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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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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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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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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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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Degrowth will require humans shovel less energy … into our bodies

I haven’t much time free today and with the federal government’s fiscal statement coming out tomorrow night and wage data and the labour force data coming out Wednesday and Thursday, respectively, it is going to be a full week. Given I am using all my time to finish the manuscript for my next book which has to be delivered to the publisher on June 1, I am writing very little here today. But there was some interesting data released by the Australian Bureau of Statistics (ABS) last week that bears on my general theme of degrowth, in a roundabout sort of way. The data from the – National Health Survey 2022 – is very revealing and shows how far people will have to go to adopt degrowth behaviours at a personal level. And just so you know, while I wrote about health matters last week and will again today, I don’t intend to make it a regular habit on a Monday.

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The fiscal lunancy reaches peak levels this time of year

In the last week, as the Federal government comes towards next Tuesday’s annual fiscal statement (aka ‘The Budget’ although we don’t use that terminology around here, do we?) and the State Government’s are progressively delivering their own Budget Statements (they being financially constrained) we have witnessed the absurdity of the system of public finances that pretends the Federal government is a big household and that somehow monetary policy is the most effective way to deal with an inflation that is sourced in supply side constraints. Earlier this week, the Victorian government released a fairly shocking fiscal statement, which cut expenditure programs in many key areas such as health care (while the pandemic is still killing many people), public education, essential public infrastructure maintenance and upgrades, and more. Why? Because it built up a rather large stock of debt during the early years of the pandemic and is now in political jeopardy because the state debt is being weaponised by the conservatives who claim the government is going broke. Similar austerity agendas are being pursued by other state and territory governments although Victoria leads the way because it provided more pandemic support to offset the damage that the extensive restrictions caused. Meanwhile, the federal government is boasting that it is heading towards its second consecutive surplus, as unemployment rises, hours of work fall, and the planet requires massive investment to attenuate climate change. The madness compounds when we realise that around 85 per cent of all state and federal debt that was issued between March 2020 and July 2022 was purchased by the Reserve Bank of Australia – that is, effectively, by the federal government itself. If citizens really understood the implications of that they would never agree to the swingeing cutbacks in public expenditure and the user pays tax hikes etc, that have been justified by an appeal to the debt build up. Its just madness.

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The green growth paradigm has a long tradition – which has never been supportable

In October 1987, the United Nations published a report – Our Common Future – (aka Brundland Report) which was the work of the then World Commission on Environment and Development (WCED) – that was chaird by the then Norwegian Prime Minister Gro Harlem Brundtland. It laid out a multilateral approach to dealing with climate change and establishing a path to sustainable development (growth). While the Report was published by Oxford University Press, you can access it via the UN – HERE. It is the foundation of the more recent ‘green growth’ and ‘green new deal’ movements that have besotted the progressives in the advanced nations. The problem is that the framework presented implies that we can maintain the capitalist market system with some tweaks and continue prioritising the pursuit of private profit as the main organising principle for resource allocation. I disagree with that approach and my current research is building the case for system change and the abandonment of the ‘growth paradigm’.

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The yen, podcast, and book announcement – all on International Workers’ Day

It’s Wednesday and today I consider the current yen situation which is causing some hysteria in the financial media even though there is not much to worry about. I also provide access to my latest podcast with the Washington-based Bad Faith, which traverses issues of class, the demise of the Left, Modern Monetary Theory (MMT) and degrowth. And the book announcement – pre-orders are now available. And finally an anthem for International Workers’ Day.

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Book review: Fiat Socialism by Carlos García Hernández

When I was in London recently, I caught up with my good friend Carlos García Hernández, who is a Spanish radical and has a book publishing business – Lola Books – in Berlin, which publishes in English, German, Spanish and Italian. He gave me a copy of his own recently published book (2023) – Fiat Socialism – to read on the way home. It carries the sub-title ‘Achieving the goals of socialism through modern monetary theory’. I promised him that I would write some comments about it once I had taken it all in, even though I had read and sent him comments on earlier drafts. So today that is what I am going to do. At the outset, it is an important book because it addresses many of the misconceptions that Marxists and socialist-leaning people have regularly demonstrated about Modern Monetary Theory (MMT). I am in accord with much of the content but depart critically from his endorsement of nuclear energy as a solution to the climate crisis.

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Not trusting our political class is no reason to avoid introducing progressive policies

There is a consistent undercurrent against Modern Monetary Theory (MMT) that centres on whether we can trust governments. I watched the recent Netflix documentary over the weekend – American Conspiracy: The Octopus Murders – which reinforces the notion I have had for decades that there is a dark layer of elites – government, corporations, old money, criminals – that is relentlessly working to expand their wealth and maintain their power. Most of us never come in contact with it. They leave us alone and allow us to go about our lives, pursuing opportunities and doing the best we can for ourselves, our families and our friends. But occasionally some of us come into contact with the layer and then all hell breaks loose. The documentary started with a journalist being killed because he had started penetrating an elaborate conspiracy which began with the US Department of Justice stealing software from a company and then multiplied into money laundering scams (Iran contra), murder of various people who got in the way, and went right up to Ronald Reagan, George Bush and other senior politicians. It was a sobering reminder. I will write more about this topic in the upcoming book we are working on (with Dr L. Connors) but I was reading some articles over the weekend (thanks to Sidarth, initially) about the way the MGNREGA in India, which is a public job guarantee-type scheme has been corrupted as the ideology of the government shifted and it bears on this question of trust.

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Latest IMF report on Australia is food for uncritical and lazy journalists but garbage nonetheless

The IMF regularly conduct ‘missions’ to member countries, where a group of highly paid economists trot out to a capital city somewhere, hole up in some luxury hotel, and have a few meetings with Treasury officials and the like and then shoot through after the short visit back to whence they came and produce their report. On October 31, 2023, the IMF published – Australia: Staff Concluding Statement of the 2023 Article IV Mission – which attracted a lot of mainstream press attention in Australia. The message that the public received was summarised in this article – International Monetary Fund says Australia needs higher interest rates. The article carried no qualifications or reflection on the methodology. The journalists who have a high profile in the mainstream national media sanctioned without question the IMFs conclusions. That is what goes for information in these times. It is an assault on our collective intelligence really.

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Mainstream logic should conclude the Australian unemployment rate is above the NAIRU not below it as the RBA claims

Let’s put ourselves in the shoes of a mainstream New Keynesian economist for a moment. We would never want to walk in them for long because our self esteem would plummet as we realised what frauds we were. But suspend judgement for a while because to understand what is wrong with the current domination of macroeconomic policy by interest rate adjustments one has to appreciate the underlying theory that is guiding the central bank policy shifts. The New Keynesian NAIRU concept, which stems from work published in 1975 by Franco Modigliani and Lucas Papademos is pretty straightforward. Accordingly, they define an unemployment rate, above which inflation falls and below which inflation rises. So that unique rate (or range of rates to cater for uncertainty of measurement) is the stable inflation rate – where inflation neither falls or rises. They called it the NIRU (“the noninflationary rate of unemployment”). So if the unemployment rate had been stable for some period, yet inflation was continuously declining, then they would conclude that the stable unemployment rate must be ABOVE the NIRU and vice versa. Apply that logic to Australia at present and you will see why the RBA’s claim that the NAIRU (the modern term for the NIRU) is around 4.5 per cent and this is why they are hiking rates in order to stabilise inflation at the higher unemployment rate. They are frauds.

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