Daily macroeconomic income losses from unemployment

This is a short background blog which will support the release of my Fantasy Budget 2013-14, which will be part of Crikey’s Budget coverage leading up to the delivery of the Federal Budget on May 14, 2013. The topic of this blog is the estimated losses arising from persistent unemployment. Most people fail to associate on a daily basis how much the economy (and hence individuals and their families) forgoes in terms of lost output and income as a result of the government refusing to use its non-inflationary fiscal capacity to create employment.

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Australia output gap – not close to full capacity

A national media organisation (Crikey) invited me to be one of their Fantasy Budget providers this year and this is a background blog to the preparation of my Fantasy Budget 2013-14 for Australia, which I will publish next Monday. In this blog I consider the state of the Australian economy in terms of output gaps. The Australian government is keen to claim that the economy is operating close to or at trend real output – sometimes the Prime Minister or Treasurer – and senior Treasury officials, will replace the descriptor “trend output” with “full employment”. They make that claim to justify imposing fiscal austerity on the economy, which is expressed by their most recent goal to achieve a budget surplus in the current year. They have been pursuing that strategy for several budgets now after taking appropriate steps in 2008 to allow the budget deficit to rise significantly to head off the looming disaster associated with the global financial crisis. While the stimulus was not large enough at the time it did save the economy from the type of chronic recession that most of the advanced world remains stuck in. But, once recovery was established, the conservative ideology returned and the fiscal stimulus was withdrawn too quickly and an austerity plan implemented. At the time, it was clear that they would fail to achieve a surplus because in attempting to do so they undermined the recovery, and, their tax revenue growth. Other international events (a slowing of the terms of trade and an overvalued dollar) have compounded their poorly crafted fiscal strategy. The reality is that the Australian economy is now performing well below trend and the divergence is increasing. The labour market is also producing grossly inferior outcomes and we are clearly a hundreds of thousands of jobs short of what a reasonable definition of full employment would require. The budget deficit is too small not too large and the direction of policy in the coming year should be expansionary not contractionary.

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US national accounts – growth but for how long?

Last Friday (April 26, 2013), the US Bureau of Economic Analysis – published the – US National Income and Product Accounts – for the March-quarter 2013 (the advanced estimates – subject to later revision). The US economy continues to grow despite the fiscal drag coming from the government sector, principally the federal government. But the outlook is not that bright given that this data does not include the impacts of the “sequester”, which will start to reveal themselves more clearly in the June-quarter data. The signs are not good, however. Most recent data, which will feed into the second-quarter result is suggesting the economy is slowing under the weight of the fiscal drag. The point is that there is still a huge output gap in the US (my estimate – around 10 per cent) and no signs of an inflationary surge. Combining that information with the parlous state of the labour market indicates that the US federal government should be increasing their net spending rather significantly at present. The fact that all levels of government are now retarding growth is not a responsible act.

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Saturday Quiz – April 27, 2013 – answers and discussion

Here are the answers with discussion for yesterday’s quiz. The information provided should help you understand the reasoning behind the answers. 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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Australia – inflation benign and plenty of room for fiscal stimulus

The Australian Bureau of Statistics released the Consumer Price Index, Australia data for the March 2013 quarter today and while the inflation rate rose a little, this was mainly due to the fact that the base March-quarter 2012 was unusually low, thus distorting the annualised figure. When we continue the most plausible recent trends the annual inflation rate is below 2 per cent and falling. The Reserve Bank of Australia’s preferred core inflation measures – the Weighted Median and Trimmed Mean – are now well within the inflation targetting range and are probably trending down. This suggests that the RBA will probably consider the inflation outlook to be benign or “too low” and will instead have to shift their focus to the failing labour market, which in the last month showed signs of considerable deterioration after a flat 12-15 months. The inflation trend clearly contradicts the commentators who have been predicting the opposite on the basis of the (modest) rise in the budget deficit over the last few years as the downturn hit Australia. Their standing in the predictions stakes continues to be dented by the data. The evidence is suggesting that the economy is slowing under the weight of the federal government’s obsessive pursuit of a budget surplus. The benign inflation outlook provides plenty of room for further fiscal stimulus.

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Unemployment is skyrocketing – but we have treaty obligations!

And that is the problem. The Treaty (of Lisbon) and all the related Eurozone legalities that define the way the Brussels bureaucracy interacts with the member states is incapable of delivering prosperity to its citizens. In the last week, a senior Dutch economics official (boss of very conservative Centraal Planbureau) has delivered a wake-up call to European policy makers. In his departing press briefings the CPB chief, who is no Keynesian (rather he is a rigid supply-sider) has called for flexibility with respect to the application of the fiscal rules and an easing of the planned austerity because his nation’s economic performance is deteriorating fast. The Southern malaise is now impacting on the richer, more smug northern nations, as it always was going too. Many economists remain in denial of what is happening. It is 2013 not 2009. The world has been caught up in this crisis for 5 years. It is an entrenched crisis and the data is now showing us that the recent manifestation of the crisis is being driven by fiscal austerity. The initial impacts of the GFC were large but recovery had commenced and have now been killed off by the fiscal zealots. While the departing CPB boss called on the Dutch government to ignore the Stability and Growth Pact rules for the next few years, he also observed, that the nation had “treaty obligations”. That is the problem. These obligations prevent responsible fiscal positions, which in the current circumstances, would suggest budget deficits of several more percent of GDP than the 3 per cent rule being fully supported by the ECB.

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The day the Australian media failed the public, again

For those who don’t know about cricket, it is good to get a high score in each of the innings. Just like baseball. An innings score of 350 runs in Cricket would be respectable. So imagine the headlines – Big problem, team only scores 130 runs in final innings! The whole cricket world then gets itself in a lather about this with experts blabbing on national TV about only 130 runs. As an after thought, the news bulletin also announced – “and team pulls off a thrilling victory”. Imagine, some bean counter expert coming out in the middle of a game of football and telling the teams that the game is being called off because the budget for goals had been exhausted. The two points – context with respect to meaning and aims and where does the unit of account come from – have been sadly lost in the current economic debate. Even journalists who know better have done a great disservice to the Australian public today by choosing to present an uncritical version of a report that is at best incompetent but also much worse than that. This morning Australians have been bombarded via TV, radio and the printed media with economists, appearing seriously self-important but, at the end of it all, all they are doing is making stuff up and are probably too stupid to know otherwise.

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Saturday Quiz – April 20, 2013 – answers and discussion

Here are the answers with discussion for yesterday’s quiz. The information provided should help you understand the reasoning behind the answers. 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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Australian government logic – destroy the future to save it

The Australian government announced its new agenda for public education yesterday. It announced that it would spend an addition $A14.5 billion, overwhelmingly in the public schooling system, over the next six years. A major Report released last year showed that the last few decades of neo-liberal cuts to public education have undermined the quality of outcomes. Australia now trails behind nearly every advanced nation in this respect. The Report called for a massive injection of funds into the public schooling system. So we should applaud the Government announcement. The problem is that it thinks it still has a major fiscal problem (deficit currently around 3.2 per cent of GDP). As a consequence it thinks it has to cut spending elsewhere to fund the public school initiative. This is a wrong logic for two reasons. First, real GDP growth is falling and unemployment is rising fast which indicates that we need more aggregate demand not less (or the same). Second, it has chosen to get the cash to help restore the credibility of the public schooling system from the higher education system. Destroy the future to save it sort of logic. Another mindless demonstration of its fiscal ignorance.

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Australian Labour Force data – all bad and getting worse

Today’s release by the Australian Bureau of Statistics (ABS) of the – Labour Force data – for March 2013 reveals a very weak and deteriorating labour market. All the main indicators were bad – employment fell, full-time employment fell, unemployment rose, participation fell and aggregate monthly hours worked fell. The unemployment rate would have risen to 5.9 per cent rather than the 0.2 point rise to 5.6 per cent had the participation rate not fallen by 0.2 points. There are now 686 thousand workers unemployed. The youth labour market remains in an appalling state. Overall, the data is consistent with the steady flow of information pointing to a contraction in the Australian economy, which is being deliberately exacerbated by the Federal Government’s insistence that it pursues a budget surplus. Private spending growth is insufficient to drive growth at present and the Government should be increasing the deficit and targetting job creation programs. Instead, it marches on to electoral oblivion and watches the labour market deteriorate and unemployment rise.

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Society buckled and is damaged but has never disappeared

Remember that her own party got rid of her in the end because she even became a liability to them. She was always a liability to the prosperity of the British people and despite her obsession with incentives and individual action, she undermined both by wrecking the macroeconomy in Britain. The news today is all about the death of the former British PM. There will be a lot of revisionism going on. I don’t plan on a chapter and verse discussion of the legacy of the shopkeeper’s daughter. Apart from the cruelty that was imposed on individuals, particularly the poor, her policies hollowed out the British economy and opened up the door for the parasitic financial sector to take centre stage, with the disastrous consequences that are now for all to see. I could talk about all of that. But to me the biggest impact of her period in office was that it marked the beginning of the end of the social democratic parties. Labour and the Tories became neo-liberal lookalikes. Sure enough, the Tories spoke better and had better table manners. But when the economic policy positions were distilled to their essence, the Labour Party, like so-called progressive parties everywhere, started to sound more right-winged than the Tories themselves. That is what I think is her grim legacy for the weak and the poor of the world.

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US President engaging in economic vandalism

Last week (April 5, 2013), the – US Bureau of Labor Statistics – released their latest – Employment Situation – March 2013 – which showed that in seasonally adjusted terms, total employment decreased by 206,000 in March and the labour force shrunk by a further 496,00 persons. The twin evils – falling jobs growth and declining activity. While the unemployment rate fell to 7.6 per cent (from 7.7 per cent) that is an illusory improvement. The fact is that the participation rate fell by 2 percentage points and thus hidden unemployment rose. The 290 thousand fall in official unemployment arose because the drop in employment was more than offset by the fall in the labour force. There is nothing virtuous about any of that. The facts are that it is getting harder again for Americans to get work and easier for them to lose it. The data is signalling a fairly poor outlook and hardly the time for the President to be submitting austerity budgets. But in the same week that the data came out, the President did just that. The latest budget submissions from the Administration, designed to placate the mad Republicans, is an act of economic vandalism.

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Saturday Quiz – April 6, 2013 – answers and discussion

Here are the answers with discussion for yesterday’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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Saturday Quiz – March 30, 2013 – answers and discussion

Here are the answers with discussion for yesterday’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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Saturday Quiz – March 23, 2013 – answers and discussion

Here are the answers with discussion for yesterday’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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Saturday Quiz – March 16, 2013 – answers and discussion

Here are the answers with discussion for yesterday’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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Australian national accounts – oh, the irony

The Australian economy grew in trend terms by 1 per cent in the December-quarter 2011, 0.9 per cent in the March-quarter 2012, 0.8 per cent in the June-quarter 2012, 0.7 per cent in the September-quarter 2012, and in today’s Australian Bureau of Statistics – Australian National Accounts – data covering the December-quarter 2012, the real GDP growth figure was 0.6 per cent. Further, the two main growth drivers in the December-quarter – Net exports (0.6 percentage points) and Public Investment (1.1 percentage points) – will not endure. Outlook: poor. But the irony is that while the Federal government is doing its best to undermine the economy by imposing fiscal austerity, it was the public corporations at the State/Local government level that provided the public capital infrastructure boost. Without this government spending support, the Australian economy would be in a deepening recession! I wonder what those who say that public spending undermines growth would say today! Gravity denial would be out in full force. I will keep my ears peeled and report back on the more ingenious contributions. While the spin is that the economy grew at 3 per cent over 2012, which is true, the forward-looking assessment is that the national growth rate is running around 2 to 2.5 per cent and falling, which is already well below trend. Employment growth was flat and real net national disposable income fell sharply in the December-quarter. The terms of trade, which has been helping to drive growth in the external sector also fell sharply. The State and Territory Final Demand data also shows that the East Coast and South Australia area, where the vast majority of the population lives and seeks work is now in recession. The outlook is decidedly negative.

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The denial of gravity

I was talking about economics at lunch-time today (as you do) and my company was irate about a TV interview that aired last night on the national public broadcaster (the ABC). The source of the angst was the increasing tendency of interviews on the ABC (and other media outlets) to express ill-informed opinions that serve to bias the interview and reinforce the dominant neo-liberal ideology. Such behaviour conditions the public to accept highly contestable propositions as fact, constructions of which, then defines the “solutions” and leave off the discussion table alternative scenarios and propositions that, in fact, represent the responsible policy options given the circumstances. This bias is part of a more general syndrome that defines the neo-liberal era, which is the equivalent of denying gravity. We are now fed a string of statements that parade as authoritative commentary or evidence that are, in fact, total fabrications and deny basis relationships that are at the heart of our monetary systems. This denial of “gravity” has become an art form and is used to bully us into accepting outcomes that advance the interests of the elites and undermine broader social welfare. It is a most extraordinary conflation of values and lies.

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Ratings firm plays the sucker card … again

Companies that sell shonky products under false pretenses are typically prosecuted by the authorities. Those that sell shonky products generally are typically run out of business. But there is one class of such products that seem to escape the scrutiny of both the authorities and the market. Indeed, they seem to have bluffed many governments into believing that shonky is good. Last week, the patently irrelevant Moody’s rating agency downgraded Britain’s sovereign debt ratings from Aaa to Aa1. The fact it was headline news indicates how stupid we all are. The fact that George Osborne then had to lie about what it meant showed how stupid he is. The fact that the Opposition leader described it as a humiliating blow showed how stupid (and opportunistic) he is. How a company that was complicit in the financial crisis can command so much free advertising is beyond me. I must be stupid! The fact is that the latest ratings are without meaning or import.

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Progressive narrative should be human focused and uncompromising

I was reading an interesting article at the weekend (February 17, 2012) in The UK Independent – The Left should learn about plain speaking from George Galloway – which was about language and the way ideology is communicated. The use of nomenclature and communication methods is clearly central to the way a paradigm establishes itself and maintains its popularity even when its legitimacy in theoretical and empirical terms evaporates. The article points to the failure of the “left” to construct an alternative narrative that relates directly to the human experience. It demonstrates that the “right” can lie but relate those lies at a human level to gain traction. They appeal to our intuition which as I noted in this blog – When common sense fails – is bound to lead us astray. There was an excellent example of this in two articles recently. The left has become so paralysed by its embrace of management-consultant styled, neo-liberal techno-speak that it can no longer speak to us at the human level. With millions of people unemployed it should be a political no-brainer to address the concerns of that cohort to garner political support. Instead, so-called progressive governments and parties in advanced nations fall foul of the neo-liberal dialogue about “scroungers” and “dole-bludgers” and demonstrate their resolve by invoking harsh welfare-to-work policies. Nothing progressive will ever come from that surrender to neo-liberalism. That is what this blog is about today.

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