IMF demonstrates mainstream economics has ossified but remains dominant

Last week (April 11, 2023), the IMF released their half-yearly update – World Economic Outlook: A Rocky Recovery, April 2023 – which excited the headlines in the media with predictions of gloom and calls for fiscal austerity and more interest rate hikes. The only good thing about these reports every six months is the accompanying datasets, which allows for fairly quick comparative analysis across nations. Other than that, the textual narratives are pure mainstream economics Groupthink and demonstrate how if one starts from a particular and flawed set of principles, everything else that follows undermines the stated goal. This is a recurring story – we have seen this with these multilateral agencies over and over again. The point to understand is not to try to interpret these IMF reports as being knowledge-based or compiled as if they are pursuing knowledge. They are parts of the ideological weaponry that seeks to sustain and advance neoliberalism and the power relations inherent in that ideology while purporting to be expert commentary.

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Australian labour market – relatively steady and defies the RBA reckoning

This week is a big data week. Today the Australian Bureau of Statistics (ABS) released of the latest labour force data (April 13, 2023) – Labour Force, Australia – for March 2023. The March result is weaker than February’s strong outcome but still relatively robust. Employment rose with a bias towards full-time work and kept pace with population growth such that unemployment fell marginally. The employment to population rose modestly. Overall a good result. Some caution needs to be observed though – the underlying (‘What-if’) unemployment rate is closer to 4.9 per cent rather than the official rate of 3.5 per cent, which indicates the labour market still has slack. The downside is that the broad underutilisation rate rose 0.3 points to 9.7 per cent and that means there are still 1,402.7 thousand Australian workers without work in one way or another (officially unemployed or underemployed). That extent of idle labour means Australia is not really close to full employment despite the claims by the mainstream commentators. The falling inflation rate coupled with the steady labour market which is maintaining relatively low unemployment runs counter to the RBA model, that is being used to justify the interest rate hikes. Guess which one is wrong?

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US labour market defies the Federal Reserve and continues to improve

Last Friday (April 7, 2023), the US Bureau of Labor Statistics (BLS) released their latest labour market data – Employment Situation Summary – March 2023 – which revealed continuing employment growth and rising participation with unemployment falling modestly. A good confluence of events. We have been looking for a turning point in the US labour market after several months of interest rate increases. But it hasn’t come yet. Indeed, it is going in the opposite direction to that envisaged by the Federal Reserve ‘model’, upon which they justify their interest rate decisions. Guess which is wrong? Most of the aggregates are steady and in terms of the pre-pandemic period, March’s net employment change was still relatively strong. Real wages continued to decline in the face of a decelerating inflation rate. Overall, the US labour market is steady and doesn’t appear to be contracting in the face of the Federal Reserve interest rate hikes.

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The absurdity of the current monetary policy dominance exposed

We start to see the absurdity of the current reliance on monetary policy as a counter-stabilisation tool, when you read the calls from the Bank of England Monetary Policy Committee member talking about the risk of a ‘significant inflation undershoot’. In a detailed analysis of the current situation, the external MPC member noted that inflation was falling faster than expected because the supply constraints were reversing quickly. She also noted that the interest rate hikes had now reached a point where unemployment was certain to rise and lead to, in the face of the supply reversals, to deflation. And that would require faster and larger interest rate cuts. Here is an insider admitting that the Bank of England is more or less gone rogue and out-of-step with reality. Overshoot at the top of the hiking cycle, swinging to a massive undershoot at the bottom. Absurd.

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Fiscal policy can always protect employment, incomes and business solvency if there is political will

I was at the optometrist the other day getting my regular eye test and all the person doing the test wanted to talk about was whether we were heading into recession. I think he was toying with buying a new apartment to live in and was trying to assess risk with the rising interest rate regime and all the negative talk. I actually don’t like giving that sort of advice to people I am dealing with in that sort of relationship. But it is a good question – and there is evidence either way. First, it is clear that governments can always protect employment, incomes and business solvency with appropriate fiscal policy interventions. Second, it is less clear on what monetary policy does and that is the issue – eventually interest rate rises will cause certain sectors, such as construction, to encounter difficulties and start laying off workers and recording bankruptcies. But the problem is that monetary policy is such a crude instrument that the damage is done before we really can measure it.

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When mainstream economists arrive at ideas 50 or so years late and pretend to be contributing to knowledge

I regularly encounter mainstream economists who are confounded by the dissonance that the body of theory they have been working in introduces and then seem to think they have come up with new ideas that restores their credibility. The more extreme version of this tendency is called plagiarism in academic circles. But the less extreme version is to produce some work in which you conveniently ignore the main contributors in history but hold out implicitly that the ideas are somehow your own. As mainstream economics fumbles through this period where the fictional world they operate in and push onto students is increasingly being revealed as a fraud, several economists are trying to distance themselves from the train wreck by resorting to restating ideas that in a period past they would have criticised a ‘pop science’. This syndrome is an accompaniment to the well established ‘we knew it all along’ or ‘there is nothing new here’ defenses that are often used when new ideas make the mainstream uncomfortable. I saw this again in a recent article from the British-based Centre for Economic Policy Research (CEPR) which discusses the way modern banks work – How monetary policy affects bank lending and financial stability: A ‘credit creation theory of banking’ explanation (March 20, 2023). The problem is that heterodox economists knew this from years ago including with the seminal work in the early 1970s of Canadian economist – Basil Moore. The other problem is that the CEPR authors choose not to credit the seminal authors in the reference list, which I think is poor form.

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Latest Productivity Commission report – relies on and exploits our ignorance – to undermine our well-being

I had a sense of déjà vu this week when I read the latest release from Australia’s Productivity Commission – Advancing Prosperity – which was released on March 17, 2023 and is a five-yearly exercise conducted by the Commission on behalf of the Australian government. Frankly, if the government was looking to cut spending while advancing material well-being in the community, they could simply tell the Commission to cease doing this work and instruct the staff involved to get real jobs and do something that matters. We just get a regurgitation of GIGO, that well-practiced art of pretending to have something authoritative to say while one is grabbing money out of the till at a rate of knots to advance self-interest! The problem is that the ordinary citizen is ill-equipped to understand any of the technical hoopla that attempts to shroud these types of Report in ‘credibility’, and so is at a disadvantage when trying to determine whether they should support it through the ballot box. Neoliberalism relies on and exploits our ignorance.

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The way private banks in Australia screw their communities

Today, I am over committed and have to travel some, and, luckily, we have a guest blogger in the guise of Professor Scott Baum from Griffith University who has been one of my regular research colleagues over a long period of time. He indicated that he would like to contribute occasionally and that provides some diversity of voice although the focus remains on advancing our understanding of Modern Monetary Theory (MMT) and its applications. Today he is going to talk about the current concerns about the provision of regional banking services.
Anyway, over to Scott.

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Australian labour market bounces back after two months of gloom – the RBA will not be pleased

The Australian Bureau of Statistics (ABS) released of the latest labour force data today (March 16, 2023) – Labour Force, Australia – for February 2023. My overall assessment is that after two months of decline (some of which was related to abnormalities during the holiday period), the February result is much stronger. All the things one looks for improved – employment rose by 64,600 (0.5 per cent) with a bias towards full-time work; unemployment fell 16,500 to 507,500 persons and the official unemployment rate fell by 0.3 points to 3.5 per cent; and the participation rate rose 0.1 point Some caution needs to be observed though – the underlying (‘What-if’) unemployment rate is closer to 5.1 per cent rather than the official rate of 3.5 per cent, which indicates the labour market still has slack. There are still 1,343.2 thousand Australian workers without work in one way or another (officially unemployed or underemployed). The problem is that the RBA, which is intent on increasing unemployment in the misguided belief that the inflationary pressures are coming from the labour market, will hike further and eventually kill off employment growth.

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US inflation falling fast as Europe prepares to go back into a deliberate austerity-led crises

The transitory view of the current inflation episode is getting more support from the evidence. Yesterday’s US inflation data from the Bureau of Labor Statistics (March 14, 2023) – Consumer Price Index Summary – February 2023 – shows a further significant drop in the inflation rate as some of the key supply-side drivers abate. All the data is pointing to the fact that the US Federal Reserve’s logic is deeply flawed and not fit for purpose. Today, I also discuss the stupidity that is about to begin in Europe again, as the European Commission starts to flex its muscles after it announced to the Member States that it is back to austerity by the end of this year. And finally, some beauty from Europe in the music segment.

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US labour market slows a bit but no sign of a major contraction yet

Last Friday (March 10, 2023), the US Bureau of Labor Statistics (BLS) released their latest labour market data – Employment Situation Summary – February 2023 – which revealed a slight dip in the number of net payroll jobs created and a slight increase in the unemployment rate. It is too early to say whether this marks a turning point in the US labour market after several months of interest rate increases. We will know more about that next month. January’s result was very strong, so a slight dip on that is no cause for concern. Most of the aggregates are steady and in terms of the pre-pandemic period, February’s net employment change was still relatively strong.
Real wages continued to decline in the face of a decelerating inflation rate. Overall, the US labour market is steady and doesn’t appear to be contracting fast in the face of the Federal Reserve interest rate hikes.

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The current inflationary period is not remotely like the 1970s

In the light of recent debates about whether we are back in the 1970s, where the only ostensible similarity is that inflation has accelerated over the last year or so, I dug into my data archives to remind myself of a few things. One of the problems with dealing with official data is that it gets revised from time to time and time series become discontinuous. So the labour market data for Australia tends to start in February 1978 when the Australian Bureau of Statistics moved to a monthly labour force survey. Researchers who desire to study historical data have to have been around a while and have saved their earlier data collections (such as me). But it is often impossible to match them with the newer publicly available data. You will see in what follows how that plays out. But, I was also interested to return to the past today after the ABS released their latest – Industrial Disputes, Australia – data (released March 9, 2023), which shows that disputes remain at record lows. So in what follows I show you how far removed the current situation is from what happened in the 1970s and this renders the narratives from our central bankers a pack of lies.

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RBA is engineering one of the largest cuts to real disposable income per capita in our history

Yesterday (March 7, 2023) two big things happened. The first is that I got a lovely bunch of sunflower blooms for my birthday present. Which was ace. The second, the RBA Board wheeled out the governor to announce the 10th consecutive interest rate rise even though inflation has been falling for several months. The RBA has now become preposterous and the Government should definitely terminate the tenure of the Governor in September when his term is up for renewal. In the meantime, it should clean the RBA Board out, or introduce legislation that says each member including the governor gets the real disposable loss that they are imposing on the worker deducted in percentage terms from their own salaries. A further deduction would be made (quantum to be determined) for each percentage point the unemployment rate rises. That might give them pause for thought. The music segment will definitely lift your spirits after reading through the following gloom.

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German Bundestag body’s MMT overview exposes the hidden agenda – the population simply can’t be allowed to understand MMT

The Scientific Advisory Department of the Deutscher Bundestag recently (January 27, 2023) released a discussion paper – Modern Monetary Theory – An overview – which really exposes what all the opposition to our work is about. Initially, I was interested to learn from the discussion paper that I was a US economist after thinking all these years that I was Australian by birth and citizenship. Perhaps that error tells you something about the quality and depth of the research effort that the authors undertook. The paper recognises that Modern Monetary Theory (MMT) is “an economic school of thought that has existed for around 25 years” but is hazy on the provenance, ignoring that at the beginning there was Warren Mosler, Randy Wray and myself. Rather interestingly, the discussion paper claims that there is no disagreement among the mainstream as to the theoretical and conceptual elements of MMT. So the mainstream all agree with us now! That is quite an admission. But, as one gets further into the discussion, it becomes obvious that the authors miss the point when they start talking about MMT policies. What their critique of MMT illustrates is that the real antagonism to our ideas is that they might open up wider policy options to the public than the political process cares to admit. Or, in other words, the real problem is that an understanding of MMT exposes the TINA mantra – that allows governments to maintain policies that advance the interests of the few at the expense of the many – as wanton neglect of the responsibilities of government. That exposure, if sustained, would alter the whole policy terrain and challenge the hegemony of the elites. That is what the opposition to MMT is about.

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Australian National Accounts – GDP growth in decline, expect unemployment to rise – courtesy RBA sabotage

The Australian Bureau of Statistics released the latest – Australian National Accounts: National Income, Expenditure and Product, December 2022 – today (March 1, 2023), which shows that the Australian economy grew by 0.5 per cent in the December-quarter 2022 and by 2.7 per cent over the 12 months. This is a significant decline in growth, which is now insufficient to prevent unemployment from rising over the coming period. Growth is being driven largely by continued (but moderating) growth in household spending. This was augmented by the strong rebound in the Terms of Trade (commodity prices), which helped net exports make a positive growth contribution. There was growth in employee compensation (the wage measure from the national accounts) of 3.2 per cent but that was largely due to administrative decisions (for example, minimum wage increases) that impacted in this quarter rather than being the result of market pressures. Households are now saving less relative to their disposable income in an effort to maintain consumption growth in the face of rising interest rates and temporary inflationary pressures. I expect growth to decline further and we will be left with rising unemployment and declining household wealth as a result of the RBA’s poor judgement.

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RBA appeal to NAIRU authority is a fraud

The mainstream press is now seeing through the Reserve Bank of Australia’s behaviour, which I take as a sign of progress. For example, there was an article on the ABC News Site yesterday – Reserve Bank accused of ‘economic gaslighting’ as wages growth misses forecasts, again. I noted yesterday that the latest evidence contradicts the RBA’s claims that wages are growing too fast and provide it with a rationale for further interest rate increases, despite the inflation rate falling over the last several months, and real wages declining by more than has ever been recorded. Last week, the RBA Governor and his staff appeared before a parliamentary committee to justify thee rate hikes. We learn a lot from the session – none of it good. The basic conclusion is that the RBA thinks they can hoodwink our politicians into believing that their is a ‘technical authority’ based in statistics for their actions, when in fact, no such authority exists.

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Real wages in Australia continue to plunge but the RBA still falsely claims that wage pressure justifies interest rate hikes

The RBA governor has consistently sought refuge in claims that wage pressures in Australia are building and justify the central bank rate hikes – 9 consecutive increases since May 2022. The RBA has chosen to seriously mislead the Australian public on this issue and when confronted with publicly-available data that justifies that conclusion they claim they have unpublished data that shows a wages problem that is pushing inflation. They won’t publish that data, just as they won’t tell us what their secret meetings with bank traders a few weeks were about, except we saw profit taking from the banks increase immediately after the meetings. Today (February 22, 2023), the Australian Bureau of Statistics released the latest – Wage Price Index, Australia – for the December-quarter, which shows that the aggregate wage index rose by 0.8 per cent over the quarter and 3.3 per cent over the 12 months. Last week, we learned that employment growth had declined for the second consecutive month, while real wages continue to contract. Says a lot about mainstream employment theory that predicts real wage cuts will increase employment. This is the seventh consecutive quarter that real wages have fallen. There can be no sustained acceleration in the inflation rate arising from wages growth under these circumstances. Further with the gap between productivity growth and the declining real wages increasing, the massive redistribution of national income away from wages to profits continues. The business sector, as a whole, thinks it is clever to always oppose wages growth and the banks love that because they can foist more debt onto households to maintain their consumption expenditure. None of this offers workers a better future. Further, the conduct of the RBA in this environment is contributing to the damage that workers are enduring. While corporations continue to gouge profits, the RBA, like the schoolyard bully, has singled out some of the most disadvantaged workers in our society (low income earners paying of housing loans) and using them in their relentless push of mainstream ideology. This is a huge problem.

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Australian labour market – contracts for second consecutive month – where is the Treasurer?

The Australian Bureau of Statistics (ABS) released of the latest labour force data today (February 16, 2023) – Labour Force, Australia – for January 2023. My overall assessment is that the labour market is now in decline after two consecutive months of employment loss. In January 2023, total employment fell by 11,500 (-0.1 per cent) with full-time employment falling by 43.3 thousand, while part-time employment increased by 31.8 thousand. Participation also fell further to 66.5 per cent and we saw unemployment rise significantly (by 21,900 persons). Workers are being squeezed by two forces: the demand for labour is declining at the same time as the supply is increasing as a result of the relaxation of border restrictions and increased migration. The underlying (‘What-if’) unemployment rate is closer to 5.6 per cent rather than the official rate of 3.7 per cent, which indicates the labour market still has slack. There are still 1,398 thousand Australian workers without work in one way or another (officially unemployed or underemployed). Overall, the RBA deliberate strategy to force unemployment onto workers and deprive them of income is working. Shameful!

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RBA governor thinks massive bank profits are good while he wants unemployment to rise

It’s Wednesday and a lot is going on. The RBA governor appeared before the Commonwealth Senate Estimates Committee today and demonstrated what a troglodyte he is, defending massive bank profits and deliberately trying to cause unemployment. Meanwhile, US data shows that inflation has peaked and is now falling. The pace of the deceleration is picking up. Meanwhile – MMTed – is active and our 4-week course began today (see details below) and we are helping a new radio show to launch next week – Radio MMT. And we cannot go a Wednesday without some great music. All in a day.

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Degrowth, food and agriculture – Part 6

This is Part 6 of a series on Deep Adaptation, Degrowth and MMT that I am steadily writing. I have previously written in this series that there will need to be a major change in the composition of output and the patterns of consumption if we are to progress towards a sustainable future. It will take more than cutting material production and consumption. We have to make some fundamental shifts in the way we think about materiality. The topic today is about consumption but a specific form – our food and diets. Some readers might know that there has been a long-standing debate across the globe on whether a vegetarian/vegan diet is a more sustainable path to follow than the traditional meat-eating diet. Any notion that the ‘meat’ industry is environmentally damaging is vehemently resisted by the big food corporations. Like anything that challenges the profit-seeking corporations there is a massive smokescreen of misinformation created to prevent any fundamental change. New research, however, makes it clear that we can achieve substantial reductions in carbon emissions by abandoning meat products in our diets and the gains are disproportionately biased towards the richest nations. I have long argued that I find a fundamental contradiction in those who espouse green credentials and advocate dramatic behavioural shifts to deal with climate change while a the same time eating meat products. The recent research supports that argument. So Greenies, give up the steaks and the chickens and get on your bikes and head to the greengrocer and start cooking plants.

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