Britain needs more hours of work not less

A striking characteristic of the last few decades has been the way the so-called “progressive” political parties have adopted policy frameworks and thinking that were previously the exclusive domain of the conservatives. Nothing could be more obvious than the way in which all the major parties around the world now speak neo-liberal economics as if it was the only way of thinking about the economy and economic policy. Slowly but surely the options that parties are willing to consider have been narrowed down and policy is now conducted in a straitjacket which cannot deliver prosperity for all as well as advancing environmental objectives. It is understandable that during recessions expectations become downgraded by workers about the types of jobs they will except, by consumers about the level of spending they can sustain, and by firms about what investment projects will be viable in the period ahead, etc. But it is strange that when the prevailing economic paradigm not only caused the great recession but is prolonging it at great cost, that the major parties remain locked down in the neo-liberal mire – blinded to other options. It is clearly time to think outside of this box and that is what I try to promote in this blog. But we also have to be careful that when we go wandering we are still on solid macroeconomic ground.

Read more

Rehn fiddles, while Europe burns

According to the popular legend Nero, Roman Emperor from 54 to 68 and the last in the Julio-Claudian dynasty allegedly “fiddled while Rome burned” (played his lyre and singing) during the fire in 64 which destroyed most of Rome. His rule (and dynasty) ended 4 years later. The imagery of this out-of-touch and cruel leader strumming/plucking his stringed instrument (rumour notwithstanding) while his city and, soon after, his dynasty collapsed is powerful. Last Friday, Eurostat released the latest unemployment data for November 2011. The results were shocking with unemployment rates in Spain now close to 23 per cent (as at November 2011 and rising) and Greece 18.8 per cent (as at September 2011) and rising. Greece’s unemployment rate rose 4.8 per cent in the first 9 months of last year. Meanwhile, the European Commission is occupying itself with other concerns. Its Economic and Monetary Affairs Commissioner and Vice President, Olli Rehn has been sending letters out to member states indicating that he is disappointed they are falling behind their budget deficit reduction targets under the Excessive Deficit Procedure (embedded in the Stability and Growth Pact) and that the EC would be considering fines.

Read more

Saturday quiz – January 7, 2012 – 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.

Read more

The Eurozone failed from day one

The current Eurozone crisis is getting worse and has concentrated our minds on the most recent period of European history. As in all these situations where focus is very immediate our memories get a little blurred and we are inclined to accept propositions that closer analysis of the data suggest do not hold water. January 1 was the tenth anniversary of the date when Euro notes and coins began to circulate. It had of-course been operating since January 1, 1999 but only in a non-physical form (electronic transfers etc). If you believe the rhetoric from the Euro bosses in the first several years of the Euro history and didn’t know anything else you would be excused for thinking that it was a spectacular success. The Celtic Tiger, the Spanish miracle, the unprecedented price stability and all the rest of it. But the reality is a little different to the hype. The fact is that the common currency did not deliver the dividends that were expected or touted by the leaders leading up to the crisis. All the so-called gains that the pro-Euro lobby claim were in actual fact a sign of the failure of the design of the union although it took the crisis to expose these terminal weaknesses for all to see. My view is that the Euro was failing from day one and it would be better to disband it as a failed experiment that has caused untold damage to the human dimension.

Read more

Back to William Beveridge requires a commitment to true full employment

I have been digging back in time and re-reading Unemployment: a problem of industry by William Beveridge (published 1909). Beveridge is most known for his 1944 book – Full Employment in a Free Society and the related Social Insurance and Allied Services – (1942 aka the Beveridge Report). The point is that to understand the motivation for the Beveridge Report you also have to appreciate the earlier document and the role that it played in labour history in the UK (and elsewhere). Why am I considering this? The British Labour Party is appealing to the 1942 Report as a motivation to introduce radical reform to the British welfare system. They think that by attacking the most disadvantaged citizens in Britain at a time when unemployment is so high and poverty is rising that they will gain some traction with the electorate. The word despicable comes to mind. However, it is clear they are just remaining faithful to their earlier corrupt past.

Read more

BIS now part of the neo-liberal propaganda apparatus

Happy New Year – first serious blog for 2012. What does a macroeconomist like me do on the second day of the new year when the sun is shining warmly (about 29 degrees celsius) and everyone is seemingly on holidays? Answer: read up on central bank balance sheets. The truth is that I read two speeches today as part of another piece of research I am doing and they contained a few statements that help us understand the difference between Modern Monetary Theory (MMT) essentials and the way the mainstream economists misrepresent the monetary operations in the economy. The speeches were presented by a senior official at the Bank of International Settlements and they confirm that the central bank of the central bankers is now part of the problem. This organisation has now become part of the neo-liberal propaganda machine which is making things worse rather than better.

Read more

Saturday quiz – December 31, 2011 – 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.

Read more

Whatever – its either employment or unemployment buffer stocks

Since I published Wednesday’s blog – MMT is biased towards anti-crony – there seems to have been a fair bit of commentary on other sites some bordering on personal attacks (against me). I’ll steer clear of that level of discussion. I also note that John Carney over at CNBC responded with this article – Can the Government Guarantee Everyone a Job? – saying that if the notion of employment buffers is a central aspect of Modern Monetary Theory (MMT) then “it would mean that MMT is wrong”. I found his response interesting but essentially a rehearsal of the mainstream errors that arise when you haven’t really come to terms with what MMT is adding to macroeconomic theory. So today’s blog is a supplement to the Wednesday’s blog (and many others) and aims to provide some more context especially to those interested in the evolution of ideas and schools of thought. The point is that whatever else happens we are left with a choice – employment or unemployment buffer stocks. MMT provides the theoretical insights to show that employment buffers are superior whether you like them or not.

Read more

MMT is biased towards anti-crony

There has been a couple of interesting articles written by John Carney who is a Senior Editor at CNBC.com on Modern Monetary Theory (MMT) – starting with Monetary Theory, Crony Capitalism and the Tea Party (December 22, 2011) and followed up with Modern Monetary Theory and Austrian Economics (December 27, 2011). I am happy that our work is penetrating in to the mainstream business and economics commentary space. It is good that John Carney has spent some time coming to terms with MMT and its departure from the failed mainstream macroeconomics. But some problems remain with his analysis. The issues he raises relate to political matters rather than the economics of MMT. In that context, MMT is neither anti- or pro-crony. But if you delve deeper and really understand the MMT macroeconomic framework then you realise that MMT is biased toward anti-crony.

Read more

Wrong is still wrong and should be disregarded

It is a public holiday in Australia today and I am not working a full day. But I have been collecting some items from the past five or so years which I am weaving into the text book that Randy Wray and I hope to have out in the coming year. When academics or others comment on public affairs it is clear that our commentary is to a certain extent time-dependent. The language we use, the topics we focus on and the conclusions we draw. So some things that are written sound quaint when we go back to them after some years. I hoard information and occasionally I access my databases to see who said what in some year and compare it to what might have happened in the interim and then what the same person might be saying in retrospect. It is an interesting exercise and when applied to my own profession reveals some amazingly nonsensical predictions or assessments. The global crisis has provided a major event to test many of the assessments made prior to the crisis. The most surprising thing is that the same sort of assessments made prior to the crisis that were demonstrated to be entirely false are still being made and still influencing policy design. But the most robust assessments have withstood the crisis and remain relevant today. I include the developments in Modern Monetary Theory (MMT) in this latter category. Mainstream macroeconomics was largely wrong before the crisis and is wrong now (for the same reasons) and should be disregarded.

Read more

Saturday quiz – December 24, 2011 – answers and discussion

Here are the answers with discussion for yesterday’s special Santa-edition of the 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

A dose of truth is required in Europe

I was going to write about the True Finns today to report some research I am doing at present aimed at exposing how the “left” political parties have ceded legitimate progressive issues to fringe parties who then meld reasonably sensible economic issues with offensive social and cultural stances to create a popular but highly toxic political force. The True Finns who gained 19 odd per cent of the vote in the April 2011 national election exemplify this trend. The Euro crisis is accelerating the growth of the popularist political forces in Europe who are anti-Euro (pro-nationalist) and who will not (I suspect) tolerate the Euro elites impinging on national affairs and imposing a decade or more of enforced austerity. There are political movements/parties all over Europe now (for example, Vlaams Belang, Le Pen, Lega Nord etc) which fit this mould. It would be far better for the mainstream progressive parties around Europe to take the initiative and retake control of the policy debate on what should be bread-and-butter issues for the left. Sadly, these mainstream left parties have become totally co-opted by the neo-liberal agenda and speak the same economic voice as the conservatives. The problem then is that the public debate is distorted by untruths which further reinforce the malaise. A dose of truth is required in Europe.

Read more

How’s poor old Ireland, and how does she stand?

Last Friday (December 16, 2011), Ireland’s Central Statistics Office published their – National Accounts – for the September quarter 2011 and guess what? Things just became worse. Ireland is now nearly two years in the enforced austerity and all the deficit terrorists have been watching it closely for signs of life. The slightest upturn in GDP growth has brought a salvo of attacks on any one daring to oppose the harsh austerity. Well, I also watch it closely and the pattern that is unfolding is consistent with predictions. Things are getting worse not better. The only growth “engine” has been exports and with austerity spreading that market will not be strong enough to sustain growth when domestic demand is being ravaged by austerity.

Read more

Saturday Quiz – December 17, 2011 – 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

When markets fail

A repeating narrative during this crisis is that fiscal austerity is required in order to satisfy the “markets”, that amorphous collective of bond traders, gamblers, speculators, crooks and whatever else. The regular threats coming from the ratings agencies (those crooks who lied to investors in order to make profits via cosy deals with the originators of the “assets”) reinforce the idea that markets are the “regulators” of good judgement. Economics students are taught that one of the imperatives of government is to deregulate in order to allow the market signals to be clear and strong so we can act in accordance with the “markets” judgement of prudence. It is a paradigm built on a myth. Markets fail and easily become corrupted and arenas where criminals dominate. The signals they send are also deeply flawed and should not be acted upon. One of the lessons of this crisis is that our agents – the governments we elect – have to make markets work for us not the other way around. When markets fail to establish benchmarks that we do not consider to be in our best interests then it is time to reform them.

Read more

It became necessary to destroy Europe to save it

The message to be drawn from this blog is that the dithering Euro bosses have done it again. Amidst all the bluster about stability and moving forward together all they have done last week (at the EU Summit) was further undermine the prospects of their region. The new rules that have seemingly been agreed upon will not be achievable and will generate even more financial instability as growth deteriorates further. In early 1968, amidst all the lunacy of the Vietnam War, an American general told a New Zealand reporter that the US decision to bomb a town full of civilians into oblivion was based on the logic that “It became necessary to destroy the town to save it”. Last week’s (December 9, 2011) – Statement by the Euro area Heads of State or Government – invokes that sort of logic except in this case the brutality is of a different degree and style. Neither action was justified in the circumstances that the decision-makers faced.

Read more

Saturday Quiz – December 10, 2011 – 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

Australia – external sector continues to drain growth

A lot of readers write in asking what about external balances – what they mean etc. They are also sometimes puzzled why I say that the external sector in Australia is currently (and typically) draining real growth in the economy when at the same time they read that the terms of trade are at record levels and that we are in the midst of a “once-in-a-hundred-years” mining boom which is reshaping our economy. So today’s release by the ABS of the latest (September quarter 2011) – Balance of Payments and International Investment Position, Australia – provides me with a platform for a brief (I promise) explanation of these concepts and how they might be interpreted from a Modern Monetary Theory (MMT) perspective. The bottom line is that for Australia, our external sector continues to drain growth.

Read more

Tightening the SGP rules would deepen the crisis

This week, the European Union Summit should see the leadership take the monetary union further into the mire and further away from an effective solution to their woes. The German Chancellor has vowed to create a new fiscal union across the Eurozone. She announced this plan to the German Parliament and declared she would push for a change to the treaty that established the common currency. Let me state at the outset – the plan as the press are reporting it – will not work. It is just the latest in a long line of Euro “solutions” that has fallen on its face soon after being announced as the way forward for the EMU. It won’t work because it doesn’t address the problem and will make changes that will make the actual problem worse. Europe is suffering a lack of aggregate demand and needs to address that head on by increasing public spending. Further constraining the capacity of governments to spend will make the situation worse.

Read more

A journey back in time

A bit of a different blog today. I was rummaging through some boxes of papers today in search of some “non-digitised” notes which I wanted to consult as part of the development of our macroeconomic textbook, which Randy Wray and I hope to get out sometime next year. I came across some old drafts of papers I wrote in the early 1990s which had handwritten annotations etc. The old way of doing things. I thought it was interesting to compare the final published version of one such paper with the unpublished draft. That is what this blog is about – looking back to an article I wrote in 1993 (“Demystifying the Deficit”). A little journey back in time – but with alarming overlaps with what is going on today.

Read more
Back To Top