Fiscal surplus by 2017-18? A mindless goal guaranteed to cause havoc and fail

Its sad when politicians lie just to get political points as they face declining popularity. We saw last week that the Australian Prime Minister started attacking indigenous Australians for living in areas that they have occupied, one way or another, for somewhere up to 80,000 years. He claimed these settlements were “lifestyle” choices and people could no longer expect government support if they wanted to indulge in such choices. 80,000 years for a culture that has a deep connection with the ‘land’ is quite story compared to the Anglo settlement in Australia of 226 years for a culture that connects via iPhones! The PM was playing into the hands of the racist Australians who think the indigenous population here are skivers and drunks and should get no state support. They ignore that this cohort is one of the most disadvantaged peoples of the World. In the last few days, the PM has been lying about the state of government finances and pledging to that “the government will have the budget back in balance within five years”. There was no mention of what this might imply for the real economy. I am surprised that the conservatives haven’t learned from the previous Labor Government who made continual promises of surpluses but failed each time – largely because they didn’t understand that they cannot control the fiscal outcomes no matter how hard they try. And when they do try and run against the spending desires of the non-government sector, they just cause havoc and damage and fail to achieve their goals anyway. Stupid is not the word for these sorts of promises.

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Don’t mention the war! er the Troika …

“Don’t mention the war”! was a classic line from the episode – The Germans – in the comedy Fawlty Towers. Basil Fawlty implored his meagre staff to stay silent in case they offended some German tourists staying at his hotel. His attempt at self-censorship failed and led to hilarious consequences. I was reminded of the sketch (see it below) when I was reading the – Greek finance minister’s letter to the Eurogroup (February 24, 2015). Apparently, it is now a case of ‘Don’t mention the Troika’, ‘Don’t mention the Memorandum’ and never ever talk about the ‘Lenders’. The bullying threesome (European Commission, ECB and the IMF) are now known as “the institutions” and the “Memorandum” (the bailout package) is now to be called “The Agreement” and the “Lenders” have been recast as the “Partners”. Okay, and that is progress. The Reform package surely lets the Greeks choose which nasty policy they will implement but it is still nasty. Yes, it “buys them time”. The damage from massive unemployment and poverty eats into people every day. 4 months is a long time when you are on the street starving. And by the time this agreement is done – will the Germans be happy to unleash billions of euros via the European Investment Bank to allow the Greek government to continue running fiscal primary surpluses and keep pumping interest income on outstanding debt into ‘foreign’ coffers? Pigs might fly.

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Greek bank deposit migration – another neo-liberal smokescreen

There was a news report on Al Jazeera on Friday (January 5, 2015) – Greece’s left-wing government meets eurozone reality – which contained a classic quote about the supposed incompetence of the new Greek Finance Minister. A UK commentator, one Graham Bishop was quoted as saying “If you’re a professor of macroeconomics and a renowned blogger, you probably don’t understand precisely how the banking systems works”. Take a few minutes out to recover from the laughing fit you might have immediately succumbed to on reading that assessment. As if Bishop knows ‘precisely’ how the system works! The context is the current news frenzy about the deposit migration out of Greek banks as a supposed vote of no confidence in the anti-austerity stand taken by Syriza. Having voted overwhelmingly for Syriza, Greeks are now allegedly voting against the platform by shifting their deposits out of the Greek banking system. A close look at things suggests that is not going on and it wouldn’t matter much if it was.

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Germany has a convenient but flawed collective memory

There is a lot of discussion at present about the historical inconsistency of the German position with regard any debt relief to the Greek government. Angela Merkel has reiterated over the weekend that there would be no further debt relief. Why she is now a spokesperson for the Troika that does not include the German government is interesting in itself. In this context, I recall a very interesting research study published in 2013 – One Made it Out of the Debt Trap – by German researcher Jürgen Kaiser, who examined the London Debt Agreement 1953 in great detail. After becoming familiar with the way the Allies handled the deeply recalcitrant Germany and its massive debt burden in that period, one wonders why the German government is so vehemently against giving relief to Greece. This is especially in the context that the only mistake that Greece made was joining the Eurozone and surrendering its own capacity to deal with a major financial crisis. The ‘mistakes’ of the German nation before the London Agreement have been paraded before us all again with the 70th anniversary of the liberation of the Auschwitz death camp featuring in world events last week.

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Australian labour market – moderate growth recorded

Today’s release of the – Labour Force data – for December 2014 by the Australian Bureau of Statistics shows that the Australian labour market modestly in the month of December. The good news is that full-time employment growth was positive and the participation rate rose, and unemployment fell. The bad news is that employment remains below the underlying growth in the labour force and the bias is thus towards higher unemployment. Monthly working hours fell this month, which was curious given the predominant full-time employment growth. But monthly data is volatile and the trends are still fairly poor. Remember that last month, the broad ABS labour underutilisation rate – the sum of unemployment and underemployment – was estimated to be at 15 per cent. That is a crisis. So a month’s growth in December is good but needs to be kept in context. The teenage labour market went backwards again this month, which signals an urgent policy problem that the Federal government refuses to recognise or deal with. They are so obsessed with cutting fiscal deficits that they cannot see the future damage they are causing as a result of the appalling state of the youth labour market.

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Saturday Quiz – January 10, 2015 – answers and discussion

Here are the answers with discussion for yesterday’s quiz. The information provided should help you understand the reasoning behind the answers. If you haven’t already done the Quiz from yesterday then have a go at it before you read the answers. I hope this helps you develop an understanding of Modern Monetary Theory (MMT) and its application to macroeconomic thinking. Comments as usual welcome, especially if I have made an error.

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When fiscal policy is misrepresented

On Tuesday, Australians woke to headlines – Treasurer Joe Hockey faces $51 billion deterioration in finances between budget and MYEFO, economists say – and a story of “black holes”. The so-called director of budget and forecasting at a consulting firm in Australia (inaptly named Macroeconomics) claimed that the May fiscal statement (aka The Budget) was “economically sound”, which just tells you that the director is not worth listening to on matters macroeconomic. Then along came the US-China so-called ‘historic’ climate deal to muddy the waters further. And nothing I have read in the news since Tuesday about either issue makes any sense from a macroeconomic perspective.

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Australia’s inflation rate falling on back of weak spending

The Australian Bureau of Statistics released the Consumer Price Index, Australia data for the September-quarter 2014 today. The quarterly inflation rate was 0.5 per cent (down from 0.6 per cent last quarter) and this translated into an annual rate of 2.3 per cent, down on the 3.0 per cent in the June-quarter 2014. The Reserve Bank of Australia’s preferred core inflation measures – the Weighted Median and Trimmed Mean – are still well within the inflation targetting range and are not trending up. Various measures of inflationary expectations are also flat, including the longer-term, market-based forecasts. This suggests that the RBA may consider that the major problem in the economy is declining growth and rising unemployment, especially in the context of China’s surprise slowdown announced yesterday, and may even cut rates before the year’s end. The evidence is suggesting that the economy is still very sluggish. The benign inflation outlook provides plenty of room for further fiscal stimulus.

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Friday lay day – ABS funding should be appropriate and access free

Its my Friday lay day blog and my mini-topic today is a left-over from yesterday’s commentary on the latest Labour Force data from the Australian Bureau of Statistics. The last few months data has been very volatile and the ABS has finally admitted that their seasonal adjustment techniques have not delivered realistic estimates of employment (and hence unemployment). This matters because many sectors and people use the summary aggregate statistics produced by the ABS, such as the headline unemployment rate for all manner of purposes, some of which are more important than others. The Federal Treasurer’s response to the issue has been predictably asinine. This is a person who has cut the national statistical agency’s budget by more than $68 million in the last year. His solution – force a user-pays regime onto the ABS so that we will have to pay to access their data to work out what is going on in our nation. It has been done before by conservative Australian governments, in part to reduce the flow of information but also, more mindlessly, to ‘save’ money – in a currency that the government issues! That is how mindless neo-liberal bean counters get.

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CEO pay still out of control

On September 15, 2014, the Melbourne Age article – Workers can forget about big pay rises for some time to come – summarised the wages outlook that workers can expect in the coming year as the labour market weakens. Its bleak. Meanwhile, CEO pay while down from the peaks of 2007 remains excessive according to a major survey released in Australia this morning. Depending on how one measures it, the average CEO of the Top 100 companies earns between 65 and 84 times what the average worker takes homeeach year. And these bosses lead the cheer squad when industry leaders and government ministers claim workers have to take pay cuts and surrender penalty rates and that the minimum wage should be abandoned. The neo-liberal obscenity survived the GFC and has now reorganised. Woe be us!

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Australia labour force data – now a million underemployed

Today’s release of the – Labour Force data – for August 2014 by the Australian Bureau of Statistics revealed an extraordinary rise in part-time employment and a decline in unemployment. The results are suspicious as the ABS themselves acknowledge. Despite the massive increase in part-time employment, total working hours barely rose and the upshot was the underemployment jumped sharply. There are now more than 1 million workers in Australia who are underemployment. The broad labour underutilisation rate jumped from 13.5 to 14.6 per cent. Teenagers gained some of the part-time employment growth but full-time employment slumped further. The Government will be claiming the employment reversal is a vindication of their economic policy – but we will have to see if the sudden jump is sustained or is a statistical artifact.

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Large-scale employment guarantee scheme in India improving over time

Today I am reflecting on employment guarantees. I ran into a mate in a computer shop in Melbourne yesterday, totally by accident. He happens to be one of the big players in the job services sector – the unemployment industry. We exchanged our usual pleasantries and then we got angry together about the government policies – the usual interaction. Then I said well what we need is all you guys and the related charities (such as the Brotherhood of St Laurence, the Smith Family) and other groups (such as Greenpeace, Amnesty International etc) all getting out of their comfort zones and agreeing that being angry is stupid and that action is required. These are the people who lobby government. Academics only create ideas and write them out. I suggested that these groups use their significant public profiles to organise a coalition of support for the Job Guarantee and really push it hard – if only to expose the denials and failures of the orthodoxy that besets us all. Anyway, that conversation just happened to dove-tail with an article I read last week about employment guarantees in practice that I found interesting and which was exposing the deniers for what they are – ideological sycophants. That is what this blog is about.

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I would be voting NO in Scotland but with a lot of anger

I am fairly tied up today on the Gold Coast where I presented a Keynote address to an unemployment conference. But I was reading the news on the plane this morning from Melbourne. While in Melbourne for work last week, I stayed over and saw a great movie at the weekend at the Melbourne Film Festival – Human Capital – which I recommend. On the plane this morning I noticed our intrepid Prime Minister has taken to lecturing the Scottish about their political destiny. His exhortations are both hypocritical and reflect a failure to comprehend the options that national sovereignty would provide Scotland, which has a referendum coming up on September 18. But even if they build a bit of national solidarity in Scotland (against the foreigner), the First Minister who is pushing the YES vote is still proposing to enslave the nation to a foreign power – none other than Britain. His currency Plan A amounts to madness and would not underpin a vibrant independent Scotland. As such I would be voting NO at the referendum but feeling bad that the so-called progressive political classes in Scotland were so entranced with neo-liberalism that they forced obvious YES votes to become NO votes.

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MMT is not conservative thought

Last night I sent the final manuscript of my Euro book to the publisher and felt somewhat downcast – that always happens after an intensive piece of work is finished. But this morning, I woke up free of that and focusing on the next task in the list. The list is always bubbling away and one juggles multiple projects at the same time, with more or less intensity. Curiosity demands that. But at some point more effort goes into one to complete it and the others wait in the queue for their turn. My next major deadline is an Modern Monetary Theory (MMT) compilation commissioned by my publisher Edward Elgar. The compilation will be my version of the roots of MMT and the development of its major ideas and influences. I have to write an overview piece explaining why I selected the literature and how it fits into the intellectual MMT tradition. It will obviously be an eclectic exercise and there is no certainty that my other original developers of what is now more broadly known as MMT will agree with my compilation or emphasis. I plan to start with Theories of Surplus Value – for reasons I explained in this blog – We need to read Karl Marx. I also do not plan to eulogise John Maynard Keynes, even though many of my colleagues think he is the most important link in the chain. It is here that I have to walk the fine line between technical detail and a broader reflection on how values intersect with what we might call the facts.

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No fundamental shift of policy at the Bundesbank

Last week, the Chief economist at the Deutsche Bundesbank, Dr. Jens Ulbrich gave a rather extraordinary interview to the German Magazine Der Spiegel. The interview was recorded in the article – Breaking a German Taboo: Bundesbank Prepared to Accept Higher Inflation. The sub-heading said that this marks a “major shift away from the Bundesbank’s hardline approach on price stability” and my profession apparently “hailed the decision as a ‘breakthrough'”. I wouldn’t be so sure. The Bank has a long track record of ignoring the plight of German workers and the workers elsewhere in Europe. The imposition of its ‘culture’ with its disdainful disregard for responsible economic policy on Eurozone political elites has created so much slack in Europe that even it cannot deny the mounting evidence that there is a deflationary problem. But this support for workers’ wage rises won’t last. As soon as the inflation rate exhibits the first uptick – the Bundesbank will be out there berating all and sundry about the dangers of profligacy! Leopards don’t change their spots.

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Inflation rises on back of health fund price hikes – generally benign

The Australian Bureau of Statistics released the Consumer Price Index, Australia data for the June-2014 quarter today. The quarterly inflation rate was 0.6 per cent and this translated into an annual rate of 3 per cent, up on 2.9 per cent in the March-quarter 2014. The Reserve Bank of Australia’s preferred core inflation measures – the Weighted Median and Trimmed Mean – are still well within the inflation targetting range and are not trending up. Various measures of inflationary expectations is also flat, including the longer-term, market-based forecasts. This suggests that the RBA will probably consider the inflation outlook to be benign and they will probably hold interest rates at their current low level. The evidence is suggesting that the economy is still very sluggish. The benign inflation outlook provides plenty of room for further fiscal stimulus.

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Fact checking the fact checkers is required in macroeconomic matters

There is a lot of misinformation spread in the media about the fiscal history of Australia and elsewhere. The Australian Broadcasting Commission, for example, has now a “Fact Check” facility where it checks statements made by politicians against the facts. It should apply it to some of its own stories and subject more journalists (including its own) to the scrutiny it imposes on the pollies.

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Ireland national accounts and inversion

Apparently, the mangy cat that was the Celtic Tiger is about to become the Celtic Tiger again. One of many reports that suggest Ireland is about to have a “here we go again” boom – The mauled Celtic Tiger is ready to roar again (UK Telegaph, July 5, 2014) – claimed last week that while “few Western nations suffered more than Ireland” as the GFC unfolded, it is now “perhaps” about “to stage a convincing recovery”. This statement followed the release of the “latest GDP rebound, driven by a 1.8pc rise in exports over the first quarter and an inventory turnaround”. I am not yet convinced nor should I say was the journalist in question. The so-called recovery is very tentative and domestic demand remains weak. Further, as before the crisis, a substantial portion of the growth is being repatriated offshore to foreign owners of capital. Moreover, a new phenomenon has crept into the picture – the so-called ‘tax inversion’, which makes it harder to disentangle what is actually happening with the Irish National Accounts.

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When climate change denialists merge with fiscal austerians

It is Friday, my blog lay day, so no real blog. I am editing my Europe book and up in the North of Australia today dealing with various projects I have been working on. But here is an example of what happens when climate change denialists merge with fiscal austerians. Mindless and damaging confusion! Here is my non-blog for today!

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Australia’s lowest wage workers continue to trail behind

The Fair Work Commission, the Federal body entrusted with the task of determining Australia’s minimum wage handed down its – 2013-14 decision – on June 4, 2014. The decision meant that more than 1.5 million of our lowest paid workers (out of some 11.6 million) received an extra $18.70 per week from July 1. This amounted to an increase of 3 per cent (up from last year’s rise of 2.6 per cent). The Federal Minimum Wage (FMW) is now $640.90 per week or $16.87 per hour. For the low-paid workers in the retail sector, personal care services, hospitality, cleaning services and unskilled labouring sectors there was no cause for celebration. They already earn a pittance and endure poor working conditions. The pay rise will at best maintain the current real minimum wage but denies this cohort access to the fairly robust national productivity growth that has occurred over the last two years. The decision also widens the gap between the low paid workers and other wage and salary recipients. The real story though is that today’s minimum wage outcome is another casualty of the fiscal austerity that the Federal Government has imposed on the nation which is destroying jobs and impacting disproportionately on low-paid workers.

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