Friday lay day – government and central bank venality

Its my Friday lay day blog where I just wander around in the time I allocate to writing this blog. The venality of neo-liberal governments is never far from the surface. The more successful ones manage to mostly hide the nasty stuff they get up to from the general public or assuage public concern via their spin doctors. Sometimes, an outrageous decision breaks out of the cocoon of spin and demonstrates the sheer bastardry of the political elites. That happened in Australia over the last week when it was announced that the Australian government was providing $A4 million to the University of Western Australia to set up a new think tank under the influence of a Dane Bjørn Lomborg – who has been described as a “sceptical environmentalist” (Source). Our Prime Minister has favourably quoted Lomborg’s work in his own work and is the Australian leader who abandoned the carbon tax and thinks continued use of “coal is good for humanity” (Source).

Read more

Finland – more austerity is not the answer

Finland has been one of the Eurozone nations taking a hardline on Greek austerity and have consistently refused to support on-going bailouts of Greece. At the weekend, Finland went to the polls and tossed out the incumbent government and put in its place a centrist party that stood on a platform of a wage freeze and further spending cuts, allegedly to restore Finland’s competitive position. If that prospect wasn’t bad enough, the Centre Party will have to enter a coalition with the party that came second in the polls – the Finns Party, which is a ragbag anti-immigration group that wants Greece kicked out of the Eurozone. It is possible that Finland’s Parliament will not support any further European Union bailouts for Greece. Apparently Finn’s are buying the line that further and intensified austerity is necessary because of rising labour costs have undermined Finland’s capacity to compete in international markets as the demise of Nokia, so the narrative goes, illustrates. The last thing that Finland needs right now is more austerity.

Read more

IMF – labour market regulations do not undermine potential growth

On the eve of the Annual Spring Meetings of the IMF and the World Bank in Washington last week, German Finance Minister Wolfgang Schäuble wrote an article in the New York Times (April 15, 2015) – Wolfgang Schäuble on German Priorities and Eurozone Myths – justifying the German stance with respect to the Eurozone crisis. He argued that the Eurozone was pursuing the correct response by placing a focus on “structural reforms”. He said that the IMF boss was in accord with this assessment and further structural reforms were necessary, including “more flexible labor markets”. He included labour market reform as part of a push for “modernization and regulatory improvements”. In denial of the basic rule of macroeconomics that ‘spending equals income’, Schäuble said that fiscal stimulus “is not part of the plan”. He might have read the complete text of the latest IMF World Economic Outlook (April 2015) – Uneven Growth: Short- and Long-Term Factors – before he sought comfort in the imprimatur of the IMF. That organisation seems to say one thing here and another there! It has become schizoid as it confronts the fact that its Groupthink sees itself as a major part of the neo-liberal free market (help the rich) putsch whereas its research economists find out that the facts don’t match the political (ideological) stance. The IMF should be defunded and recreated to serve positive purposes.

Read more

Saturday Quiz – April 18, 2015 – answers and discussion

Here are the answers with discussion for yesterday’s quiz. The information provided should help you work out why you missed a question or three! If you haven’t already done the Quiz from yesterday then have a go at it before you read the answers. I hope this helps you develop an understanding of Modern Monetary Theory (MMT) and its application to macroeconomic thinking. Comments as usual welcome, especially if I have made an error.

Read more

The skies above Britain predicted to fall down … again. Don’t fear!

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.

Read more

Saturday Quiz – April 11, 2015 – answers and discussion

Here are the answers with discussion for yesterday’s quiz. The information provided should help you work out why you missed a question or three! If you haven’t already done the Quiz from yesterday then have a go at it before you read the answers. I hope this helps you develop an understanding of modern monetary theory (MMT) and its application to macroeconomic thinking. Comments as usual welcome, especially if I have made an error.

Read more

Friday lay day – The Troika is the enemy and its either exit or capitulation

Its the Friday lay day blog. Lay day means rest, sometimes. The Greek government paid €450 million back to the IMF bloodsuckers yesterday which apparently calmed markets (Source). How can a so-called bankrupt country afford to pay that sort of cash? Well it can by causing more unemployment and poverty. The Government is trying to appease the Troika (IMF, ECB and the European Union) so that they will given them more cash in the coming weeks. Appeasement is an appropriate word here. Just as in the historical context, it means going along with something evil that will ultimately backfire and cause more grief. But then according to the US economist James Galbraith, in his latest apology (April 7, 2015), Syriza is – The Real Thing: An Anti-austerity European Government. Funny about that. Unless it is flying below all perception, Syriza seems trapped by an anti-democratic force that is intent on squeezing any notion of abandoning austerity from its agenda. And, try to square Galbraith’s claims against the insights provided by Alain Badiou and Stathis Kouvelakis in this interchange (April 3, 2015) – Dangerous Days Ahead.

Read more

Australia’s generosity to other nations is collapsing

There was a story in the Australian press (April 8, 2015) – ‘Impossible choices’ to be made as human cost of foreign aid squeeze measured – that not only exposes the deep flaws in economic reasoning that accompany neo-liberalism’s emphasis on austerity but also makes one ashamed to be Australian. The problem, however, is not Australian-specific. The neo-liberal paradigm rules the World at present and humanity generally is the victim, particularly those most disadvantaged in material terms. The cuts announced by the Australia federal government to our Overseas Aid Program in the next three years will be the largest shift in provision of aid in our history. The projected cuts are now starting to manifest in concrete terms as aid agencies start to cancel programs and lay off staff. Once again the myths of neo-liberal macroeconomics leads us to accept governments doing appalling things in our name.

Read more

Monetary policy is largely ineffective

Australia is demonstrating at the moment the monumental bind that neo-liberal (Monetarist) thinking has reached with respect to macroeconomic policy. By extolling the virtues of monetary policy as the only viable counter-stabilisation tool and eschewing the use of fiscal policy (biasing it towards austerity and the falsely virtued goal of fiscal surpluses), the policy making environment has created an economy that is susceptible to asset price inflation (particularly housing) and stagnant growth with rising unemployment. This experience is common across other economies and to break out of the destructive malaise, there will have to be a major shift in policy awareness – away from the exclusive use of monetary policy to work against the private spending cycle and towards fiscal policy as the only effective counter-stabilisation tool the government has available. The global financial crisis was caused by the elevation of monetary policy and the stagnation that has followed continues the problem.

Read more

Saturday Quiz – April 4, 2015 – answers and discussion

Here are the answers with discussion for yesterday’s quiz. The information provided should help you work out why you missed a question or three! If you haven’t already done the Quiz from yesterday then have a go at it before you read the answers. I hope this helps you develop an understanding of modern monetary theory (MMT) and its application to macroeconomic thinking. Comments as usual welcome, especially if I have made an error.

Read more

Welfare generosity increases commitment to work

In Australia successive governments (Labor and conservative) have refused to lift the unemployment benefit in line with inflation. As a result the real benefit has fallen dramatically and the unemployment benefit recipients now live well below the accepted poverty line. There have also been attacks on those who live on single parent pensions, disability pensions and other forms of income support associated with disadvantage and dislocation from the labour market. In the US, the Congress cut entitlements to unemployment benefits long before the damage from the crisis was over. In Britain, both sides of politics talk tough about cutting welfare benefits and the Conservatives has indicated that it will cut benefits significantly to force people to find employment. In the Eurozone, massive damage is being inflicted on the most disadvantaged workers as the austerity mavens hack into welfare payments. All these policy ventures are informed by the intellectually bankrupt profession that I belong to. In universities around the world, mainstream economists prattle on about ‘corner solutions’, which in English means that the provision of income support associated with unemployment subsidises the same and leads to less search effort and welfare dependency. The claim is that if benefits are cut people will search for jobs and ‘fiscal stress’ will be relieved. There is a sanctimonious moralism about it all as well buttressed by terminology such as “lifters and leaners”, “dole bludgers”, “job snobs”, “cruisers” as if those in disadvantage without work have chosen that state as a deliberate strategy to bludge on the rest of the population. The problem for all of this is that the credible research comes to the exact opposite conclusion: employment commitment is highest where the generosity of the welfare state is the highest. The neo-liberals need to go suck that for a while.

Read more

Wage rises are required – real wages must grow in line with productivity

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.

Read more

ECB should start funding government infrastructure and cash handouts

I was a signatory to a letter published in the Financial Times on Thursday (March 26, 2015) – Better ways to boost eurozone economy and employment – which called for a major fiscal stimulus from the European Central Bank (given it is the only body in the Eurozone that can introduce such a stimulus). The fiscal stimulus would take the form of a cash injection using the ECB’s currency monopoly powers. A co-signatory was Robert Skidelsky, Emeritus Professor, Warwick University, renowned Keynesian historian and Keynes’ biographer. Amazingly, Skidelsky wrote an article in the UK Guardian two days before the FT Letter was published (March 24, 2015) – Fiscal virtue and fiscal vice – macroeconomics at a crossroads – which would appear to contradict the policy proposal we advocated in the FT Letter. The Guardian article is surrender-monkey territory and I disagree with most of it. It puts the progressive case on the back foot. What the hell is going on?

Read more

Saturday Quiz – March 28, 2015 – answers and discussion

Here are the answers with discussion for yesterday’s quiz. The information provided should help you work out why you missed a question or three! If you haven’t already done the Quiz from yesterday then have a go at it before you read the answers. I hope this helps you develop an understanding of modern monetary theory (MMT) and its application to macroeconomic thinking. Comments as usual welcome, especially if I have made an error.

Read more

European Youth Guarantee audit exposes its (austerity) flaws

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.

Read more

The neo-liberal emperors are naked and its not a good look

Recall back to the worst part of the GFC when the Australian government announced a relatively large fiscal intervention in late 2008, we had a swathe of financial market commentators predicting the worst. This article (published July 11, 2009) – Alarming debt bomb is ticking – was representative of the hysteria that the public was confronted with. We read about “a nearly saturated bond market” and the ticking time bomb of government debt. Apparently, the Australian government was soon to run out of money and would not be able to fund itself. There were predictions of a “failed auction, when there are insufficient bids from authorised dealers to cover the volume of bonds offered”. The intent of all these sorts of articles were to put public pressure on the government to impose austerity (but leave any handouts to the corporate sector) intact. Some five years later, the fiscal deficit is still rising. Yesterday (March 24, 2015), the Australian Office of Financial Management (AOFM), which issues and manages Federal government debt, issued its latest press release – Pricing of New June 2035 Treasury Bond. I wonder when all the retractions are going to come from the financial market commentators, the Treasurer and a range of academics who were claiming there was a calamity approaching. Amazing really. Read on.

Read more

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.

Read more

Eurozone unemployment – little to do with international competitiveness

The so-called ‘Informal European Council’ released a document on February 12, 2015 – Preparing for Next Steps on Better Economic Governance in the Euro Area: Analytical Note – which has been used as a background paper to batter the Greeks into submission in the latest round of the Eurozone crisis. It was published under the authorshop of Jean-Claude Juncker (President of the European Commission) with “close cooperation” with Donald Tusk (President of the European Council), Jeroen Dijsselbloem (President of the Eurogroup of Finance Ministers) and Mario Draghi (ECB boss). All that is missing is the Madame from the IMF to complete the Troika. This is a very dishonest document, deliberately framed to advance the austerity agenda and damage the living standards of some of the nations within the monetary union. It is hard how any serious economist would put their name to this sort of analysis.

Read more

Saturday Quiz – March 21, 2015 – answers and discussion

Here are the answers with discussion for yesterday’s quiz. The information provided should help you work out why you missed a question or three! If you haven’t already done the Quiz from yesterday then have a go at it before you read the answers. I hope this helps you develop an understanding of modern monetary theory (MMT) and its application to macroeconomic thinking. Comments as usual welcome, especially if I have made an error.

Read more

British fiscal statement – continues the lie about austerity

The British Chancellor George Osborne told the British people during his fiscal presentation yesterday that the “The sun is starting to shine – and we are fixing the roof”, which was code for the age of austerity is over. The problem with that narrative is that the sun over Britain is pretty weak, has been shining since 2012 when the British government deferred its austerity push when the nascent economic recovery it inherited tanked after its first fiscal exercise in June 2010. The strategy then was clear – they kept the fiscal deficit at relatively high levels (even if some of the shifting of expenditures etc cause inequities and undermines the prosperity of certain cohorts). Those deficits have supported growth over the last several years. But growth has also come from the stimulus the government gave to the housing sector (not the construction of houses but the churning of existing stock) in the 2012 and 2013 Fiscal Statements (aka the ‘Budget’). That growth strategy is ephemeral because the household sector can only absorb so much extra debt given its already highly indebted state. Overall, the fiscal narrative in Britain put out by the Conservatives is a lie. They have not created a nation of “Makers” and growth has not come from austerity. If you want to see what austerity does just look across the Channel to Italy, France, and, of course Greece. The UK has not demonstrated that austerity is a stimulus to growth.

Read more
Back To Top