ECB continues to play a political role making a mockery of its ‘independence’

Those who follow European politics will be familiar now with the recent events in Italy. I wrote about them in this blog post – The assault on democracy in Italy. The facts are obvious. The democratic process for all its warts rejected the mainstream political parties in the recent national election and minority parties Lega Nord and M5S formed a governing coalition. The trouble started when they nominated Paolo Savona as Finance Minister. He had occasionally made statements that paranoid European elitists would interpret as being anti-Europe and anti-German. The political solution was easy and Italian President Sergio Mattarella vetoed Savona’s nomination. The Coalition withdrew and a right-wing technocrat Carlo “Mr Scissors” Cottarelli was to be installed as Prime Minister. That arrangement didn’t last long and the Lega Nord/M5S coalition emerged in government with the unelected Guiseppe Conti the new Prime Minister. But the interesting story to emerge out of all that relates to overt political behaviour by the supposedly independent European Central Bank. It has been clear for some time that the ECB has used its currency-issuing capacity to ensure that ‘spreads’ on Member State government bonds (against the benchmark German bund) do not widen too much. But it is also clear that when the ‘market forces’ do increase the spreads, which foments a sense of financial crisis, the ECB doesn’t necessarily act immediately. A good dose of crisis talk is what the political process needs to keep the anti-European forces at bay. The ECBs behaviour in this context became very political in the recent weeks and the only explanation is that they wanted the sniff of crisis to pervade while all the negotiations were going on over who would emerge as the new government in Italy. Democracy suffers another blow in that neoliberal madhouse that is the European Union.

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Die schwarze Null continues to haunt Europe

Last Tuesday (May 15, 2018), the new German Finance Minister Olaf Scholz stood up in the German Bundestag and delivered his first fiscal policy presentation. Not only was “die schwarze Null” (Black Zero) sustained but in his address, the new German Finance Minister made it clear that Germany would not entertain any expansion of the EU fiscal capacity (thus rejecting Emmanuel Macron’s proposals) and wanted to delay other ‘reforms’ that Germany had previously suggested they would support (beefing up the Single Resolution Fund and the creation of the European Monetary Union). For those Europhile progressives who have been hanging their hat on the hope that the takeover of the German Finance Ministry by the SPD would be the deal breaker that the Scholz’s presentation was nothing short of a disaster. He reiterated Germany would not be shifting in any major way and that Member States just had to buckle down and follow Germany’s fiscal example – surpluses as far as the eye can see. None of this was a surprise to me. It has been clear for some time that Scholz is just a continuation of Schäuble. Indeed some pointed statements from Bundestag politicians next day in their responses suggested just that.

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On the path to MMT becoming mainstream

Over the last few years, it is clear that Modern Monetary Theory (MMT) is achieving a higher profile and the attacks are starting to come thick and fast. I see these attacks as being a positive development because it demonstrates that recognition has been achieved and a threat to mainstream ideas is now perceived by those who desire to hang on to the status quo. Hostility and attack is a stage in the process of a new set of ideas becoming accepted, ultimately. Clearly, some new interventions never receive acceptance because they are proven to be flawed in one way or another. But I doubt the body of work that is now known as MMT will be discarded quite so easily given my assessment that is is coherent, logically consistent and grounded in a strong evidence base. As part of this evolution there are now lots of what I call ‘sort of’ contributions coming from mainstream commentators. One of the ways in which mainstreamers save face is to claim they ‘knew it all along’ and that the existing body of practice can easily accommodate what might be considered ‘nuances’ or ‘special cases’. We are seeing that more now, with the more progressive mainstream economists claiming there is nothing ‘new’ about MMT that it is just what they knew anyway. Even though that approach is disingenuous it is part of the evolution towards acceptance. People have positions to protect. These ‘sort of’ contributions demonstrate a sort of half-way mentality – a growing awareness of MMT but with a deep resistance to its implications. A good example is the UK Guardian’s editorial (April 15, 2018) – The Guardian view on QE: the economy needs more than a magic money tree.

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Censorship, the central bank independence ruse and Groupthink

A few things came up late last week which demonstrate the neoliberal Groupthink is alive an well at the highest levels of policy in Australia (and elsewhere). First, there was a story that a report from an Australian Broadcasting Commission (ABC) journalist on the Australian government’s corporate tax cuts was withdrawn after publication by the ABC after receiving several complaints from senior government ministers including the Treasurer and the Prime Minister. The story was not even radical. The journalist who I have had dealings with is a neoliberal herself when it comes to understanding macroeconomics. Second, one of the claims that the neoliberals make is that central banks are now firmly independent and not part of the political process. This is all part of the depoliticisation process whereby governments absolve themselves of political responsibility for policies that harm the citizens by appealing to ‘independent’ external authorities (such as the IMF, or central banks). Well we know that the claim about central bank independence is not true both in terms of the way the monetary system operates but also in the conduct of various central bankers over the last few decades. Last week, the Reserve Bank of Australia governor once again demonstrated how politically independent he is NOT by invoking key mainstream neoliberal myths about deficits and grandchildren. And then an old hack and largely failed British Labour politicians got in on the act. The Groupthink is powerful but becoming increasingly desperate under the increasing pressure from citizens for more accountability.

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The blight of the visitor economy

One of the large funded projects that I have been involved in over the last few years concerns regional equity (in part). Our planning involves the completion of a new book (to be published sometime 2019) on the way in which regional development has become biased to the economic settlement (where jobs are created) at the expense of the social settlement (where people live). This might sound reasonable until you realise that it is another aspect of the way in which governments have abandoned their remit to ensure general prosperity, and have, instead, ‘allowed the market to work’ – which is neoliberal code for tilting the playing field in favour of corporations and global capital. One of the more recent neoliberal ruses in this context, that undermine the lived experience of local residents and boost the profits of large corporations is the concept of the ‘visitor economy’, which is the new buzzword for Tourist-led growth. Governments who claim they have run out of money are quick to hand out massive subsidies to large-scale events to promote the ‘visitor economy’. The same governments also subvert their own planning rules, encourage multi-national corporations to exploit loopholes in labour laws to cut wages and conditions, and privatise valuable public assets to ensure corporations can extract as much profit from activities as possible. Local residents’ rights are trampled in this process as corporations turn their suburbs into ‘global playgrounds’ while pocketing massive public subsidies into the bargain.

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Oh poor Britain – overrun by chlorinated chickens, hapless without the EU

I have been doing some research on Brexit. I vowed to stay clear of the topic because of all the stupidity surrounding it from both sides, but most galling are the Labour Remainers who think the European Union is some sort of nirvana (with a few problems) and is on the road to redemption through some amorphous ‘reform’ process. Pigs might fly! I mentioned the recent publication by Open Britain (January 30, 2018) – Busting the Lexit Myths – in yesterday’s blog. This document seeks to state the case for British Labour’s “Campaign for the Single Market”. The ‘single market’ is held out as some sort of security blanket for all and sundry. Without it, Britain will apparently lapse into a state where the government will be unable to maintain services, where “genetically modified foods, chlorinated chicken, and access to procurement of protected sectors like healthcare” overwhelm the local economy, where environmental and working standards disappear and that hapless island floats off into a shocking dystopia. It is really the stuff of fantasy. But the image it evokes of the confidence in British democratic systems and its own capacity for volition is quite stunning. Without the EU, Britain becomes hapless. You laugh then cry. Pathetic.

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The IMF still has the same spots

Just before Xmas (December 22, 2017), the IMF proved once again that leopards don’t change their spots. Thy released a Working Paper (No. 17/286) – Australia’s Fiscal Framework: Revisiting Options for a Fiscal Anchor – that demonstrated they hadn’t learned a thing from the last decade of crisis and fiscal interventions (stimulative and opposite). The paper demonstrates no understanding of context, history, or the role that fiscal policy should play in advancing general well-being. It is a technical exercise laden with the ideology of mainstream macroeconomics that fails badly. The problem is that the mainstream political parties (on both sides of the fence – Labor and Conservative – although pretending there is a fence is somewhat far-fetched these days) will use it against each other, and, in their shameful ignorance, against the best interests of the nation and the people that live within its borders. And … on reflection using the leopard example is an insult to the leopards. The IMF is an ugly, destructive institution that should be defunded and their buildings given over to the homeless.

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The EMU reform ruse – Part 2

This blog continues the discussion from yesterday’s blog – The EMU reform ruse – Part 1 – where I consider the reform proposals put forward by German academic Fritz Sharpf, which have been held out by Europhile Leftists as the progressive way out of the disaster that the Eurozone has become. Yesterday, I considered his first proposal – to continue with the enforced structural convergence to the Northern model – the current orthodoxy in Brussels. Like Sharpf I agree that the agenda outlined in the 2015 The Five President’s Report: Completing Europe’s Economic and Monetary Union would just continue the disaster and would intensify the political and social instability that will eventually force a breakup of the monetary union. Sharpf’s second proposal is that the EMU dichotomise into a Northern hard currency bloc while the Southern states (and others less inclined to follow the German export-led, domestic-demand suppression growth model) reestablish their own currencies and peg them to the euro with ECB support. While it is an interesting proposal and certainly more adventurous than the plethora of proposals that just tinker at the edges (for example, European unemployment insurance schemes, Blue Bond proposals and the like), it remains deeply flawed. While it is assumed that the Northern bloc would comprise core European nations such as Germany and France, it is not clear that either would prosper under the new arrangement. France and Germany were never been able to maintain stable currencies prior to the EMU. Further, the ‘exit’ proposal ties the poorer nations into a vexed fixed exchange rate arrangement, which would always compromise their domestic policy freedom, just as it did under the earlier versions of the Snake or the European Exchange Rate Mechanism (ERM). Far better to just break the whole show up and let the nations go free with floating exchange rates.

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The Weekend Quiz – November 4-5, 2017 – 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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Wolfgang Schäuble is gone but his disastrous legacy will continue

History is often made by single, very powerful individuals acting on their own mission according to their own calling. Many of these individuals are seemingly immune to the reality around them and try to recreate their own reality – sometimes succeeding to advance the well-being of those around them and beyond, but, usually, they just leave the main stage after creating havoc. I could name names. But only one name is relevant for today’s blog – Wolfgang Schäuble, the former CDU German Minister for Finance. Schäuble resigned that role after the recent German elections and is now being feted by the mainstream press as some sort of visionary who kept the Eurozone together through his disciplined thinking and his resistance to populist ideas that would have broken the discipline imposed on Member States by the European Finance Ministers. History tells us differently. He has overseen a disastrous period in European history where its major step towards political and economic integration in the 1990s has delivered dysfunctional and divergent outcomes for the Member States. Some countries (Greece) has been ruined by the policies he championed while others are in serious trouble. Further, despite him claiming the monetary union has been successful, the fact is that the Eurozone is still together only because the ECB has been effectively violating the no bailout articles of the Treaty of Lisbon via its various quantitative easing programs since May 2010. Should it stayed within the ‘law’ of the union, then several nations would have been forced into insolvency between 2010 and 2012. The problem is that while Schäuble is now gone from the political stage, his disastrous legacy will continue.

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When intra-governmental relations became absurd – the US-Fed Accord – Part 3

I am writing this while waiting for a train at Victoria Station (London), which will take me to Brighton for tomorrow’s presentation at the British Labour Party Conference. The last several days I was in Kansas City for the inaugural International Modern Monetary Theory Conference, which attracted more than 200 participants and was going well when I left it on Saturday. A great step forward. I believe there will be video for all sessions available soon just in case you were unable to watch the live stream. Today’s blog completes my little history of the US Treasury Federal Reserve Accord, which really marked a turning point (for the worse) in the way macroeconomic policy was conducted in the US. In Part 1, I explained how from the inception (1913), the newly created Federal Reserve Bank, America’s central bank, was required by the US Treasury Department to purchase Treasury bonds in such volumes that would ensure the yields on long-term bonds were stable and low. There was growing unease with this arrangement among the conservative central bankers and, in 1935, the arrangement was altered somewhat to require the bank to only purchase debt in the secondary markets. But the change had little effective impact. The yields stayed low as was the intent. Further, all the prognistications that the conservatives raised about inflation and other maladies also did not emerge (which anyone who knew anything would have expected anyway). In Part 2, I traced the increased tensions between the central bank FOMC and the Treasury, which in part was exacerbated by the slight spike in inflation that accompanied the spending associated with the prosecution of the Korean War in the early 1950s. The tension manifested into open disagreement about the FOMC’s desire to raise interest rates and end the pegged yield arrangement with the Treasury. In Part 3, we discuss the culmination of that tension and disagreement and examine some of the less known and underlying forces that were fermenting the central bank desire for rebellion.

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The role of literary fiction in perpetuating neo-liberal economic myths – Part 2

In The role of literary fiction in perpetuating neo-liberal economic myths – Part 1, I noted introduced the idea that fictional literature plays a significant role in framing false economic concepts and, thus, can promotes neo-liberal biases among the readership, even when the plot of the narrative is ostensibly about something other than economics. In other words, what parades as fiction becomes a powerful tool for spreading ideological propaganda, often in a very subliminal or subtle way. In Part 2, I demonstrate that further and provide correct Modern Monetary Theory (MMT) interpretations of popularised economic statements that the characters in the book in focus (The Mandibles) weave into their conversation as if they are accepted facts. The lesson is clear. To further advance Modern Monetary Theory (MMT) ideas, novelists who are sympathetic to the cause should construct their narratives consistent with the MMT principles, where economic matters are touched upon in their work. This will help to counter the misconceptions that arise in literary fiction when authors engage with flawed neo-liberal arguments about the monetary system. It might also help educate book reviewers who often, knowingly or unknowingly, reinforce the myths in the main text.

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Progressives should move on from a reliance on ‘Robin Hood’ taxes

There was an article in the International Politics and Society journal (August 27, 2017) – Robin Hood had the right idea – which continues to demonstrate, how in my view, the Left has gone down a deadend path with respect to financial market reform and re-establishing a credible progressive agenda. The sub-title of the article ‘Why the left needs to deliver on the financial transaction tax’ indicates that the author, Stephany Griffith-Jones, who has long advocated positions I am sympathetic to (particularly with respect to development economics), thinks a financial tax is a viable strategy for the Left to push. The problem is that none of these ‘Robin Hood solutions’ are viable and are based on faulty understandings of the way monetary systems operate.

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The Weekend Quiz – September 2-3, 2017 – 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 – August 26-27, 2017 – 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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There is nothing much that Milton Friedman got right!

“If we want to ensure more people are well-employed, central banks alone will certainly not suffice” is a quote I am happy to republish because I consider it to be 100 per cent accurate. The only problem is that the way I think about that statement and construct its implications is totally at odds with the intent of its author, who claimed it was “an important lesson of Friedman’s speech”, which “remains valid”. The quote appeared in a recent Bloomberg article (July 17, 2017) – What Milton Friedman Got Right, and Wrong, 50 Years Ago – written by journalist Ferdinando Giugliano. It celebrates the Presidential Speech that Friedman gave to the American Economic Association on December 29, 1967 at their annual conference in Washington D.C. In terms of the contest of paradigms, the speech is considered to be the starting point proper of the Monetarist era, even though it took at least another 5 or 6 years (with the onset of the OPEC oil crises) for the gospel espoused by Friedman to really gain ground. The problem is that Friedman was selling snake oil that became the popular litany of the faithful because it suited those who wanted to degrade the role of government in maintaining full employment. It was in step with the push by capital to derail the Post War social democratic consensus that had seen real wages growing in proportion with productivity, reduced income inequality, jobs for all who wanted to work and a strong sense of collective solidarity emerge in most advanced nations. This consensus was the anathema of the elites who saw it as squeezing their share of national income and giving too much power to workers to negotiate better terms and conditions in their work places. Friedman provided the smokescreen for hacking into that consensus and so began the neo-liberal era. We are still enduring its destructive consequences.

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The conservative opposition to full employment legislation in the US

In 1946, with the Second World War at an end, the world governments turned to the question of how to maintain the full employment that the prosecution of the War had brought in the peace. It was clear that governments could choose whatever unemployment level they wanted through the manipulation of fiscal and industry policies and so the only question was the political will to maintain the full employment state. In the US, the political debate led to the Employment Act 1946, which demonstrated that the parameters of the conflict between conservative and the more liberal forces over what constituted full employment and what responsibility the currency-issuing government had for maintaining high levels of employment. We can see through successive attempts in the US to legislate for full employment how the economic profession has influenced the political process and how we have reached the point today where governments pay lip service to fulfulling their responsibilities as the fiscal agency to maintain sufficient jobs for those who desire to work.

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When the top-end-of-town realise their strategy is failing

There was an interesting article in the Financial Times on Monday (June 26, 2017) – Why US big business is listening to Bernie Sanders – which, despite the somewhat misleading and over-the-top headline, tells us a little of the way the full neo-liberal attack on workers is in regression. Not, I might add because of any philosophical or moral consideration. But, rather, the top-end-of-town is starting to work out that their headlong race-to-the-bottom approach over the last three decades is not actually in their best interests. The top-end-of-town is not that bright. More brutish than bright and it takes some time for them to work out what we have known all along. Globalisation mixed with neo-liberalism is poison. Globalisation mixed with social democracy is progress.

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Latest Greek bailout – a recipe designed to fail

I have been looking at the latest Greek bailout deal between the Greek government and the European Commission/IMF), which was concluded last week (June 16, 2017) and released a further 8.5 billion euros in new loans to the Greek government which means it can make bond payments due in July. Despite all the statements from the European Commission and the IMF to the contrary, the terms of the deal with the Greek government confirms that these institutions have abandoned any pretence to being interested in serious economic policy. For the European Commission, the desired irrevocable status of the euro, as a political statement, is all it seems interested in when it comes to Greece. They just don’t want to admit that Greece cannot reasonably function in this monetary union. Just like the previous bailout agreements, this deal will fail. It actually only stalls the reality for yet another day and the only goal it serves is to keep Greece using a currency it cannot afford to use – afford in both monetary and real terms.

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There is a true oppositional Left forming and gaining political traction

I have avoided discussing the British and French parliamentary elections to date, mostly because I couldn’t stomach the outcomes – May back and the neo-liberal Macron dominant. I also was tired of reading stupid columns from the likes of William Keegan and the rest of the Guardian neo-liberals raving on about Brexit and Jeremy Corbyn. Keegan is like an old record that lets the needle get stuck in a groove. He seems to have written the same column since June last year where the reader is told about the Brexit disaster and how Britain will be impoverished. But both elections, particularly the British outcome confirms what we have been noticing for a few years now – there is finally what we might call a true oppositional Left forming and gaining political traction in these nations. This is a Left platform that concedes little to the neo-liberals. It is vilified by the conservatives and the so-called progressive commentariat (such as the Guardian writers) and politicians (New Labour in Britain) as being in “cloud cuckoo land” and predictions from all of sundry of electoral wipeouts have been daily. But the results demonstrated that the message (such as in the Labour Manifesto) resonates with millions of people (40 per cent of those who voted in Britain). It is now a mainstream Left message that has taken over the British Labour Party and the Blairites are hiding under rocks. There is hope. People will only tolerate being bashed over the head for so long. There is now retaliation going on.

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