Search Results for “deficits and inflation” – Page 68 – William Mitchell

Beyond metaphor … comes total nonsense, German style

Under an accompanying heading – “Beyond Greece” – the German Handelsblatt (a daily financial/business newspaper) published the article (July 14, 2015) – The Uncomfortable Truth About Debt. It was meant to be some sort of justification for the touch German stance against Greece. The authors claimed that “Germany has been hounded internationally for taking a hard line on Greece. But there is a bigger problem on the horizon: the debt mountain in Europe, and the world, is too high”. My BS sensors were on high alert as I read the opening paragraphs. There was good reason for my alert – the article, which would have been read by tens of thousands of German corporate sector managers etc, demonstrates a palpable failure to comprehend what the real issues confronting the Eurozone are and how Eurozone Member States (19 of them) are fundamentally different in terms of fiscal capacity relative to nations that issue their own currency. No wonder the political classes in Germany can get away with behaving so abominably.

A Greek exit could not be more costly than the current path

It appears the Germans (with their Finish and Slovak cronies) have lost all sense of reason, if they ever had any. Germany has the socio-pathological excuse of having suffered from an irrational ‘inflation angst’ since the 1930s and has forgotten its disastrous conduct during the 1930s and 1940s and also the generosity shown it by allied nations who had destroyed its demonic martial ambitions. Finland and Slovakia have no such excuse. They are just behaving as jumped-up, vindictive show ponies who are not that far from being in Greece’s situation themselves. Sure the Finns have a national guilt about their own notorious complicity with the Nazis in the 1940s but what makes them such a nasty conservative ally to the Germans is an interesting question. It also seems to be hard keeping track with the latest ‘negotiating offer’ from either side. But the trend seems obvious. The Greeks offer to bend over further and are met by a barrage of “it is going to be hard to accept this”, followed by a Troika offer (now generalised as the Eurogroup minus Greece which is harsher than the last. And so it goes – from ridiculous to absurd or to quote a headline over the weekend – From the Absurd to the Tragic, which I thought was an understatement. There are also a plethora of ‘plans’ for Greece being circulated by all and sundry – most of which hang on to the need for the nation to run ‘primary fiscal surpluses’, with no reference to the scale of the disaster before us (or rather the Greek people). It is surreal that this daily farce and public humiliation (like the medieval parading of a recalcitrant in stocks) is being clothed as ‘governance’. Only in Europe really.

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!

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.

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.

Friday lay day – Greece has only one viable path – exit

Its my Friday lay day blog, which is sort of a dodge that allows me to be less focused. I have been holding my pen about Greece in abeyance lately until more details became clearer about what is going on in the so-called ‘negotiations’, which seems to be a euphemism so ugly given the reality that perhaps a new descriptor should be introduced. As the specific details emerge more clearly, the situation remains much the same as it was in January when the new Greek government was resoundingly elected to end austerity. Either the Greek government has to abandon its electoral mandate and capitulate and become just another ‘left-wing’ government overseeing the punishing austerity inflicted by the neo-liberal ideologues or it has to show leadership and take the nation out of the dysfunctional Eurozone and pursue its own path to more prosperous, if uncertain, times. Part of that leadership has to be to educate the public as to what the options are in a balanced rather than hysterical way. I have heard Syriza politicians claim that leaving the union would be catastrophic, which is not only false but just reinforces the public fear of exit. Further, all the nominations in February from Syriza politicians that the ‘negotiations’ to that date had been “successful” (Source), which any reasonable interpretation would have led to the conclusion that austerity was about to end in Greece, the reality now, is that the Greek government appears to be slowly capitulating to the venal demands of the Troika and the future for Greece is likely to be one of interminable economic stagnation, increasing poverty and rising social instability. But, hey, that is what success seems to mean now in this dark-age of Eurozone realities. If there weren’t real people involved in this tragedy, this could be a top selling farce.

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.

June 22, 2015
bill
Economics
21 Comments

The June quarter 2015 edition of the Reserve Bank of Australia Bulletin has an interesting article – Firms’ Investment Decisions and Interest Rates – which further erodes the mainstream economics claim that business investment is negatively related to interest rates in any continuous way. The implications of the RBA research are many. First, it further helps us understand why monetary policy (adjusting interest rates) is not a very effective way of managing aggregate spending. Second, the research undermines the validity of the mainstream claims that crowding out of private expenditure occurs when government spending rises. The paper finds that investment decisions by firms is not sensitive to interest rate variations within certain ranges. Third, it demonstrates that business investment is driven significantly by subjective sentiment rather than being an exact process driven by quantifiable metrics.

Friday lay day – Minimum wage in Australia creeps up

Its my Friday lay day blog but no rest for the wicked today. The Fair Work Commission, the Federal body entrusted with the task of determining Australia’s minimum wage handed down its – 2014-15 decision – on June 2, 2014. Here is my annual review of that decision plus some. The decision meant that more than 1.86 million of our lowest paid workers (out of some 11.6 million) received an extra $16.00 per week from July 1. This amounted to an increase of 2.5 per cent (down from last year’s rise of 3 per cent). The Federal Minimum Wage (FMW) is now $656.90 per week or $17.29 per hour. For the low-paid workers in the retail sector, personal care services, hospitality, cleaning services and unskilled labouring sectors there was no cause for celebration. They already earn a pittance and endure poor working conditions. The pay rise will at best maintain the current real minimum wage but denies this cohort access to the fairly robust national productivity growth that has occurred over the last two years. The decision also maintains the gap between the low paid workers and other wage and salary recipients, who themselves are suffering a major wages squeeze as corporate profits rise. The real story though is that today’s minimum wage outcome is another casualty of the fiscal austerity that the Federal Government has imposed on the nation which is destroying jobs and impacting disproportionately on low-paid workers.

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.

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.

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.

May 21, 2015
bill
Japan
12 Comments

The Wall Street Journal reported late yesterday (May 20, 2015) that – Japan’s First-Quarter GDP Growth Is Fastest in a Year. This follows the release of the latest national accounts data from the Japanese Ministry of Finance. The WSJ was like many media commentators – quick to put the best spin on the data that they could. They converted the 0.6 per cent quarterly growth figure for March 2015 into a 2.4 per cent annualised figure and pronounced a consumer led recovery. The facts tell us a different story. The biggest contributor to growth in the March-quarter was unsold inventories. Whether this is a sign of lagging sales and overly confident producers, who won’t remain in that state for long, or expectations of strengthening consumer demand, remains to be seen. On the face of it, with real wages continuing to fall and consumer expectations weak, things may not be as rosy as the “2.4 per cent annualised growth” result would suggest.

May 14, 2015
bill
Labour costs
5 Comments

The day after the Australian government published their fiscal strategy for 2015-16, which assumes (unrealistically) a significant upstep in economic growth and hence taxation receipts, the Australian Bureau of Statistics published the latest – Wage Price Index, Australia – for the March-quarter today and we learn that the annual growth in wages is now at the lowest level since the data series began in the December-quarter 1997. Last quarter, we learned the same thing. In other words, consecutive quarterly lows have now been set in the Wage Price time series measure. The annual hourly wage inflation is now down to 2.3 per cent overall down from 2.5 per cent in the December-quarter. Private sector wages growth was a miserable 2.2 per cent. In the 2015-16 fiscal statement, the Government had assumed wages growth for 2014-15 would be 2.5 per cent rising to 2.75 by 2017. On current trends, that is highly unlikely to occur, which means the arithmetic surrounding its fiscal outcomes is awry already and the fiscal deficit will be larger than assumed. Overall productivity growth is running around 1.8 to 2.1 per cent (depending how one measures it) and despite the decline in the annual inflation rate in recent quarters as the overall economy slows down (and oil prices fall), Real Unit Labour Costs (RULC) continue to fall. This means that the gap between real wages growth and productivity growth continues to widen as more the wage share in national income falls (and the profit share rises). The flat wages trend will not only blast the forward estimates in the fiscal statement out of the water but the on-going redistribution of national income to profits is intensifying the pre-crisis dynamics, which saw private sector credit rather than real wages drive growth. The lessons have not been learned.

The existential crisis of Labour-type political parties

At one point in my student days anyone who wasn’t reading Marx on a particular day, was reading Satre, Camus and Merleau-Ponty, among others, at least in the groups that I mixed in. But then they were also reading Dostoyevsky. Whichever way – they learned a lot about class conflict and existentialism. Labour-type political parties might reflect on the concept of an existential crisis because the declining electoral fortunes around the World are of their own making and reflect a lack of identity and certainly little ‘essence’. These parties have lost their meaning and purpose of existence and everyone knows it. The reasons are relatively straightforward. They have bought into the free-market myths and demeaned the role of the State. They now only argue about how much fairer their version of fiscal austerity will be relative to the conservatives, never challenging the underlying lies that drives the austerity agenda in the first place. Here are some lunchtime thoughts on the matter.

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.

April 15, 2015
bill
UK Economy
15 Comments

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.

March 31, 2015
bill
Economics, European Union, Labour costs, UK Economy, US economy
11 Comments

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.

March 26, 2015
bill
European Union
12 Comments

On Tuesday (March 24, 2015), the European Court of Auditors, which is the EU’s independent external auditor and aims to improve “EU financial management”, released a major report – EU Youth Guarantee: first steps taken but implementation risks ahead (3 mb). The Report reflects on the experience of the program which was introduced in April 2013. When the European Commission proposed the initiative I wrote that it was underfunded, poorly focused (on supply rather than demand – that is, job creation) and would fail within an overwhelming austerity environment. The Audit Report is more diplomatic as you would expect but comes up with findings that are not inconsistent with my initial assessment in 2012.

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.