Troika Technical Manual: How to wreck (another) country?

Cyprus is a small country of some 839 thousand people. It joined the Eurozone on January 1, 2008. That decision sealed its fate. Now the Troika are making it pay for that mistake, one that the Troika lured it into making. Such is the way of the Eurozone. The elites set the system up to suit their ideological preferences. Lure the local national elites who aspire to wine and dine in style in Brussels into becoming pro-Euro. Then attack the ordinary folks when the system collapses. But as we know, the Eurozone was a system designed to fail as soon as the first major negative aggregate demand shock hit. The shock hit in 2008. The system failed. Since then the elites have been divining ways to push the costs of those mistakes onto those who are least able to pay. How many Euro decision-makers are unemployed as a result of the crisis? How many Euro decision-makers who have since retired have lost any pension entitlements? But now the citizens of Cyprus are having their savings plundered by the Troika. The shamelessness seems to have no bounds. It is not even a strategy that will deliver the outcomes they have defined. The elites go from one blunder to the next and meanwhile all the key economic targets continue to deteriorate (like employment growth etc). And even the irrelevant targets that are the obsession of the elites also move in the opposite direction to that intended. If it wasn’t so tragic it would be the comedy of the century.

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Saturday Quiz – March 9, 2013 – 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.

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Australian national accounts – oh, the irony

The Australian economy grew in trend terms by 1 per cent in the December-quarter 2011, 0.9 per cent in the March-quarter 2012, 0.8 per cent in the June-quarter 2012, 0.7 per cent in the September-quarter 2012, and in today’s Australian Bureau of Statistics – Australian National Accounts – data covering the December-quarter 2012, the real GDP growth figure was 0.6 per cent. Further, the two main growth drivers in the December-quarter – Net exports (0.6 percentage points) and Public Investment (1.1 percentage points) – will not endure. Outlook: poor. But the irony is that while the Federal government is doing its best to undermine the economy by imposing fiscal austerity, it was the public corporations at the State/Local government level that provided the public capital infrastructure boost. Without this government spending support, the Australian economy would be in a deepening recession! I wonder what those who say that public spending undermines growth would say today! Gravity denial would be out in full force. I will keep my ears peeled and report back on the more ingenious contributions. While the spin is that the economy grew at 3 per cent over 2012, which is true, the forward-looking assessment is that the national growth rate is running around 2 to 2.5 per cent and falling, which is already well below trend. Employment growth was flat and real net national disposable income fell sharply in the December-quarter. The terms of trade, which has been helping to drive growth in the external sector also fell sharply. The State and Territory Final Demand data also shows that the East Coast and South Australia area, where the vast majority of the population lives and seeks work is now in recession. The outlook is decidedly negative.

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Saturday Quiz – March 2, 2013 – 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.

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Learning standards in economics – Part 3

This is Part 3 (and the final part) of my mini-series of blogs – “Learning Standards in Economics”. In this blog I consider the way in which learning standards have evolved in the United Kingdom. I propose that they privilege the curriculum development in favour of a monistic approach – which biases programs to advance the competiive, neo-classical model as the way the real world operates. These standards deter universities from offering pluralistic approaches to economics that promote its broad social science qualities. The narrow monist approach, of-course, serves to reinforce the neo-liberal dominance in economic policy making. Such an approach has been one of the principle reasons the world is mired in financial and economic crisis and doesn’t appear to be able to find a way out. The policy framework being imposed by governments is closing the door to growth and increasing unemployment and poverty rates. It is based on the mainstream textbook models that dominate economics education. I hope the Australian exercise in developing so-called “learning standards in economics” will reject the neo-classical textbook monistic approach and come out in favour of a radical rethink of the way economics is taught in Australian universities. However, given the real politic that surrounds these exercises and the bodies that are key players in the development of the standards I won’t be holding my breath on that one.

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Learning standards in economics – Part 2

Today is Part 2 of my little mini-series on “Learning standards in economics”. It might appear to be a break in continuity from yesterday’s blog but when I get around to Part 3, I think you will see the way in which today’s discussion fits well. Last month (January 24, 2013), the Peter Peterson Foundation – which is just a propaganda front for people with too much money and influence designed to advance spurious ideas about the economy – released a statement – College Students Launch Campaigns Across the Country to Activate a New Generation on the Nation’s Fiscal Challenges. When I delved into what it was about the story became very mirky indeed. Teams of students are being assembled under the banner of what we might call the “we are self-important and want to show it” banner and being coaxed into action The essential part of education – the search for knowledge – is the missing part. The myth that the US government is going broke is the starting point not the enquiry.

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Saturday Quiz – February 23, 2013 – answers and discussion

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

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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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Unemployment and inflation – Part 3

I am now using Friday’s blog space to provide draft versions of the Modern Monetary Theory textbook that I am writing with my colleague and friend Randy Wray. We expect to complete the text during 2013 (to be ready in draft form for second semester teaching). 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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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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I wonder what the hell I have been writing all these years

I have spent almost the entire time I have been in academic life – from the time I was a fourth-year student, onto Masters, then PhD and subsequently as an teaching and research academic – studying, writing, publishing, and teaching about the Phillips curve and the link between labour markets and inflation. I have published many articles on how full employment was abandoned and how it can be restored taking care to consider how an economy that approaches high pressure might cope with the increasing nominal demands on real output. I have advanced various policy options to resolve the problem of incompatible nominal demands on such output and provided the pro and con of each. I have published some very detailed papers on those questions and my recent book – Full Employment abandoned – went into all the tedious detail of how inflation occurs and what can be done about it. But, apparently, Modern Monetary Theory (MMT) ignores “the dilemmas posed by Phillips curve analysis” as one of its many alleged sins. I wonder what the hell I have been writing all these years

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Australian labour market – still slipping backwards

Today’s release by the Australian Bureau of Statistics (ABS) of the Labour Force data for January 2013 reveals that the Australian labour market continues to slide. While total employment rose modestly (very), full-time employment fell for the third consecutive month and working hours also fell. The small rise in unemployment would have been much worse had not the participation rate fell again. The unemployment rate remained unchanged at 5.4 per cent but would have been at least 0.1 per cent higher had the participation rate not fallen. So both unemployment and hidden unemployment rose. The rate of employment growth is not sufficient to even keep pace with the underlying population growth. 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 realised late in 2012 that its obsessive pursuit of a budget surplus was going to fail. It should now go one step further towards becoming economically responsible and reverse the direction of fiscal policy by introducing some significant direct job creation. The budget deficit is too low in Australia by perhaps 2-3 per cent of GDP.

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Unemployment and inflation – Part 1

Tomorrow the Labour Force data comes out in Australia and I will obviously be analysing that. Regular readers will note that of late I have been using Thursday and Friday to update you on the progress of our Modern Monetary Theory (MMT) text-book, which I am writing in liaison with my colleague and friend, Randy Wray. We are trying to get it completed for use in second-semester 2013 and so I am spending more time on it to meet that expectation. So today – it is text-book day given tomorrow we will be talking about how bad the labour market is (unless I am pleasantly surprised and the data is better than I expect). Today, I am moving on to develop the material on unemployment and inflation.

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Saturday Quiz – February 2, 2013 – 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.

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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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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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Okun’s Law survives 50 years – trouble for the neo-liberals

The IMF recently released an interesting Working Paper – Okun’s Law: Fit at 50? – which considers the relationship between the unemployment rate and real GDP growth. I mentioned Arthur Okun in yesterday’s blog. The paper is useful because it debunks a lot of recent research from mainstream economists which claimed that real GDP growth did not bring unemployment down (or not by much). The arguments were then part of the general attack on fiscal activism. The IMF paper finds that the output gaps created by the GFC in the US were so large, that the recovery had to be stronger than usual to eat into the massive buildup in unemployment. The fact that the output gaps have persisted well into the recovery means that fiscal policy has not been aggressive enough in the US. The large output gap that the GFC created needed a very large fiscal response.The bottom line is that shifts in the unemployment is driven by changes output (with the other cyclical adjustments noted above which mediate this relationship). Not a lot has changed – spending equals income which drives employment growth and leads to reductions in unemployment. The neo-liberals can deny that until the cows come homebut those of us who read understand the evidence know they are lying. The message just needs to spread.

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Saturday Quiz – January 19, 2013 – 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.

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