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It is good they are not in Treasury any more!

In today’s Australian newspaper ex Federal Treasury official Tony Makin writes that We keep repeating Keynes’s mistakes. Do we now? The story is a litany of half-truths and basic conceptual errors. He is now a professor of economics. Bad luck for his students. The article, one of a regular contribution he makes to the increasingly squawking right-wing News Limited daily, is a classic example of how to deceive the public with spurious economic reasoning – that the author knows most of the public will just accept without question.

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When leading economists become part of the problem

In yesterday’s (August 23 2009) Financial Times, so-called financial markets expert Nouriel Roubini wrote that The risk of a double-dip recession is rising. The American academic was recently in Australia as a speaker at the Diggers & Dealers Forum which is an annual mining conference. The problem is that Roubini is an influential advisor to the US Government and so will have a hand in determining the direction of fiscal policy. He continually demonstrates, however, that he does not understand how the fiat monetary system operates and in that context becomes part of the problem.

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More fiscal stimulus – what shape recovery?

There is a lot of speculation in the financial press about the shape and timing of the recovery. As one article implied there is a veritable alphabet soup out there. Tied in with this speculation is the disagreement about whether governments have provided enough fiscal stimulus. The conservatives are mounting a vigorous campaign to choke off any more fiscal expansion. However, given how poorly the labour markets are functioning and the fact that they trail behind the output side of the economy by some quarters, there is a strong case to be made for more fiscal stimulus to be applied. I definitely see this as being required in Australia – a third package aimed directly at employment rather than consumption. Not many will agree with me though.

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A baby-sitting economy …

Someone wrote to me today and said they had been reading Paul Krugman’s 1999 book Peddling Prosperity, where he presents the now-famous baby-sitting model. You can read a shortened version of the model HERE. The reader asked me whether the model had any relevance to modern monetary theory. The short answer: yes but not necessarily in the way Krugman thinks (he is still locked into gold standard thinking).

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The myths of the ageing society debate

I am catching up on the mountains of things I have to read. It is a pointless task – the pile rises faster than my eyes can process it. But I try. There was an article in the June 25, 2009 edition of The Economist entitled A slow-burning fuse, which carried the by-line “Age is creeping up on the world, and any moment now it will begin to show. The consequences will be scary”. It definitely might be scary getting old but the discussion that needs to be had is nothing remotely like the discussion that dominates the current policy debate about the ageing society.

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The impact of government on reserve dynamics …

This blog is based on some research on Japan I have been doing as a precursor to a book contract I am working on which will be about developing a progressive macroeconomic narrative – a sort of cookbook for progressives to enable them to challenge the major myths that are perpetuated by neo-liberals. These myths lead to the imposition of voluntary constraints on the government capacity to achieve and sustain full employment. Some of the underlying dynamics of the system which expose these constraints for what they are – an ideological distaste for fiscal intervention – are still not well understood though. Here is some more on that theme.

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The challenges of labour underutilisation and low wages

Today I am a keynote speaker at the LHMU National Conference in Canberra. I am talking about the challenges of underemployment and low wages and the need for the union movement to broaden out their activism from narrow concerns about wages and conditions for their members to development and pursuit of a full-scale attack on neo-liberalism. In much the same way that the neo-liberal think tanks boosted the saturation of those ideas. I will report back when I get back – much later this evening.

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Long-term unemployment – stats and myths

Today I have been looking at long-term unemployment as part of a larger project. It is on the rise again and always lags behind the overall unemployment movements given it takes time for people to work their way through the duration categories until they get to 52 weeks. The longer the recession the higher average duration of unemployment becomes and the larger the pool of long-term unemployed. However, the way we feel about long-term unemployment is conditioned heavily by how it is defined. Moreover, we also have built up an elaborate set of myths about the way long-term unemployment behaves and consider it needs to be dealt with via training rather than job creation – the so-called irreversibility hypothesis. This blog looks at these issues.

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Another sorry chapter in RBA history is looming

On Friday, the RBA signalled that it wanted to start hiking interest rates early in the upturn (and be one of the first central banks to do so). The justification was that this recession was more like the shallow, short-lived downturn in 2000-2001. I disagree. The evidence doesn’t support that contention. Increasing interest rates now will have serious impacts on the solvency of households currently struggling to get anywhere near enough hours of work. The RBA once again will be choosing to use underutilisation as a tool rather than a policy target. Another disgraceful chapter in their history is looming.

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Some myths about modern monetary theory and its developers

Today’s economics blog is about some reactions I have to the many pieces of correspondence I get each week about my work via E-mails, letters, telephone calls. It seems that there is a lot of misinformation out there and a reluctance by many to engage in ideas that they find contrary to their current understandings (or more likely prejudices). It always puzzles me how vehement some people get about an idea. A different idea seems to be the most threatening thing … forget about rising unemployment and poverty – just kill the idea!. So here are a few thoughts on that sort of theme.

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EVI update

In March 2008, we released the CofFEE/URP Employment Vulnerability Index (EVI), which provides a risk assessment by suburb of job loss in event of a serious downturn. It was based on an economic model that captured the major risk factors that would predicate job loss at a local spatial scale. Some data is now coming in that provides the capacity to assess the accuracy of our framework.

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The waves of recession

Today I have been working on part of a new book I am writing on the pathology of recessions. I have written a lot about this in the past and my last book was about this topic. But you can never say it enough – recessions impose huge social costs on the most disadvantaged members of our society and it is the responsibility of national governments to do every they can to avoid them. The neo-liberal onslaught on public policy has seen governments all around the world abandon this responsibility with obvious (ugly) consequences. Anyway, here is a way of thinking about all of this. It is not a happy story.

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Tale of two recessions and more

Today among other things I have been examining the hours data more closely to further highlight the difference between the 1991 recession and our current woes. The comparison is interesting and reveals a lot about how labour markets adjust. It also provides some scope to develop further insights into total labour underutilisation. However, while the current labour market state requires an urgent further injection of net public spending the circumstances are different to what we faced in 1991.

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The labour market barely hanging on

Today’s Australian Bureau of Statistics Labour Force data confirms the trends that have been evident in the broader data series in recent months that the economy has slowed dramatically but hasn’t yet crashed. While unemployment is rising the main worry is the rapidly increasing underemployment. It is also been a common theme in recent months that firms are hoarding labour. While the new data series that the ABS has published today (hours worked) suggests that this is occuring, most of the hours adjustment in the labour market is arising from the loss of full-time employment in manufacturing and elsewhere. In other words, it is a sectoral story rather than a within-firm story. So while the unemployment rate is stable, there is nothing to cheer about in this data.

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How do budget deficits finance saving?

I am often sent E-mails asking me to explain succinctly (what my other explanations are not!) how public deficits finance saving. What does it mean? How does it work in a macroeconomic system? What is the difference between automatic stabilisers and discretionary budget dynamics? What would have happened if the government had not have increased the growth in spending? All these sorts of questions. So this short blog – to make up for yesterday’s ridiculously long blog – will cover those issues. It should clear up any outstanding issues about why deficits are important to underwriting growth.

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Debates in modern monetary macro …

Yesterday, regular commentator JKH wrote a very long comment where he/she challenged some of the statements and logic that modern monetary theorists including myself have been making. While I don’t want to elevate one comment to any special status – all comments are good and add to the debate in some way – this particular comment does make statements that many readers will find themselves asking. In that sense it is illustrative of more general principles, points etc and so today’s blog provides a detailed answer to JKH and tries to make it clear where the differences lie. Some of these differences are at the level of nuance but others are more fundamental.

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Economists might usefully desist

In November last year, during a visit to the LSE, the Queen of England (and Australia to our eternal shame) asked some pointy heads why “if these things were so large, how come everyone missed them?” in relation to the apparent inability of the mainstream economics profession to foresee the crisis. Apparently, the Royal Academy then called a special workshop to discuss this and came up with an answer which they then relayed post haste … as “Your Majesty’s most humble and obedient servants” to Liz. The whole affair represents the standard massive denial that defines mainstream macroeconomics. There are no saving graces. It would be useful if they just desisted for a while and went and played gin rummy.

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The rising future burden on our kids

The public debate is constantly distorted by claims that cannot be substantiated. One such claim is that the current period of budget deficits is building a stock of future claims on the well-being of the future generation – our kids. Accordingly, the neo-liberal deficit terrorists claim that the best thing we can do for the future generation is to avoid running deficits. My view is that we have been imposing a huge future burden on our children but this would be larger if we tried to run surpluses now. In fact, the years of surpluses exacted a huge toll on our children’s prospects that they will have to endure for years to come.

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Our PM’s second essay – 1/10 (being generous)

The Australian Prime Minister released his second essay over the weekend, in which he outlines his vision for a modern Australia steered towards new levels of prosperity and equity by his government. Well my reading of the 6098 words is that far from presenting an acceptable vision for the future, they rather, outline how his Federal Government has chosen to continue the abandonment of full employment and impose huge costs from the cyclical downturn on the most disadvantaged workers and their families in our communities for years to come.

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SBS Insight program tonight – The Battlers

This afternoon I am off to Brisbane to appear in tonight’s SBS TV Insight Program, which is focusing on unemployment. The program airs live from 19:30 tonight on SBS One. The on-site location for tonight’s show is Logan City, which is south of Brisbane on the way to the Gold Coast. In the work I did with Scott Baum at Griffith University earlier this year developing an Employment Vulnerability index, we identified the Logan City area as having a concentration suburbs which we considered to be at high risk of job loss. So SBS decided to conduct a ground level exploration of the sorts of considerations that expose a region to job loss and to develop narratives that inform us of how people in battling areas cope with economic downturn. While the topic is depressing it is excellent that one of our national TV broadcasters is actually elevating it to national importance.

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