Australia – annual inflation rate falls to 3 per cent with the quarterly rate stable and the press go crazy

Apparently, inflation in Australia has come ‘roaring’ back, if you believe one financial commentator today. There has been a lot of talk about how inflation is spiralling upwards and it demonstrates the MMT ‘quackery’. If you examine today’s data release from the Australian Bureau of Statistics – Consumer Price Index, Australia (October 27, 2021) – which relates to to the September-quarter 2021, then it becomes clear that the slightly elevated CPI result is largely due to uncompetitive cartel behaviour and deliberate government petrol pricing policies that ensure that the cartel behaviour is ratified in the form of higher local petrol prices. Not much more to see than that really. Nothing much to do with Modern Monetary Theory (MMT) at all. Sorry about that. The CPI rose by 0.8 per cent in the September-quarter 2021 and 3 per cent over the 12 months. The two main drivers were the rise in prices for New dwelling purchases by owner-occupiers (3.3 per cent) and Automotive fuel (7.7 per cent). Last quarter, the annual rate of CPI increase was 3.8 per cent, which makes statements like ‘roaring back’ seem ridiculous and designed to attract headlines.

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Federal Reserve research paper kills another core New Keynesian idea about inflation expectations

The New York Times article (October 1, 2021, updated October 15, 2021) – Nobody Really Knows How the Economy Works. A Fed Paper Is the Latest Sign – reported on a paper by one Jeremy B. Rudd, who is a senior advisor in the Research and Statistics division at the Federal Reserve Bank in the US. The paper – Why Do We Think That Inflation Expectations Matter for Inflation? (And Should We?) – published as Finance and Economics Discussion Series 2021-062, by the Board of Governors of the Federal Reserve System, argues that a core aspect of New Keynesian macroeconomic orthodoxy “rests on extremely shaky foundations … and adhering to it uncritically could easily lead to serious policy errors.” The paper rejects the central notion in mainstream macro that the trajectory of inflation is driven by expectations. The idea that expectations are the key force has led central banks deliberately using the unemployed to fight an (imaginary) inflation threat. It has led fiscal authorities to pursue contractionary policies that have forced millions into unemployment. The Rudd paper is important because it shows the mainstream edifice is collapsing – it jettisons an other core concept. There is not much left in mainstream economics that hasn’t been rejected by evidence or exposed as being theoretically inconsistent.

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The Weekend Quiz – October 23-24, 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.

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The Weekend Quiz – October 16-17, 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.

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The Weekend Quiz – October 9-10, 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.

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Australian government issues debt, buys most of it itself, and then pays itself interest into the bargain

These are rather extraordinary times indeed. I have been trawling through the Australian public debt data which is spread across the federal sphere and the various states and territories. The official data published by the ABS is always dated (lagging a year or so) and the state-level debt data is actually quite hard to put together – their various ‘debt management’ offices do not make it easy to put a time series together. My interest is in working out the impact of the rather radical shift in usual conservative Reserve Bank of Australia behaviour when the pandemic hit. They started buying government bonds (at all levels) and now own large swathes of public debt. They have also effectively been funding the rather large deficits that the governments in Australia have been running. And interest rates and bond yields remain low after nearly 18 months of this shift.

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The Weekend Quiz – October 2-3, 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.

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(Modern) Marx and MMT – Part 2

This is Part 2 of my analysis of the way that fundamental ideas in Modern Monetary Theory (MMT) are totally consistent with a reasonable interpretation of Marx’s work. The motivation to clarify these issues came after I spoke at an event last weekend in the UK and shared a panel with a critic who claimed that Marx’s work established that MMT is wrong to assume that unemployment is a monetary phenomenon (insufficient spending) and that government spending can do anything about it. The claim was based on a view that Marx thought that capitalist firms have some unique logic that if they decide not to produce no amount of sales orders will induce them to expand production even if they have massive excess capacity (‘machines lying idle’) and a huge pool of idle labour to draw upon. No reasonable reading of Marx’s work would lead to that conclusion. In this part, we will consider what Marx thought about crisis and some later developments of his reproduction schemes, which make it clear that effective demand drives capitalist output, which conditions their employment decisions.

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The Weekend Quiz – September 25-26, 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.

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ECB researchers find fiscal policy is very effective and more so if central banks buy up the debt

The ECB published a Working Paper recently (September 2021) – Monetary and fiscal complementarity in the Covid-19 pandemic – which represents progress in the narrative. While the technical model that the ECB uses is just an ad hoc attempt to reverse engineer the reality so they can claim they can explain it, what is useful from the exercise is that the old mainstream narratives that fiscal policy is ineffective in providing permanent boosts to real output (or that austerity does not permanently damage the growth trajectory) can no longer be sustained. The taboo surrounding central bank purchases of government debt because they cause accelerating inflation can no longer be sustained. The claims that fiscal deficits drive up interest rates can no longer be sustained. Now the public debate just has to reflect that reality and we will have made progress. Of course, this is all core MMT – we knew it all along!

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They never wrote about it, talked about it, and, did quite the opposite – yet they knew it all along!

During the GFC, a new phenomenon emerged – the ‘We knew it all along’ syndrome, which was characterised my several mainstream New Keynesian macroeconomists coming out and claiming that some of the insights provided by Modern Monetary Theory (MMT) economists were banal and that their own theoretical framework already accommodates them. The pandemic has brought a further rush of the ‘We knew it all along’ syndrome. Apparently, mainstream macroeconomics is perfectly capable of explaining the fiscal reality the world has found itself in and there is no need to MMT, which, by assertion, is saying nothing new. These sorts of statements are not coming from Facebook or Twitter heroes who might have done a few units in economics or even acquired a degree in the discipline. They are coming from senior professors in the academy. The curious thing, which really lifts their cover, is that if you examine the academic literature you won’t find much reference to these sorts of ‘insights’ at all. What you find, and what students are taught, are a completely different set of propositions with respect to fiscal policy. So if they ‘knew it all along’ why didn’t they ever write about it? Why is their published academic work replete with conclusions that run contrary to the conclusions MMT economists make? You know the answer. These ‘knew it all along’ characters have just been caught out by the poor empirical performance of their paradigm and now they are trying to salvage their reputations and position by trying to blur history. They really should be sacked.

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The Weekend Quiz – September 18-19, 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.

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Monetary policy is not effective in dealing with a pandemic – it must support active fiscal policy

It’s Wednesday and I have now settled back into my office after being stuck away from home for 9 weeks as a result of border closures between Victoria and NSW. So I am reverting back to the usual Wednesday pattern of limited writing, although today, the topic is worthy of some extended narrative. Before we get to the swamp blues music segment, I am analysing a speech made by the RBA governor yesterday on the role of monetary policy during a pandemic, whether low interest rates are driving house prices too high, and, what should be done about that. The conclusion is that he supports better use of fiscal policy – sustaining supportive fiscal deficits and dealing with the distortions that are contributing to high housing prices, via amendments to taxation (eliminating incentives for high income earners to buy multiple properties) and public infrastructure policies (more social housing).

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ECB nearly comes clean – higher fiscal deficits, higher QE

Last year, the US Federal Reserve dropped a bombshell on mainstream macroeconomics by abandoning the consensus approach to monetary policy, which prioritised fighting inflation over maintaining low levels of unemployment, and, increasing interest rates well before any defined inflationary pressures were realised – the so-called forward guidance approach. It has also been buying massive quantities of US government debt and controlling bond yields in the markets as a result. Attention has been on the ECB to see where it would pivot too and whether it was going to abandon its own massive government bond buying program any time soon, which has been effectively funding the fiscal deficits of the 19 Member-States of the Eurozone. Recent statements have indicated the QE programs in Europe will not be ending any time soon. And an ECB Board member all but tied the scale of the purchasing programs to the size of the fiscal deficits as a guide to how long and how large the QE interventions would be.

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The Weekend Quiz – August 21-22, 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.

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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.

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The Weekend Quiz – August 7-8, 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.

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Inflation is coming, well, it could be, or, it might happen, gosh …

One could make a pastime observing the way that so-called ‘expert’ commentators change their commentary as the data unfolds. As one rather lurid prediction fails, their narrative shifts to the next. We have seen this tendency for decades when we consider the way mainstream economists have dealt with Japan. The words shift from those implying immediacy (for example, of insolvency), to those such as ‘could’, ‘might’, ‘perhaps’, ‘under certain conditions’ and more. The topics shift. The commentariat were obsessed with ‘this time is different’ during the GFC and the ‘debt insolvency threshold’ rubbish that the likes of Reinhardt and Rogoff propagated. That is, until they were sprung for spreadsheet incompetence. More recently, we have apparently forgotten how many governments were about to go broke and the mania has shifted to inflation. The data shows some price spikes earlier in the year which set of the dogs. Now, things might be shifting again. It is a pastime following all this. Short memories, no shame is the only requirement that is required to be a mainstream economics commentator. Prescient knowledge is not included in that skill set.

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The pandemic exposes the damage that neoliberalism has caused

Australia is now locked into a new phase of the pandemic where NSW is in danger of allowing the virus to run free throughout the population due to the incompetence of the conservative state government. For the duration of the pandemic up until now, the NSW government has been lecturing the other states (mostly run by Labor governments) about how they had a superior health system (health is organised along state/territory lines in Australia) and how they valued freedom more than the dictatorial Labor states that go into lockdown very quickly if a case threatens. It turns out NSW has just been lucky to now and the latest outbreak has revealed their ‘freedom first’ approach is a false freedom. Sydney has been locked down for weeks now and cases are still rising and it seems the contact tracers have lost control. But the hubris from the NSW government has really exposed a much deeper malaise that has been evident for years now as a result of the way neoliberalism has reconfigured the public sector and the role of government. The pandemic is just exposes the erosion of government capacity to provide public services and infrastructure and deal with public emergencies. That is one of the important revelations to come out of the pandemic.

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The Weekend Quiz – July 31-August 1, 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.

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