Sociopaths, closed minds and a bit of Mayan cosmology

Yes, and more. There was an article in the EU Observer this week (April 3, 2012) – EU ‘surprised’ by Portugal’s unemployment rate – which I had to re-read a few times to check that I was actually reading the words correctly. The dialogue presented was so shocking that it raises fundamental questions about how one is interact with the economics debate. Then I read some more articles this week which investigated why mainstream economics retains its dominance in the face of its catastrophic failure to explain anything of importance to humanity. Closed minds are very resistant to change especially when socio-pathological dimensions are present. Which led me to investigate Mayan cosmology after being accused of being a practitioner of the art! Overall, another week in the life of a Modern Monetary Theorist (MMTist) – par for the course really.

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Saturday quiz – March 31, 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 – March 17, 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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Unemployment causes higher property and violent crime rates

The NSW Bureau of Crime Statistics and Research (BOCSAR) released an interesting study yesterday (March 13, 2012) – The effect of arrest and imprisonment on crime – which might be a strange topic for a Modern Monetary Theory blog to highlight. On the contrary, this type of research provides an invaluable reality check against those who think that entrenched unemployment during a recession is more efficient than fiscal initiatives that aim to directly generate public sector employment. We already know that that the daily real GDP losses that arise from an economy operating at less than full employment are massive. The BOSCAR report adds another loss in the form of higher crime rates. It confirms long-standing research findings that shows that unemployment causes higher property and violent crime rates.

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Saturday quiz – March 10, 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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Athens burned, while I played Sudoku

Today, I am back in Greece. Yesterday, there was a confidential in-house “Staff Note” leaked from the Institute of International Finance, which purported to estimate the costs of a disorderly default on Greek government debt. Most of the paper was about ECB and related “contingent liabilities” which summed to around €1 trillion. However, once you understand the nature of those “contingent liabilities” in the context of the capacity of the ECB as the currency-issuer in the EMU and compare them with the real losses being endured by the Greek economy and its people, then you soon realise that the Greek government should reintroduce its own currency immediately. The European elites, however, are too busy playing Sudoku to appreciate that, ultimately, their ideologically-motivated austerity will not only impoverish Greece, but will also cause their whole monetary system to collapse.

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Saturday quiz – February 25, 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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There is no unemployment in a non-monetary economy

I wrote recently about Eugene Fama, a Chicago economist who basically denied that a breakdown in the financial markets had caused the current crisis. Please see – Yesterday austerity, today growth – but leopards don’t change their spots – for further discussion. Last week (February 17, 2012), one of Fama’s colleagues wrote a Bloomberg Op Ed – How 3 Myths Drive Europe’s Response to Debt Crisis. The article by one Harald Uhlig, from the Department of Economics at the University of Chicago demonstrates the way that the Chicago School likes to obfuscate issues. He develops a model, which purports to show that the imposition of fiscal austerity and zero impact on the standard of living of the population. The only problem is that the model not only makes some false conclusion, within its own logic, but is also inapplicable as a vehicle for explicating problems that might arise in a modern monetary economy. This is typical Chicago economics – a stylised but irrelevant analytical framework.

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Saturday quiz – February 11, 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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Greek government should tell Troika it is prioritising a fall in unemployment

The UK Guardian reported (February 6, 2012) – Disbelief as Greek politicians delay deal on €130bn rescue package – that the German Ma’am is becoming “exasperated”. Such discomfort. Apparently, the fact that the Greek government has to engage in some discussions with other interests in Greece before signing up to further extremely damaging cuts is upsetting the German leader. She claimed that “Time is of the essence. A lot is at stake for the entire eurozone”. She is probably right. The quicker Greece cuts further the faster its exit from the Eurozone will be. But Merkel’s discomfort is nothing compared to what the Greek population is feeling at present. The Hellenic Statistical Authority or EL.STAT reported that the October 2011 unemployment rate in Greece was 18.2 per cent compared to 13.5 per cent in October 2010 and 17.5 per cent in September 2011. It will continue to rise as long as the government buys the Troika-line and imposes worse austerity. But it seems that the Greek government has become totally obsessed with fiscal ratios – that is, totally neo-liberal-centric – and is losing focus on a human tragedy that they are causing. The Greek government should tell the Troika it is prioritising a fall in its unemployment rate – like it or lump it!

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Saturday quiz – February 4, 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 German model is not workable for the Eurozone

I had an interesting meeting in Melbourne yesterday and the topic of the discussion, among other things, was the propensity of the current economic malaise in Europe to invoke associations with its historical past – in particular, the rise of the ugly German. In my blog earlier this week (January 30, 2012) – Greece to leave the Eurozone and become a German colony – one might have been tempted to conclude that I was invoking memories of the Germany’s annexation of Austria (the Anschluss). I even used the word Teutonic – a rather old-fashioned term for Germanic peoples (broadly) – in the phrase “My how audacious our Teutonic friends have become!”. This was in a discussion about the leaked German document which urged the EU Summit on Monday to effectively put Greece into receivership. But in fact, what I have been at pains to bring to the public debate is not an urging that we construct the current nasty statements from German politicians and its press about lazy Greeks etc in terms of these historical enmities but rather see them for what they really are – deeply flawed macroeconomic reasoning. A thorough understanding of macroeconomics would lead to the conclusion that the German model is not workable for the Eurozone. It will not help Germany nor anyone else. It is a deeply flawed economic doctrine that reflects the same neo-liberal ideology that led to the the original design of the European Monetary Union. Whether the “ugly German” is also implicated is another question altogether.

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Monetary movements in the US – and the deficit

This week I seem to have been obsessed with monetary aggregates, which are are strange thing for a Modern Monetary Theory (MMT) writer to be concerned with given that MMT does not place any particular emphasis on such movements. MMT rejects the notion that the broader monetary measures are driven by the monetary base (hence a rejection of the money multiplier concept in mainstream macroeconomics) and MMT also rejects the notion that a rising monetary base will be inflationary. The two rejections are interlinked. But that is not to say that the evolution of the broad aggregates is without informational content. What they paint is a picture of the conditions in the private sector economy – particularly in relation to the demand for loans. In this blog I consider recent developments in the US broad aggregates and compare them to the UK and the Eurozone, which I analysed earlier this week. But first I consider some fiscal developments in the US, which, as it happens, are tied closely to the movements in the broad monetary measures. The bottom-line is that the US is growing because it has not yet gone into fiscal retreat and the broad monetary measures are picking that growth up. The opposite is the case of the European economies (counting the UK in that set) where governments have deliberately undermined economic growth and further damaging private sector spending plans.

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Saturday quiz – January 28, 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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New central bank initiative shows governments are not financially constrained

On November 16, 2011 by the Australian Prudential Regulation Authority (APRA) published a – Discussion Paper – Implementing Basel III liquidity reforms in Australia – which details how the prudential regulator plans to implement the new Basel III reforms which aim “to strengthen the liquidity framework for authorised deposit-taking institutions (ADIs)”. in that paper, APRA indicated that there were not enough assets in the Australian financial system to satisfy the new liquidity requirements. In other words, there are not enough government bonds on the issue that the banks can use for this purpose. This is a consequence of the excessive pursuit of government surpluses over the last 16 odd years. APRA indicated that a country-specific solution to this asset would be required. in this context, the Reserve Bank of Australia (RBA) a new facility – the Committed Liquidity Facility (CLF), which will provide high-quality liquidity to the commercial banks to allow them to meet the Basel III liquidity requirements. What the CLF demonstrates once again is that a currency issuing government is not financially constrained and can maintain integrity of the of the financial system and purchase any goods and services that are available for sale in its own currency any time that it chooses.

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Saturday quiz – January 21, 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 catechism of the IMF

In early January 2012, the IMF published the following working day – Central Bank Credit to the Government: What Can We Learn from International Practices? (thanks Kostas). In terms of the title you can’t learn very much if you start off on the wrong foot. The bottom line is that if the theoretical model that you are using is flawed in the first place then you wont make much sense applying it. The other point is that while this paper presents some very interesting facts about the legal frameworks within which central banks operate and provide a regional breakdown of their results, their policy recommendations do not relate to the evidence at all. This is because they fail to recognise that the patterns in their database (the legal practices) are conditioned by the dominant mainstream economics ideology. So concluding that something is desirable because it exists when its existence is just the reflection of the dominant ideology gets us nowhere. Their conclusions thus just amount to erroneous religious statements that make up the catechism of the IMF and have no substance in reality.

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Saturday quiz – January 14, 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 costs of unemployment – again

One of the extraordinary things that arose in a recent discussion about whether employment guarantees are better than leaving workers unemployed was the assumption that the costs of unemployment are relatively low compared to having workers engaged in activities of varying degrees of productivity. Some of the discussion suggested that there were “microeconomic” costs involved in having to manage employment guarantee programs (bureaucracy, supervision, etc) which would negate the value of any such program. The implicit assumption was that the unemployed will generate zero productivity if they are engaged in employment programs. There has been a long debate in the economics about the relative costs of microeconomic inefficiency compared to macroeconomic inefficiency. The simple fact is that the losses arising from unemployment dwarfed by a considerable margin any microeconomic losses that might arise from inefficient use of resources. in this blog, I discuss some of those issues.

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They better keep the vacuum on or else!

While the Eurozone leaders appear to be obsessed with a relentless series of meetings which discuss largely irrelevant problems that they identify, there is a growing chorus that is highlighting the reality facing the region. It is patently obvious that the only short-term solution to the Euro crisis is for the ECB to keep its vacuum cleaner on and keep “hoovering” up the debt of governments who are unable to gain access to funds in private bond markets at reasonable yields. While the long-term solution is an orderly dismantling of the monetary union, the ECB is the only show in town at present that can in the spiralling crisis and ensure that the Eurozone countries return to growth as quickly as possible. This is even more paramount now Germany has recorded a negative quarter of growth with worse expected in the coming months. It beggars belief that the Euro elites have engineered a crisis of such a proportion that that their worst fears become the only solution.

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