Another economics department to close

Today I decided that there is another macroeconomics research unit that needs to be closed down. My decision was reached after I read the latest paper from the Bank of International Settlements – The future of public debt: prospects and implications – which confirms that the Monetary and Economic Department of that organisation is publishing deficit terrorist literature. The paper is so bad that I am sorry I read it. I may avoid BIS publications altogether in the future. But if I apply that reasoning I am going to be back to reading Stieg Larsson novels and there are only three of them and I have already read them!

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EMU posturing provides no durable solution

Today I have been looking over documents from the EMU which emerged from last week’s summit in Brussels. Within the plush environs of their meeting halls and probably over very sumptuous dinners the best they could come up with was a half-baked plan to stop the daily headlines which have been indicating impending Greek default. Such a default would damage the Eurozone monetary system and probably show the way for other nations, which are being similarly bullied by the EU bosses into impoverishing their nations. Given some reporting today they may have succeeded … in stopping the headlines … for the moment. But the approach of the EMU leaders will do nothing to address the fundamental structural flaws in the their whole system. With the prospect of an extended period of austerity throughout the zone, they are really just making it more certain that the next major global downturn sinks them for good. That is, if social instability doesn’t do it beforehand.

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Saturday Quiz – March 27, 2010 – answers and discussion

Here are the answers with discussion for yesterday’s quiz. The information provided should help you work out why you missed a question or three! If you haven’t already done the Quiz from yesterday then have a go at it before you read the answers. I hope this helps you develop an understanding of modern monetary theory (MMT) and its application to macroeconomic thinking. Comments as usual welcome, especially if I have made an error.

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The US should have universal public health care

I have been resisting writing about the US health care fiasco because frankly the whole debate is a fiasco and demonstrates the ability of mainstream economics to obscure a widespread understanding of how the monetary system operates and the opportunities that system provides a currency-issuing government. But I have had more E-mails on this topic over the last few weeks than most other issues (bar EMU). Most readers want some analysis from a Modern Monetary Theory (MMT) perspective and so here it is. If only to stop the E-mails.

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The bullies and the bullied

The events continue to get more strange in the Eurozone by the day. Yesterday, Portugal was downgraded, which will worsen their situation, despite the rating agency claiming that the fiscal austerity plan in place was credible. Tomorrow, European leaders meet in Brussels but the German leader doesn’t even want the crisis on the agenda. The Germans only want to discuss imposing even tougher restrictions on the ability of governments to govern in the interest of their citizens. It is like a B-grade horror movie script. But all the intrigues that are playing out in the Eurozone at present demonstrate (albeit tragically so) the dynamics that led to the collapse of the fixed exchange rate system (the Bretton Woods arrangement). Same old story – bullies and the bullied. It means the only viable solution is to abandon the EMU as soon as possible and restore some sanity … and democracy.

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Protect your workers for the sake of the nation

I am currently researching the way in which the labour market functions to discipline the inflationary process has fundamentally changed over the last 20 years as underemployment has risen. I will have more to say on that at another time as the work advances. But today it led me into considering research that demonstrates that different employment protection (higher dismissal costs etc) standards across the EMU have been instrumental in explaining the differentials in unemployment that are now evident. So nations with more protection have fared better in the crisis than nations which more vigorously pursued the neo-liberal flexibility agenda (that is, creating rising proportions of precarious employment). This type of research puts the debate now raging in the Eurozone that nations have to adjust by drastically cutting wages and conditions into a different light.

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Ladies and gentleman, civilisation is ending

Today I wasted 20 minutes reading about the end of the World. But before I did that I read some so-called progressive literature that was calling on the UK government in tomorrow night’s budget to seek a balanced budget. You say what? That’s right, what goes for progressive thought these days is what used to be the exemplar of fiscal conservativism not so long ago. While the current crisis exposed most of the myths that mainstream economists have promoted for years it seems that progressives are not seizing the day but trying to sound more reasonable (read: right-wing conservative) than the conservatives. The crisis has also pushed all these opinionated loonies like Niall Ferguson into prominence. Its getting pretty lonely out here …. wherever I am (and don’t say the left word)! (<= joke).

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Clowns to the left, jokers to the right

… and we are stuck in the middle. In some US states they are rationing street lighting because they have run out of “money” even though the electricity generators have spare capacity. Hospitals are cutting services even though there are plenty of bandages idle. In the US, the federal government is now crowing about its “historical” health care victory which imposes new taxes now and no new spending until 2014 – it is still enduring the impact of a deep recession – some victory. Private spending remains very weak in most economies and fiscal interventions dominate the modest growth in aggregate demand that we are witnessing in some countries. In almost all countries unemployment has risen sharply and will persist at higher levels for some years to come. So what does my profession say … the fiscal cuts need to be even bigger because growth is slower and the deficits are “worse” than expected. So clowns to the left, jokers to the right … or whatever.

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Saturday Quiz – March 20, 2010 – answers and discussion

Here are the answers with discussion for yesterday’s quiz. The information provided should help you work out why you missed a question or three! If you haven’t already done the Quiz from yesterday then have a go at it before you read the answers. I hope this helps you develop an understanding of modern monetary theory (MMT) and its application to macroeconomic thinking. Comments as usual welcome, especially if I have made an error.

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China is not the problem

There is currently an international cacophony being created by economists, politicians, political commentators and any-one else that thinks they have something to say which goes like this: China’s export orientation and its “manipulation” of the renminbi to stop it appreciating is damaging World demand and plunging the Western world into unsustainable debt levels and persistent unemployment. The simple retort is: the commentators have it all backwards and are ignoring the policy options that the Western world has but which policy makers will not fully utilise. But it is an interesting debate and the institutional attachment to the debate is not necessarily predictable as you will see.

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Hyperdeflation, followed by rampant inflation

The title of the blog is a little misleading but was too good not to use. I get to that five-year forecast (2010-2015) later in the blog but the first part is material that sets the scene. Yes, I am writing about deficits and debts … again! But new nuances come out in the public debate which need to be addressed. The conservative assault on government support for their economies at present is multi-dimensioned and is being pushed along by two main journalistic approaches. The manic Fox new-type approach which I realise is influential but is so patent and ridiculous that I don’t care to comment on it often. Then we have the approach adopted by journalists in so-called credible media outlets such as the UK Guardian. They dress their deficit terrorism up in arguments that the middle classes, who think they are far above Fox new rabble intellectually, will find convincing. But when you bring both approaches down to basics – rubbish = rubbish.

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Eliminating the great superannuation rip off

I am currently doing some work on the superannuation industry. It will become part of a larger project with some European colleagues in the coming month. But it is also part of work I am doing on the design of a new financial system based on the application of Modern Monetary Theory (MMT) principles which will ensure that nations can pursue full employment and equity without severe disruptions caused by wayward financial markets. While this analysis is about Australia, the general principles are universally applicable and should be part of the reformed financial system that is adopted by all nations. Today I am concentrating on reforms to the way we structure and manage retirement incomes. But as one commentator noted last week, the sort of suggestions I have take us into “the realm of pure fantasy” given the vested interests that would have to be combatted. But ideas are worth something and as a research academic they are about all I have to offer.

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Today started out well but then went downhill

Today started out well – early good waves at nearby Nobby’s Reef which kept things interesting. After that things progressively went down hill at least in terms of the things I read from the popular press. We had the EMU-rest of the world conflation to deal with. Then the public and private debt conflation. Then the austerity is good for us hypothesis. And by then I decided to read other things that were more interesting – like mysql technical manuals. Anyway, here is a report of my descent into gloom today.

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Saturday Quiz – March 13, 2010 – answers and discussion

Here are the answers with discussion for yesterday’s quiz. The information provided should help you work out why you missed a question or three! If you haven’t already done the Quiz from yesterday then have a go at it before you read the answers. I hope this helps you develop an understanding of modern monetary theory (MMT) and its application to macroeconomic thinking. Comments as usual welcome, especially if I have made an error.

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The white hot labour market just went a tad cool

In a way this is an extension of yesterday’s blog where I argued that the gap between the outlandish statements coming from the media and other commentators about how the economy is tracking and the actual data is substantial. Today the ABS released the Labour Force data for February 2010 and the data reveals that employment growth stalled and unemployment rose again. The “markets” (those geniuses) had factored in a solid employment growth which only suggests they know how to extrapolate on recent data points. Further, labour force participation fell which makes the situation even more sombre. So amidst all the talk about employment going ape and wage breakouts about to happen – things have cooled somewhat as the impact of the fiscal stimulus wanes. Yes, its a monthly result and the trend is still mildly positive. But with the declining fiscal stimulus and private spending remaining subdued – today’s data doesn’t signal a steam train economy.

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Its all booming down here folks!

Whichever way the dice tumbles, the deficit terrorists are ready to rehearse their diatribes. In many countries, they couldn’t even wait for growth to return before they started calling for “credible exit plans” and “austerity measures” to “get the ballooning deficits and dangerous debt spirals under control”. The lexicon of doom terminology expanded over the course of 2009 and continues to grow into the new year. Cutting back a fiscal stimulus when the rest of the economy is going backwards is the advice that only a person who has no appreciation of macroeconomics would give. But they have also been at it in Australia which surfed the downturn thanks to an early and significant fiscal stimulus. Here the talk is now along the lines of the “mother of all booms coming”, “overheated housing markets”, “white hot labour markets” and pressure is mounting for a tough May budget and further rises in interest rates. Over-inflated predictions one day are continually shown to be without credibility by the data releases the next day, but by this time the so-called experts have moved on to the next impending data release predicting all manner of catastrophe unless austerity plans are implemented. They have no shame and probably were not brought up very nicely!

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Extending unemployment benefits … an omen

As the danger of a global depression recedes, the themes I am picking up regularly now from commentators, politicians etc are all pointing back to the mainstream status quo version of the way the economy works, in particular, for the purposes of this blog the labour market. I expect to increasingly hear and read the rhetoric that dominated the public debates prior to the crisis – that unemployment is essentially a supply-side phenomenon reflecting choices made by individuals in the context of government welfare policy that distorts these choices in favour of not working. In this context, the simple act of extending unemployment benefits in the US has been controversial. This takes us back to the dominant debates over the last 20 years which saw governments all around the World pursuing policies that were antithetical to full employment and pernicious in their impact on the victims of their policy failures. Stay tuned – 2011 – the mainstream will be in full attack mode again – conveniently forgetting where we have been over the last 3 or so years.

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Would someone please put something in the water supply

When I read the financial and economic news every day I sense a global madness has emerged. Global political processes are becoming distorted by the types of debates that the conservative media companies and the mainstream economists are driving. Every day a new whacko proposition is suggested or entertained by governments. Old hatreds are also resurfacing as our economies labour on (or not labour to be more accurate!) in the face of a major private spending collapse accompanied by inadequate government fiscal responses. The collateral damage of the deficit terrorism is increasing and spreading and still the major political parties in most countries slug it out as to which one will deliver the most fiscal austerity. Would someone please put something in the water supply so that we can refocus this debate onto what is important. That was the plan in the late 1960s to chill everyone out and distinguish the meaningful from the nonsense. Something has to restore our sense of priorities. The longer this madness goes on the worse it is going to get. There is no sensible solution that will come from following the present path.

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Dumb is too kind really

I am now back in my normal office after a few days experimenting with a mobile office by the sea. Back in Newcastle I am still only a couple of minutes from the beach but somehow it was different being holed up in a little cabin. Anyway, on the way back down the coast this morning I was bemoaning the idiocy of the human race … again. Or rather cursing the vicarious way the elites exploit the lack of understanding in the community about economic matters to further their own ends. That is a better way of constructing the dilemma. Even some good intentioned souls are proposing “solutions” to non-problems which will worsen the actual problem. Other devious characters are continuing to reinvent themselves in the public sphere – presumably to get access to more personal largesse. Then whole blocks of nations are imposing penury on their citizens to make the “markets” happy while another national government has actually forgotten it is a currency-issuing government. All in a day’s work!

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GDP growth but black clouds on the horizon

Today the Australian Bureau of Statistics released the December quarter National Accounts data which gives us the rear-vision mirror view of how the economy has been travelling at a distance of 3-months. The data confirms that the Australian economy sidestepped the global economic crisis with just one negative quarter of real GDP growth and is moving towards trend growth. However, restoring trend growth is nothing to be proud of. The fact remains that the current performance of the Australian economy will not be sufficient to achieve and sustain full employment. The RBA claim yesterday that getting back on trend growth is a justification for tightening monetary policy just reinforces the neo-liberal policy dominance – that some underutilised labour is required to fight inflation. While the RBA monetary policy tightening will not help growth, the real threat to our prosperity will come in the May budget when the federal government will announce its fiscal austerity plans. Combined with the deflationary impacts of similar moves by other governments and the impending meltdown of the EMU region, the GDP growth we are enjoying today may not persist. And all this will be driven by the mindless ideology of the deficit-terrorists.

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