New President but old narrative

Obviously the big deal today is the US election result. My distant (being in Australia) and relatively disinterested (a pox on all of them) view is that the conservatives (GOP) should continue to foster links with the Tea Party and particularly senators and would-be senators who think women have a choice in rape so that the party continues to lose traction with the changing demography in the US and march off into oblivion. The other conservatives (the donkeys) won because the motor car industry is still operating and because the elephants in the room were so bad. The commentary on Australian TV today (one of my computers in my office is following the results even though I am “disinterested” :-]) has become obsessed with the “fiscal cliff” with all the experts appearing demonstrating their vast ignorance about macroeconomics. An ex-federal Opposition leader (failed) in Australia (and a former professor of economics) just said that the US deficit and debt is reaching European proportions, which tells you that he is either deliberately choosing to mislead the viewers or doesn’t know the difference between a currency-issuer (the US) and a currency-user (Eurozone nations). The election result will probably not change much. The political impasse is saving the US economy at present – the deficit is still flowing each day and supporting some growth.

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Saturday Quiz – October 27, 2012 – 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 Governor gets confused

A few weeks ago in this blog – So who is going to answer for their culpability? – I wrote about the IMFs latest “discovery” that their policy advice, which has caused millions to become unemployed and nations to shed income and wealth in great proportions and all the rest of the austerity detritus, was based on errors in estimating the value of the multiplier. They now admit the expenditure multipliers may be up to around 1.7, which means that for every dollar of government spending, the economy produces $1.70 of national income. Under their previous estimates of the multiplier, a dollar of government spending would translate into only 50 cents national income (a bad outcome). The renewed awareness from the arch-austerity merchants that they were wrong and that fiscal policy is, in fact, highly effective, has to be seen in the light of the continued obsession not only with fiscal austerity but also with discussions surrounding monetary policy. There have been many articles over the last few years expressing surprise that the vast monetary policy changes have had little effect. But as soon as the writers note this they launch into the standard arguments about inflation risk and the rest of the narratives that accompany discussions about central banks. Soon we will have to accept the fact that monetary policy is not a suitable tool to stabilise aggregate demand at appropriate levels. We will also have to acknowledge that the only way out of the crisis is via renewed fiscal stimulus.

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The victims become the perpetrators – the neo-liberal smokescreen

I am in working in Seoul all day today and then rushing to the airport to get back to Sydney – so this blog has to be quick. When I saw the headline in the UK Telegraph (October 20, 2012) – A rude awakening for those who refuse to play by the rules – I thought it could have referred to the British government who are intent on defying the rules of responsible fiscal policy by pursuing pro-cyclical austerity and who are seeing the unfolding problems that their policies were generating. I didn’t really think that but it should have been referring to the abandonment of proper fiscal practice in the UK. Upon reading the article I learned it was about the British government – in that it was written by the Minister for Employment. The article was like deja vu for me and the message was one that Australians will be familiar with. It said that the unemployed are in that state because they game the “most generous” system of support and benefits that the UK provides to its citizens. Forget about the lack of jobs. The smokescreen descends – the victims become the perpetrators.

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A Greek exit would not cause havoc

I am in Seoul (South Korea) today and tomorrow working on a project I have with the Asian Development Bank. It is a mega city that is for sure – more than 10 million in the city itself and 25 million in the nearby areas linking Seoul to the airport. Quite a place where you see massive public sector involvement in planning and infrastructure developing aiding mega capitalist firms. But I will report on the work I am doing here in due course, once government clearances are available. Today, I am focusing on the Eurozone after I read a report sent to me that was written by a German consulting firm of some note predicting havoc if the Greeks exit the Eurozone. The European press gave the report oxygen that it does not deserve. It is another example of a highly selective and “fixed” study, which is influencing the debate because of its scare value. It substance is largely zero. The reality is that a Greek exit would not cause havoc and is to be recommended (about 3 years ago)!

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Saturday Quiz – October 20, 2012 – 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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Sectoral balances – Part 2

I am now using Friday’s blog space to provide draft versions of the Modern Monetary Theory textbook that I am writing with my colleague and friend Randy Wray. We expect to complete the text by the end of this year. Comments are always welcome. Remember this is a textbook aimed at undergraduate students and so the writing will be different from my usual blog free-for-all. Note also that the text I post is just the work I am doing by way of the first draft so the material posted will not represent the complete text. Further it will change once the two of us have edited it.

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Australian government funding increased cancer incidence

One of the complaints that critics of a Job Guarantee raise is that it might compete with the private sector for labour, which they say would be unfair given the unequal capacities of the two sectors (government allegedly has an advantage) and the undesirability of allocations being based on so-called “non-market” criteria. Mostly these complaints reflect the fact that the critic hasn’t read any of the relevant literature about Job Guarantee design and rationale (it employs workers which have no private sector bid). However, when the government becomes a speculator balancing risk and return in private capital markets and, in doing so, contributes to asset price bubbles and uses its financial might to “distort” market outcomes, it is praised for being financially prudent. Welcome to the hypocrisy of the Future Fund, Australia’s so-called sovereign fund. But it gets worse. We have now learned about the types of products that the Future Fund is investing in. It comes down to the Australian government promoting increasing cancer incidence in our nation. And all because they lie about their economic capacities as a sovereign currency-issuer.

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Saturday Quiz – October 13, 2012 – 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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Saturday Quiz – October 6, 2012 – 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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Australia to become Greece – all within the limits of human idiocy

Yesterday, the Australian Bureau of Statistics published the August 2012 data for – International Trade in Goods and Services, Australia – which provided further evidence that the so-called once-in-a-hundred years mining boom that was meant to bring employment security and strong growth for years to come is waning – and quickly. Today’s retail sales figures are also in this vein. The Treasurer continued his bluster that they had to go for a surplus. And a prominent (former) banker came out and claimed the surpluses should be bigger – even though the economy is going backwards and non-government spending is incapable of supporting strong growth. He thinks were are on the path to Athens. He thought we could easily become Greece. When you think about it the transition from Australia to Greece is within the limits of human idiocy.

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Saturday Quiz – September 29, 2012 – 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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The demise of social democratic parties – they are all neo-liberals now

There was an article in this morning’s Melbourne Age (September 26, 2012) by former Australian Federal Finance Minister Lindsay Tanner, which talked about the structural decline of social democratic parties around the world. Recently I was in the Netherlands for the Dutch national election and the Labor Party could not gain office and is likely to go into coalition with the Conservatives (what?) – the common bond – their support for the Euro and fiscal austerity. What set of circumstances would see what should be polar opposite political forces in coalition? And then there are the LDP and the Tories in the UK. And the debate in the US is not about a deficit versus a surplus but how quickly to get into surplus. The same goes in Australia. The policy debate is marked by claims from both major parties that they will generate bigger budget surpluses quicker than their opponents. The social democratic political tradition is fading because the parties have become indistinguishable from the conservatives in economic policy. They are all neo-liberals now and that is an ugly option for those with a progressive bent who have traditionally supported the social democratic parties.

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The Celtic poster child demonstrates the failure of austerity

The IMF boss claimed yesterday that her organisation believed that austerity and growth “can be reconciled and should not be mutually exclusive” (see analysis in blog). She lied just like the IMF has been lying regularly since the crisis began. She also claimed that the IMF forecasts have been trending down. The fact is that they keep revising them down because they are continually wrong. They want to dress their austerity bullying up in a favourable light by claiming growth will be higher. The reality is always different and growth, quite predictably, comes in lower. Their poster child – Ireland – was the first nation to succumb to the austerity narrative. The latest national accounts from Ireland released last week continue to provide a bleak outlook on what is happening there. Austerity is killing the economy – slowly but surely. Joseph Stiglitz said that fiscal austerity is tantamount to economic suicide. Ireland is leading the way. Despite massive austerity, Ireland is still going backwards and people are becoming poorer. Claims that Ireland’s austerity approach provides a model for other nations to follow because it produces growth cannot be sustained from the data. Further, as I will show in another blog – the poor economic performance is making it impossible for Ireland to achieve the ridiculous fiscal benchmarks that the Troika have imposed on it. It is folly all round. Pity the workers and the common folk.

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When evidence strips one back to their ideological core

It will be a relatively short blog today as I am off travelling again. Yes, I was home one day! Real GDP gaps, which measure the extent to which economies are producing below their potential (indicated by full employment of labour and existing capital resources), remain large across many of the large advanced economies. That means one thing – current output growth is not strong enough given the real resources available to these nations. It means another thing – that potential growth will start to fall as investments in productive capital and human capital falters as a result of the lack of demand for current output. Given current capacity (labour and capital), the utilisation of it depends on spending and spending alone. That means another thing. Policies that deliberately undermine the current demand for output will not help economies to exit this crisis. So the only debate worth having is how to stimulate spending and that leaves all the discussions about the need for fiscal austerity on the sidelines of irrelevance. At what point will the economists supporting austerity realise that?

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Saturday Quiz – September 15, 2012 – 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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Climate change – Australian government further entrenches the market myth

I have very little time again today so I will have to type quickly. Yesterday, the Australian government announced it has scrapped its proposed $15 per tonne carbon price floor as part of the new Carbon Tax that it brought into law in July 2012. With the introduction of the carbon price in July 2012, the biggest polluters pay $A23 per tonne for the carbon they emit. The Government plans to allow this system (the Carbon Tax) to evolve into an emissions trading scheme (ETS) on July 1, 2015 so that instead of setting the price for carbon the government will set the quotas and let the market set the price. Yesterday, the Government made one significant change to their proposed 2015 move to an ETS. It announced that from July 1, 2015, Australia will partially link its carbon pricing system to the European Union Emissions Trading System (EU ETS). This move only entrenches the mistakes that are evident in the first proposal. Quite apart from the problems of a pure ETS, the schemes that are proposed are so politically compromised that their “market credentials” vanish. The problem of carbon emissions should be approached via rules-based regulation rather than a half-cocked neo-liberal market-based solution which will reward big polluters, lawyers and hedge funds.

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Saturday Quiz – August 25, 2012 – 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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5.4 into 1 does not equal 5.4

I am doing a bit of cleaning up old filing boxes each day now as the date I will be moving offices approaches. It is actually an interesting process – looking through boxes and articles that have been stored away for some years now. Today, I came across an article that was in the US Magazine Challenge (March-April, 1982) entitled The Guilds of Academe and written by one Jack Barbash, who was an academic at the University of Wisconsin. It discussed the way in which the economics profession protects its belief system from criticism and avoids, as far as possible, addressing real world problems. The mainstream will talk as if they are addressing a real world problem – such as entrenched unemployment – but when you realise the models they are dabbling with you know that they are really talking about nothing real at all. This leads onto a forthcoming book by some British conservative MPs who have the temerity to argue that the British unemployment problem is due to the workers being to idle and diverted by pop music to bother working. You know instantly that the underlying model has come from a mainstream economist who hasn’t recently looked out the window or read any data.

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Saturday Quiz – August 18, 2012 – 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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