Long-term unemployment behaviour reflects austerity bias in Eurozone

The Economist Magazine, never one to resist the urge to promote flawed ‘free market’ analysis, does not seem to have learned any lessons from its erroneous coverage of the GFC. It the latest version of what has to be one of the worst-named columns ‘The Economist explains’ (given explanation usually requires knowledge to be imparted) – Why long-term unemployment in the euro area is so high (August 2, 2015), all the usual myths about the labour market are propagated and the obvious ignored because it doesn’t fit the ideological position of the magazine. It purports to ‘explain’ differences in the behaviour long-term unemployment in the Eurozone relative to the US (it is higher in the former) in terms of mobility and generosity of unemployment benefit payment regimes (lower and higher in the former). The real reason – a failure to generate sufficient employment growth as a result of different fiscal policy settings is not canvassed.

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British Labour must escape from its austerity lite prison

I imagine we have all been keeping an eye on the evolving sham that is the British Labour Party election contest. When former leader Tony Blair, who will be forever remembered as being George Bush’s ‘poodle’ when he took Britain into the illegal invasion of Iraq and left a destabilised region, came into the fray urging party members to get a heart transplant if they thought supporting Jeremy Corbyn was an option, things turned really nasty. There has been a plethora of attacks on Corbyn alleging he is part of a sinister, return-to-Soviet control type candidate, an hysterical communist who wants to take Britain back to the dark ages, and more. What it tells me is that the Tories fear Corbyn as a candidate and would prefer the austerity-lite options like Liz Kendell to become leader because they know she won’t cause much trouble. What worries me is that Corbyn articulates a progressive set of values but might not yet have the macroeconomic understanding to defend them against a media attack primed to vilify anything that is not right-wing. British Labour must escape from its austerity lite prison but to do that they have to surround Corbyn with people who understand how the monetary system operates.

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Australia might join the Eurozone, apparently

Australia has a grand Greek tradition. My hometown of Melbourne is the third-largest Greek speaking city in the World as a result of the Post World War 2 migration. In 2011, Thessaloniki – Greece’s second largest city had a population of 1,104,460 (the overall Metropolitan Area). According the last Australian Census of Population and Housing (2011), there were 123,462 Males and 128,755 Females (total 252,217) who spoke Greek at home although 378,270 people of Greek ancestry were accounted for. Most of them live in Melbourne. Growing up in Melbourne meant there was always a ‘Greek’ element present in my childhood particularly at school as new migrants arrived. But that cultural affinity with Greece is about as close as Australia will ever come to mimicking it. Australia can never become “Asia’s version of Greece” because we do not use an “Asian currency”, we retain total control over our central bank (the currency issuer), and we do not issue public debt in a foreign currency (like the euro as Greece does). The only way we could become like Greece is if we were to join the Eurozone … and then pigs might fly!

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The European Project is dead

When the GFC emerged and confirmed what Modern Monetary Theory (MMT) proponents had been predicting for more than a decade, I initially thought that this might be the ‘paradigm-shift’ line in the sand with respect to economic theory and policy. The OPEC oil price hikes in the 1970s provided the ‘space’ for Monetarism to usurp Keynesian thinking – not as a triumph of evidence and facts but as an ideological shift in thinking. The ideological battle had been going on for three decades in the academy but the oil crises exposed policy flaws in the Keynesian orthodoxy that were exploited by the Monetarists to allow them to reintroduce ideas (and policies) that had been completely discredited during the Great Depression of the 1930s. In the same that the dominant paradigm collapsed in the 1970s, I thought the GFC would so destroy the public credibility of Monetarism’s latest iteration, which we call neo-liberalism, that we could find intellectual space to restore rigor to economic policy and the way economics was taught in the universities. I even thought that the pragmatic and dramatically successful use of fiscal stimulus in most advanced countries would provide the empirical reinforcement necessary to repudiate and expunge neo-liberalism forever. I was wrong. But what the GFC has achieved as neo-liberalism hangs onto the reigns of power in policy making circles is a major breakdown of the so-called ‘European Project’. The creation of ‘Europe’, which was conceived after World War 2 as a means to maintain peace and create prosperity among previously hostile nations, was a major human achievement in the C20th. That vision is now in tatters as the neo-liberals, blinkered by their own Groupthink, steadily dismantle the meaning and application of that great Post WW2 experiment. Jean Monnet and Robert Schuman would be turning over in their graves to see what their ‘Project’ has become under the domination of Wolfgang Schäuble and his lackeys in the Eurogroup. So we might see the demise of neo-liberalism after all as it destroys the grand European political project

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Saturday Quiz – July 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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There is still a meaningful left-right distinction

There was an article in yesterday’s Australian Financial Review (July 12, 2015) – Left and right labels wear thin, lose definition – which as the title suggests tried to argue that it is hard “to know who or what is left or right wing any more”. The article used a number of examples, including the so-called Communist government of China bailing out its (farcical) share market and the Greek ‘far left’ government agreeing to austerity and on-going debt demands from the creditors, to suggest that it is no longer easy delineating what is left and what is right and dubbing policies accordingly (one way or another) “provides little illumination”. This is a recurring theme in recent years and part of the neo-liberal attempt to blur what it going on and treat ideological stances as reality or factual assessments. It is still very clear to me what is a left-wing position. The rest of the article provides in his own words “little illumination” about the issue. The argument in this blog is that the categories remain influential and meaningful but are blurred through ignorance as to how the monetary system operates. Left-wingers fall prey to right-wing policies because they have bought the TINA myth. That is the only way one could explain the Syriza disaster, for example.

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Australian labour market – weak employment growth, rising unemployment

Today’s release of the – Labour Force data – for June 2015 by the Australian Bureau of Statistics shows that the Australian labour market marked time this month with employment growth positive but weak and unemployment edging up slightly as a consequence. The data continues the repeating pattern over the last 24 months or so where employment growth zig-zags around the zero line and is weak at best. The unemployment rate rose slightly to 6 per cent, which was where we were a year ago. Underemployment remains high. Teenagers gained some full-time work but lost a near equivalent number of part-time jobs (probably a good net outcome). In general, the teenage labour market remains in a parlous state and requires an urgent policy intervention. While the press is claiming the latest data is a were “positive”, we can only conclude that if mediocrity has become our benchmark. Far from showing “the economy is in reasonable shape”, the data continues to confirm that the economy is incapable of generating sufficient employment growth to dent the huge unemployment pool, much less start reducing underemployment.

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Greece should not accept any further austerity – full stop!

In the lead up to last weekend’s Greek referendum there was an extraordinary flurry of opinion pieces in newspapers around the World which sought to blame Greece for its own situation. Among the most ridiculous of these articles was the one which appeared in the British Independent (July 1, 2015) – Get off your high horses, lefties – Big Government, not ‘austerity’, has brought Greece to its knees . Apparently, left-wing views dominate the shelves of any mainstream bookstore in the UK and represent the mainstream economic opinion. It raises the question of which planet the writer is on! The writer also claimed that Syriza is just another leftie political party in Greece, in a long tradition of such parties, committed to “economic statism and hyperinterventionism”. And the current crisis is actually the result of decisions taken in the 1980s to build “up a huge client state” rather than surrendering the currency sovereignty in 2001. This blog explains that the Greek problem is one of insufficient spending. The fiscal deficit has to rise to stimulate growth. This problem emerged in 2008-09 and is largely due to the fiscal austerity that was imposed on the nation by the Troika. It might have crony deals and all the rest of it, but that is not what brought the economy to its depressed state. That state is all down to human intervention from outside of Greece in the form of austerity. Greece should not accept any further austerity – full stop!

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The ECB has to maintain ELA to Greek banks

Despite the shamelessly dishonest press barrage from the conservative owners of the highly concentrated Greek media (the ‘oligarchs’) to vote YES; despite many articles popping up in world newspapers about how the Greeks are to blame for their own problems because they overspend and undertaxed; despite the lies coming from other European leaders about what the vote was about (it was not about leaving the Euro but rather about whether the Greek people wanted further failed austerity); despite the ridiculous claims of the German SDP about “bridges being burned” (that party should change its name because it is a disgrace to the social democratic tradition) – despite all of that and heaps more, the Greek people voted overwhelmingly NO to reject austerity as a viable policy model for their country. This is a case of democracy coming head to head with the dominant political-economic ideology within which the Greek nation is situated – the Eurozone. It also demonstrates the flaws of the democratic process – the people have voted for an end to austerity but also consistently tell opinion polls they want to remain in the Eurozone, a monetary system that is built on austerity. They voted yesterday to reject the very basis of the monetary system they want to stay in – which tells us they don’t really understand the nature of the system and therefore how informed is the NO vote.

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Saturday Quiz – July 4, 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 five presidents of the Eurozone remain firmly in denial

Its the Friday lay day blog again and I am in a rush. Under the smokescreen of all the Greek drama that has played out on the World stage over the last week the bosses of the Eurozone released their – Completing Europe’s Economic and Monetary Union – (June 22, 2015), aka the Five Presidents’ report. I read it this morning. And I am glad its Friday and I can keep to my promise of not writing much here and more elsewhere (book projects). Otherwise, the blog might have ended up full of the so-called expletives given the way these Euro Groupthink morons treat the citizens of Europe. Apparently, the euro is a big success! In the land of the fairies.

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Europe’s US imported nightmare

I note the US have been rather quietly urging the EU to resolve the so-called ‘Greek crisis’, which I really think is a euro-crisis, even though its current epicentre is in Greece. What the Americans are doing beyond the purview of the public gaze is anyone’s guess but we can be sure it is interventionist, self-interested and probably not helpful to the well-being of ordinary Europeans including Greeks. The US influence over Europe has, in fact, culminated in the crisis, even if that realisation is not understood by many. I have just finished reading a book by the French journalist/publisher and politician – Jean-Jacques Servan-Schreiber – who died in 2006. The book – Le Défi Américain (The American Challenge) was very popular when it was published in 1967. It initially was a major hit in France and later was translated widely. It helped me understand how the US intellectual tradition has at critical times in Europe’s modern history been so definitive.

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The concept of ‘one Europe’ under threat from austerity

The EU Flash Barometer surveys provide information about public opinion in Europe. The latest Survey(No. 418) – Introduction of the euro in the Member States that have not yet adopted the common currency – shows how confused people are in Europe at present. It seems that only 41 per cent of people in nations that “have not yet adopted the common currency” believe it would have “positive consequences” while 53 per cent think it would have “negative consequences”. That sounds as though they think the euro is a bad system. Well not exactly. The confusion might lie in the fact that the cruel system of austerity that the political elites have inflicted on the European nations is eroding the system of social stability that was established after the devastation of World War II. This is certainly the view taken by the ILO in a recent book it released. The ILO believe that the operations of the common currency (the austerity etc) is undermining the European Social Model, which is a core principle of an integrated Europe. So by insisting on maintaining the flawed currency system, the political elites are endangering the very thing they claim to revere – political integration – the ‘one Europe’.

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European Court of Justice effectively rules that Eurozone is a shambles

On June 2015, the – Court of Justice of the European Union – issued a press release summarising their decision with respect to the ECB’s Outright Monetary Transactions (OMT) programme – Judgment of the Court of Justice in Case C-62/14 Gauweiler and Others. The decision (No.70/2015) is a devastating indictment of the Eurozone and the elites that designed it and maintain its capricious and destructive behaviours. The latest events in Greece highlight how neo-liberal Groupthink can extend into the realm of venal fantasy in defiance of reality. The European Court of Justice decision ruled that the ECB was not acting unlawfully in implementing its bond buying program, despite the German Constitutional Court ruling otherwise. The point of the ruling is that the Court has decided to take a convenient line because the economic policy making institutions in the Eurozone are so parlous that the role of the ECB can be blurred to mean anything. What a shambles.

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Saturday Quiz – June 27, 2015 – answers and discussion

Here are the answers with discussion for yesterday’s quiz. The information provided should help you understand the reasoning behind the answers. 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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Too much private credit undermines growth and increases inequality

The OECD has just published a new Economic Policy Paper (June 2015) – Finance and Inclusive Growth – which challenges the notion that the financial market deregulation in the period prior to the GFC, which led to a rapid increase in the absolute and relative size of the financial sector, was beneficial. It argues that in the aftermath of the credit binge, with the private sector overladened with debt, further credit “expansion is likely to slow rather than boost growth”, particularly if taken up by households. The research also shows that “Financial expansion fuels greater income inequality” and that government needs to reform the sector to stabilise growth and reduce inequality. What the paper doesn’t say (it is the OECD after all) is that their research also undermines arguments that it is better to base growth on private debt accumulation rather than public debt accumulation which matches deficits. Thus strategies in place in Australia, the UK and the Eurozone for governments to pursue surpluses which then require the private sector to increase debt to drive consumption are fraught and will ultimately fail. Again!

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A central bank can always prevent government default

I have received a lot of E-mails over the weekend about a paper released by the CEPR Policy Portal VOX (June 20, 2015) – Can central banks avoid sovereign debt crises? – which purports to provide “new evidence” to support the conclusion that “the ability of the central bank to avert a debt self-fulfilling debt crisis is limited”. It is another one of those mainstream attempts to brush away reality and draw logical conclusions from a flawed analytical framework. When one digs a bit the conclusion withers on the vine of a stylised economic model that leaves out significant features of the monetary system – such as for starters, a currency-issuing government can never go broke in terms of the liabilities its issues in its own currency. All the smoke and mirrors of stylised New Keynesian mathematical models cannot render that reality false.In other words, the paper and the lineage of papers it draws upon should be disregarded by anyone who desires to understand how the monetary system operates and the capacity and opportunities that the currency-issuing government (including its central bank) has within that system.

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Saturday Quiz – June 20, 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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Time to expand public service employment

Back in 2010, in the early days of the GFC, the then Australian Labor government was weathering a conservative storm for daring to introduce a large-scale (and rapid) fiscal stimulus. The package had several components but the most controversial were the decision to introduce a homeinsulation program to create jobs quickly but leave a residual of green benefits (lower energy use in the future). The program had problems but still produced fantastic macroeconomic benefits. It was little wonder that the program stumbled operationally given its complexity and the degraded capacity of the Federal public service, which has been degraded by several decades of employment cuts and restructures under the neo-liberal guise of improving ‘efficiency’. However, that mantra might be finally turning. An article in the right-wing Australian Financial Review (June 14, 2015) – Time to end outsourcing and rebuild the public service – made the extraordinary argument for that publication that public service employment had to increase to allow the government to do what the Federal Communications Minister calls “the legitimate work of the public service”. Wonders never cease.

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Saturday Quiz – June 13, 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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