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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Rinse and repeat – Truss chaos – the new benchmark

For years, those who want selective access to government spending benefits (like the military-industrial complex and other parasitic sectors), while claiming the government cannot afford to provide adequate income support to the most disadvantaged citizens have used various ruses to give an air of authority or legitimacy to their claims. So in the UK, the lie in 1976 by the then Labour government that it was going to have to borrow from the IMF to stay solvent has been regularly wheeled out. In Europe, it was the ‘tournant de la rigueur’ (austerity turn) introduced by the French government of François Mitterrand in 1983 that effectively cancelled the commitment to the progressive – Programme commun – that is often cited as a demonstration of the limited capacity of governments to resist the global power of the financial markets. The fact that it was progressive governments that instigated these events made it more emphatic – the Left essentially swallowed the fictions introduced by the Right and the corporate elites that governments were now powerless against the power of the financial markets. The macroeconomic contest was essentially ceded to the conservatives and it has been that way since. There is now a new ruse that the elites are using that the progressives are also spreading – the Liz Truss Ruse. This apparently tells us that governments must appease the financial markets or face currency destruction and rising bond yields. Like its predecessors, there is no validity to the claims. But the Left is so bereft that it cannot see through the smoke and mirrors. And that is why the world is in the parlous state that it is – the contest of ideas is non-existent. It is a case of rinse and repeat – except all is happening is lies and posturing is being recycled.

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E.P. Thompson and why class remains an important organising framework

I have been travelling for most of today so I have to keep this post short. Well shorter than usual. Edward Palmer Thompson – who died at the age of 69 in 1993, was a British writer who wrote the exceptional book – The Making of the English Working Class – which was a very long social history published in 1963, and considered essential reading for young leftists at the time. I read it in the early 1970s as part of my rites of passage into Leftist intellectual thought and while I prefer books that are less than 800 pages (-:, I found it absorbing. I was reminded of it when I recently read a UK Observer article (February 4, 2024) – What a legendary historian tells us about the contempt for today’s working class – by Kenan Malik.

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The shift to the Right among the weak and powerful is a sign that mainstream economic thinking has failed

The – Australian Election Study (AES) – is the “leading study of political attitudes and behaviour in Australia” and has been running for 35 years. It provides a great time series for investigating electoral trends. The most recent analysis covers the period of the most recent federal election (May 2022). The data shows that Labor Party, which is currently in government has dramatically lost primary vote support over the period covered by the data and in particular among the younger voters. A similar trend is observed for the Coalition conservative parties. There is also strong evidence that ‘rusted on’ is no longer a thing among young voters. The proportions of ‘lifetime voting’ for either major party has fallen dramatically. While the Greens have benefitted from this shift in young voting patterns, there is evidence, which is also resonating globally, that young people are increasingly being attracted to what we term ‘far right’ political voices. That is, where the organised Left has failed. Young progressive minds are deserting the traditional progressive political institutions. Part of this reflects the failure of mainstream economics. The other part reflects the insecure being lured by influential characters who are increasingly embracing right agendas (for various reasons).

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Capitalist wants government to drive up unemployment by 40-50 per cent and inflict more ‘pain in the economy’ on workers

Two items this Wednesday before the music segment. First, we saw the stark ideology of the elites on full display in Sydney yesterday with a property developer demanding the government increase unemployment by 40-50 per cent to show the workers that the employer is boss and redistribute more national income back to profits. For anyone who doubts the relevance of a framework based on underlying class conflict between labour and capital, then this outburst should eliminate those doubts. On the same day, a leading research group in the welfare sector released an update in their series tracing poverty in Australia. It demonstrated a rising incidence of poverty (nearly 20 per cent of the population) and 1 in 6 children living in impoverished conditions. And the profit takers want more of that to enrich (engorge) themselves even further. A shocking indictment of what has gone wrong with this nation.

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US inflation rate down to 3 per cent and falling fast – it was transitory, folks

Yesterday’s US inflation data from the Bureau of Labor Statistics (July 12, 2023) – Consumer Price Index Summary – June 2023 – shows a further significant drop in the inflation rate as some of the key supply-side drivers continue to abate. The annual inflation rate is now back to 3 per cent and dropping fast. The risk now is that the conduct of the Federal Reserve will drive the US into a deflationary period with rising unemployment. Given that inflation peaked in the third-quarter 2022, that wages growth has been relatively subdued, and inflationary expectations’ survey evidence suggests no-one really thinks the inflation was going to endure, means that the US Federal Reserve’s logic is deeply flawed and not fit for purpose. They have been chasing an obsession that exists in a parallel universe to the real world. The risk is that they will continue to chase that obsession and use the fact that unemployment has still not risen much to claim there has to be higher unemployment. However, hopefully, the 3 per cent inflation rate result yesterday will cut-off any wild claims that they have to get the inflation down more quickly or risk a wages or expectations explosion. All cant of course.

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Beware: pension systems about to collapse. Not! More mainstream fiction

Sometimes, one thinks that the intellectual world should evolve as intelligent people take account of the dissonance between their ideas and the facts before them and adapt their views. I know that doesn’t happen much but it should. I have studied the philosophy of science deeply enough over my student and postgrad days and beyond into my career to know that intelligent people have the capacity to completely fool themselves and hang onto defunct ideas as part of a paradigm-resistance to change. We know why that happens: senior professors have their reputations and legacy at stake, they control appointments, promotions, access to research grants, publication success for junior academics, and continuity of lucrative consulting empires. But sometimes I still am amazed when I read some research paper that I know has taken months to research and write up and which has been presented and talked about in seminars and conferences, and after dinner drinks and all the rest of it, but which bears no correspondence with the underlying reality. That was the situation when I read a research paper from three economists who were claiming that taxes have to rise and pensions cut if governments are to escape insolvency in the face of ageing societies. This continues, obviously, to be a powerful framework for proselyting the neoliberal mantra and a narrative that most people cannot see their way through to a conclusion that is all a fiction.

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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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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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Bank of Japan continues to show who has the power

Its been around 9 months since the central banks of the world (bar Japan) started to push up interest rates. This reflected a return to the dominant mainstream view that fiscal policy should aim to support monetary policy in its fight against inflation and thus be biased towards surpluses, while central banks manipulated interest rates to deal with any inflationary pressures. The central banks would somehow form a ‘future-looking’ view that inflation was about to spring up and they would push rates up to curb the pressures. The corollary was that full employment would be achieved through price stability because the market would bring the unemployment rate to a level consistent with stable inflation. So full employment became defined in terms of inflation rather than sufficient jobs to meet the desires of the workforce. This is the so-called NAIRU consensus that has dominated the academy and policy makers since the 1970s. During the pandemic, it was abandoned and there was hope, particularly after statements made by the US Federal Reserve that this approach had unnecessarily resulted in elevated levels of unemployment for decades, that central bankers would target low unemployment as well as price stability. Progressive economists, of course, rejected the whole deal, noting that monetary policy shifts created uncertain distributional outcomes (creditors gain, debtors lose when rates rise) and also rising interest rates add to business costs which provoke further price rises. Anyway, after a short respite from this pernicious NAIRU logic, we are back to square one with central banks pushing up rates. The Bank of Japan is now standing, again, in the wilderness, resisting this logic and demonstrating how government should deal with the sort of pressures being felt around the globe. And who isn’t happy? The grandstanding financial markets who thought they could make a quick buck but have come up against an ideology that rejects their claim to dominance. That is a happy story.

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Military spending binge is working to keep economies growing

Its been around 9 months since the central banks of the world (bar Japan) started to push up interest rates. And still there are no firms signs that a recession is impending. There are some signs of a growth slowdown but that is not uniform across the globe. The US seems to be continuing to grow. While that suggests that monetary policy is less effective than the mainstream economists claim – which is no surprise to non-mainstream economists who have long understood that fiscal policy is the tool of choice for counter-stabilisation, there are other offsetting factors that are at play here. Governments around the world have seriously ramped up their fiscal outlays over 2022 on military procurements as the perceived threat from Russia and China has been magnified by military generals and their mates in the big US weapons corporations, who have taken the opportunity to get make massive extra profits. The power of the military-industrial complex (MIC) is long-standing and well understood. It explains why all the usual disaster scenarios that accompany increasing fiscal outlays by governments haven’t attracted much criticism. Too many elites benefit from the military binge. But the fiscal expenditure also helps to counteract any spending contraction by households who are negatively impacted by interest rate increases.

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Why listen to so-called ‘experts’ that were so wrong about Brexit?

There is a short memory in the public discussion about economics. If there wasn’t many players that get the wide platforms to express their views, opinions, forecasts, etc would burnout very quickly given how appalling their track records are. I was thinking about that while looking at the most recent Foreign Direct Investment data and reading UK Guardian articles about the demise of the most recent British Prime Minister. While it is very hard at present to trace the economic events in terms of individual drivers because Covid, the Ukraine situation and OPEC+ have certainly muddied the waters, there is some clear evidence available that demonstrates the mainstream anti-Brexit analysis and predictions was completely wrong. Given the same sort of characters and institutions are consistently given platforms in the media to proselytise and scare the b-jesus out of people about fiscal positions etc, one wonders why they retain credibility after being so wrong about Brexit, while commanding the floor of authority. My position is that they were wrong then and remain unreliable sources of information about what is happening now.

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Central banks can operate with negative equity forever

The global press is full of stories lately about how central banks are taking big losses and risking solvency and then analysing the dire consequences of government bailouts of the said banks. All preposterous nonsense of course. It would be like daily news stories about the threat of ships falling off the edge of the earth. But then we know better than that. But in the economic commentariat there are plenty of flat earthers for sure. Some day, humanity (if it survives) will look back on this period and wonder how their predecessors could have been so ignorant of basic logic and facts. What a stupid bunch those 2022 humans really were.

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Central bank priorities are not the priorities of working people

I remember a conversation I had when I was picked up hitch hiking to Melbourne from where I was living down the coast. It was during the 1970s inflationary period, which had morphed into stagflation as a result of deliberate government policy to create unemployment and discipline the wage-price spiral. The driver was a manual worker and during a conversation about the state of the economy (I was studying economics at the time) he said “the government should care about employment because at least then everyone has a job even if prices are rising”. That conversation stuck with me because it summed up what research shows in more sophisticated ways – the costs of inflation are minimal when compared to the devastating costs of unemployment. At present, our policy makers are unwilling to recognise that reality because it is not them that bear the costs.

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Australia – wages growth flat and purchasing power of workers is plummeting to new depths

All eyes have been waiting for today’s release (August 17, 2022) of the – Wage Price Index, Australia – by the Australian Bureau of Statistics for the June-quarter, given that the Reserve Bank of Australia has been claiming wage pressures are becoming threatening and using that as a cover for unnecessarily pushing up interest rates. Prior to pushing up interest rates over the last several months, the RBA had been signalling that they would not move on interest rates until there was a concerted increase in wages growth, which has been at record low levels for some years now. On the back of that information, many new entrants to the housing market ran up massive mortgage debts and now feel dudded by the central bank. Whatever, information on wages the RBA is privy too is not gelling at all with the official data, which continues to show that wages growth remains flat (hasn’t moved in three months) and at record low levels. The is no acceleration. Wages growth is not driving the inflation trajectory. Workers are enduring massive real wage cuts and the RBA has made that worse by pushing up mortgage rates for those exposed. 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. But the reality is clear – there can be no sustained recovery for the economy post Covid without significant increases in the current rate of wages growth.

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The Weekend Quiz – July 30-31, 2022 – answers and discussion

Here are the answers with discussion for this Weekend’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 rising incidence of Long Covid and its labour market impacts

I have written about the so-called – Great Barrington Declaration – before. The Great Barrington reference is just the name of the town where the letter was drafted and signed during a conference and bears no inference of greatness – far from it. I was also disappointed that some Left commentators fell under the spell of the anti-restriction, lockdown, vaccine lobby that the GBD represented. What transpires is that we now have an increasing body of evidence that suggests the main assumption of those behind the GBD – that herd immunity would be reached by an open slather approach to Covid (with some protections for the vulnerable) – has not been realised. Specifically, the idea of vulnerability was poorly constructed because it didn’t foresee the increasing incidence of Long Covid. The evidence now coming out by credible researchers is that we are mostly all vulnerable to long-term debilitating effects of a Covid infection and the jury is still out on how bad this will turn out to be. And, while it is clearly a medical issue, it is also causing havoc in labour markets, with increasing numbers of workers not being able to work to full potential or at all. And with the fiscal support for incomes now largely gone, that spells trouble for low-income workers. It is also a factor that will prolong the current inflationary episode.

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The Left has failed during the pandemic but not because they supported restrictions

I usually use Wednesday to write less here. But because sometimes a data release is on Wednesday, Thursday then becomes my lighter day. And I also have to travel a lot today. But there is a relatively important issue to address. I have been receiving a lot of E-mails over the last several months that question me about my position on government restrictions with respect to the Covid pandemic. Apparently, it has seeped into the debate that the mainstream Left have been silent while governments around the world have imposed draconian social control on their citizens, which have been targeted against the workers. The questions all seems to suggest that I have been silent on that issue, which is indicative that I have adopted the ‘woke’ Left position. I beg to differ.

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When wages go up, we all benefit – what Starmer should have said

The British Labour Party leader (for now) Keir Starmer gave a – Keynote Speech – to the Annual Conference of the Confederation of British Industry in Birmingham on November 22, 2021. If you read it or heard it you will know that his leadership marks the return of British Labour as class traitors. He started by saying the “Labour is back in business”, which should have been ‘Labour is the agent of business’ He played up the line that Britain’s future depends on the business sector profits growing stronger than they are now and that everyone benefits when profits are high and growing. Even at the most elementary level that statement defies the evidence. But for a Labour leader to make it spells trouble for the Party. So what else is new.

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