There are no financial risks involved in increased British government spending

On July 26, 2018, UK Guardian columnist Phillip Inman published an article – Household debt in UK ‘worse than at any time on record’ – which reported on the latest figures at the time from the Office of National Statistics (ONS). He noted that the data showed that “British households spent around £900 more on average than they received in income during 2017, pushing their finances into deficit for the first time since the credit boom of the 1980s … The figures pose a challenge to the government … Britain’s consumer credit bubble of more than £200bn was unsustainable. A dramatic rise in debt-fuelled spending since 2016” and more. While keen to tell the readers that British households were “living beyond their means”, there was not a single mention of the fiscal austerity drive being pursued by the British government over the same period. Nor was there mention of the fact that the entire British fiscal strategy since the Tories took office was predicated, as I pointed out years ago in this blog post – I don’t wanna know one thing about evil (April 29, 2011), on this debt binge continuing. A year later (July 20, 2019), the same columnist published this article – Labour and Tories both plan to borrow and spend. Is that wise? – which like its predecessor fails to present a comprehensive, linked-up, analysis for his readers and makes basis macroeconomic errors along the way.

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The Weekend Quiz – July 20-21, 2019 – answers and discussion

Here are the answers with discussion for this Weekend’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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The Weekend Quiz – July 13-14, 2019 – answers and discussion

Here are the answers with discussion for this Weekend’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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Why the financial markets are seeking an MMT understanding – Part 2

This is Part 2 (and final) in my discussion about what the financial markets might learn from gaining a Modern Monetary Theory (MMT) understanding. I noted in Part 1 – that the motivation in writing this series was the increased interest being shown by some of the large financial sector entities (investment banks, sovereign funds, etc) in MMT, which is manifesting in the growing speaking invitations I am receiving. This development tells me that our work is gaining traction despite the visceral, knee-jerk attacks from the populist academic type economists (Krugman, Summers, Rogoff, and all the rest that have jumped on their bandwagon) who are trying to save their reputations as their message becomes increasingly vapid. While accepting these invitations raises issues about motivation – they want to make money, I want to educate – these groups are influential in a number of ways. They help to set the pattern of investment (both in real and financial terms), they hire graduates and can thus influence the type of standards deemed acceptable, and they influence government policy. Through education one hopes that these influences help turn the tide away from narrow ‘Gordon Gekko’ type behaviour towards advancing a dialogue and policy structure that improves general well-being. I also hope that it will further create dissonance in the academic sphere to highlight the poverty (fake knowledge) of the mainstream macroeconomic orthodoxy.

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Seize the Means of Production of Currency – Part 2

Last week, Thomas Fazi and I had a response to a recent British attack on Modern Monetary Theory (MMT) published in The Tribune magazine (June 5, 2019) – For MMT. The article we were responding to – Against MMT – written by a former Labour Party advisor. In – Part 1 – we considered how the MMT critique was not really about MMT at all. We provided a more accurate summary of what MMT is and what it is not. In this second Part we consider the way the former advisor’s article misrepresented MMT authors on issues such as taxes, inflation and democracy. Not that this three-part series is not just a point-by-point response to the attack on MMT noted above. In part, that article was not really about MMT but some concoction the author created to make his argument easier to sustain.

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How social democratic parties erect the plank and then walk it – Part 2

In Part I, I considered an Australian-based attack on MMT from a Labour Party stooge. In this Part, I shift to Britain to address the recent article by a Northern Labour MP – Jonathan Reynolds – who is apparently, if his arrogance is to be believed, making himself the Labour Party spokesperson on matters economic. For the title of his recent article (June 4, 2019) was, afterall – Why Labour doesn’t support Modern Monetary Theory – which begs the question as to who actually doesn’t support MMT – all of Labour? Party? Politicians? Members? Who? I know of hundreds if not thousands of Labour Party members that are fully supportive of Modern Monetary Theory (MMT). So who is he talking about? The overriding issue that I introduced in Part 1 was that it is crazy for progressive politicians to use neoliberal frames, language and concepts when discussing their economic policy ambitions. Not only has the track record of the mainstream approach has been so poor but wallowing in these frames etc leads the so-called progressive side of politics to become trapped in the neoliberal tradition. The Reynolds article is no exception and if his view is widespread within British Labour then it will have a problematic future.

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We are all entrepreneurs now marching towards a precarious and impoverished future

Some years ago, I was a panel speaker at an event in Sydney covering the topic of wage developments. I shared the podium with a young woman who was something like NSW Youth of the Year. It was at a time that employer groups were lobbying the conservative government to abandon penalty rates for workers in low-wage industries (hospitality, tourism, etc) and strip powers from trade unions. I spoke about how that agenda was designed to advance their class interests and fitted squarely with the neoliberal intent to redistribute real income away from workers towards profits. The young woman followed and announced that class was dead and that there was no such thing as a worker anymore – she said “we are all entrepreneurs now!”. Prior to that, as our national government was privatising our public companies such as Qantas and Telstra, our prime minister announced “we are all capitalists now” referring to the idiocy of people buying shares in the companies that we collectively ‘owned’ anyway while they were in public hands. The more recent manifestation of this delusion that class is dead and we are all entrepreneurs is the so-called ‘gig economy’. It seems that we now have millions of people (first young but increasingly older) who think that entrepreneurship is about buying a cheap scooter and tearing around streets delivering pizzas in all weather to earn a few dollars while the companies that ’employ’ them (or rather contract them) walk away with millions. These workers, sorry, entrepreneurs, face a bleak future. When there are no pizzas being ordered they have no shifts. When they are sick they have no pay. When they go on holidays they have no pay. And when they get old they will have no superannuation. Sounds like a plan to make someone rich.

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Shorter hours might send us broke

It is Wednesday and just a short blog post today (short is relative I know). There was a proposal published recently (April 2019) by the British-based Autonomy Research Ltd – The Ecological Limits of Work. Autonomy pushed basic income and shorter working weeks with a healthy the ‘robots are coming’ agenda to boot. In its most recent ‘report’, Autonomy is claiming we have to dramatically cut working hours – like dramatically – but seems oblivious to the link between nominal and real. I think we will make more progress if we construct Green New Deal solutions within the current institutional realities. And, I just got my flame suit out of the cupboard where it sits on constant standby!

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Some lessons from the political campaigning literature

At the event in Edinburgh recently, I was asked a question about polling. The question was along the lines of: if the Scottish people had overwhelmingly voted in the June 2016 referendum to Remain in the EU (62 per cent of the 67.2 per cent of eligible voters who voted) then why should the activists seeking independence not endorse joining the EU. Apart from the obvious reasons relating to the concept ‘independence’ and wanting to avoid membership of a neoliberal cabal, I replied by noting that if we conducted a poll about whether people thought taxes funded government spending, then we would find a much larger percentage agreeing with that proposition that the proportion that voted to remain in the 2016 Referendum. I then asked the audience: Would you consider that outcome legitimate or a symptom of a lack of education? The point is obvious. Polls play on ignorance as much as anything. The question of campaigning and polls also came up during the recent Australian federal election, where despite millions being spent on targetted advertising and activism, the results turned out very different to those expected and in most cases the dollars spent were largely ineffective (although note below). Further, there is a growing number of Modern Monetary Theory (MMT) groups forming around the world aiming to self-educate and push the public debate away from the mainstream economic narrative. The question that arises in each of these instances is how to actually push a new paradigm, a new way of thinking about concepts that permeate the very basis of our daily existence and have been ingrained in our perception in a particular way that this new way contests. That is no easy task. I have been doing some research and will report on the results in a series of blog posts starting today.

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Strong US growth disguises worrying trends

Last Friday (April 26, 2019), the US Bureau of Economic Analysis published their latest national accounts data (advance estimate) – Gross Domestic Product, First Quarter 2019 (Advance Estimate) – which tells us that the annualised real GDP growth rate of 3.2 per cent surprised most commentators (for its strength). As this is only the “Advance estimate” (based on incomplete data) there is every likelihood that the figure will be revised when the “second estimate” is published on May 30, 2019. Underlying the strong headline figure, however, are shifting expenditure patterns in the US. Household consumption growth is declining and the contribution to growth was down from 1.7 points in December 2018 to 0.82 points. The personal saving rate rose from 6.8 per cent of disposable income to 7 per cent as households tightened up in the face of record levels of debt and sluggish wages growth. The investment rose and Gross private domestic investment also contributed 0.92 points to growth, up from 0.66 points. However, that contribution was driven mostly by a rise in inventories, which can signal two things – either unsold goods due to firms overestimating domestic demand or stock-building in expectation of stronger future spending. I suspect it is the first of these explanations. Further, net exports were a strong contributor (1.03 points) after undermining growth in the December-quarter 2018. Real disposable personal income increased 2.4 per cent (down from 4.3 per cent in December). Overall, and notwithstanding the strong growth, the problems for the US growth prospects are two-fold: (a) What will be the contraction in consumption expenditure growth with slow wages growth and elevated personal debt levels? Most of the consumption growth is coming because more people are getting jobs even though wages growth is flat. (b) Can net exports growth defy Trump’s trade policy? We will wait and see.

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The Weekend Quiz – April 13-14, 2019 – answers and discussion

Here are the answers with discussion for this Weekend’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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The Weekend Quiz – March 9-10, 2019 – answers and discussion

Here are the answers with discussion for this Weekend’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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Advancing the progressive cause through national solidarity

The 1975 song – The People United Will Never Be Defeated – which was written in sympathy with the Chileans after the brutal Pinochet coup and other national struggles (for example, in Italy and Germany) raises the question: Who are ‘The People’. Relatedly, in Modern Monetary Theory (MMT) we talk about a currency-issuing government being able to pursue public purpose which advances the well-being of the people. Who is the public and the people in that context? I ask these questions because they are germane to research on cosmopolitanism and the Left view of the European Union and similar arrangements that reflect an antipathy towards the concept of the ‘nation state’ and the belief that progressive advance can only be organised at a supra-national level in order to be effective. Today’s blog post just continues that theme based on current research.

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The Weekend Quiz – February 2-3, 2019 – answers and discussion

Here are the answers with discussion for this Weekend’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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Operationalising core MMT principles – Part 2

This is the second and final part of this cameo set, which aims to clear up a few major blind spots in peoples’ embrace with Modern Monetary Theory (MMT). This is all repetition. I don’t apologise for that and it does not reflect a slack or bad editorial approach from yours truly as some critics have claimed. Repetition is how we learn. Reinforcing things in different ways (aka repetition) helps people come to terms with concepts and ideas that give them dissonance. MMT is certainly about dissonance as the current level of hostility towards our work is demonstrating. It is also challenging existing ‘fiefdoms’ in the academy and beyond, which also creates aggression and retaliation. The problem is that most of the current criticism merely rehearses the same tired lines of inquiry. A stack of mainstream (New Keynesian) economists now regularly claim they ‘knew it all along’. The short and truthful response is – ‘no they didn’t. The standard mainstream macroeconomic theory cannot accommodate MMT principles unless it jettisons its core propositions and becomes something else. At any rate, as noted in – Operationalising core MMT principles – Part 1 – I am happy to help clarify quandaries that newcomers have with MMT if they are genuinely trying to work out what it is all about. I have no desire to interact with ‘critics’ who are just defending mainstream macroeconomics in its death throes and have no genuine interest in really understanding MMT beyond the superficial and no penchant for reading the now lengthy body of work we have generated in the academic literature. Yesterday, I considered a typical inquiry about an important operational detail of implementing a Job Guarantee. Today, I consider a related topic. If a government is facing a situation where it needs to shift workers to the Job Guarantee pool to stabilise inflation, how does it do that? The ‘critics’ often claim we only advocate tax increases to fight inflation and because they are politically tricky to engineer MMT essentially fails to have an effective price anchor. Today, I bring together many past blog posts to summarise the MMT position on counter-stabilising fiscal policy for those that might be struggling to put it all together.

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The Weekend Quiz – December 22-23, 2018 – answers and discussion

Here are the answers with discussion for this Weekend’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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The Australian Labor Party is still stuck in its neoliberal denial stage

Yesterday, the Federal government released their so-called – Mid-Year Economic and Fiscal Outlook (MYEFO) – which is their half-yearly review of the fiscal policy settings. Unsurprisingly, the Treasurer was crowing about the shift towards surplus with booming company tax revenue. With a federal election coming in the next 4-5 months, the Government will now offer tax cuts to entice people to vote for what has been one of the worst governments in our history. The fiscal contraction that is going on at present is totally unwarranted from an economic perspective. The problem for Australians is that the other side of politics – the Labor Party – is no better. It is a sad state of affairs when a political system is dominated by two neoliberal parties. One of them claims to be progressive but every day just reinforces the conservative myths about the fiscal capacities of government. Welcome to Australia.

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The Weekend Quiz – December 15-16, 2018 – answers and discussion

Here are the answers with discussion for this Weekend’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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When two original MMT developers get together to discuss their work

Last week, Warren Mosler and I had one of our regular catchups and we discussed at length the state of play in Modern Monetary Theory (MMT). We are quite protective of it. We mused about how we started out on this Project and where it has gone. As old stagers do when they get together. We also reflected and compared notes on what the state of MMT is now, given the increasing visibility of the ideas in the mainstream media all around the world and the proliferation of social media activists who have chosen to identify and promote our ideas. There were aspects of that development that we identified as being of concern for us and other aspects which we considered to be a cause for optimism (celebration is too strong a word). We thought it would be a good idea to take a breath and document what we considered to be the essence of MMT – as a sort of checklist for people who want a fairly precise account of the body of work. I agreed to write this document after input from Warren. So, this is what we mean by MMT. What follows is my account of our conversation expanded to add meaning where required.

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IMF Euro hitman in denial of the reality that the monetary union has become

The IMF hitman in Europe, one Poul Thomsem recently published a European Money and Finance Forum (SUERF) Policy Note (October 2018) – A Financial Union for the Euro Area – where he basically told us that any changes that the IMF will allow to occur in the Eurozone architecture will be minimal and will not stop Member States “from being forced to undertake large pro-cyclical fiscal adjustments when the next shock or major downturn hits”. The term “large pro-cyclical fiscal adjustments” means harsh fiscal austerity at the same time as the non-government sector spending in those Member States is collapsing. Fiscal policy thus reinforces the non-government spending withdrawal and worsens the outcome for employment, growth, income generation etc. Why? Because “all member countries” must “respect the Stability and Growth Pact”. End of story. Welcome to the Eurozone dystopia – the world where governments must follow rules set by technocrats which are incapable of delivering sustained prosperity for all but clearly suit the top-end-of-town. He then waxed lyrical about a whole set of neoliberal financial market reforms that the IMF is proposing which will further diminish the capacity of the Member States. But, at that point, he just starts to dream. The Member States are already deeply suspicious of the financial reforms that have been introduced to date, ineffective as they are. They are not about to cede more power to Brussels and Frankfurt any time soon.

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