90,000 jobs for 42 billion is a bad strategy …

Yesterday the Government announced its latest fiscal response to the rapidly worsening economic situation. They will spend $42 billion (mostly in 2009 and into 2010 to shore up aggregate demand. They estimate this will underwrite 90,000 jobs in the economy. That is not new jobs but existing jobs. They also estimate that the unemployment rate will rise to 7 per cent over the coming year which is around 300,000 people extra who will be without work. That will take unemployment towards 850,000 and underemployment will certainly rise in lock-step (already around 600,000) so you see the scale of the deterioration.

However, while I think the package is a step in the right direction, the Government has failed to really target jobs. If the Government had have introduced a Job Guarantee and paid the workers the current national minimum wage (with holiday pay etc) it could have hired 557,000 full-time equivalent workers for around $8.3 billion per year. Where does this figure come from?

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Job Guarantee success in Argentina

In the New York times article (December 26, 2004), from Larry Rohter – Argentina’s Economic Rally Defies Forecasts – it is reported that the Argentinian economy has made a surprising comeback. Rohter writes “When the Argentine economy collapsed in December 2001, doomsday predictions abounded. Unless it adopted orthodox economic policies and quickly cut a deal with its foreign creditors, hyperinflation would surely follow, the peso would become worthless, investment and foreign reserves would vanish and any prospect of growth would be strangled. But three years after Argentina declared a record debt default of more than $100 billion, the largest in history, the apocalypse has not arrived. Instead, the economy has grown by 8 percent for two consecutive years, exports have zoomed, the currency is stable, investors are gradually returning and unemployment has eased from record highs – all without a debt settlement or the standard measures required by the International Monetary Fund for its approval.”

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Degrowth and Japan – a shift in government strategy towards business failure?

I am briefly in the UK (arrived Tuesday and returning to Melbourne early Friday). We are officially launching our new book – Modern Monetary Theory: Bill and Warren’s Excellent Adventure – later this morning at the UK MMT Conference in Leeds, England. I am avoiding many of the sessions to reduce Covid risk, given the lecture theatres do not seem to have been refitted with modern ventilation. But from what I can see the Conference is well attended and going well. I should add that I had nothing to do with the organisation of the Conference but as usual I thank those who have put time to build an event that focuses on the work that I am part of. Anyway, a whirlwind trip this time. Today, though I reflect on the latest developments in Japan with respect to its ageing and shrinking population and how that impacts on business viability and skill shortages. All part of my research on degrowth strategies.

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Season 2 of our Manga – The Smith Family and their Adventures with Money – available now

Today (July 12, 2024), MMTed releases Episode 1 in the Second Season of our Manga series – The Smith Family and their Adventures with Money. We have spent the last several months developing the storylines and graphics and Season 2 will run from today to December 6, 2024 with episodes appearing on a fortnightly basis.

Have a bit of fun with it while learning Modern Monetary Theory (MMT) and circulate it to those who you think will benefit …

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German debt brake is bad economics and undermines democracy

It’s Wednesday and today I don’t comment on the US Supreme Court decision to embed criminal behaviour in the presidency (how much of a joke will the US become) or the Presidential debate, which has focused on the performance of Biden while, seemingly ignoring the serial lies told by the other contender. If these two are all that the US has to offer as the leader then what hope is there for that nation. We will shift focus today from the idiocy of the US to the idiocy of the German government and its fiscal rules. After a temporary suspension during the pandemic, the German debt brake is being applied again and reintroduces a rigidity into fiscal policy that makes it hard for the government to actually run the economy responsibly. By prioritising an arbitrary financial threshold between good and bad, the debt brake undermines the capacity of the government to address the decaying public infrastructure (also a victim of the past austerity) and meet the climate challenges ahead. Through its negative impacts on well-being in Germany, it has also generated the political space for the right-wing extremists to gain ground. Bad all round.

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I make a prediction about the relationship between US government debt and impending crisis

Over time we observe a pattern of idiocy in the financial press, where different fictions, dressed up as allegedly shattering propensities, are regularly cycled through in succession, each one getting headlines for a day or so, only to be replaced by the next sensationalised issue. So-called experts or corporate bosses are wheeled out and make horrendous predictions that one country or another is entering a catastrophe of its own making – too much government spending, too much debt, or some other policy position – is usually fingered as the culprit. None of the predictions ever come to pass and the media never follow up to reflect on why. They are too busy pushing out the next headline and the next issue, which, in turn, will be replaced by something else, and then something else, and so on, until the initial prophesy of dooms is recycled, despite failing dismally to engage with the real world when it was last aired. And this pattern has unfolded over decades. Who ever checks the veracity of the predictions? How does the reputation of these so-called experts survive continual failure? The problem is that most of us believe this fiction and elect politicians and accept poor economic policy based on the fictional world we live in. Anyway, I have a prediction … read on.

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Australia’s monthly inflation rate falls yet the media scream for more rate hikes

Today (June 26, 2024), the Australian Bureau of Statistics (ABS) released the latest – Monthly Consumer Price Index Indicator – for May 2024, which showed that the annual inflation rate rose 4.1 per cent, which is higher than most predicted. And now the media are beating up the story that the RBA will have to hike interest rates some more. Well if we understand the underlying movements in the components that have delivered this result, the last thing one would do is hike interest rates. If we look at the All Groups CPI excluding volatile items (which are items that fluctuate up and down regularly due to natural disasters, sudden events like OPEC price hikes, etc) then the annual inflation rate was lower at 4 per cent relative to 4.1 per cent in April. Further, the monthly rate in May revealed a lower inflation rate than the April figure, so there is no hint that we are about to see an acceleration in the overall inflation situation. Much of today’s result relates to base issues in 2023. The annualised rate over the last 12 months is 0.98 per cent – which is below the lower band of the RBA’s inflation targetting range. The general conclusion is that the global factors that drove the inflationary pressures are abating and that the outlook for inflation is for it to fall rather than accelerate. There is certainly no case that can be legitimately made for further rate hikes, although the RBA will be keen to threaten them and maintain its position at the centre of the debate, because it seems to thrive on attention.

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Recent Books

Modern Monetary Theory - Bill and Warren's Excellent Adventure My latest book co-authored by fellow MMT founder Warren Mosler is now available. It was published in July 2024 by Lola Books, a Berlin-based publisher. The cover was drawn by a…

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RBA denial about profiteering demonstrated they are just part of the ideological machinery supporting neoliberalism

In April 2023, the then governor of the Reserve Bank of Australia gave a speech to the National Press Club in Sydney – Monetary Policy, Demand and Supply = the day after the RBA decided to end (for a month) its rate hikes after hiking the previous 10 meetings of the RBA Board, the body that determines monetary policy settings. The inflation rate had been falling for some months by this time yet the RBA was still hanging on to its narratives that the rate hikes were necessary to “combat the highest rate of inflation experienced in Australia in more than 30 years”, despite, for example, the Bank of Japan holding rates constant and experiencing a more rapid decline in its inflation rate as the supply constraints abated. The RBA had vehemently claimed that wage pressures were mounting, which had to be curtailed and denied categorically that there was any profit gouging or margin push involved in the inflationary pressures. There was no evidence at the time to support their claims about wages and nominal wages growth has remained moderate since. However, there was ample evidence, both in Australia and across the globe that corporations were taking advantage of the supply constraints to push their profit margins out. A recent report released by Oxfam Australia report (June 19, 2024) – Cashing in on Crisis – demonstrates that profit and price gouging was instrumental in creating and sustaining the inflationary pressures. The RBA was in denial all along and demonstrated that they are essentially just part of the ideological machinery supporting neoliberalism and the extraction of greater profits at the expense of workers.

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The delusional RBA has everyone convinced that they are the reason inflation is falling

It’s Wednesday and as usual I present commentary on a range of topics that are of interest to me. They don’t have to be connected in any particular way. Today, RBA interest rate decisions, COVID and some great music. Yesterday, the Reserve Bank of Australia (RBA) held their target interest rate constant. In their media release (June 18, 2024) – Statement by the Reserve Bank Board: Monetary Policy Decision – the RBA claimed that “higher interest rates have been working to bring aggregate demand and supply closer towards balance”. The journalists duly digested the propaganda from the RBA and throughout yesterday repeated the claim relentlessly – that the RBA had done a great job in ‘getting inflation down’ and now was attempting to ‘navigate’ a sort of knife edge between effective inflation control and the increasing probability of recession. It was an amazing demonstration of being fed the narrative from the authorities, and then, pumping it out as broadly as possible through the mainstream media channels to the rest of us idiots who were meant to just take it as gospel. Not one journalist that I heard on radio, TV or read questioned that narrative. The emphasis was on the ‘poor RBA governor’ who had a difficult job protecting us from inflation and recession. Well, my position is that the decline in inflation since the December-quarter 2022 has had little to do with the 11 interest-rate hikes since May 2022 and more to do with factors changing that are not sensitive to domestic interest rate variations. Further, the impact of two consecutive years of fiscal austerity (the Federal government has recorded two fiscal years of surpluses now) has mostly been the reason that GDP growth is approaching zero and will turn negative in the coming quarters at the current policy settings.

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Progressive journalists in Britain so easily become willing mouthpieces for mainstream economic lies

Imagine if you are a UK Guardian reader and wanting to assess the options for an almost certain victory by Labour in the upcoming general election. Your understanding of the challenges facing the next government will be conditioned by what you have been reading in that newspaper. Unfortunately, there have been a stream of articles purporting to provide informed analysis of the challenges ahead and the capacities of the new British government to meet them which make it very hard for any progressive reader to assess the situation sensibly. These articles promote the usual macroeconomic fictions about the need for tight fiscal rules that will help the government avoid running out of money as it tries to deal with the decades of degeneration created by the austerity mindset. It is stunning how so-called progressive media commentators have so easily become willing mouthpieces for the mainstream economic lies which have only served to work against everything they purport to stand for. Business as usual though. Sadly.

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Australian labour market – employment grows but overall still marking time

Today (June 13, 2024), the Australian Bureau of Statistics released the latest – Labour Force, Australia – for May 2024, which provides some increased clarity given the last few months have generated data that has been mixed in signal. The data for May 2024 shows employment continuing to increase, unemployment falling, and the participation rate steady. Taken together the demand-side of the labour market is running just ahead of the underlying population growth, although working hours are falling. Some clarity but it is still not absolutely clear which way the labour market is heading. The net change in employment was driven by full-time employment. But we should not disregard the fact that there is now 10.7 per cent of the working age population (1.6 million people) who are available and willing but cannot find enough work – either unemployed or underemployed and that proportion is increasing. Australia is not near full employment despite the claims by the mainstream commentators and it is hard to characterise this as a ‘tight’ labour market.

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Government debt fears – more fiction from the mainstream media

After all these years of trying, the insights provided by Modern Monetary Theory (MMT) still haven’t cut through. One doesn’t even need to accept the complete box of MMT knowledge to know that, at least, some of it must be factual. For example, how much brainpower does a person need to realise that a government that issues its own currency surely doesn’t need to call on the users of that currency in order to spend that currency? Even if we could get that simple truth to be more widely understood it would change things. But every day, economists and the journalists demonstrate a lack of understanding of how the monetary system actually works. Are they stupid? Some. Are they venal? Some. What other reason is there for continuing to use major media platforms to to pump out fiction masquerading as informed economic commentary? And the gullibility and wilful indifference of the readerships just extends the licence of these liars. Some days I think I should just hang out down the beach and forget all of it.

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ECB demonstrates that groupspeak is not dead in Europe – the denial continues

On February 10, 2024, a new agreement between the European Council and European Parliament was announced which proposed to reform the fiscal rules structure that has crippled the Member States of the EMU since inception. I wrote in this blog post – Latest European Union rules provide no serious reform or increased capacity to meet the actual challenges ahead (April 10, 2024) – that the changes are minimal and actually will make matters worse. Now the European Central Bank, the supposedly ‘independent’ bank that is meant to be outside the political sphere, has weighed in with its ‘two bob’s worth’ which is ‘sometimes modernised to ‘ten cents worth’) (Source), which would be overstating its value. Nothing much ever changes in the European Union. They have bound themselves up so tightly in their ‘framework’ and rules and jargon that the – Eurosclerosis – of the 1970s and 1980s looks to be a picnic relative to what besets them these days. The latest input from the ECB would be comical if it wasn’t so tragic in the way the policy makers have inflicted hardship on the people (many of them) of Europe.Today’s blog post is Part 1 of a critique of the ECB’s input into the Stability and Growth Pact reform process that is engaging European officials at present. It is really just more of the same.

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Australian government proves it can end poverty, but refuses to, and is deliberately pushing more people into that state

The Australian – Productivity Commission – was created in 1998 as a result of an amalgamation between the Industry Commission (established 1990), the Bureau of Industry Economics (established 1978) and the Economic Planning Advisory Commission (established 1983). As you will read below, its antecedents go back to 1921. The Commission is one of many government-funded institutions that have undergone structural shifts over time as their initial role becomes redundant, a redundancy that reflects the changing dominant ideology of the time. It is now the government’s principal ‘free market’ think tank that spews out predictable nonsense regularly – always ending with recommendations for more deregulation and less government intervention. Its latest offering was released on Monday (May 20, 2024) – A snapshot of inequality in Australia – which, in its own words, “provides an update on the state of economic inequality in Australia, reviewing the period of the COVID-19 induced recession and recovery” with a focus on women, older people, and First Nation’s peoples. It contains some interesting analysis but falls short because its fiscal framework, upon which it makes assessments about the data that is made available, is mainstream and assumes the Australian government has financial constraints. Once they adopt that fiction, then the scope for policy is limited and we end up not solving the problems discussed.

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Tracing the British Labour Party’s fears of The City – Part 1

When I met with John McDonnell on October 11, 2018 at his Embankment office block in London he was then the Shadow Chancellor. The theme of the meeting was dominated by the concerns (near hysteria) about the power of the City of London (the financial markets), expressed by his advisor, a younger Labour Party apparatchik whose ideas are representative of the bulk of the progressive side of politics in Britain. The topic of the meeting centred on the fiscal rule that the British Labour Party chose to apparently establish credibility with the financial markets (‘The City’). I had long pointed out that the fiscal rule they had designed with the help of some New Keynesian macroeconomists was not just a neoliberal contrivance but was also impossible to meet and in that sense was just setting themselves up to failure should they have won office at the next election. Essentially, I was just met with denial. They just rehearsed the familiar line that the British government has to appease the financial interests in The City or face currency destruction. That fear is regularly rehearsed and has driven Labour policy for years. It wasn’t always that way though. As part of preliminary research for a book I plan to write next year I am digging into the history of this issue. What we learn is that the British government has all the legislative capacity it needs to render The City powerless in terms of driving policy. That raises the question as to why they don’t use it. All part of some work I am embarking on. The reason: I am sick to death of weak-kneed politicians who masquerade as progressive but who bow and scrape to the financial interests in the hope they will get a nice revolving door job when they exit politics. A good motivation I think.

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Australian labour market – mixed signals but probably still in a weakening phase

Last month’s Labour Force data release for April 2024, revealed that the Australian labour market was starting to weaken in the face of the fiscal squeeze (the government announced a second successive annual fiscal surplus on Tuesday) and the 11 interest rate hikes since May 2022. Today (May 16, 2024), the Australian Bureau of Statistics released the latest – Labour Force, Australia – for April 2024, which shows that there are mixed signals which make it hard to say categorically where things are or where they are going. Total employment growth was positive and the participation rate increased, which usually signals a strengthening labour market. But full-time employment fell and monthly hours worked were static. Further both the unemployment rate and the underemployment rate rose, which indicates weakness, notwithstanding the fact that the participation rate increase accounted for some of the rise in unemployment. Moreover, there is now 10.8 per cent of the working age population (1.58 million people) who are available and willing but cannot find enough work – either unemployed or underemployed and that proportion is increasing. Australia is not near full employment despite the claims by the mainstream commentators and it is hard to characterise this as a ‘tight’ labour market.

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Real wage cuts continue in Australia as profit share rises

The Annual Fiscal Statement for Australia (aka ‘The Budget’) came out last night and ordinarily I would analyse it today. But I am travelling a lot today and also the wage data came out today, so I plan to leave the fiscal policy commentary until next week when I have more time to think about the shifts in policy. Today (May 15, 2023), the Australian Bureau of Statistics released the latest – Wage Price Index, Australia – for the March-quarter 2024, which shows that the aggregate wage index rose by 4.1 per cent over the 12 months (down 0.1 point on the last quarter). In relation to the March-quarter CPI change (3.6 per cent), this result suggests that real wages achieved modest gains. However, if we use the more appropriate Employee Selected Living Cost Index as our measure of the change in purchasing power then the March-quarter result of 6.5 per cent means that real wages fell by 2.4 per cent. Even the ABS notes the SLCI is a more accurate measure of cost-of-living increases for specific groups of interest in the economy. However, most commentators will focus on the nominal wages growth relative to CPI movements, which in my view provides a misleading estimate of the situation workers are in. Further, while productivity growth is weak, the movement in real wages is such that real unit labour costs are still declining, which is equivalent to an ongoing attrition of the wages share in national income. So corporations are failing to invest the massive profits they have been earning and are also taking advantage of the current situation to push up profit mark-ups. A system that then forces tens of thousands of workers out of employment to deal with that problem is void of any decency or rationale. That is modern day Australia.

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