One Ferrari does not a recovery make

I thought that blog title today was appropriate given that Aristotle was Greek. Today I explore motor vehicle registrations – well to be exact, a single registration. That is a backdrop to a brief discussion about the OECD’s latest publication – Going for Growth 2013 Report – which takes the ludicrous to a new level. These organisations need to be closed and the cash that governments pump into them to provide very amenable – some would say, over the top – working conditions (high pay, no tax obligations, well supported travel, first class facilities etc) could be diverted into something more useful. Like provide some low-paid workers with jobs. Lets assume one OECD manager earns the same wage as about 20 low-paid workers per week. The trade-off 1 job lost for 20 gained sounds a good bet to me. Anyway, amidst all the talk about structural agendas and reform zeal there is an ugly truth. There has to an easing of the macroeconomic constraint that is preventing economies from generating enough jobs. Firms need to see spending before they will increase production. Making life harder for workers through cuts to wages, conditions of work, pensions and the like will not create a single job. I lie – at least one job. Some OECD official will get assigned the job of evaluating their work and then a renewed bout of lies will emerge clothed in techno-speak. I just know that one Ferrari does not a recovery make. It tells me that the world is turning for the worse.

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Progressive narrative should be human focused and uncompromising

I was reading an interesting article at the weekend (February 17, 2012) in The UK Independent – The Left should learn about plain speaking from George Galloway – which was about language and the way ideology is communicated. The use of nomenclature and communication methods is clearly central to the way a paradigm establishes itself and maintains its popularity even when its legitimacy in theoretical and empirical terms evaporates. The article points to the failure of the “left” to construct an alternative narrative that relates directly to the human experience. It demonstrates that the “right” can lie but relate those lies at a human level to gain traction. They appeal to our intuition which as I noted in this blog – When common sense fails – is bound to lead us astray. There was an excellent example of this in two articles recently. The left has become so paralysed by its embrace of management-consultant styled, neo-liberal techno-speak that it can no longer speak to us at the human level. With millions of people unemployed it should be a political no-brainer to address the concerns of that cohort to garner political support. Instead, so-called progressive governments and parties in advanced nations fall foul of the neo-liberal dialogue about “scroungers” and “dole-bludgers” and demonstrate their resolve by invoking harsh welfare-to-work policies. Nothing progressive will ever come from that surrender to neo-liberalism. That is what this blog is about today.

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Spain is not an example of reform success

There was an article in the Financial Times last week (February 12, 2013) – Europe’s labour market reforms take shape – that claimed that Spain was on the path to glory by hacking into rights of its workforce (that is, the 75 odd percent that still have jobs). It followed another Financial Times article (February 11, 2013) – Productivity is Europe’s ultimate problem – written by the deputy managing director of the IMF and redolent of the ideology that organisation spins as facts. Both articles are part of a phalanx in the conservative press that prefer to lie rather than relate to the facts. Apparently we have a new poster child – Ireland was the first one (now forgotten as it wallows in the malaise of fiscal austerity). Now, Spain is the go – a model for savage labour market reform and export led growth. Well it is a model – for how to ensure the unemployment rate and poverty rates continue to rise and you produce an economy that stops employing its 15-24 year olds. Some poster child! Spain is not an example of reform success. Rather, it demonstrates how misguided the policy debate has become and how a policy devastation is now being seen as good. Truly bizarre.

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Australian government – failing in its most basic responsibility

The Australian government is demonstrating to all of us that they are mishandling fiscal policy. The background is simple. Australia saw its growth vanish and unemployment start rising in December 2008 as the financial crisis spread into the real economy. The government responded, mostly correctly, and introduced a swift and significant fiscal stimulus. The economy resumed growth, the rise in unemployment was pegged (although there wasn’t enough done to generate sufficient jobs growth), and the budget deficit rose. Before the private sector had demonstrated it could take up the spending slack and support the growth process, the Federal government became obsessed with “returning the budget to surplus”, erroneously thinking that this would separate them, politically, from the Opposition. They were wrong. The imposition of fiscal austerity has caused economic growth to slow and tax revenue growth to fall well below projections (declining world commodity prices have also not helped). First, the government abandoned their surplus promise realising that the revenue side was not going to improve sufficiently. Now, they are implying they need to hike income taxes to cover the “revenue shortfall”. If they ever had any credibility as responsible fiscal managers then it is safe to conclude they have none now. Their continued claims about maintaining a “strict fiscal policy” (read: procyclical fiscal stance) are not only moronic but they are also leading to policies which are killing growth and employment.

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Sport and doping – the spreading tentacles of capital

I ride a bike a lot. I raced a bike in European competition for many years. I also started the www-site – cyclingnews.com – which is now the largest of its type in the world. I started it as a way of bringing back news from Europe to my bike racing friends back in Australia who were starved of results and information about cycling. In the 1990s, I was regularly in contact with Lance Armstrong and spent time with him riding and recording his 1998 World Championship campaign in Maastricht. I knew team managers of some of the big teams and lots and lots of riders and other insiders. I know a lot about the insides of the sport – the bellissimo sport – the drug-riddled sport. One and the same. I also have a theoretical framework for analysing the practices in the sport that I think delivers understandings that go beyond the way the mainstream media react when some athlete tests positive to some substance that happens to be on one side of a very arbitrary and inconsistent line which demarcates legal and non-legal. Theses issues are dominating national news in Australia at present after the – Australiam Crime Commission – released the first of its reports on how drug and crime infested Australian sport is. It comes as no surprise.

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US government has not exhausted its fiscal options

Today, I read a Bloomberg article – How the IMF Can Help Reduce Unemployment – which, in part, makes out that the IMF know what they are talking about when it comes to macroeconomic policy (that was the hilarious aspect). The article also claims that the US government has pursued “expansionary fiscal policy … aggressively but growth has remained too weak”. That claim, which surfaces most days, is being used to indoctrinate people into holding the view that fiscal policy has failed and there is little the government can now do other than turn it over the market (with very substantial handouts to the powerful lobby groups – of-course – but that isn’t really government spending is it – not like helping the pitifully poor unemployed who have no income and no power)! This theme repeats like a worn out record. The reality is that the US government didn’t give fiscal policy a chance to work fully. It was clear that the stimulus packages underpinned economic growth in 2009 and 2010 and led to an increase in private confidence (backed by growth in consumption and private investment spending). But the fiscal support was withdrawn too soon as the latest national accounts data clearly shows. The point is that the US government wasn’t aggressive enough, got cold feet too soon, and has never exhausted its fiscal options.

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The US labour market is still in a deplorable state

Last week (February 1, 2013), the – US Bureau of Labor Statistics – released their latest – Employment Situation – January 2013 – which showed that total “nonfarm payroll employment increased by 157,000 in January, and the unemployment rate was essentially unchanged at 7.9 percent”. The question is whether that is a good outcome or not in the scheme of things. The answer is that it remains a fairly bleak outcome especially when we consider the data more deeply. The economy is not growing fast enough to absorb the backlog of workers who were made unemployed in the downturn. There is massive waste now being endured by the economy and disproportionately being borne by the most disadvantaged workers in that economy. It is madness for the politicians to argue about debt ceilings and the rest of the irrelevancies when there is this much waste being created.

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Exploring directions in fiscal policy

This blog extends the discussion in yesterday’s blog – Exploring pro-cyclical budget positions – which is why I am running them on consecutive days. Not that I think any of my readers (Austrian schoolers and other conservatives aside) have memory issues! The discussion that follows focuses on ways in which we can interpret the fiscal stance of a government and hopefully clears up some of the confusion that I read in E-mails I receive from readers. I say that not to put anyone down but rather to recognise that the decompositions of budget outcomes and analysing the direction of fiscal policy on a period-to-period basis is not something that the financial press usually focuses on. In avoid detailed analysis, the press leaves lots of misperceptions unchallenged and often the wrong conclusions are drawn. I am not talking about policy preferences here. Just coming to terms with the facts is sometimes difficult for many commentators to achieve. But, of-course, the “facts” are also sometimes difficult to discover given that the methods used to produce them are often ideologically biased (I am talking here about the decomposition of the actual deficit into structural and cyclical components requires a full employment benchmark, which is where the fun starts.

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Exploring pro-cyclical budget positions

Sometimes one agrees with a conclusion but realises the logic that was used to derive the conclusion was false. Which means that the person will get things wrong when applying the logic to other situations. This is almost always the case when we encounter the reasoning offered by so-called deficit doves. These are economists who do not out-rightly reject the use of deficits but typically believe them to be cyclical phenomenon only and should thus be offset at other points in the economic cycle by surpluses – the so-called balanced budget over the cycle rule. While many progressives think that is a sensible strategy – the reality is that it is an unsustainable fiscal rule to try to follow. The same economists talk about the dangers of pro-cyclical fiscal positions but fail to appreciate that such positions are desirable in certain cases and there is a fundamental asymmetry that applies to evaluation the desirability of a “cyclical” position. Fiscal austerity (pursuing surpluses when the economy is contracting) is never appropriate whereas expanding the deficit when the economy is growing might be. It all depends. This blog aims to clear up some of these misconceptions.

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Britain caught in the mire of its own policy failure

It is a public holiday in Australia – celebrating our national day. For the indigenous Australians, it is symbolically “invasion day” – the day the colonialists came and usurped their rights and engaged in a systematic destruction of their culture and ensured they remain (collectively) among the most disadvantaged citizens on our Earth. So it is a day of shame really. It is also weird that we are gung-ho with nationalism today yet our head of state is the British queen. Taken together it is a confused society – hiding a deeply conservative form of prejudice, fear and paranoia with the anti-intellectual “larrikinism” that many associate with my nation. Not a very compelling mix to say the least. But then I know we need to be careful about generalisations like this. Today, among some pressing deadlines I took a little (depressing) journey into the latest national accounts release from the British Office of National Statistics – Gross Domestic Product Preliminary Estimate, Q4 2012. The narrative gleaned is terrible. It comes on the back of the ONS release of the – Public Sector Finances, December 2012 – which showed that budget deficit and public borrowing rose over the 12 months to December 2012. So at the half-way mark of this government’s tenure, the conclusion is clear – the British government has failed and is inflicting untold damage on its citizens – which has been temporarily interrupted but not curtailed by the Olympic Games.

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Saturday Quiz – January 26, 2013 – answers and discussion

The reference to Invasion Day in this week’s quiz title is in solidarity with the indigenous brothers and sisters in Australia. The other name for yesterday (January 26, 2012) is Australia Day, our national day. It marks the day that the colonists took over this land and declared it – Terra Nullius – or “land belonging to no one”, which explicitly denied the legal rights of the indigenous Australians who had lived here for more than 30,000 years prior to the colonists arrival. 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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ILO …. ILF … IMF

The International Labour Organization (ILO) released its latest – Global Employment Trends 2013 – yesterday (January 22, 2013), which carried the sub-title “Recovering from a second jobs dip”. The way things are going in policy circles next year’s ILO Trends report will be titled something like “Heading into a third jobs dip”. There has been a lot of focus in the last few days on how central banks are standing ready or are about to inject liquidity into their respective economies as a further attempt to boost jobs. The press reports I have read (about Japan, UK etc) never also mention that these monetary policy gymnastics (quantitative easing) do nothing as they stand for aggregate demand. Japan will pick up its growth rate in the coming year not because the BoJ is buying bonds but because the Ministry of Finance will be increasing the budget deficit via some large spending injections. Unfortunately, the UK is determined to ensure it has a quadruple(bypass!)-dip recession. The ILO reports highlights the results of the policy folly in very sharp terms but, unfortunately, still situates that organisation within the neo-liberal orthodoxy when it comes to macroeconomic policy. Their heart is at least in the right place, they just have to move their institutional brain – about 180 degrees.

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Australian labour force data reveals a failed federal economic strategy

A few weeks ago the Federal government admitted that its obsessive pursuit of a budget surplus in the coming year at a time when private spending is still relatively weak was doomed. The slowing Australian economy had undermined its tax base as was always going to happen. The problem is that in trying to impose fiscal austerity the economy has suffered and the labour market is not producing enough jobs to even match the underlying population growth. Today’s release by the Australian Bureau of Statistics (ABS) of the Labour Force data for December 2012 reveals that all the evils on the demand and supply side of the labour were aligned – total employment fell, full-time employment fell, unemployment rose, participation eased and working hours fell. It is certain that underemployment rose given the drop in working hours. In other words, the data is unambiguously bad. The unemployment rate rose to 5.4 per cent. The data is not consistent with any notions that the Australian labour market is booming or close to full employment. The most continuing feature that should warrant immediate policy concern is the appalling state of the youth labour market. My assessment of today’s results – a failing economy with further weakness to come. The Government should wake up to itself and even if only motivated by the federal election later this year it should reverse the direction of fiscal policy and introduce some direct job creation by way of employment-targetted stimulus.

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IMF locked into circular (religious) logic again

Earlier this year the President of the European Commission declared that “the euro crisis is a thing of the past” (Source). As with most things the President says the reality is different to his political speak. The latest news is that Germany went backwards in the fourth-quarter 2012 as the on-going fiscal austerity chokes any hope of growth. The data continues to negate the logic that emerges from agencies such as the IMF. In recent days, the IMF, fresh from admitting what amounts to professional malpractice (see – The culpability lies elsewhere … always! for example) – has just published a paper that seeks to classify governments as to whether they are fiscally prudent or profligate. As you will see these concepts might be bandied about in religious meetings but have no meaning in the way the IMF seeks to apply them to the real world economic debate. They are loaded terms that are defined without reference to anything that matters. The problem is that the policy advice that follows from this sort of irrelevant analysis causes massive damage to the lives of people by undermining the capacity of economies to meet the needs of these people.

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Neo-liberalism fails – time to wake up to that

Regular readers will know that I place the shifts in the distribution of national income (at the sectoral level) as one of the keys to understanding the current economic crisis and the what needs to be done to get out of it. I covered this early on in this blog – The origins of the economic crisis. The mainstream press is now finally latching on to this issue, which is good but sadly the media is still allowing itself to be captured by mainstream economists who have a particular and wrong view of what has been happening, why it has occurred and what the implications of it are for public policy. The fundamental changes that are needed to policy frameworks and societal narratives before the crisis is full resolved are still so far off the radar though. Until we start promoting discussions such as that which follows there will be only limited progress to a sustainable solution.

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We need more artists and fewer entrepreneurs

When the early neo-liberal governments in Britain, Australia and New Zealand wanted to craft the public debate so that we wouldn’t realise that privatisation was just selling wealth that we already owned collectively to enrich a few of us as well as all the parasitic lawyers and brokers who managed the sales, they pushed the idea that we were all shareholders now. The old idea of capitalists versus workers was dead because we were all basically capitalists and the wealth would grow accordingly. What a disaster that initial experience with the neo-liberal myth has been. Now, that governments are deliberately creating unemployment and undermining paid-work opportunities with fiscal austerity, the public debate is being bombarded with a variation on that same theme. Now we are being told that it is so passe to think in terms of workers and bosses because in reality we are all basically entrepreneurs. Even the most lowly-paid casualised worker who is unfortunate enough to have to eke out an existence via labour hire companies is cast gloriously as a profit-seeking entrepreneur. The rot is seeping into our educational institutions as well.

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Treasurer wants policy to be driven by models that can’t beat a random walk

On Monday (January 7, 2012) – The culpability lies elsewhere … always! – I wrote about the unacceptably large forecasting errors from the IMF derived from models that informed their input into bailout packages etc, which in turn set the fiscal austerity agenda and as resulted in millions becoming unemployed. I was interviewed about this today by the ABC National Radio program – the World Today – and told the journalist that if errors of this size occurred in medicine, the practitioner would be jailed for professional negligence. A summarised transcript from the World Today programme is available here – Eurozone jobless rate hits record high. A few snippets from a 10 minute interview! I did another interview today about a paper that came out recently from the RBA, which largely admitted its forecasting record was inferior to what we might have gained from assuming a random walk (unemployment) or simple historical averages (real GDP growth). You have to see this incompetence not in terms of some technical boffins waxing lyrical in a research paper about a range of technical measures of their errors but rather, in terms of the damage that the policy that has been informed by these errors. Today we received more evidence of that damage in the form of the ABS publication – Job Vacancies, Australia (November 2011). The evidence is clear. Our economy is faltering because policy settings have been wrong. They have been wrong because the policy setting paradigm is wrong and this has led to the use of models which deliver predictions that cannot be sustained given the underlying dynamics of the monetary system that this ideology chooses to ignore.

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The culpability lies elsewhere … always!

Two papers have come out in the first week of January that provide further evidential support for the argument that the majority of macroeconomics that is taught in standard university programs is worthless. The first (published January 3, 2013) – Growth Forecast Errors and Fiscal Multipliers – from the IMF attempts to explain why the planned fiscal austerity measures in advanced economies have been more damaging than mainstream economists predicted. It is an excruciating attempt at regaining credibility for the seriously wayward IMF. The problem is that its credibility is so far in deficit that it has a lot of consolidation to do before anyone should believe them again. The second paper (published January 2013) – A Boost in the Paycheck: Survey Evidence on Workers’ Response to the 2011 Payroll Tax Cuts – from researchers at the Federal Reserve Bank of New York “presents new survey evidences on workers’ response to the 2011 payroll tax cuts”. The results of the survey? Much higher estimates of the consumption propensities than were predicated from mainstream economic theory. Implication? The standard theory taught to students is wrong and should be disregarded.

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Keynes and the Classics – Part 2

I am departing from regular practice today by taking advantage of a lull in the news reports to advance the draft versions of the Modern Monetary Theory textbook that I am writing with my colleague and friend Randy Wray. We are behind schedule at present and so I am concentrating attention on progressing the project to completion. I am also currently avoiding any commentary about the US fiscal cliff resolution farce – I thought Andy Borowitz (January 3, 2012) –
Washington celebrates solving totally unnecessary crisis they created – was about right. Hysterical if it wasn’t so tragic. America – we are all laughing at you – while laughing at our own stupidity as well given the behaviour of our own governments (Europe, UK, Australia etc). Anyway, 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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Australia’s own little fiscal cliff

The Australian version of the “fiscal cliff” is about poor people living on income support waking up on New Year’s Day when everyone is full of bonhomie for their fellow Australian and finding out that recent legislative changes made by the supposed pro-disadvantaged government, which have now become active, will leave them, in some cases, $A120 worse of a week. That is, they are losing a considerable proportion of their income. The way I judge public policy is not by how rich it makes the highest earners and asset holders in our midst but how rich it makes the poorest members of society. A policy framework that deliberately targets the most disadvantaged and makes them poorer is a sign of a failed state. The recent legislative changes reinforce the Australian government’s refusal to provide sufficient income support for the unemployment despite it being widely accepted that they are being forced to live well below the poverty line. The Government’s justification is that they need to pursue a budget surplus and have deliberately undermined the capacity of the economy to generate enough work as a result. The relentless attacks on the poor in this country violate my pubic policy assessment rule and indicate we are indeed a failed state.

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