a way this blog is being written to stop the relentless onslaught of E-mails coming, which seek to promote so-called positive money. I am regularly told that I need to forget Modern Monetary Theory (MMT) and instead see the benefits of this alleged revelationary approach to running the economy. Other E-mailers are less complimentary but just as insistent. Then there are the numerous E-mails recently with the following document attached – Monetary Reform: A Better Monetary System for Iceland – which I am repeatedly told is the progressive solution to bank fraud and, just about all the other ills of the monetary system. The Iceland Report was commissioned by the Icelandic Prime Minister and is being held out as the solution to economic and financial instability because it would wipe out the credit-creating capacity of banks. It has been endorsed by the British conservative Adair Turner, who formerly was the chairman of the UK Financial Services Authority and who recently advocated so-called overt monetary financing (OMF) as a way to resolve the Eurozone crisis. I agree with OMF but disagree with his view that it is the credit-creation capacity of banks that caused the crisis. The crisis was caused by banks becoming non-banks and engaging in non-bank behaviour rather than their intrinsic capacity to create loans out of thin air. A properly regulated banking system does not need to abandon credit-creation. Further, I am aware that in holding this view, I and other Modern Monetary Theory (MMT) proponents are accused of being lackeys to the crooked financial cabals that hold governments to ransom and brought the world economy to its knees. Let me state my position clearly: I am against private banking per se but consider a properly regulated and managed public banking system with credit-creation capacities would be entirely reliable and would advance public purpose. I also consider a tightly regulated private banking system with credit-creation capacities would also still be workable but less desirable.

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Saturday Quiz – May 2, 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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Friday lay day – the hopelessness of the Greek situation

Its my Friday lay day blog. Every day now, the Euro news is dominated with the machinations regarding Greece. As it should be I suppose, given the scale of the tragedy in place. It might have escaped the attention of some but Eurostat released its latest labour force report yesterday (April 30, 2015) – Euro area unemployment rate at 11.3% – which told us that despite all this talk of a Eurozone recovery, the unemployment remains at 11.3 per cent in March 2015 (no change on February 2015) and only 0.4 per cent lower than a year ago (March 2014). The Greek unemployment rate remains at 25.7 per cent (as at January 2015) and more than 50 per cent of 15-24 year olds are unemployed. But the worst news I saw this week related to the results of a survey of Greek people about the current situation. It tells me that things are very desperate indeed.

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The slowest recovery in modern history just slowed down again

The British Office of National Statistics released the data – Gross Domestic Product Preliminary Estimate, Quarter 1 (Jan to Mar) 2015 – yesterday, which should tell the British voters that the Conservative government has failed. There is no political spin that is capable of changing that conclusion. With a general election next week in Britain, the real GDP figures (and related data – productivity, real wages, per capita income etc) should spell the end of the Conservatives. Especially, given their plans for the next few years. But then the British people have as an alternative the Labour Party which has proposed more or less the same thing except they will be “fairer”. Pigs might fly! Britain is continuing to demonstrate that fiscal austerity is bad for economic growth and that on-going deficits are good.

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A “Budget Responsibility Lock” – a ridiculous proposal

The US Koch brothers provide substantial funds to the George Mason University to ensure it remains a bastion of so-called libertarian, free-market thinking. The brothers don’t really want a free market but it just serves their political and commercial aims to tell everyone that is what it is all about. The Economics Department at this university pumps out propaganda about the virtues of deregulation. One academic (Bryan Caplan) goes further and claims that democracy is a bad idea when compared to taking the advice of economists who advocate free markets. This idea that somehow policy choices conditioned by what would advance the best interests of the public are inferior to those advocated by economists who know what is best for all of us has permeated the debate over the last few decades and led to some very undesirable developments. This was on my mind when I was reading the Manifesto of the British Labour Party which proposes, wait for it – a “Budget Responsibility Lock” – as a framework for fulfilling its responsibilities to the British public. This is a ridiculous proposal.

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Friday lay day – government and central bank venality

Its my Friday lay day blog where I just wander around in the time I allocate to writing this blog. The venality of neo-liberal governments is never far from the surface. The more successful ones manage to mostly hide the nasty stuff they get up to from the general public or assuage public concern via their spin doctors. Sometimes, an outrageous decision breaks out of the cocoon of spin and demonstrates the sheer bastardry of the political elites. That happened in Australia over the last week when it was announced that the Australian government was providing $A4 million to the University of Western Australia to set up a new think tank under the influence of a Dane Bjørn Lomborg – who has been described as a “sceptical environmentalist” (Source). Our Prime Minister has favourably quoted Lomborg’s work in his own work and is the Australian leader who abandoned the carbon tax and thinks continued use of “coal is good for humanity” (Source).

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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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