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.

Read more

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.

Read more

Poverty is about lack of opportunity not individual characteristics

When I was a postgraduate student at Monash University in Melbourne, I had many debates with a senior academic who would become a co-author early in my academic career, about the relative importance of choice and constraint. In the standard mainstream choice-theoretic framework, people are conceived as maximising satisfaction through the choices they make subject to the opportunity set they face (the constraints). This simplistic version of human decision-making dominates mainstream economics and leads to nonsensical conclusions such that unemployment is a voluntary state where people are choosing leisure (a good) over work (bad) to maximise their well-being because the income coming from work (a good) is not sufficient on an hourly basis to offset the disutility that work engenders. That sort of thinking permeates the discipline. My former colleague kept saying that people make choices and you cannot deny that. The discussions were in relation to poverty incidence. My position was that it is trivial to say people make choices. We do, every day, but to understand complex phenomena such as poverty, it is better to focus on the constraints. That focus is likely to be more revealing. A person can be making choices but if their opportunity set is very narrow and any choice dooms that person to poverty then it doesn’t make much sense to dwell on the ‘free’ choice angle. Structuralists also agree with my emphasis here. Earlier this year (February 8, 2021), some academics associated with MIT in the US published a working paper – Why do people stay poor – and its results are revealing.

Read more

Why flat wages growth in Australia tells us nothing about the impact of migration on the labour market

One of the important concepts one learns in studying the way firms work with respect to pricing and markups is the distinction between quantity and price adjustment over the course of an economic cycle. When economists talk of supply and demand, they usually refer to price adjustment, where prices adjust up or down when there is an imbalance between these aggregates. Orthodox economics presumes that prices adjust, for example, to eliminate an excess supply, which they apply to the labour market and conclude that the cure for mass unemployment is wage cutting. The problem is that in many circumstances, firms use quantity adjustments long before they contemplate price adjustments, because the former involves lower costs. The Australian Broadcasting Commission (ABC) ran a story from its business reporters today (November 16, 2021) – As migration restarts, will it hold down wages for everyone? – which has also become a feature news segment on its television coverage today. The analysis presented is seriously misleading. It not only fails to characterise the problem properly but buys into a highly contentious debate about whether migration has negative impacts on the labour market prospects for local workers. It behoves analysts to actually construct the problem correctly before they start taking sides in this debate. The ABC article fails in that regard which is disappointing. Their failure also reflects the lack of diversity in opinion they seek these days. They chose to simply rehearse the arguments presented by one pro-migration analysis as if it was definitive rather than seek expert opinion from neutral analysis. But it also demonstrates why understanding the difference between quantity and price adjustment is crucial to getting the conclusions right.

Read more

Job vacancies rising in Britain in mostly below-average pay sectors

Part of my working day is spent updating databases and studying the additional observations. I learn a lot that way about trends and how far off the mark my expectations of a particular phenomenon might be. Today I updated various labour market datasets from Britain and did some digging into the relationship between vacancies and pay. It is clear that as the British economy opens up again, that unfilled job vacancies have grown very strongly over the Northern summer. While that is a good thing because it means there are opportunities for workers to gain employment, shift employment to better paying jobs etc, the message is no unambiguous. If the vacancy growth is biased towards low-pay work then the chances for upward mobility might be stifled. Such a trend might also reflect the fact that employers are now finding that their old practices of accessing vast pools of EU labour willing to work at low wages are being constrained and that will signal the need for a change in strategy, including restructuring, capital investment and better paid jobs. It is too early to discern which way that will go. But what I found while looking at this new data is that while job vacancies are booming, the majority of them are in below-average pay sectors. More analysis is needed to fully assess the implications. Here is where I started on this path …

Read more

The Weekend Quiz – August 14-15, 2021 – 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.

Read more

And the winner is Brisbane … well kind of … or maybe not

Just when we were meant to be waving our national flags, standing to attention at the medal ceremonies and enjoying the Olympic Games from our various states of lockdown or in my case (day 12) quarantine, Professor Scott Baum sends me his latest guest blog telling us how bad the Games are. What a spoilsport (sorry). So, today, Scott from Griffith University, who has been one of my regular research colleagues over a long period of time, brings the wet blanket to wreck our fun, and just as Victoria (where I am holed up in quarantine at present) comes out of lockdown. Over to Scott …

Read more

Restricting population growth is good for local workers

In the aftermath of the 1991 recession, which was the worst economic downturn in Australia since the Great Depression of the 1930s, I wrote a series of articles that we published in academic journals. In part, they were theoretical pieces that conjectured about the impact of rapid population growth on the labour market, which at the time was characterised by persistently high unemployment and rising underemployment (the recession had replaced full-time with part-time work). My conjecture was that high rates of immigration at a time of slow employment growth would lock unemployed workers into long-term unemployment. Of course, I could not test that proposition because the government maintained the relatively high immigration levels and other factors might have been responsible for the rising long-term unemployment. Last week’s Australian Labour Force data showed that unemployment and the unemployment rate has fallen rather quickly in recent months as the economy recovers slowly from the pandemic recession. Historical comparisons show the unemployment response this time has been much larger than in the previous recessions. The other key point is that the working age population has grown at historically low rates as a result of the border closures. It seems that my conjectures in the early 1990s were correct, despite getting flack at the time from mainstream economists who were pushing the line that immigration is always good for the labour market.

Read more

Criticism of failed economists is not cancel culture

Everybody is concerned with ‘herd immunity’ at present as the pandemic continues on ravaging our social and economic lives. But I have been studying the concept of ‘herd mentality’ for some years, aka – Groupthink. Mainstream macroeconomics is sustained, not by any internal logical consistency (on which it fails), by close congruency with the empirical data (on which it fails), which are the usual qualities of a dominant system of ideas, but, rather, by (using modern terminology) its long-standing and on-going cancel culture. So it is rather amusing to read one of the leading voices in that paradigm, Kenneth ‘Spreadsheet’ Rogoff, whinging on the Internet that ‘cancel culture’ is being used to undermine the reputations of one of his mates (Larry Summers). Both continue to get platforms in the world media without trouble to push their vapid ideas into the narrative. The antithesis of cancel culture it would seem. What is going on is that more people are realising that the prognostications of mainstream macroeconomics are deeply flawed, and, while many may not know the technicalities and the theoretical complexities, they can see the empirical dissonance, and that means they know a – lemon – when they see one. And social media has given more people a voice and they are using that to call these characters out for what they are. And the sense of invulnerability that pervades all disciplines riddled with Groupthink is being questioned.

Read more

The Cambridge Controversy – a fundamental refutation of orthodox economic theory – Part 1

Some years ago, I promised to write about the – Cambridge capital controversy – which saw economists associated with Cambridge University in England and MIT in Cambridge, Massachusetts argue about the validity of neoclassical distribution theory. I never wrote the blog posts because I considered the material was a little difficult for a blog audience. Also, while of great interest to me, the topic was not necessarily compulsory reading for those trying to come to terms with Modern Monetary Theory (MMT). But today, I relent. For two reasons. First, I think my readership has reached much higher levels of economic literacy over the last 15 years and can handle a challenge. But, more importantly, there are times when the mainstream characters, who have been claiming that there is nothing new in MMT and that they knew it all along and all the important results can be explained within an orthodox New Keynesian approach, reveal their true colours. Their hubris sees them get ahead of themselves and they show they never really understood the basics that undermine their own approach. Such was the case this week when Paul Krugman declared the Controversy “a huge intellectual muddle” and “a tortured debate that illuminated nothing much”. Well, that just goes to show how the mainstream denial functions. A body of work comes along and blows the dominant paradigm out of the water, and the response is to ignore it as a meaningless muddle. Their current attacks on MMT are just another application of that approach, which I first encountered as a student while studying the capital debates. Given the complexity of this issue and the amount of material, this will be a two-part series. Today, we learn the historical context, which will convince you that this was not idle or arcane discussion. This was a debate that went to the heart of the existence of capitalism and the defenders of that system – the mainstream economists did everything they could to defend the myths that they had erected to make the system look fair. They failed but went on anyway. Here is Part 1.

Read more

Week 2 of the MOOC Modern Monetary Theory: Economics for the 21st Century starts today

Its Wednesday and only a short blog post day – well a collection of items I accumulate during the week. Week 2 of our MOOC – Modern Monetary Theory: Economics for the 21st Century – begins today and you can find enrolment details below. We also have some culture today – a beautiful poem which inspires optimism and some music that inspires past memories.

Read more

Some historical thinking about the Job Guarantee

I noted yesterday that I was appearing at a Seminar via Zoom with my MMT colleague, Pavlina Tcherneva, where we will discuss the concept of a social contract and where Modern Monetary Theory (MMT) fits into that, especially in the context of our idea of employment guarantees. The seminar – MMT and the new social contract: Lessons from Covid-19 – will be held on Saturday, February 27, 2021, from 10:00 Australian Eastern Daylight time and you can find details of how you can participate – HERE. I was thinking about what I would contribute to this workshop and rather than just rehearse the standard discussion about the Job Guarantee I have thought going back to square one would be a good place to start. This is especially a good thing to do, given that I increasingly see progressive people embrace the concept but try to do ‘too much’ with it. That is, place too much emphasis on it, especially in the context of Green Transitions. Pouring all our activist and political energy into getting a Job Guarantee up is not a sensible strategy for reasons I will explain. Second, a lot of critics, especially those who talk big on Twitter about ‘Bill Mitchell wanting people to starve’, clearly haven’t gone back to understand the roots of the concept and where it fits in. So today, I want to further clarify some significant issues that arise when both sides – pro and con – come in contact with the concept of employment buffer stocks for the first time and think they know all about.

Read more

Enforced poverty and torture for the victims of government policy failure – welcome to modern Australia

My Wednesday blog post with a few snippets. Don’t forget to enrol in our MOOC which begins next week. Also, some news from Britain that shows once again the British Labour Party has the gun aimed straight at its foot. And some comments on yesterday’s Australian government decision to increase the unemployment benefit by $25 per week and claiming this was appropriate – when it still means the recipients are $163 per week below the accepted poverty line. Enforced poverty by a government that refuses to create enough jobs and then punishes the victims of the policy failure. This all amounts to War and we can sing along to that after getting angry about the rest.

Read more

Central banks should just write off all their government debt holdings

The tensions in the public policy debate between economists is intensifying and on show in Europe, where these sort of obvious conflicts between adherence to dogma and a recognition that ‘out-the-box’ solutions are not only possible but preferred. More of these latter thought offerings are starting to appear as more people come to understand that the mainstream dogma has become more of a security blanket for reputations rather than saying anything about reality. One such proposal emerged last week in the form of a letter to the major European newspapers signed by more than 100 economists and politicians calling for the ECB to write-off its massive public debt holdings, which currently amount to around 25 per cent of total outstanding public debt. It is a good idea but some of the framing leaves a lot to be desired. At any rate, central banks everywhere should be buying up massive amounts of government debt and hitting the keyboard with zeros and writing it off. The world would be a much better place if they did that.

Read more

How come the principles supported austerity one day but fiscal dominance the next?

As part of the paradigmic turmoil that is confronting mainstream economists, we are witnessing some very interesting strategies. Imagine you establish a set of principles that are seemingly inviolable. They are the bedrock of the belief system, even though it is not called that. These principles then offer all sorts of predictions about, yes, the real world. They are without nuance. The predictions are so worrying, that politicians, whether they are knowing or not, proceed with caution in some cases, and, in other cases, openly damage the well-being of citizens because they have been told that shock therapy is better than a long drawn out demise into ‘le marasme’. The authority for all the carnage that follows (unemployment, poverty, pension cuts, degraded public infrastructure and services, etc) is these ‘inviolable principles’. Economists swan around the world preaching them and bullying students and others into accepting them as gospel. The policy advice is hard and fast. Governments must stay credible. Except one day they completely change tack and all the policy advice that established certain actions to be totally taboo become the norm. We observe things are better as a result. Does this mean those ‘inviolable principles’ were bunk all along? Not according to the mainstream economists who are trying to position themselves on the right side of history. Apparently, their optimising New Keynesian models can totally justify fiscal dominance and central bank funding fiscal deficits when yesterday such actions were taboo. Which leg are they trying to pull?

Read more

It is a syndemic not a pandemic – broader policies are needed

There was an article in The Lancet from its editor (September 26, 2020) – Offline: COVID-19 is not a pandemic – which questioned the “narrow approach” that governments were taking to the coronavirus pandemic based on the assumption that “the cause of this crisis … [is] … an infectious disease”. His argument is a whole of medical professionals have become prominent in daily press briefings and the like as they trot out the results of epidemic models and news agencies interview “infectious disease specialists” every other day. But the reality is that “(t)wo categories of disease are interacting within specific populations” – COVID-19 and “an array of non-communicable diseases” which are “clustering within social groups according to patterns of inequality deeply embedded in our societies”. He thus used the term ‘syndemic’ rather than pandemic to highlight the socio-economic distribution of the pandemic and focus attention on inequality and other forms of socio-economic disadvantage which interact with biological dimensions to determine health outcomes. He focuses on co-morbidities but I would focus on poor working conditions, poor housing, inadequate nutrition, the stress of poverty and poor urban planning that segments populations into leafy, low-density suburbs and suburban hell-holes where people are crammed in like whatever due to social inequalities and deficient government policy interventions.

Read more

More evidence against the ‘trickle down’ orthodoxy in macroeconomics

On December 10, 2014, I wrote this blog post – Trickle down economics – the evidence is damning. The discussion was about how inequality undermines growth and that redistribution of national income towards higher income groups does not stimulate income growth for lower income groups. It provided evidence that destroys the basic tenets of mainstream economics and supports a wider social and economic involvement of government in the provision of public services and infrastructure, particularly to low income groups. The ‘trickle down’ fiction was propagated in the late 1970s and early 1980s by the likes of Margaret Thatcher and Ronald Reagan and dovetailed with the emerging dominance of supply-side thinking. Behind ‘trickle-down’ was a nasty neo-liberal plot to undermine state activity and rewind the gains made by the workers under the welfare states and unionism over the course of the C20th. Now a new report from researchers at the London School of Economics – The Economic Consequences of Major Tax Cuts for the Rich – repeats the evidence, and, perhaps because we are further down the road in realising how deficient mainstream macroeconomics is, new evidence of something that we have known since the ideas first came out of the sewers, might push the paradigm shift a little further.

Read more

Why improve policy when a government can pillory a low-paid, precarious worker instead

Last week we saw further evidence of the way in which class divisions create havoc for society although the way these events have been constructed in the media and popular perception are the antithesis of what was really going on. After having no coronavirus cases since April 16, 2020, suddenly we were informed on Sunday, November 15, 2020, that a dangerous virus cluster had emerged in South Australia (in particular the capital Adelaide) as a result of a breach in quarantine. The memories of Victoria’s second wave, which had started as a result of a similar breach came flooding back and the South Australian state government almost immediately imposed a very harsh 6-day lockdown (the most restrictive imaginable). The following day, amidst all the furore about the severity of the restrictions, the Government announced they were rescinding the orders (mostly). Why? Because some foreign worker had contracted the virus had lied to investigators about his status and was, in fact, working at both the quarantine hotel where the breach occurred and a pizza shop were additional cases had been detected. Apparently this ‘lie’ led to the severe lockdown because it created some uncertainty in transmission links. I doubt that was the case and I think the Government just overreacted and lacked confidence in their own systems. But now it is the ‘lie’ that everyone is focusing on and the Premier is threatening to ‘throw the book’ at the individual. Not many questions are being asked in the media about the poor systems that led to the breach in the first place nor the overreaction of the government. All attention is being focused on a casualised, precarious worker who was forced to work (at least) two jobs to survive. There lies the issue.

Read more

Governments will always let inflation accelerate – apparently

Today the UK Guardian editorial – The Guardian view on Rishi Sunak: time to create jobs, not anxiety – endorsed the introduction of a Job Guarantee to alleviate the terrible unemployment situation that Britain will create in the coming 12 months. Existing programs from the British government are “too small and too reliant on private companies to help much”. Even after the pandemic is solved (hopefully via vaccine) “the unemployment crisis will remain”. That is a positive step from the Guardian. And, it runs counter to the way many progressives are viewing the solution box, with UBI still figuring among their main options. The problem is that the UBI cannot deliver on its promises to everyone. But this blog post is not about UBI. As the Job Guarantee gains more profile in the public debate, several mainstream economists are now taking aim at it. The latest attempt, which I choose not to link to because it is not worth reading in full, invokes one of the arguments that mainstream economists developed in the late 1970s and early 1980s to justify their attacks on discretionary fiscal policy and elevate rules-based monetary policy to become the primary, counter-stabilisation tool. It was, of course part of the neoliberal putsch that has seen sub-optimal outcomes ever since for most of us and superlative outcomes for the top ends of the income distribution. The reason I note this argument is because it is general in nature and should be understood. In other words, I do not have to talk about the paper that introduces this attack on the Job Guarantee, because it just mimics the standard criticisms of government policy making that have been around for ages. So any time some new government policy approach is proposed, these characters just whip out this tired old defense. But it is useful for my readers to be on the lookout for it.

Read more

Drain the (corporate) swamp

Today, I celebrate – my home town of Melbourne has recorded zero new infections for the second time since June 9, 2020 and zero deaths. A consecutive day of double zero. My Melbourne band Pressure Drop is planning a live streamed gig soon – our first time playing since March. Details will come when we know more about when we can do it. Something to celebrate in a bleak year. Today I am writing about the underside of neoliberalism though. Nothing to celebrate about this at all. Revolving doors, corporatisation of public service and introducing the excesses and corruption that is endemic in that private sector, more on that, and a federal government that is refusing to introduce a federal corruption body despite the evidence of widespread malpractice at that level. Why this matters is because to build a better world we need to reverse the demolition of the traditional public service by the neoliberals over several decades, which has turned a once wonderful bureaucracy (departmental structure) from a public service delivery capacity into a contract brokerage for outsourced and deregulated service delivery units, chasing profits in the private sector and cutting as many corners as they can get away with. With lax oversight these days, they can get away with a lot. And when public agencies start behaving as if they are corporations then things really come unstuck. And then we see the alarming necrosis that exists at the top levels of Australian corporations. No wonder we have just had Royal Commissions into the banking and finance sector and into the (privatised) aged care sector which have delivered such shocking results. Nothing to celebrate at all.

Read more
Back To Top