UK labour market – when “stabilising” means outright deterioration

The British Office of National Statistics released their Labour Market Statistics for December 2011 yesterday and it showed that employment continues to collapse in the UK and unemployment rises. I was at the airport this morning and heard a commentator invoke the words of Albert Einstein. They are very apt in this current economic climate – “The significant problems we face cannot be solved at the same level of thinking we were at when we created them”. The British Employment Minister gets empirical evidence that the Government’s economic strategy is causing massive damage to the economy (who would have thought) and told us that the collapse in employment and vacancies, the rise in unemployment and the record levels of youth unemployment are signs that the “labour market is stabilising”. The UK nor Europe nor anywhere will get out of this mess using the sort of thinking that created the crisis in the first place. Until we work that out and attack this political evil millions are heading for poverty.

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I wonder what Kepler 22b thinks

I often wonder what outer space thinks of Earth. In recent days a new planet – named Kepler 22b – has been discovered which has Earth-like features and would probably support life. With the CofFEE conference over it was back to the Euro crisis today. Kepler 22b will be following the EU Summit as much as all of us. Laughing with us as the buffoons who parade as leaders work on the next can to kick down the road. The ECB boss gave a press conference yesterday which clarified things a bit – they won’t bail out governments but each week are bailing out governments. That sounds easy to understand. Like the rest of it. I wonder what Kepler 22b is thinking.

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Australian labour force data – everything is bad

The Australian Bureau of Statistics (ABS) published the Labour Force data for November 2011 today. The data shows that employment has fallen, the participation rate has fallen and unemployment (and the unemployment rate) have risen. Monthly working hours have also fallen. This is the worst combination that can occur indicating that job creation is declining, workers are leaving the workforce because of the lack of job opportunities and labour underutilisation is rising. So while the Government and the uninformed were celebrating yesterday’s National Accounts data which showed that three months ago Australia was growing (below trend), today’s results are more immediate – they are a depiction of where things are now. The Government is undermining employment growth by insisting on its obsessive pursuit of a budget surplus. The most striking expression of how poor the Australian labour market is performing is the continued deterioration of the youth labour market. That should be a policy priority but unfortunately the government is largely silent on that issue. My assessment of today’s results are that – everything is bad.

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Australian National Accounts – below trend growth continues

As Summer struggles to makes it appearance on the East Coast (coldest start for something like 40 odd years) the ABS released the Australian National Accounts – for the September 2011 quarter came out today and showed that the Australian economy grew by 1 per cent in the quarter down from the strong 1.2 per cent in June. In real terms, the economy grew 2.5 per cent over the last 12 months which is a good result considering that the March quarter contraction of 0.9 per cent. There are several competing forces contributing to this result. The growth is being driven by private capital formation and household consumption but being dragged down by net exports, harsh government austerity and the run down in inventories, the latter suggesting firms are losing confidence in the immediate outlook. If the private investment boom continues then growth for the foreseeable future should be maintained and approach trend. I would note that the recent (pre-crisis) trend growth was insufficient to mop up both the residual unemployment and the rising underemployment. The case for continued government support for higher growth remains especially with inflation now falling.

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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.

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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.

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Don’t send more workers into the mine when the canaries start dying

As the economic crisis has dragged on and deepened, it has changed complexion. It clearly started out as a balance sheet crisis which means it originated from the excessive borrowing of the private sector driven by personal greed and an overzealous and often criminal financial sector. Hence the term GFC. It quickly moved into a real crisis (meaning it affected real GDP growth, employment and incomes) because governments around the world reacted too cautiously in terms of their fiscal intervention. However, it was clear that the fiscal responses that were introduced saved the world from another Depression. China’s fiscal intervention helped many nations including Australia. Now the crisis is all down to incompetent government policies – not before the crisis but now. Governments are now following strategies that defy the most basic principles of sound fiscal management – it is irresponsible to cut net public spending at at time when unemployment is rising. Or in other words, you don’t send more workers into the mine when the canaries start dying.

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Haiti should build houses and schools and forget about the army

Several readers have asked me to comment on the recent New York Times Op Ed by Paul Krugman (October 30, 2011) – Bombs, Bridges and Jobs – which outlined the double standards among many conservatives who argue that “government does not create jobs” unless it engaged in military spending but still argued that such spending would be good for jobs and an increase would be welcome. It comes at a time when the new Haitian president is proposing to spend large sums of aid money on restablishing a military force in the nation despite not being able to offer basic housing, sanitation, education or health care. The appeal by the “military-industrial complex” that military spending is good for the economy is long standing and rarely refuted. After all, spending equals income and output which creates employment. But is expanding the military budget or insulating it from cuts the best way to create employment? Should we welcome, as Paul Krugman does, more military spending? The answer is that military spending has positive employment effects which are dwarfed by those pertaining to public spending on education, personal care services and other forms of public infrastructure. Haiti should build houses and schools and forget about the army.

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The ideology that caused the problem cannot be its solution

All the economic news at present is bad. Eurostat released its latest labour force data which shows that the Euro area unemployment rate has risen to 10.2 per cent in September 2011 (0.1 rise over the year) which shows how persistent the crisis is in that region and that is is slowly getting worse. The OECD has released a Special G20 Briefing Note which declares the world economic outlook to be gloomy and decisive action is needed although their policy recommendations will make things gloomier. A major financial company (MF Global) has gone bankrupt, partly as a result of their bond market exposure in Europe (haircuts?) and most disturbingly, the ILO has just released a – G20 Briefing – which was co-published by the OECD and predicts a “massive jobs shortfall among G20 members by next year” if the current slow-down in the world economy continues. There is a major demand (spending) shortfall in the advanced economies and only one sector that can do something about it – the public sector. But politicians are being pressured to spend less. I cannot understand how we have been so caught up in an ideology that caused the problem in the first place and is now being seen as the solution despite all evidence to the contrary.

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The skill shortage ruse is re-appearing

I had a meeting today with well-known personnel management professional who is keen to fund some research on skills development. It is a topic that my research group has concentrated on for many years now. It is an interesting topic because it bridges the technical and the political. There is a pattern emerging, as it always does when we have recession, which seeks to deflect attention to what is really going in favour of promoting “faux” issues. The “skills shortage” claim by business lobby groups and peak bodies is one of the perennial examples of the way the elites deny that the system is failing to produce enough jobs and helps them deflect the blame onto individuals – the victims – the unemployed. The ruse is used then to pressure governments into further undermining the rights of workers and conditions of work (and reducing welfare benefits) which serve the interests of the elites. So the constraints on growth become constructed in terms of the laziness of the unemployed workers to invest in themselves. This narrative then diverts our attention from the real causes of stagnation and unemployment – not enough spending and not enough jobs. We fall for it every time.

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The scourge of youth unemployment

The International Labour Organisation (ILO) released their updated this week (October 19, 2011) – Global Employment Trends for Youth: 2011 Update – which reminds us of how long the current policy failures will continue to generate negative consequences. That is, the world will be enduring the costs of the policy failures for decades to come by denying our youth the opportunity to fully participate in the economy. The increasing incapacity of our economies to provide sufficient work in hours and quality to meet the requirements of our youth is one of the major characteristics of the neo-liberal era. It is a deliberate, policy-induced outcome – that is, governments are squarely to blame for the malaise. At a time when neo-liberals use rising dependency ratios to justify their attacks on budget deficits but then fail to realise that our unemployed youth are a major casualty of the fiscal austerity – that is, our future workforce. The scourge of youth unemployment is condemning our future workers to a low-wage, unstable and productive employment history.

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A Way Forward

Sometimes, not often, I read some economic analysis that is sound. In the constant barrage of mainstream economics telling us that budget deficits are causing the crisis to linger; that interest rates are about to rise sharply because there is too much public debt; that inflation is about to go hyper because bank reserves have risen; that taxes will soon sky-rocket to pay back the debt; and all the rest of the lies that students are forced by lecturers around the world to rote learn, to find a well-reasoned piece of analysis is very refreshing. My attack dog propensities subside and I am able to think about what is being written – seeing where I agree and disagree and even learn some things. Such was my experience this morning when I read a new Report from the US-based The Way Forward Moving From the Post-Bubble, Post-Bust Economy to Renewed Growth and Competitiveness. It will not be a case of common sense prevailing because the forces against this type of clear thinking are many and powerful. But it is evidence that views that are not incompatible with Modern Monetary Theory (MMT) are being developed and thrown into the public debate. In this case, the authors also have some public profile. The ideas in this Report would provide a Way Forward.

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Some further thoughts on the OWS movement

I have been following the Occupy Wall Street developments with interest because ultimately I consider the only reasonable way entrenched elites become unseated is if there is mass action by citizens. I do not think military coups are a very sound way to lay the groundwork for grassroots democracy. I also like the idea of a “leaderless resistance movement with people of many colors, genders and political persuasions” although politics doesn’t take long to creep in and steer movements like these in particular ways. In the last day or so I have become aware that there is some notion among the “occupiers” that the evil they are opposing is fiat currency rather than corporate power particularly that of the financial monoliths. While power does lie in the monetary system the only way of ensuring that this power is democratised is if the currency-issuing entity is freely elected and accountable to us. That is a necessary but not sufficient condition for the advancement of economic development. My input to the OWS movement is by understanding Modern Monetary Theory (MMT) we can appreciate how governments are necessary for the development process and that we have to concentrate on making the fiat currency system work for us and prevent it from being hi-jacked by the so-called 1 per cent.

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One quarter shorter, three quarters deeper

Yesterday, October 5, 2011, the UK Office of National Statistics released their Quarterly National Accounts, June 2011 for the second quarter. The data revealed an economy that barely grew at all in the period from April to June. It also showed that households are continuing to reduce their overall consumption. The data also revised earlier releases and we now learn that the UK recession was deeper (for three quarters) than previously thought but was one quarter shorter. The data release continues to demonstrate that the policy settings (which are pushing towards contraction) are completely wrong for the spending trends that are being revealed in the private and external sectors. If the British economy goes back into recession there will be only one cause – the wilfully irresponsible management of fiscal policy.

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Framing today’s leadership failure in history

It seems my attempt to escape the Lands of Austerity last week unscathed was a pipe dream. I have been slowed over the last days by a European flu of some sort. So I have less energy than usual which doesn’t tell you very much but might explain why I might write less today than on other days. I am also behind in my reading. But I did read a little over the weekend, especially the documents and statements pertaining to the IMF annual meetings, which had the effect of worsening my condition. I also dug out an old 1933 document which helped restore my equanimity. It allows us to frame today’s leadership failure in history.

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There is a great sense of denial in Europe

Over the last week or so I have been in Europe and talking to all sorts of people. In the streets the decay is clear and I am in a relatively rich part of Europe (Maastricht). Unsold properties are multiplying and the there are lots of shopping space vacant in the main centres. It is very apparent to me but when I ask people about this some express surprise – not having noticed it themselves. I concede that when you come here once a year you note the changes but the reality is fairly stark. If we put this anecdotal evidence together with the way in which the Euro bosses are behaving and the overall quality of the policy debate in Europe at present it is clear to me that there is a great sense of denial in Europe. Nowhere is this more apparent than in Germany. Their growth model has failed and must change. But it will be very difficult to achieve the sort of national awareness that will render that change possible. The Eurozone was always going to fall apart as a result of its basic design flaws from its inception. But the German strategy – which they consider to be a source of national pride – actually ensured that once the basic design flaws were exposed by the collapse of aggregate demand, things would be much worse than otherwise.

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It is easy to create jobs

The US President delivered his long-awaited speech outlining the proposed American Jobs Act today to a packed Congress. The room was full of self-serving, anti-intellectuals masquerading as the representatives of the people of America. Eventually, this sham will be clear to all and the “American people” will “demand action”. If they don’t then the neo-liberal domination of policy which has led to the crisis and the extended malaise will continue to impoverish them. Bold action was needed from the President at least to demonstrate leadership so that the democratic forces could start to pressure the T-pots. Unfortunately, the President doesn’t seem to understand that it is easy to create jobs. A government just has have the will to do so.

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New CEA head falls well short of the (macro) mark

The news today is not good and you might want to go to the end and get the music segment rolling before coming back to the start to read the rest. The newly appointment of Alan Krueger to the Chair of the US President’s Council of Economic Advisors (CEA) has been widely applauded. Somehow the press think that he might actually change the course of policy and provide for a resurgence of employment. If you examine his early academic work you realise he has a concern for low-pay workers that many mainstream economists eschew. But he hasn’t published anything substantial in macroeconomics or banking. His recent macroeconomics commentary is not encouraging. My conclusion is that the new ew CEA head falls well short of the (macro) mark.

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Why the World hates economics

Paul Krugman (August 20, 2011) was bemoaning the loss of intellectual values in the current debate when he referred to this Wall Street Journal article (August 19, 2011) – Why Americans Hate Economics. On face value I concluded that the WSJ had stumbled onto something – that the mainstream economics profession was not worth its salt. I was wrong though. The WSJ author was making a case that we should return to the economics that dominated the world prior to the Great Depression. The problem is that it is this way of thinking that represents the dominant paradigm today. It is the paradigm which has caused all the problems. It is this mainstream paradigm that people hate. The WSJ author is very confused. But then Paul Krugman’s response is hardly meritorious. So this is why the World hates economics – by which we mean mainstream New Keynesian macroeconomics.

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