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.
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.
The Olympics have come and gone. No doubt the event gave some macroeconomic respite to the British economy because major events bring immediate spending and spending drives output and national income. But the fourth-quarter 2012 real GDP data showed that the British economy had contracted by -0.3 per cent. Household final consumption expenditure slowed throughout 2012 as private investment growth contracted over the second-half of 2012. Further, despite the hope that the fiscal austerity would be painless as a result of a boost in net exports, especially given the depreciation in the British currency, the data showed the the current account deficit increased as a result of a fall in exports over 2012. It was in this context that the British government brought down the – 2013 Budget – which provides no path out of this malaise. At a time when the correct economic strategy would have included a political admission that the previous 3 budgets were detrimental interventions for the British economy and a commitment to some discretionary stimulus, the British government chose to adopt a neutral position in the coming financial year, which when taken in perspective just maintains the contractionary bias of fiscal policy. The mismanagement of the British economy thus continues.
I am still reeling from the incompetence of the EU, the German’s who pushed the deal, the ECB and the IMF who thought they could get away with stealing ordinary deposits when they had made such a big deal early on in the crisis that guaranteeing deposits below 100k Euros was an essential part of their financial stability reforms. The mind boggles as to how stupid those decision makers are. They are so blinded by ideology that they have lost a grip on their own narrative and certainly on reality. I notice the Troika rats are pointing the blame at each other for the disastrous judgement that was exercised in the package design. And, not one Cypriot politician voted in favour of the package. The bird on both hands (stereo effect) to the Troika. And you will note I haven’t said a word about Russian oligarchs and money laundering. That is a side-show in all of this. Anyway, I needed a rest from that so turned my attention to the US labour market as I was updating the latest February 2013 labour force data and examining where things are at. I did this as I thought about the debates in the US about the budget. I think many of the politicians might have been drinking the same Kool Aid as the Troika. They have also lost a grip on reality.
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.
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.
After several months of very poor labour market news, today’s release by the Australian Bureau of Statistics (ABS) of the Labour Force data for February 2013 provides some respite. In fact, all the main indicators moved in a virtuous direction, which is a welcome outcome. Caution is required in interpreting monthly data movements as the standard errors are larger than most would imagine. But there was a sharp rise in total employment reported by the ABS, the participation rate rose and monthly hours of work improved. Most of the rise in employment was in part-time jobs. This is the first month in several that employment growth has outstripped the underlying population growth rate. The unemployment rate remained unchanged at 5.4 per cent but would have been 0.3 points lower had the participation rate not risen. So unemployment rose a little and hidden unemployment fell more. However, the continuing negative feature that should warrant immediate policy concern is the appalling state of the youth labour market. The 15-19 year old segment of the labour market continued to deteriorate even though part-time job opportunities surged. That is a deeply disturbing sign. Overall there are still at least 12.5 per cent of the willing work force without work (either unemployed or underemployed). So there is still a massive job shortage and today’s data shows that in February only a tiny fraction of that shortage was reduced. We will also await revisions!
I am devoting today’s blog time to the continuation of our textbook draft. Tomorrow the Australian Labour Force comes out. The alternative today was going to be an analysis of the lying statements of David Cameron and George Osborne but I will have more of them next week undoubtedly. It will give me more time to examine my “austerity” database, which I wrote about yesterday. So best use of the time today (after a long flight) is to advance our textbook.
I know people like to dream and Latvians are apparently no exception. Their latest collective dream, or at least, those of the elites that fancy wining and dining in style in Brussels, is to join the Eurozone. The Latvian government has now formally requested the EU to undertake a “Convergence Report assessment” of the Latvian economy to facilitate membership by January 2014. The opinion polls do not necessarily support the intent of the Government. But the conservatives are out in force with supporting narratives. One such attempt at making the impossible argument was from on Anders Aslund, who is one of Peter Peterson’s stooges and has co-written a book with the Latvian Prime Minister. He wrote a Bloomberg Op Ed (January 8, 2013) – Why Austerity Works and Stimulus Doesn’t – which turned out to be a major revision of all the known facts and concepts that almost everybody else (apart from the pro-austerity spivs and their hangers-on) would by now have to share. I made a few graphs. Fiscal austerity is bad. There are no qualifications.
The Australian Bureau of Statistics released their latest – Persons Not in the Labour Force, Australia – release for September 2012 last week (March 7, 2013). This is an annual publication and provides a detailed breakdown of the demographics of those not in the labour force and the reasons for that status. In particular interest to me is the information the data provides on discouraged and marginal workers. The data allows us to reconstruct the labour force data, under certain assumptions, to generate a very broad indicator of labour underutilisation in Australia, which includes official unemployment, underemployment, and hidden unemployment. What this indicator reveals is that Australia is enduring massive wastage of labour and statements by the Federal Treasurer and other Ministers that we are close to full employment should be treated with the contempt they deserve. That is the subject of this blog.
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.
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.
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.
I was talking about economics at lunch-time today (as you do) and my company was irate about a TV interview that aired last night on the national public broadcaster (the ABC). The source of the angst was the increasing tendency of interviews on the ABC (and other media outlets) to express ill-informed opinions that serve to bias the interview and reinforce the dominant neo-liberal ideology. Such behaviour conditions the public to accept highly contestable propositions as fact, constructions of which, then defines the “solutions” and leave off the discussion table alternative scenarios and propositions that, in fact, represent the responsible policy options given the circumstances. This bias is part of a more general syndrome that defines the neo-liberal era, which is the equivalent of denying gravity. We are now fed a string of statements that parade as authoritative commentary or evidence that are, in fact, total fabrications and deny basis relationships that are at the heart of our monetary systems. This denial of “gravity” has become an art form and is used to bully us into accepting outcomes that advance the interests of the elites and undermine broader social welfare. It is a most extraordinary conflation of values and lies.
There were three data releases from the Australian Bureau of Statistics today and all showed that the Australian economy is continuing to weaken. The – Business Indicators, Australia – showed that company gross operating profits fell for the fifth consecutive quarter (7 our of the last 10). Second, the data for – Building Approvals, Australia – which is one indicator of the strength of the housing market and the construction industry, showed that the seasonally adjusted estimate for total dwelling approved fell by 2.4 per cent in January, the second consecutive monthly fall. Finally, the – Mineral and Petroleum Exploration, Australia – showed that “mineral exploration expenditure decreased by 10.2% in the December quarter 2012”. What this data tells us is that private spending is weak and probably weakening. It tells us that fiscal policy should be expansionary rather than following its present course of austerity. It tells us that unless the government reverses its current strategy, the Australian economy will weaken further. It also tells us that commentators and politicians that think fiscal rules such as “balancing the budget over the cycle” are sound strategies to adopt are either operating in a cloud of ignorance or deliberately misleading the public as to the likely outcomes that would follow from pursuing such a rule.
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.
I am working in Dili (Timor Leste) today until Friday. With various travel and official obligations I haven’t much time today. Internet connectivity is also not flash at present. So this blog might be spread out over two or even three days because the issue I plan to address will take some time to articulate. One of the projects I am pursuing in my 2-year period working at CDU (in Darwin) is the development of a new program in Economics. The proposal is to develop a broad, pluralist social science degree program aimed at encouraging students to think critically about conceptual and policy-related issues and see the economy as being serving society rather than the more narrow focus on the “business” sector. The program will emphasise history, philosophy, politics, place and space, culture, be quantitatively focused, and ensure that operational realities within the monetary system are understood clearly. So, for those who know how economics curricula has developed over the years – this proposed course will be somewhat innovative and run against the tide, which in the main has focused on narrowing down economics to be just a service program in a business course (I was about to type education but quickly substituted course instead). At this point of my work I have run into the latest craze – the development of qualifications and learning standards.
Companies that sell shonky products under false pretenses are typically prosecuted by the authorities. Those that sell shonky products generally are typically run out of business. But there is one class of such products that seem to escape the scrutiny of both the authorities and the market. Indeed, they seem to have bluffed many governments into believing that shonky is good. Last week, the patently irrelevant Moody’s rating agency downgraded Britain’s sovereign debt ratings from Aaa to Aa1. The fact it was headline news indicates how stupid we all are. The fact that George Osborne then had to lie about what it meant showed how stupid he is. The fact that the Opposition leader described it as a humiliating blow showed how stupid (and opportunistic) he is. How a company that was complicit in the financial crisis can command so much free advertising is beyond me. I must be stupid! The fact is that the latest ratings are without meaning or import.
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.
Today I have had a major report to complete on “efficiency dividends” in government budgets (for a union), have a lot of travel ahead, and also want to progress my macroeconomics. Report complete except for summary, which I will finish on the plane tonight. So until then I am progressing the 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. Today, I continue to develop the material on unemployment and inflation. 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.