Latest Australian vacancy data – its all down to deficient demand

The continuing obsession among policy makers combines fiscal austerity and deregulation (particularly of labour markets) as the hope for prosperity. I know these are just catch cries that aim to obfuscate the underlying intent which is to redistribute real income away from workers. But even that conspiracy theory has certain problems when you realise that business doesn’t necessarily do very well in general when economies are locked in a recessive mire. The structural reform argument goes that growth can be engendered by deregulating the labour market to remove inefficiencies that create bottlenecks for growth even when fiscal austerity is slashing aggregate demand and killing growth. The 1994 OECD Jobs Study the provides the framework for this policy approach. The only problem is that it failed even before the crisis emerged. But with policymakers intent on slashing aggregate demand, which they know will kill growth, they have to offer something that they can pretend will generate growth. The structural reform agenda has zero credibility in the same way that fiscal austerity has zero credibility. The latest vacancy data from Australia continues to provide an evidential basis for rejecting both conservative agendas.

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Britain continues to look like a failed state

Last week, the UK Department of Work and Pensions released a swathe of new – statistics – on poverty rates in Britain. While the Department tried as hard as it could to present the data in a misleading way and lied the facts, once analysed properly, are chilling indeed for a nation that pretends to be advanced and lectures Europe on its own misanthropic policy positions. I am sometimes asked when making public presentations how I judge the success or otherwise of public policy. I respond with a simple rule of thumb. The benchmark is not how rich the policy framework makes society in general but how rich it makes the poor! The conduct of governments in many nations over the last 20 years has not typified what a sophisticated and rich society should be doing to enhance the prospects of the weakest among us. The policies of the British government in recent years are the antithesis of sound public policy. In that sense, I judge Britain to be a failed state.

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Massive real wage cuts will not improve growth prospects

There was a column in today’s Australian Financial Review “When the money-go-round slows, everyone suffers” which bemoaned the fact that all the investment bankers, lawyers and accountants that have been making heaps off the massive growth in the financial services sector are now doing it tough. We read that household budgets are being stretched when some woebegone executive suddenly discovers “multiple sets of $20,000 a year private school fees plus family holidays in Aspen” (from Australia). We feel sorry for them don’t we. The parasites of neo-liberalism who in between crafting handsome consulting contracts for themselves fill their days performing largely unproductive functions to our society. The AFR is, of-course, the neo-liberal propaganda machine that feeds the business sector with arguments about how badly they are doing because workers are overpaid and lazy. Yes, there was also an article in today’s edition about excessive wages and labour market regulation. Meanwhile, the latest evidence from Britain is that workers have taken the equivalent of a 15 per cent real wage cut over the period 2007 and 2012. The cuts have undermined nominal wages of workers in jobs rather than being the result of workers shifting to lower paid jobs. That is unprecedented and confirms the suspicions that the austerity agenda is being driven by a desire to win the class war for capital once and for all.

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72% youth unemployment – the crowning glory of the neo-liberal infestation

It seems like everything is getting smaller in Germany. I read today that Germany’s longest word (63 letters) has been abandoned. It also seems that their jobs are getting smaller and more people are being forced into them. The so-called “mini-jobs”. Meanwhile Europe’s crowning glory and austerity’s greatest achievement lies a little south of the mini-job kingdom. Eurostat’s latest – Regional labour force data – tells us that in some regions in Spain and Greece, the unemployment rates of the 15-24 year olds have topped 70 per cent and will continue to rise. There are now an increasing chorus in the media from politicians and financial market types who are trying to dress all this up as good news. Apparently, the Greek share market is booming. The agenda is clear – if they can somehow convince the world that the devastation of Greece is “good news” then it will reduce the growing resistance to austerity that is starting to broaden the debate. The elites don’t want any moderation. So they have to re-construct devastation to appear to be bringing good outcomes. The madness continues. Tell the 15-24 year olds in Dytiki Makedonia that things are going along swimmingly!

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Buffer stocks and price stability – Part 4

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.

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The glorious gouging of the public purse

It is budget time in Australia this month. The federal government will release their Budget next Tuesday and the State and Territory governments all put them out around the same time. Yesterday, it was the turn of one of our larger states Victoria. I will come to that in a moment. The mania intensifies around May and every day and night on TV, radio and in the printed media there is a constant commentariat and an almost uniform message, which was summarised by one so-called expert last night – “the Budget is broken”. I remember this chap in the 1980s as a junior Treasury official aspiring to be important. I wondered about the analogy. There are lots of “black holes” (buckets) and “drunken sailors” (big spending) but “broken”. I guess the only thing is that broken is bad – using broken as an adjective. All the commentary is about how bad the deficit is given the terms of trade are slowing and undermining tax revenue. While the deficit is way to low, it is good that we have one. It is good that America and Japan and the UK have deficits. There is at least some net spending flowing each day to support the economy. Anyway, time to look into the glorious gouging of the public purse that only the neo-liberals can make look as though it is financial responsibility at its best.

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Investing in a Job Guarantee – how much?

This is a background blog which will support the release of my Fantasy Budget 2013-14, which will be part of Crikey’s Budget coverage leading up to the delivery of the Federal Budget on May 14, 2013. This blog will provide a detailed analysis of the investment the federal government would have to make to introduce a Job Guarantee. You will see how surprisingly small that investment is.

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What is a Job Guarantee?

This is a background blog which will support the release of my Fantasy Budget 2013-14, which will be part of Crikey’s Budget coverage leading up to the delivery of the Federal Budget on May 14, 2013. The topic of this blog is the concept of employment guarantees as the base-level public policy supporting a return to full employment in Australia. We introduce the specific proposal – the Job Guarantee. In the next background blog we will see how much the Australian government needs to invest to make this policy improvement possible.

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Daily macroeconomic income losses from unemployment

This is a short background blog which will support the release of my Fantasy Budget 2013-14, which will be part of Crikey’s Budget coverage leading up to the delivery of the Federal Budget on May 14, 2013. The topic of this blog is the estimated losses arising from persistent unemployment. Most people fail to associate on a daily basis how much the economy (and hence individuals and their families) forgoes in terms of lost output and income as a result of the government refusing to use its non-inflationary fiscal capacity to create employment.

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Australia output gap – not close to full capacity

A national media organisation (Crikey) invited me to be one of their Fantasy Budget providers this year and this is a background blog to the preparation of my Fantasy Budget 2013-14 for Australia, which I will publish next Monday. In this blog I consider the state of the Australian economy in terms of output gaps. The Australian government is keen to claim that the economy is operating close to or at trend real output – sometimes the Prime Minister or Treasurer – and senior Treasury officials, will replace the descriptor “trend output” with “full employment”. They make that claim to justify imposing fiscal austerity on the economy, which is expressed by their most recent goal to achieve a budget surplus in the current year. They have been pursuing that strategy for several budgets now after taking appropriate steps in 2008 to allow the budget deficit to rise significantly to head off the looming disaster associated with the global financial crisis. While the stimulus was not large enough at the time it did save the economy from the type of chronic recession that most of the advanced world remains stuck in. But, once recovery was established, the conservative ideology returned and the fiscal stimulus was withdrawn too quickly and an austerity plan implemented. At the time, it was clear that they would fail to achieve a surplus because in attempting to do so they undermined the recovery, and, their tax revenue growth. Other international events (a slowing of the terms of trade and an overvalued dollar) have compounded their poorly crafted fiscal strategy. The reality is that the Australian economy is now performing well below trend and the divergence is increasing. The labour market is also producing grossly inferior outcomes and we are clearly a hundreds of thousands of jobs short of what a reasonable definition of full employment would require. The budget deficit is too small not too large and the direction of policy in the coming year should be expansionary not contractionary.

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What part of the word failure don’t the Euro elite understand?

The – Eurostat homePage – today (May 1, 2012) told the story of policy failure. On April 30, 2013 there were two major data releases – Euro area unemployment rate at 12.1% and Euro area annual inflation down to 1.2%. Record unemployment and a contracting and very low inflation rate. That is recession. That is the average. Some nations are now experiencing the Great Depression Mark II. And still the policy leaders make public statements that things are easing because borrowing rates are down and fiscal consolidation is bringing deficits down. On May Day 2013 it would be appropriate for a major workers’ revolt throughout Europe to protest over the continued rise in unemployment and the failure of the elites to deal with it. The question that the riot could pose is: What part of the word failure do these leaders not understand?

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The indecent inconsistency of the neo-liberals

Last weekend, the Australian government announced a major new funding initiative for farmers. The so-called – Farm Finance Program – will handout millions to farmers who are struggling to make ends meet. Whenever I see these special assistance packages being handed out to the rural sector, which is politically well-organised, I reflect on the plight of the unemployed. With unemployment rising in Australia as the economy goes into reverse on the back of failing private demand and deliberately imposed fiscal cutbacks, the decision to hand out economic largesse to the farmers wreaks of inconsistency. The unemployed have diminishing chances of getting a job at present and the income support provided by government is well below the poverty line. That poverty gap is increasing and the Government refuses to increase the benefit claiming fiscal incapacity. They also say they are jobs focused, despite employment growth being flat. The comparison of the vastly different way the government treats farmers relative to unemployed highlights, once again, that the way we construct a problem significantly affects the way we seek to solve it. The neo-liberal era has intensified these inconsistencies which have undermined the capacity of public policy to achieve its purpose – to improve the welfare of the citizens. The research question is: Why do we tolerate such inconsistent ways of thinking about policy problems and their solutions?

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British labour market – bad and getting worse

The angst in Britain about the form of the funeral for the Witch goes on. I liked the suggestion of filmmaker Ken Loach who suggested the whole affair be privatised and outsourced with competitive tenders determining the outcome. Hypocrisy rules though and the Conservative government will spend a pretty penny on the effort as a means of presenting her legacy in some good light. They won’t succeed because people know! With the latest British labour force data due out tomorrow, I was interested to read an interesting forensic study of recent labour market trends in Britain. The official line from the Government is that things are improving and “see, our policies are allowing those who want to work hard to achieve their aspirations”. The paper, which I discuss in this blog, tells us that those narratives are not even remotely true. Despite the official summary labour force statistics, once one digs more deeply into the data the trends are bad and getting worse.

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US problems are cyclical not structural

Last week (March 28, 2013), the – US Bureau of Economic Analysis – released the – revised (third estimate) – fourth-quarter 2012 US National Accounts data, which showed that real GDP grew by 0.4 per cent in the December quarter and 1.7 per cent for the 12 months to December 2012. The estimates were revised upwards from a quarterly growth rate of 0.1 per cent, largely due to higher estimated consumption and investment growth. In the six years to the December-quarter 2007 (the most recent real GDP peak) the average quarterly growth rate was 0.62 per cent. The US economy is still labouring with a huge cyclical output gap. That doesn’t stop a range of commentators from arguing otherwise. Other than the hysterical (and inaccurate) – David Stockman blast – there was a somewhat more measured article by Jeffrey Sachs in the New York Times (March 31, 2013) – On the Economy, Think Long-Term – which claims that the US problem is not cyclical but structural. For non-economists, that means that the policy solutions are quite different. In the absence of hysteresis, fiscal and monetary policy cannot solve a structural problem. The only problem with Professor Shock Therapy’s hypothesis is that it doesn’t stack up with the evidence. The evidence does not support the assertion that job polarisation in the US is constraining economic growth. The evidence continues, unequivocally, to support the view that the US economy is suffering from a major cyclical downturn (output gap) and needs a carefully targetted, aggregate demand stimulus.

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Okun’s Law survives 50 years – trouble for the neo-liberals

The IMF recently released an interesting Working Paper – Okun’s Law: Fit at 50? – which considers the relationship between the unemployment rate and real GDP growth. I mentioned Arthur Okun in yesterday’s blog. The paper is useful because it debunks a lot of recent research from mainstream economists which claimed that real GDP growth did not bring unemployment down (or not by much). The arguments were then part of the general attack on fiscal activism. The IMF paper finds that the output gaps created by the GFC in the US were so large, that the recovery had to be stronger than usual to eat into the massive buildup in unemployment. The fact that the output gaps have persisted well into the recovery means that fiscal policy has not been aggressive enough in the US. The large output gap that the GFC created needed a very large fiscal response.The bottom line is that shifts in the unemployment is driven by changes output (with the other cyclical adjustments noted above which mediate this relationship). Not a lot has changed – spending equals income which drives employment growth and leads to reductions in unemployment. The neo-liberals can deny that until the cows come homebut those of us who read understand the evidence know they are lying. The message just needs to spread.

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Not even remotely correct

There has been a bit of fun in the last week, with the IMF accusing our previous conservative government (10 increasing surpluses out of 11 years in power – 1996-2007) of being the only period of profligate fiscal policy over the last 50 years. That is hysterical really because the government in question held themselves out as the exemplars of fiscal prudence and responsibility. They were, in fact, one of the most irresponsible managers of macroeconomic policy in our history, but not for the reasons that the IMF would identify. All this shows how far fetched the research that the IMF is spending millions of public dollars (donated by member governments) has become. One week they are admitting how wrong their forecasts are with millions losing their jobs as a result and the next week they are handing out medals for fiscal prudence and backhanders for wasteful spending. I was going to analyse the underlying IMF paper today because it is illustrative of why the IMF keeps making these fundamental errors. But I was sidetracked and got lost in some data and some other things. So the IMF tomorrow (maybe) and today a little walk through some trends which confirm why the IMF has a problem recruiting good economists. It all starts with their miseducation in our universities. The point is a casual look at the data shows that the mainstream of my profession hasn’t been even remotely correct in its statements over the last 4-5 years.

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Modern Monetary Theory and environmental sustainability – Part 1

There is regular commentary here that seeks to argue that Modern Monetary Theory (MMT) is flawed, bereft or worse because apparently it avoids any discussion of the natural environment. This apparently arises from the inherent conclusion in MMT that growth in aggregate demand (and real GDP) is required to maintain high levels of employment, which are considered both economically and socially desirable. This is the first part of a two-part blog on this topic. We will see that MMT is highly sympathetic to the challenges posed by anthropogenic global warming (a catch-all term) and central policy indications that follow from an understanding of MMT (for example, the superiority of employment buffer stocks) lead to an understanding of how MMT is a green paradigm as opposed to mainstream (neo-liberal) economics and much of Post Keynesian thinking, the latter which relies on generalised expansion as the solution to entrenched unemployment. We conclude that those who seek to dismiss MMT because it doesn’t satisfy their particular pet solution to climate change issues have probably not read some of the earlier MMT literature nor understood fully what is required to develop and disseminate a new way of thinking about the economy. Further, MMT is not a theory about everything! What we will see is that when MMT advocates economic growth it does so with a very different view of what that economic growth might be comprised of and driven.

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More myths from the mining oligarchs

Australia is in the grip of a group of mining oligarchs, who are spending enormous amounts of monety to shape the economic debate to suit their own very narrow interests. They are opposed to the mining tax (a resource rent tax) and have in the past denied the state (on behalf of all of us) owns the resources that they plunder for private profit. They have also sponsored national tours of leading climate-change deniers (such as Lord Monckton) who are known to trade on distortions of the truth. Overall, there personal resources guarantee them access to the daily media and they use it relentlessly. They also write books which get national coverage and have a record of suing peope who criticise their views. The result is that there is very little critical scrutiny of the propositions they advance to justify their claims. Some of the propositions are pure fantasy yet they have gained traction with the public who have been too easily duped by the promotional onslaught. Here is a little sojourn into the fantasy world on one such oligarch.

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Timor-Leste – beyond the IMF/World Bank yoke

I am hosting a workshop in Darwin today, the first CofFEE event since we established a branch of our research group here at the University in October 2012. The topic is the Economic Prospects for Timor-Leste and the discussion is oriented to broaden the economic narrative beyond the rigid and growth-restricting fiscal rules that the IMF and the World Bank have pushed onto the Timor-Leste government. The aim of my work generally is to develop more inclusive and equitable approaches to economic development, which emphasise full employment, poverty reduction and environmental sustainability. A complete understanding of Modern Monetary Theory (MMT) allows one to see the agenda of the multilateral organisations in a clear light. So while Timor-Leste has a major struggle ahead to achieve its strategic goals of becoming a middle-income nation by 2030, it would be advised to scrap its present currency arrangements and use its massive oil wealth to introduce unconditional and universal job guarantees as the starting point for a more coherent and inclusive development path.

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Fiscal policy should sustain full employment and reduce inequality

Sometimes there is serendipity in a researcher’s life. Usually not. But sometimes. The last few months I have been investigating the question of how to effectively design fiscal policy interventions. It is an important issue because there are multiple goals that need to be satisfied. Two clear goals can be identified to simplify matters. First, fiscal policy has to be designed and implemented in a way that ensures there is sufficient aggregate demand in the economy relative to its real productive capacity so that full employment is achieved and sustained. Second, it should be designed and implement so as to reduce inequality. The two goals are interdependent despite the myths that economics students learn about the trade-off between efficiency and equity. It is now clear that rising inequality harms the prospects for sustainable economic growth. The evidence is now starting to come in that during the neo-liberal era, fiscal policy was actively used to reduce its redistributive capacity and its capacity to reduce market-generated inequality was severely compromised. Not eliminated but substantially reduced. That is what this blog is about.

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