Who are the British that are living within their means?

The British Prime Minister gave a New Year’s speech in Nottingham on Monday (January 12, 2015), where he railed about the “dangers of debts and deficits” as part of the buildup to this year’s national election in Britain. There does not appear to be an official transcript available yet so I am relying on Notes that the Government released to the press containing extracts (Source). However, it is clear that the framing used by the British Prime Minister was seeking to personalise (bring down to the household level) public fiscal aggregates and invoke fear among the ignorant. The classic approach. There was no economic credibility to the Prime Minister’s claims. But that doesn’t mean that it wasn’t a politically effective speech. So woeful was the response by the Opposition that it suggested Cameron’s speech was very effective. That is the state of things. Lies, myths and exaggeration wins elections.

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Sachs v Krugman – No contest, Krugman wins

There was an interesting article written by one Jeffrey Sachs, whose only notoriety, despite his own self-promotion, is that he was the principle promoter of the ridiculous doctrine of – Shock Therapy – which systematically ruined the nations it was applied to under the aegis of IMF structural reform. The latest article (January 6, 2015) – Paul Krugman has got it wrong on austerity – published by the UK Guardian, is a direct attack on Paul Krugman. I have no interest in defending Paul Krugman (nor would he be interested in such a defense). Rather, my interest is that Sach’s intervention is one of a growing number of articles that claim that austerity has worked! An extraordinary new historical revisionism is underway. The conservatives always try to rewrite history to suit themselves. This is the latest version of that long-standing exercise and deception.

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Privatisation failure – the micro analogue of fiscal surplus obsessions

Our business leaders are amusing themselves at the moment sailing large and expensive yachts in various summer regattas and races and lecturing us on how our democratic choices (to elect parliamentarians) is holding back the country – “ill-equipped for life after the mining boom” is the code words used (Source). Apparently, we should not elect parliamentarians that oppose their conservative agenda to transfer increasing volumes of real income to the top-end-of-town (that is, them). Their mantra never changes – its all about them not us. This article in the New York Times (September 26, 2014) – The Benefits of Economic Expansions Are Increasingly Going to the Richest Americans – not only promotes the excellent work of MMTer Pavlina Tcherneva but is apposite to the message of today’s blog. Which brings me to a recent decision by the UK government to allow rail fares to rise well in excess of the inflation rate and the growth in wages.

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Germany should be careful what it ‘allows’

The German Magazine Der Spiegel ran a story over the weekend (January 3, 2015) – Austritt aus der Währungsunion: Bundesregierung hält Ausscheiden Griechenlands aus dem Euro für verkraftbar (Exit from the Monetary Union: Federal government considers Greece’s exit from the euro is manageable). This so-called “radical change of position” is presumably designed to impart external pressure on the Greek democratic process, which is about to elect a new national government presumably on January 25, 2015. The claim is that the German government is prepared to make Greece expendable because it thinks it has shored up the rest of the Eurozone so that what happens to Greece is immaterial. I think Germany should be careful what it ‘allows’.

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The sham of central bank independence

Let it be noted that the Japanese government 10-year bond yield hit 0.33 per cent overnight. That tells you that all the scaremongering that has been going on over the last twenty years about hyperinflation, the Japanese government running out of money, the bond markets dumping the yen, and the rest of it were self-serving lies designed to advance a particular ideological position at the expense of the broader social well-being. A year ago, the yields were 0.88 per cent – so they are going in the opposite direction to that predicted by many mainstream economists, blinded by their irrelevant textbook theories about how markets work. In that neo-liberal textbook fairyland, the yields should be sky high now, inflation accelerating out of control and the government forced to admit it had run out of money. Get over it, it won’t happen because the real world doesn’t operate like that. Students of macroeconomics are continually being taught a myth, which is detrimental to their education and life experiences. Many turn into the future doomsayers and sociopaths in organisations such as the IMF, the European Commission and other like policy making institutions. They always rave on about the need for more central bank independence to insulate monetary policy from political decision-making as if that will foster the well-being of the population. The idea of central bank independence is a sham and in the last week there has been stark evidence to support that view.

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Friday lay day – public spending is not necessarily matched by tax revenue in the long-run

It is my Friday lay day and that means brevity, even if that is a relative concept. I have received several E-mails lately about claims that Modern Monetary Theory (MMT) economists are zealots who overstate their case and are nothing much more than Keynesians with some fancy jargon. It is lovely how complete strangers feel it is their place to write abusive E-mails to you as if you are some sort of inanimate object. But that is not the point here. Several of these E-mails noted that a prominent Australian economist had largely dismissed MMT, despite his progressive leanings, because “it doesn’t change the basic equation that, in the long run, public expenditure is paid for by taxes”. Apparently, this criticism was made in the context of the Russian problems at present, which I may or may not deal with in another blog, depending on whether I get time to research a few things. The Russian situation is not central to my research at present and I do not have a lot of time to really delve into it. But what about this “long run” failing of MMT?

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Solving tax avoidance will not cure the Eurozone of stagnation

There was an article in the French-language edition of Huffington Post last last week (December 10, 2014) – Sans Europe fiscale, le projet européen est condamné (Without taxes, the European project is doomed) – written by the President of the French Socialist delegation in the European Parliament, Pervenche Berès. Her committee role as a member of the EP includes the Committee on Economic and Monetary Affaris. She has been active in the debate over tax avoidance in the Parliament. Her substantive claim in the article is that the European Project, by which she includes retention of the Eurozone, will fail unless national governments work out how to raise more taxes to balance their fiscal positions. The article qualifies for inclusion in my – Friends list this – series. Although I accept it could be reasonably argued that the French socialists gave up any pretensions to progressive agendas some time ago and could reasonably be included among the groups we would consider to be neo-liberal. But that issue, while important, is not the topic of this blog.

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The inexact science of calibrating fiscal policy

In the showdown between France and the European Commission last week, France clearly is the winner on points, which is not surprising given the impossibility of the task the Commission had set it in meeting the Excessive Deficit Procedure (EDP) rules and the danger to the latter if France was to openly defy it. We have a sort of stand-off between the surrender monkeys – France is going along with the rules sort of and the Commission is bending the rules to save face. It is 2003 all over again. The public might actually think this EDP process is based on a fairly definite science with respect to measuring fiscal policy positions which provide unambiguous statements of deficits. The public would be very wrong if they did adopt that conclusion. In general, the applied work associated with informing the EDP process is very inexact. But, moreover, it is ideologically tainted which makes the process very damaging for any notion of prosperity. All applied work has measurement and other technical issues, which means it is always just an approximation. But when those errors are overlaid by a systematic bias against government net spending and therefore full employment, then the exercise becomes a scandal.

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The Australian economics media guilty of false reporting

The Australian Broadcasting Commission is undergoing dramatic cuts to its budget and shedding programs and valuable staff. The ABC office in Newcastle (Australia’s 7th largest city) has been downgraded to ‘regional’ status from metropolitan status to allow the government to cut its funding even further. It is curious that when they wanted to cut University funding they declared the University of Newcastle to be a metropolitan university and therefore not qualified to receive special regional bonuses. Where the ABC should cut staff, however, is in the area of economics and finance. They have become so inept at analysing what is going on that they are now just passive mouthpieces for private sector consulting firms who pump out macroeconomic nonsense weekly, which distorts the public debate. Today, the top ABC news story is – ‘Budget is burning’, warns top economist. It is a disgrace.

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The loaded language of austerity – but all the sinners are saints!

The US National Institute of Justice tells us that – Recidivism is “is one of the most fundamental concepts in criminal justice. It refers to a person’s relapse into criminal behavior, often after the person receives sanctions or undergoes intervention for a previous crime”. You know murder, rape, theft, and the rest. According to the European Commissioner for digital economy and society and Vice-President German Günther Oettinger running a fiscal deficit above 3 per cent when you economy is mired in stagnation is a criminal act! This religious/criminal terminology is often invoked. German Finance minister Wolfgang Schäuble told the press before a two-day summit in Brussels in March 2010 on whether there should be Community support for Greece, that “an automatic system that hurts those who persistently break the rules” was needed to punish the “fiscal sinners”. This sort of language, which invokes metaphors from religion, morality and criminology is not accidental. Especially in Europe, where Roman Catholocism still for some unknown reason reigns supreme in society, tying fiscal deficits to criminal behaviour or sinning is a sure fire way of reinforcing the notion that they are bad and should be expunged through contrition and sacrifice. The benefits of fiscal deficits in circumstances where the non-government sector is saving overall are lost and the creation of the metaphorical smokescreen allows the elites to hack into the public sector and claim more real resources for themselves at the expense of the rest of us.

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A depressing report from Florence

I am in Rome today and tomorrow. This afternoon I am giving a presentation at the Roma Tre University (Università degli Studi Roma Tre) on Modern Monetary Theory (MMT) and how we might advance the spread of the ideas. There is a very committed group of people in Italy who want to build a political presence to counter the neo-liberal dominance, which has infested all the major parties here (and everywhere). The first thing they need to do is to forget MMT as an organising vehicle and, instead, articulate a vision that advances public purpose and prosperity. MMT is a tool box or framework to understand the consequences of economic decisions (private and public) on the macroeconomic aggregates. It is not a policy agenda. I have suggested they concentrate on full employment, job security, climate change and reducing inequality and advancing opportunity for all as the organising vehicle for their political endeavours. Otherwise, there is the danger that they become an MMT cult. Anyway, I left the Florence roundtable thinking that dramatic shifts are required in the way the EU is structured before Europe can make any significant return to those sorts of policy aims. I also concluded that the elite is so entrenched in its own neo-liberal Groupthink and its own advanced sense of preservation that very little will change and mass unemployment will persist for years to come. It is a very sad state.

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Japan returns to 1997 – idiocy rules!

The financial press was ‘surprised’ that Japan had slipped back into recession, which just tells you that their sources don’t know much about how monetary economies operate. Clearly they have had their heads buried in IMF literature, which tells everyone that cutting net public spending will boost growth because the private sector is scared of deficits. This prediction has never worked out in the way the theory claims. It is pure free market ideology with no empirical basis. The other problem is that cutting net public spending when private spending is weak also pushed up the deficit. Back in the real world, Japan believes the IMF myths, hikes sales taxes to reduce its fiscal deficit, and goes back into recession – night follows day, sales tax hikes moderate spending, and spending cuts undermine economic growth. Kindergarten stuff really. Eventually this cult of neo-liberal economics will disappear but in the meantime while all and sundry are partaking in the kool aid, millions will be losing their jobs, poverty rates will rise and the top 10 per cent in the income and wealth distributions will continue to steal ever more real income from the workers.

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European Commission is once again bereft of credibility

The European Commission released its – European Economic Forecast – Autumn 2014 – which is its bi-annual statement of economic outlook. In his editorial to the outlook, Director General Marco Buti admits that “euro area is still projected to have spare capacity in 2016”, which means the Commission is overseeing economic policy choices that will deliberately impose a recessionary bias for the next two years (at least) and deliberately force millions of Europeans to endure joblessness, savings erosion and the march towards poverty and despair for the next two years. Its a statement of monumental policy failure and the Director General Marco Buti should resign immediately just after he sacks his policy advisers.

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The secular stagnation hoax

Last year, the concept of secular stagnation was reintroduced into the economics lexicon as a way of explaining the lack of growth in advanced nations. Apparently, we were facing a long-term future of low growth and elevated levels of unemployment and there was not much we could do about it. Now it seems more and more commentators and economists are jumping on the bandwagon such that the concept is said to be “taking economics by storm” – see Secular Stagnation: the scary theory that’s taking economics by storm. The only problem is that it first entered the economics debate in the late 1930s when economies were still caught up in the stagnation of the Great Depression. Then like now the hypothesis is a dud. The problem in the 1930s was dramatically overcome by the onset of World War 2 as governments on both sides of the conflict increased their net spending (fiscal deficits) substantially. The commitment to full employment in the peacetime that followed maintained growth and prosperity for decades until the neo-liberal bean counters regained dominance and started to attack fiscal activism. The cure to the slow growth and high unemployment now is the same as it was then – government deficits are way to small.

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The case of the financial commentator who turned into a banana

Today, I am writing about the mysterious case of the financial commentator who turned into a banana. It happened around 4.5 years ago and has left a disturbing trail of comedic predictions. The person in question still looks a little like he used to although he has clearly become a piece of fruit. Anyway, some further analysis will help us track down the culprit. In simple terms, the perpetrator is that familiar neo-liberal groupthink that we know so well. The commentator was so imbued with it that he turned into a banana. Read on, it is a terrifying tale.

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The UK recovery is a false dawn

A few weeks ago (October 1, 2014), I wrote in this blog – British economic growth shows that on-going deficits work – that the British Chancellor was overseeing an expanding fiscal deficit and public debt ratio, which despite the rhetoric to the contrary, was supporting growth and helping private households increase their saving ratio. The national accounts and public finance data could not support the claim that it was austerity in the UK that was promoting growth. But in drawing that conclusion, I certainly didn’t want to give the impression that the conduct of macroeconomic policy in the UK was appropriate. The point was that growth, albeit tepid, was occurring in the UK and it was not in an environment where the fiscal deficit was being cut. The fact is that the UK economy is in a parlous
state and such that the word recovery is a totally misleading descriptor for what is happening.

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The German ship is sinking under the weight of its own delusions

Eurostat’s recent publication (October 14, 2014) – Industrial production down by 1.8% in euro area – rightfully sends further alarm bells throughout policy makers in Europe, except I suppose Germany where denial seems to be rising as its industrial production levels fall to performance levels that the UK Guardian article (October 9, 2014) – Five charts that show Germany is heading into recession – described as being “shockingly poor”. The Eurostat data shows that industrial production fell by a 4.3 per cent – a very sharp dip in historical context for one month. Vladmimir Putin and ISIL are being blamed among other rather more oblique possible causes. But the reality is clear – the strongest economy in the Eurozone is now faltering under its own policy failures.

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MMT – lacks a political economy?

There was a ‘Guest Editorial’ published on the UK site Renewal last week – Modern money and the escape from austerity – by one Joe Guinan, who lists himself as a Senior Fellow at The Democracy Collaborative and Executive Director of the Next System Project. He is a journalist by background. Renewal is a “A quarterly journal of politics and ideas, committed to exploring and expanding the progressive potential of social democracy”, so it would seem to be wanting to head in the right direction, which reflects my values. The article’s central message is that “Modern monetary theory destroys the intellectual basis for austerity but needs a more robust political economy”. It is a serious embrace with our ideas and it is welcome that Modern Monetary Theory (MMT) is entering the progressive debate in a thoughtful manner and being advanced by others than the small core of original developers (including myself) who, in turn, built the ideas on the back of others long gone. The problem is that I don’t necessarily agree with many of the propositions advanced in the article. Here are a few reasons why.

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The German experiment has failed

In the last week, several new data releases have shown that the Eurozone crisis is now consolidating in the core of Europe – France, Italy and … yes, Germany. The latter has forced nonsensical austerity on its trading partners in the monetary union. And, finally, the inevitable has happened. Germany’s factories are now in decline because the austerity-ravaged economies of Europe can no longer support the levels of imports from Germany that the latter relied on to maintain its growth and place it in a position to lecture and hector the other nations on wage and government spending cuts. The whole policy approach is a disaster and is exacerbating the flawed design of the euro monetary system. The leaders should find a way to dismantle the whole charade and allow nations to seek their own paths to prosperity with their own currencies. The German experiment has failed.

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Non-government debt lessons are not being learned

There were two related articles in the Melbourne Age this weekend, a descriptive account of credit card debt vulnerability across Australian households – Default looms for millions of Australians (October 5, 2014), and an attempted analytical piece – If we are so wealthy, why are we in so much debt? (October 4, 2014). The latter is so intent on pushing an anti federal fiscal deficit angle that it fails to tie in the fact that its two central objects – the massive build up of private debt and the pursuit of fiscal surpluses are intrinsically related. The article attempts to rail against both without remotely understanding their connection. But that is what you expect from journalists who try to venture into areas they have lots of opinions but know little about.

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