The myopia of neo-liberalism and the IMF is now evident to all

The IMF published its October – World Economic Outlook – yesterday (October 7, 2014) and the news isn’t good. And remember this is the IMF, which is prone to overestimating growth, especially in times of fiscal austerity. What we are now seeing in these publications is recognition that economies around the world have entered the next phase of the crisis, which undermines the capacity to grow as much as the actual current growth rate. The concept of ‘secular stagnation’ is now more frequently referred to in the context of the crisis. However, the neo-liberal bias towards the primacy of monetary policy over fiscal policy as the means to overcome massive spending shortages remains. Further, it is clear that nations are now reaping the longer-term damages of failing to restore high employment levels as the GFC ensued. The unwillingness to immediately redress the private spending collapse not only has caused massive income and job losses but is now working to ensure that the growth rates possible in the past are going to be more difficult to achieve in the future unless there is a major rethink of the way fiscal policy is used. The myopia of neo-liberalism is now being exposed for all its destructive qualities.

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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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Information is dangerous for neo-liberals

On Friday, I reported that a senior psychologist working in the off-shore detention centres was alarmed at the growing mental health problems of children of refugee-seeking parents who are detained with their families in these hell-hole prisons that Federal Government has set up in PNG and elsewhere. I noted the doctor had admitted to a National Inquiry that he was told by the Department of Immigration to take out some of the damaging research evidence covering the incidence of mental illness in the off-shore refugee prisons. Here is a followup of how systematic the government is in using its power to repress the release of information that might alter the public perception of its competence and desirability.

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Options for Europe – Part 83

The title is my current working title for a book I am finalising over the next few months on the Eurozone. If all goes well (and it should) it will be published in both Italian and English by very well-known publishers. The publication date for the Italian edition is tentatively late April to early May 2014.

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Options for Europe – Part 82

The title is my current working title for a book I am finalising over the next few months on the Eurozone. If all goes well (and it should) it will be published in both Italian and English by very well-known publishers. The publication date for the Italian edition is tentatively late April to early May 2014.

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Options for Europe – Part 61

The title is my current working title for a book I am finalising over the next few months on the Eurozone. If all goes well (and it should) it will be published in both Italian and English by very well-known publishers. The publication date for the Italian edition is tentatively late April to early May 2014.

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Australia – vacancy data undermines the deregulation lobby

Yesterday, the Australian Bureau of Statistics released the latest – International Trade in Goods and Services – data for November 2013 which told us that the national economy is slowing. We learned that while exports were aout steady, imports (particularly consumption goods) fell for the fourth consecutive month and capital and intermediate goods imports rose, which suggests that explanations relating to the switching of the commodities (mining) boom from the investment to export stage are not accurate. The data tells us that household incomes are being squeezed by rising unemployment which generally means that import spending will drop. The irony is that the trade deficit fell, which means that the drain on growth from the trade sector is now lower (that is, this is a stimulatory move) despite it being driven by sluggish growth. Today, the ABS released its – Job Vacancies – data for the November-quarter 2013 and it confirmed that the labour market continues to slide backwards in the face of subdued private spending and the national government’s penury. This is all in the context of conservatives coming out and slamming gay marriages, single mothers, women who seek abortions and the meagre number of labour market protections that remain in place. It is all about priorities I suppose. The current government is suggesting their priorities are to further the well-being of the well-to-do and chip away at what assistance is available for the disadvantaged Australians.

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Manufacturing in Australia can survive if it shifts focus

Last week, the Holden Motor Car Company, a division of General Motors announced it was intending to close its Australian operations down in 2017 after having operated on a continuous basis in one form or another since 1856. The decision has led to outbreaks of nostalgia, worries about our national identity (since when has a national identity been tied up with a foreign-owned capitalist firm?), and calls for more government subsidies to the industry that has been in decline for years. The problem is that thousands of jobs are directly and indirectly impacted by the closure (although there are some years before the full brunt will be experienced) and that is an issue that the government has to manage through appropriate policy interventions. The real issue is that the current thrust of aggregate (macroeconomic) policy does not provide one with much confidence that the government will introduce appropriate responses to the closures. I offer some thoughts by way of an introduction in this blog.

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The fiscal role of the KfW – Part 1

This is the first part in what might be several blogs. I will see where my curiosity takes me. Today I want to invoke that well-known piece of inductive reasoning the – Duck Test. We all should know how that goes. But consider this reasoning. We have an institution that is 100 per cent government owned. It borrows millions and its liabilities are 100 per cent guaranteed by the federal government. It spends, I mean lends millions each year at very low rates to all manner of firms, organisations and even builds infrastructure. It also takes equity positions (provides capital) to a range of enterprises. It pays no tax having the same status as the central bank. It is not a duck but looks very much like a government fiscal entity. Welcome to the Kreditanstalt für Wiederaufbau (Reconstruction Credit Institute) or as it is now known the – KfW. This bank was created in 1948 as a German vehicle to faciliate the infrastructure rebuilding under the Marshall Plan. It has since grown (and diversified) into one of the largest banks in Germany (taken its main business units into account) and pumps millions of Euros in the domestic economy and the export sector (via IPEX, its 100 per cent owned subsidiary). It is a major reason why the public debt ratio in Germany is 80 per cent rather than close to 100 per cent. It is a major reason why the federal deficit has been reduced without scorching the German economy. It is a story about smoke-and-mirrors accounting, German-style.

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A bad day for informed debate in Australia

The title gives the game away – Hope all that’s left as growth slows to crawl. It was written by Ross Gittins, the Sydney Morning Herald’s economics editor. Hope is all we have because this thing we call the economy is beyond us and not something we can control. That is the mainstream conceptualisation of the economy as some sort of deity which we just have to offer our sacrifices to and hope for the best. Australia is weathering a renewed burst of deficit terrorism. The media is running stories every day at present about the need to make massive cuts to federal spending and how taxes have to rise to “repair” the budget. The way the issue is being framed by the media is asinine in the extreme. Worse is the fact that the media is refusing to offer a balance to the issue. There is no debate. Mindless TV presenters and journalists are just pumping out “press releases” from partisan think-tanks without the slightest reflection about whether the underlying assumptions are correct. A bad day for informed debate.

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Why we have to learn about the NAIRU (and reject it)

I have very little time today to write, first a very long flight and then preparation for a major release tomorrow of our latest Employment Vulnerability Index (EVI), which measures the risk of localised communities in Australia of unemployment as the economy slows. We have a very neat mapping tool and I will write about that tomorrow once the press launch occurs (first thing). But I am also working on various other papers and, as usual, have become immersed in the Phillips curve. I remember when I first started by PhD at the University of Manchester in the early 1980s, my then supervisor said to me on the first day that once I started modelling inflation and unemployment (the Phillips curve) I would never stop. Among other truths he uttered during my time in that dank part of the world that statement was spot on. Every now and then I return to the topic and update, revise, re-create and (sometimes) even innovate. So today’s blog is just a collection of snippets of the more accessible things I have been working on over the last few days. It starts with a graph that appeared in the IMF’s World Economic Outlook in April 2013. Then follow the graphs. Conclusion: The NAIRU as estimated is a very dangerous concept for the well-being of ordinary people.

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A Job Guarantee job creates the required extra productive capacity

Even though the US government has shutdown, the BLS is still open for data downloads. That is something. More on that data another day. Today I have been working on a formal academic paper (to be presented at a conference in December) which examines the concept of “capacity-constrained” unemployment. This concept says that capacity constraints may create bottlenecks in production before unemployment has been significant reduced (this would be exacerbated if there are significant procyclical labour supply responses). In this case any expansion in government demand may have insignificant real effects – that is, the real output gap is not large enough to allow all the unemployed to gain productive jobs. This argument is often use to attack the Job Guarantee. It can be shown that while private sector investment, which is government by profitability considerations can be insufficient (during and after a recession) to expand potential output fast enough to re-absorb the unemployed who lost their jobs in the downturn, such a situation does not apply to a currency-issuing government intent on introducing a Job Guarantee. The point is that the introduction of a Job Guarantee job simultaneously creates the extra productive capacity required for program viability.

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Disingenuous at best

In light of the – An Open Letter from Howard Schultz, ceo of Starbucks Coffee Company – which contains “a respectful request that customers no longer bring firearms into our stores or outdoor seating areas”, I felt it necessary to request that all readers of my blog leave all weapons (guns, rocket launchers and any other armaments that you carry on a regular basis) away from their side when they read my blog. Otherwise, violence might erupt as the arrogance of the neo-liberals scales new heights – five years into the crisis. To get your ire up several notches, you might read the latest article (September 16, 2013) by Greg Palast – Larry Summers: Goldman Sacked (thanks Gustavo). Remember keep your weapons out of reach! Then you might reflect (keeping as calm as you can) on the latest offering from the German Finance Minister, Wolfgang Schäuble in the Financial Times (September 16, 2013) – Ignore the doomsayers: Europe is being fixed. The triumphalism throughout the article demonstrates to me that Mr Schäuble has standards of excellence that lie well below what is conventionally considered to be (barely) reasonable. What he uses as the benchmark for defining mediocrity is beyond imagination. These are crazy times – when these economic criminals walk the streets at large, puffed up by their own arrogance and delusion, slapping themselves and their mates on the back, demanding credit for the human wreckage that their actions created, made worse and ensured will span generations. While we see youth unemployment rates of 62.5 per cent and rising suicide rates, these characters see glory and fulfillment. A most strange period of history and future generations will reflect on these apes poorly.

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Age of firm rather than size matters for job creation in the US

Today, among other things, I have been analysing the fantastic dataset produced by the US Census bureau – Business Dynamics Statistics – which allows us to understand in much more detail, the underlying drivers of employment growth in the US by age and size of firm across sectors. I have done a lot of work on this topic in the past and this sort of dataset is a gold mine. It allows us, for example, to examine the veracity of the oft-repeated claims by conservative politicians and lobbyists that small business is the employment engine of the modern economies and all sorts of concessions and deregulation (mostly directed at underlying job security, wages and conditions for workers) are required to allow small business to do its work. The simple conclusion of today’s data analysis is that the age of the firm is more important in understanding net job creation in the US than the size of the firm. Here are some tentative results that may or may not be of interest.

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The intergenerational consequences of austerity will be massive

There was an interesting article in the Washington Post over the weekend (September 7, 2013) – Why Keynes wouldn’t have too rosy a view of our economic future – written by – Mike Konczal. It broaches the topic of self-adjustment in capitalist monetary economies and the divide within the economics profession with respect to that topic. It also introduces the issue that the long-run trajectory of the economy is dependent on the short-run path taken (the so-called hysteresis hypothesis), which is largely ignored by those who advocated fiscal austerity. What is typically denied is that the costs of fiscal austerity are more than a temporary increase in unemployment and lost income. The intergenerational consequences and the impact on the capacity of the economy are likely to be massive.

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Saturday Quiz – August 31, 2013 – 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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There is a class warfare and the workers are not winning

The Politics of Envy – that old chestnut from the neo-liberals – is bandied around every time there is any insinuation that the capitalist system produces distributional outcomes that are not remotely proportional to the effort put into production. Whenever governments challenge the distributional outcomes – for example, propose increasing taxes on the higher income recipients (note I don’t use the word “earners”) there is hell to cry and the defense put up always appeals to the old tags – “socialist class warriors undermining incentive”, “envy”, etc. In the 1980s, when privatisation formed the first wave of the neo-liberal onslaught, we all apparently became “capitalists” or “shareholders”. We were told that it was dinosauric to think in terms of the old class categories – labour and capital. That was just so “yesterday” and we should just get over it and realise that we all had a stake in a system where reduced regulation and oversight would produce unimaginable wealth, even if the first manifestations of this new “incentivised” economy channelled increasing shares of real income to the highest percentiles in the distribution. No worries, “trickle-down” would spread the largesse. We know better now – and increasingly the recognition, exemplified in 2006 by Warren Buffett’s suggestion that “There’s class warfare, all right … but it’s my class, the rich class, that’s making war, and we’re winning” (Source), is that class is alive and well and in prosecuting their demands for higher shares of real income, the elites have not only caused the crisis but are now, in recovery, reinstating the dynamics that will lead to the next crisis. The big changes in policy structures that have to be made to avoid another global crisis are not even remotely on the radar.

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Wealth inequality rising slowly in Australia

The Australian Bureau of Statistics released the – Household Wealth and Wealth Distribution, Australia, 2011-12 – today, which is drawn from the bi-annual Survey of Income and Housing (SIH),first published in for 2003-04. My interest is in how the distributions changed during the period of the crisis and the fiscal stimulus. We are currently working on an update to our – Employment Vulnerability Index – which we hope to release sometime next week. The preliminary results suggest that the fiscal stimulus significantly reduced the risk of job loss in the period after the crisis. But more on that when we have analysed our results more carefully. Today’s data shows that wealth inequality is rising slowly in Australia but will accelerate if the proposals to further demolish the income support system and increase tax breaks for the wealthy are introduced after the next election.

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