Sad day for America

I followed the US mid-term election campaign as best I could – being an outsider. Sometimes the level of debate appeared to be below that which I imagine the primates engaged in back then. I don’t intend to become a psephologist (not qualified) but I am interested in exploring why these witless conservatives have made ground. In Australia’s recent national election where the so-called progressive Labor Party (not!) lost office in their own right the swing was to the Greens rather than the conservatives. This does not appear to be the case in the US. So there are two questions I am interested in. First, what role did the neglect of the unemployed play in the election results? Second, do the result really amount to an endorsement of the neo-liberal economic approach? But the reality is that the US political debate has become so divorced from reality – which in my parlance means that it has totally failed to provide a vibrant debate about the options that the monetary system offers government to improve the lives of the citizens. Instead, candidates who have no understanding at all have been elected on the basis of a pack of lies and only demonstrate total ignorance when it comes to informed debate. In that sense, the mid-term elections have foisted a number of very dangerous individuals into office. Sad day for America!

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RBA makes the wrong decision

Last month, the Reserve Bank of Australia (RBA) held its policy rate unchanged at 4.5 per cent contrary to what the bank economists expected. I said at the time in this blog – RBA confounds the market economists – but that’s easy – that RBA made the correct decision. It reflected the fact that the world economy is still in trouble as the fiscal austerity in various places starts to bite. It also reflected the fact that the trends in the local economy are far from clear and solid evidence is available to suggest that despite the boom in primary commodity prices (from Asia) our economy is still fragile. The labour market has considerable slack (12.5 per cent underutilisation rates) and housing and sales are flat or in decline. Most importantly (for the RBA) inflation is moderating in Australia. Nothing much has changed in the meantime and I was expecting (along with all my bank economist friends) for the RBA to hold its line again. Yesterday, the RBA confounded us all and pushed rates up by 25 basis points. But even more stark was the decision by the formerly public bank (privatised by the neo-liberals) – the CBA – to push its standard mortgage rate up by 45 basis points after announcing a huge and increasing profit earlier in the week. The RBA made the wrong decision yesterday.

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The Euro bosses ignore all the lessons

I was thinking about the recent European Council meeting today which was held in Brussels over the weekend. It is clear that the Eurozone bosses are choosing to ignore all the lessons that the current crisis has provided to them about the basic design flaws of their monetary system. They think the solution to their problems is to make it even harder for member governments to provide net spending to their economies at times of stress. They fail to articulate the most basic macroeconomic fact that confronts them – unemployment is rising across the zone and production generally is stagnant because there is not enough demand for sales of goods and services. If the private sector won’t provide that demand then the government sector has to given that they cannot rely on net exports to cure the deficiency. By deliberately restricting governments and effectively forcing them to engage in pro-cyclical fiscal responses the Euro bosses are not only prolonging the agony the citizens are facing but are also engaging in a self-defeating strategy. As we are seeing budget deficits are rising as austerity is imposed. The solution to the Eurozone problems is to disband the zone and restore individual currency sovereignty at the national level. It would be painful to do that but in the medium- to long-term it will be less painful than the trajectory they are following.

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I feel good knowing there are libraries full of books

Today’s blog might appear to be something different but in fact is more of the same. There was an article in the New York Times recently (October 10, 2010) – The Crisis of the Humanities Officially Arrives – by US academic Stanley Fish, which discussed the growing demise of the humanities in our universities. While the debate is about the role of the humanities specifically, the points Fish makes about how we appraise the value in education resonates more broadly to a consideration of the role of educational institutions and human activity in general. One of the vehicles the neo-liberals use to promote their anti-intellectual agenda is the false claims that governments are financially constrained. By appealing to this myth lots of questions about motivation are avoided. They promote the myth that some activity is “too expensive” or “not productive enough” and we are thus shoe-horned into that way of thinking. But I feel good knowing there are libraries full of books of poems and plays and stories and I know that sovereign government are not financially constrained. I might not be able to defend the quality of a poem but I can certainly explain how the monetary system works. So you poets and playwrights under threat – come aboard and learn about fiscal policy and the monetary system and spread the word.

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Where has the centre gone?

Answer: out towards the far right. Today’s blog adds to my previous posts where I consider so-called progressive interventions in the policy debate and show that they are really nothing more than attenuated forms of neo-liberalism. The evidence is that what goes for progressive input these days bears no resemblance to what we used to consider represented progressive thinking. The way the population has been inveigled into accepting policy positions and justification that are represented as “centrist” but are, in fact, what we used to call right-wing positions is one of the success stories of the neo-liberal era. The tendency of so-called progressive organisations to mimic the language and concepts of the right is one of the main constraints on advancing a solid attack on the conservative orthodoxy that created and perpetuated the crisis and which is setting nations up for a repeat in the coming years.

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Job Guarantees and social democracy

Today is my last day in London and I am tied up all day with meetings and activities and then later I am travelling back to Australia. So I invoked the guest blogger facility and asked Victor Quirk to share his views on employment guarantees. Victor has just finished a doctoral dissertation and has produced one of the most compelling research efforts I have had the pleasure to supervise. He chose a very challenging topic overall – the political constraints on full employment – and compiled a very rich argument based on a substantial interrogation of an extensive array of primary documents which he sourced from various national archives in Australia, Britain and the US. Now that Victor has finished his work I hope he will share more of it as a guest blogger. So … over to Victor.

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The fiscal stimulus worked but was captured by profits

I read an interesting briefing yesterday (October 13, 2010) from the latest Morgan Stanley “Daily Downunder” report Money for Nothing. I cannot link to it because it is a subscription service. The briefing is notable because while it is thoroughly mainstream in its tack, it does present for the first time an awareness that the underlying national income distribution in favour of an ever increasing profit share is problematic and will not sustain a stable recovery. The report also clearly demonstrates that fiscal policy promoted real income growth over the last few years – the only source of private income growth – but this growth has been captured by profits without commensurate growth in employment. The argument resonates with earlier blogs that I have written and confirms two things: (a) the deficit terrorists who want to push for increasing fiscal austerity are dangerous and if successful will push the world economy back into recession; and (b) apart from sustaining the fiscal support for aggregate demand and private saving there needs to be a comprehensive redistribution of income towards the wage share. As a first step a major policy intervention focused on job creation will help achieve that desired redistribution. But more structural policy interventions are required to reverse the neo-liberal attack on the wage share. Once we realise that we have to reject the whole logic of neo-liberalism. That is the challenge – and the necessity – in the period ahead – if broadly shared prosperity is to return.

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RBA confounds the market economists – but that’s easy

The Reserve Bank of Australia (RBA) announced today that its policy rate would stay unchanged at 4.5 per cent. It means that the policy rates have been on hold since May after the tightening cycle began in October 2009 and led to 6 rises. The RBA has clearly been looking out the window. It is seeing the Eurozone deteriorating further as the fiscal austerity bites. The UK is now slowing and likely to head back into recession courtesy of the vandalism of its government which thinks it has run out of money. And the US economy is slowing again as its dysfunctional political system is demonstrating it is incapable of maintaining spending growth at levels sufficient to reduce its obscenely high unemployment. Deflation is the threat now. In terms of the local economy there are conflicting tendencies. Private spending remains flat and the fiscal stimulus is waning. Parts of the economy are buoyant as a result of the boom in primary commodity demand (from Asia). The labour market is also still fairly fragile with 13 per cent of our labour resources idle (unemployed or underemployed). Further, inflation is stable in Australia. So it is hardly time to be increasing interest rates. But try telling that to the bank economists who mostly predicted a rise today. They were wrong. They often are. That is no surprise given the narrow way they think about the economy. The RBA made the correct decision today.

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There are riots in the street but the IMF wants more unemployment

I am writing this on late Friday afternoon European time. Today has been very busy and so I don’t have a lot of time to write this blog. I had a birthday in my immediate family to deal with and so some special celebrations were in order. Then I had meetings with two government officials – one from the Flemish government and the other from the Dutch government – they travelled down to Maastricht for consultations. The topic was the Job Guarantee and how they could implement such a buffer stock employment scheme into their own policy thinking. I will write up some thoughts about this meeting next week. Then I had to wade through a new International Labour Organization (ILO) report – World of Work Report 2010 – which has estimated that high unemployment will persist for much longer than they had previously forecast. The talk is that the “product market” (real output) recession is now becoming an entrenched labour market recession. Meanwhile, I also read the latest IMF World Economic Outlook report and noticed they were advocating changes to macroeconomic policy positions across the advanced world that would by their own reckoning increase unemployment and prolong recovery. They are still appealing to the nonsensical idea that fiscal austerity is good for a nation. Their view now is nuanced but still a disgraceful mis-use of econometric modelling. So only a relatively short tour through this work today.

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A new progressive agenda?

Today I am heading into the lands of austerity – those scorched, barren places where people with increasingly hollowed out faces are being forced by their misguided polities to forego wages and conditions and pensions and their happiness because some neo-liberal told them that government deficits were bad and all that. I am off to London this afternoon (I am typing this on the train to Sydney) and then to Maastricht University where visit each year and my colleague Joan Muysken is located. I have been thinking about various efforts that have emerged in the recent period suggesting that a new progressive agenda (narrative) is required to reverse the onslaught of neo-liberalism. This is clearly a topic close to my own heart. I have been thinking about the development of an alternative economic paradigm for my whole academic career. So whenever I see some progressive efforts I am always interested. This blog considers that question. So now a long flight then I will report on how hollow those faces are becoming.

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Not the best way to keep interest rates down

The article by Fairfax economics editor Ross Gittins today (September 27, 2010) – How to limit the looming interest rate rises – is a testament to how ingrained the neo-liberal thinking is when it comes to discussing sensible economic policy. He argues that the Australian government needs to get back into budget surplus as quickly as possible and then continue to generate bigger and bigger surpluses and pay down all the outstanding public debt. Evidently this is because we are experiencing strong export conditions and face a dramatic inflationary threat. However, even if that is true (the boom and inflation threat) there are better ways to manage the adjustment process so that inflation remains stable especially when the private sector is still so heavily indebted (as a result of the last credit binge). The other policy options available to the Australian government clearly warrant continued budget deficits. The sticking point: Gittins and most other commentators think that when you have 13 per cent of your willing labour resources idle you are approaching full capacity. I consider that the fact that that proposition has currency is the ultimate evidence of the success of neo-liberalism in poisoning our judgement and distorting the policy debate and policy choices.

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Bite the bullet and get shot in the mouth

If I was to become the boss of a sovereign government, the first thing I would do would be to introduce a Job Guarantee and immediately set about restoring jobs and a living income to those who are without either. This would immediately boost aggregate demand and give business firms a reason to start investing and producing. The second thing I would do would be to pass legislation outlawing all the international rating agencies. If I was to become the boss of a government within the EMU, the ordering would be similar except that before I introduced the Job Guarantee I would withdraw from the monetary union, default on all Euro-denominated debt, and reintroduce a sovereign currency. Then I would offer a job to anyone who wanted one at a living minimum wage and outlaw the ratings agencies. All that could be done on the first day of my tenure in official office. The recession would be over within a few months and then I would set about nationalising the zombie banks. It would be a fun ride!

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To lower unemployment you need to spend more

I read the headline in the UK Guardian from yesterday (September 15, 2010) – Unemployment claimant count rises unexpectedly which apparently confounded forecasts. The hopes for an export-led recovery as the expectations of the forthcoming public austerity damage private spending plans took a further hammering with the data release showing the “highest balance of trade deficit on record” in Britain and “surveys of the services and construction sectors showing employer sentiment deteriorating sharply”. Why is this surprising? The fact that the so-called analysts and the press are surprised only tells me that they do not understand the way the macroeconomic system works. When there are already severe aggregate demand constraints and the government announces that soon enough they will brutalise public spending what would you expect but a further decline in economic activity? When the rest of the world is easing the fiscal stimulus under the concerted attack by the deficit terrorists why would you expect the balance of payments to dramatically improve? None of this surprises me at all. It is exactly what an understanding of the monetary system would lead one to predict.The reality is that to lower unemployment you need to spend more. There are no surprises in that.

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Defaulting on public debt as a way to progress

Today I consider the idea that governments which have surrendered their sovereignty either by giving up their currency issuing monopoly, and/or fixing their exchange rate to the another currency, and/or incurring sovereign debt in a foreign currency might find defaulting on sovereign debt to be their best strategy in the current recession. I consider this in the context that any government that has surrendered their sovereignty is incapable of pursuing policies across the business cycle that serve the best interests of their population. While re-establishing their currency sovereignty may not require debt default, in many cases, default will necessarily be an integral part of the move back to full fiscal sovereignty. This is especially the case for nations that have borrowed in foreign currencies and/or surrendered their currency issuing capacities to a common monetary system. So here are some thoughts on when default is a way for a nation to progress.

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The IMF continue to demonstrate their failings

On the first day of Spring, when the sun shines and the flowers bloom, the IMF decide to poison the world with some more ideological positioning masquerading as economic analysis. I refer to their latest Staff Position Note (SPN/10/11) which carries the title – Fiscal Space. I think after reading it the authors might usefully be awarded an all expenses trip to outer space. It is one of those papers that has regressions, graphs, diagrams and all the usual trappings of authority. But at its core is a blindness to the way the world they are modelling actually works. I guess the authors get plaudits in the IMF tea rooms and get to give some conference papers based on the work. But in putting this sort of tripe out into the real policy world the IMF is once again giving ammunition to those who actively seek to blight government intervention aimed at improving the lives of the disadvantaged. The IMF know that their papers will be picked up by impressionable journalists who are too lazy to actually seek a deeper understanding of the way the monetary system operates but happily spread the myths to their readers.

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Australia continues to grow but the signs are not all good

Well its officially Spring in Australia and today in Newcastle it is a very warm 23 degrees (warm for this time of year) and it looks like being a long hot (beautiful) summer. The statistics world is looking very bright today as well with the release by the Australian Bureau Statistics of the National Accounts data for the June quarter. The media are today beating up a story about the Goldilocks economy which on first glimpse is a reasonable conclusion. But given that growth has been driven by rising personal consumption and falling saving when household debt remains at dangerous levels, and export growth which is mostly due to terms of trade effects which will not last for much longer and government fiscal stimulus spending which is now being withdrawn something has to happen to private investment soon for the growth to endure. Further, if you take the government contribution out over the last year then things look very sick indeed. The fiscal intervention definitely kept the Australian economy afloat over the last year although that impact is now waning significantly.

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There is no solvency issue for a sovereign government

Yesterday, I indicated that I would provide some commentary on the latest Morgan Stanley briefing (August 25, 2010) – Sovereign Subjects – which received a lot of press coverage in the last few days and roused the interest of many of my readers. I cannot link to it as it is copyrighted. But the MS document is another example of how you can spread nonsense by ignoring the elephant that is sitting in the corner of the room. The MS briefing is essentially a self-aggrandising rant which perpetuates the standard neo-liberal myths and offers nothing new. I sincerely hope that the author’s company and all of their clients take his advice and lose significant amounts of their investment funds. The more losses are made in this respect the more quickly people will see through the cant that is served up by these clowns.

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Elephants everywhere

I often read articles that follow their own logic impeccably except they leave the main part of the story out. They ignore the elephant that is staring at them from the corner of the room. In doing so they avoid facing up to uncomfortable realities and just perpetuate the standard myths that characterise economic debate in this neo-liberal era. Some other articles build on this deception and just plain invent things to beguile their readers into thinking they have something important or valid to say. Tomorrow I will review the latest Morgan Stanley briefing (August 25, 2010) which is an example of the latter. But in general the conservative commentators exploit the fact that the general public do not what the debates are in economic theory and thus litter their proselytising with spurious claims while the elephant laughs away in the corner. It is almost comic book stuff except the standard of narrative in most comics is vastly superior to the trash is pumped out daily in the World’s press.

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If only the citizens knew what was going on!

There was an interesting forum in the The Economist Magazine on August 11, 2010 which considered the question – What actions should the Fed be taking?. The Economist assembled a group of academic economists (mainly) and the opinions expressed largely will make any person who understands how the monetary system operates and what the current problem is shudder in disbelief. What the discussion reinforces is that the mainstream economists really have failed to understand what the crisis was all about and do not comprehend the nature of the solution. Most of the contributions are just mindless repetition of what you might find in any mainstream macroeconomics textbook. It is very scary that these characters continue to be heard. If only the citizens knew what was going on!

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The absurdity of procylical fiscal policy

The Australian federal election campaign is in full swing and last night the federal opposition in Australia staged their policy launch for the federal election to be held on August 21, 2010. This is a campaign where both sides of politics are running on their respective claims to be better at implementing fiscal austerity measures. It has become a matter of who is promising the biggest budget cuts the earliest. It has made the parties barely distinguishable in terms of their overall policy appeal and has rendered both unfit to govern this country. It used to be said that procyclical fiscal policy was destabilising. This was typically in the context of neo-liberals claiming that expansionary policy always came too late and added to private spending that was already on the rebound and thus increased the inflation risk. But the reverse doesn’t appear to apply for the mainstreamers. Cutting public spending when private spending is weak is being held out as virtuous and the only way to engender growth. This inconsistency exposes the ideological nature of the austerity measures, which reflect as one UK commentator said recently – a desire to complete the neo-liberal demolition of the welfare state started 30 years ago but still incomplete or a reflection that the deficit hawks are total lunatics.

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