Yet another solution for the Eurozone

The basis of a fiat currency, which is issued under monopoly conditions by the government and has no intrinsic value (unlike say gold or silver currencies) is that it is the only unit that the non-government sector can use to relinquish its tax and related obligations to the government. That property immediately makes the otherwise worthless token valuable and demanded. If there was no capacity to use the currency for this purpose then why we would agree to use the government’s preferred currency? Recently, some economists in Italy have come up with a hybrid scheme to save the euro yet allow Italy to resume growth without violating the rules governed by the Stability and Growth Pact and without the ECB violating its no bailout clause, even though both violations have occurred in the last 5 years and been overlooked by the elites. The plan is similar to that proposed in 2009 by the Government in California. It has merit but ultimately misses the point. The Eurozone problem is the euro!

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Time to ditch the export-led growth mania

Last week, the former head of the Australian Treasury, Ken Henry gave a speech at the Australian National University entitled – Writing a New Australian Story – which received considerable press coverage. His message has relevance to all advanced nations who are engaged in a war on their population via fiscal austerity and attacks on workers wages and conditions as a enhancing so-called international competitiveness and engendering an export-led recovery. He considers these things are fine but not as ends in themselves and successive Australian governments have forgotten that message and undermined our national prosperity as a result. He believes it is time to reorient the public debate to focus on the challenges ahead rather than be mired in single-minded goals that only help a small sector of our society. I agree with some of what he says but we reach the same conclusions from an entirely different body of economic understanding. I had a 4-hour flight today on my way up to the North of Australia and this is what I wrote on the journey to keep myself amused.

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G20 meetings and structure part of the problem

There are parallel universes operating when it comes to neo-liberal politicians attempting to deal with reality. The G20 Finance Ministers and Central Bank Governors concluded their weekend talkfest in Cairns yesterday and you might be excused for thinking there is a jobs glut across their economies. As an aside, fortunately, this pathetic lot of individuals were meeting about as far north as one can go on the Australian continent, which meant they were kept out of the civilised parts of the nation where the rest of us live. Given Australia is currently hosting the G20 this year, the event gave our buffoon of a Federal Treasurer the chance to bathe in the limelight and deliver the major press conference.

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Saturday Quiz – September 20, 2014 – 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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Friday lay day

Its my Friday lay day, which means a relative blog rest day. Relative is relative. This week saw the ramping up of the so-called ‘War on Terror’, which was a smokescreen George Bush and his conservative allies used to illegally invade countries that they didn’t like or who had strategic assets (such as oil) and who they knew couldn’t defend themselves. The pretext was to make the world safer but the reality is that it has made the world more dangerous. If we are to believe the press, yesterday’s raids in Sydney and Brisbane and subsequent press reporting suggests that some random citizens were about to be dragged off the street, beheaded with a nasty looking sword inscribed with Arabic characters, and then paraded on YouTube for the whole world to see. I think the whole ‘western’ response to all this is unwise.

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Japan’s growth slows under tax hikes but the OECD want more

The OECD yesterday released their interim Economic Outlook and claimed that real economic growth around the world was slowing because of a lack of spending. Correct. But then they determined that structural reforms and further fiscal contraction was required in many countries, including Japan. Incorrect. The fact that they have departed from the annual release of the Outlook (usually comes out in May each year) indicates the organisation is suffering a sort of attention deficit disorder – they just crave attention and their senior officials love pontificating in front of audiences with their charts and projections that attempt to portray gravitas. No one really questions them about how wrong their last projections were or that cutting spending is bad for an economy struggling to grow. All the participants just get sucked into their own sense of self-importance because the event generates headlines and the neo-liberal deception rolls on. The OECD needs a reality check on Japan, but it isn’t the only organisation that is pumping out nonsense this week.

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Public employment and other matters of scale

I gave a keynote presentation at a recent conference where I showed that public sector employment contractions in Australia were a significant part of the rise in unemployment in Australia since the late 1980s. Had the public maintained its scale (proportion) with the underlying growth in the population then unemployment would have remained low throughout that period. The neo-liberal onslaught and the fiscal surplus fetishism has been a major reason why persistent unemployment occurs. All the nonsense about structural reform and the need to cut workplace protection overlook this fact. The government made a political decision to significantly cut its own employment and quite apart from the fluctuations in the private sector and the increased precariousness in private employment, that decision by government has had devastating consequences. The same situation arises in many advanced western nations under the spell of neo-liberalism. The thing about the current pro-market orthodoxy is that it has lost all sense of proportion. Mass unemployment involving billions of dollars of lost income is deliberately created by policy makers in search of a few pennies (relatively) in making ports work more quickly etc (microeconomic reform). In Europe, all sense of proportion has been lost. Read on …

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Friday lay day

Its Friday and my declared lay day for blogging. I am currently working on some research analysing the shift in patterns of regional unemployment in Europe as a result of the GFC and the policy austerity that followed (it is an invited paper from one of the leading regional science journals). That is my most pressing deadline. The patterns that we are picking up are interesting already and will be analysed in more formal terms using spatial econometric tools. I will report more fully when the paper is finished around the end of the month. I am also working on the completion of our Modern Monetary Theory (MMT) textbook, and a book on the evolution of MMT (due later this year). Bit busy.

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Australia labour force data – now a million underemployed

Today’s release of the – Labour Force data – for August 2014 by the Australian Bureau of Statistics revealed an extraordinary rise in part-time employment and a decline in unemployment. The results are suspicious as the ABS themselves acknowledge. Despite the massive increase in part-time employment, total working hours barely rose and the upshot was the underemployment jumped sharply. There are now more than 1 million workers in Australia who are underemployment. The broad labour underutilisation rate jumped from 13.5 to 14.6 per cent. Teenagers gained some of the part-time employment growth but full-time employment slumped further. The Government will be claiming the employment reversal is a vindication of their economic policy – but we will have to see if the sudden jump is sustained or is a statistical artifact.

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Our poster child keeps exposing the myths

A regular occurrence is the prediction of doom for Japan. Some minor upturn in Japanese government bond yields or a movement in some other irrelevant financial statistic relating to the Japanese public sector sends the financial press into apoplexy. But the Japanese economy continues to defy all these prophecies from the neo-liberal zealots and eventually they will be dismissed by the broader public as the education process continues. The latest dramas surround the massive purchases of Japanese Government Bonds (JGBs) by the Bank of Japan. The fact is that the Bank of Japan is currently exposing the myths of the mainstream position even if it would not see it that way. Our post child just keeps giving us real life examples to substantiate the views presented in Modern Monetary Theory (MMT).

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Saturday Quiz – September 6, 2014 – 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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Friday lay day

Its my Friday Lay Day blog, which means I don’t really write one. I am working on an Modern Monetary Theory (MMT) volume for my publisher, Edward Elgar, which will document, to date, the key literature that I consider to be foundational to the development of what we now call MMT. I am putting the literature together and writing an extended introduction explaining how each contribution fits into the jigsaw. I am starting with Marx (of-course)! But today, I also take a moment to briefly reflect on an article that apppeared in the German Der Spiegel (September 3, 2014) – France and Friends: Merkel Increasingly Isolated on Austerity. I will follow up on this next week in more detail. The reflection is really just a segue for one of my favourite songs …

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Neo-liberal capture of the policy making process in Europe

Mainstream macroeconomics has mounted a range of arguments over the years to argue against any discretionary involvement by governments or regulators in the economy. The claim is always that the ‘market’ will self regulate and weed out bad players and produce the best outcomes with the least resources each period of activity. Various fancy terms are introduced into textbooks that make these arguments seem to have scientific weight. In narratives, there is often claims that left-wing groups blurred as trade unions have too much influence on political processes, particularly when a non-conservative party is in power. Rarely, is there any discussion of the way governments (of all political persuasions) become captured by the financial and industrial capitalist elites and become meagre conduits for capitalist rule. The west talks a lot about democratic rights and freedoms and people dutifully wander off at appointed times and cast votes which by the end of the day usually result in a government being elected. But they rarely realise that lying behind all of that flim-flam is rule by capital. There is very little democracy in advanced nations. We might turf out one party and elect another but the domination of capital persists and the lobbyists just duchess and bully a new political machine. The European Union takes this violation of democratic rights to new heights.

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Australian national accounts – weak and getting weaker

When the first-quarter National Accounts data came out for Australia I noted that despite the relatively strong growth recorded in that period, the Australian economy was in a fragile state and the contemporary indicators (given that the real GDP data is 3 months old by the time it is published) were indicating that the economy would slow significantly in the June-quarter. Today’s Australian Bureau of Statistics – Australian National Accounts – for the June-quarter 2014, confirms that prediction. Real GDP growth grew by 0.5 per cent down from 1.1 per cent in the June-quarter 2013. The annualised growth rate of 3.1 per cent is being held up by the strong June-quarter growth but something around 2 per cent per annum looking forward is a more realistic assessment of where the economy is at present. The external sector is now a negative influence on growth as is the government sector. In this quarter, there was a large inventory adjustment (up) which was the difference between positive and negative growth overall. That short of inventory swing will not continue. With export prices plummetting due to a glut in iron ore shipments to China, the external sector will continue to be a drag. Fiscal austerity is set to worse, which means that the data paints a fairly gloomy picture for the Australian economy for the rest of this year at least.

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Same old story – poor getting poorer and more indebted and the rich …

I have started to research the idea of the disappearing or shrinking middle class as part of a book project (for 2015) I am amassing materials for. The idea is simple but the conceptualisation and demarcation of the idea is rather complex. The hypothesis is that Capitalism is now striking at the income and wealth segment that has helped give it stability (which in this sense relates to not having a revolution rather than eliminating major economic cycles and mass unemployment). Marx said that religion was the opiate of the masses that kept them in line whereas in modern times it is mass consumption and credit that seems to keep the middle class in line. The rise in income and wealth inequality over the last 3 decades under the watch of neo-liberalism is obvious and initially showed up as a widening 90/10 gap (the numbers being deciles in the relevant distribution). But as the lowest income groups were marginalised, the dynamic moved on and started hollowing out the middle deciles. Real wages have lagged well behind productivity growth and mass unemployment is infiltrating the middle-income cohorts who typically have superior education, which has insulated them from job loss. The US Census Bureau provides excellent data on – Wealth and Asset Ownership, which allows us to trace the trends in household net worth and debt in the US in some detail. This blog just documents some of the characteristics of those distributions – it is preliminary work for me but of interest nonetheless.

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Large-scale employment guarantee scheme in India improving over time

Today I am reflecting on employment guarantees. I ran into a mate in a computer shop in Melbourne yesterday, totally by accident. He happens to be one of the big players in the job services sector – the unemployment industry. We exchanged our usual pleasantries and then we got angry together about the government policies – the usual interaction. Then I said well what we need is all you guys and the related charities (such as the Brotherhood of St Laurence, the Smith Family) and other groups (such as Greenpeace, Amnesty International etc) all getting out of their comfort zones and agreeing that being angry is stupid and that action is required. These are the people who lobby government. Academics only create ideas and write them out. I suggested that these groups use their significant public profiles to organise a coalition of support for the Job Guarantee and really push it hard – if only to expose the denials and failures of the orthodoxy that besets us all. Anyway, that conversation just happened to dove-tail with an article I read last week about employment guarantees in practice that I found interesting and which was exposing the deniers for what they are – ideological sycophants. That is what this blog is about.

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Friday lay day

Its Friday lay day, where I don’t really write a blog anymore. Whatever! Over the last few weeks, I have written a few blogs that have examined the state of affairs in France – for example, Germany contracts as the French suggest defiance and French government in tatters and the financial markets want growth. I recall that earlier this year (January 28, 2014), the French President Francois Hollande told the press that unemployment in France had “finally peaked” (Source). Every month since he made that prediction, unemployment has risen.

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Why we should close the ‘unemployment industry’

This morning I gave a Keynote presentation to the Jobs Australia conference in Melbourne, which is a gathering of people who work in what I call the extra industry – the ‘unemployment industry’ – which has sprung up in the neo-liberal period to manage the unemployment that the government has deliberately created as a result of its obsession with fiscal austerity (trying to run surpluses when increased and on-going deficits are required). I take no umbrage with individuals who work in the ‘industry’ but its productivity is close to zero (you cannot search for jobs that are not there) and they have become co-opted servants of the pernicious government policy regime. The facts are clear – we have erected a massive corporate sector funded by government to manage the fiscal failure. The problem is that all these job service providers are not just shunting inanimate widgets around into so-called training schemes etc but are dealing with very disadvantaged people, which the capitalist system is excluding from the opportunity to engage in paid and productive work. The ‘unemployment sector’ is the Government’s front-line attack dog on the victims of the policy failure.

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Real GDP growth now requires less energy but is that the point?

Regular readers will know that I am pro-growth – economic growth that is. I get criticised for saying that by Greens and such because they only consider GDP growth within their own economic paradigm, which is tainted, if only subconsciously, by neo-liberal conceptions of enterprise and employment. I would say that I am as Green as anyone but also understand that being engaged in employment is a basic human endeavour. I also agree that our usual conceptions of gainful employment – working for a capitalist to make them profits – will typically not place the ‘greenness’ of the jobs as a priority, and will, in many cases involved environmentally destructive resource use. The key to disengaging growing employment and hence, economic growth, from activities that are environmentally destructive is to redefine what we mean by productive and useful employment. But, there is also evidence that within the mainstream world of markets, private firms are starting to disengage the link between energy use and economic growth. But will that be enough? This blog is just sketching my own catchup on the latest energy use data. You might find it interesting.

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Eurozone has failed – a major shift in direction is needed

The central bankers of the World met at Jackson Hole, Wyoming last week for their annual gathering far from the madding crowd. And as far away from the mess they have helped to create as you could imagine. Out of sight out of mind I guess. The ECB boss felt it his purpose at the gathering, which you can guarantee is plush in all respects (catering, wines, etc), to urge politicians to introduce more “growth-friendly policies”. He claimed in his speech – Unemployment in the euro area – that the so-called “sovereign debt crisis” had disabled “in part the tools of macroeconomic stabilisation”. Which is only true if one accepts that a central bank should play no role in supporting fiscal policy and that fiscal policy should be constrained by innane rules that deliberately prevent it from having sufficient latitude to meet foreseeable crises. Which is about as inane as one could get. But then none of these central bankers are accountable for anything much. They can swan around to meetings and issue ridiculous statements about growth-friendly policies, while supporting austerity, and nothing much happens to them personally.

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