Be careful using first release data – Britain now surges ahead of Europe!

In May 2023, when the British Office of National Statistics (ONS) released the March-quarter national accounts data (first estimate), which showed that real GDP grew by only 0.1 per cent in the first quarter and a rate equal to the December-quarter 2022, the critics were out in force. Brexit this. Brexit that. Graphs were created showing that Britain was recording the worst growth across the G7 nations. Brexit this. Brexit that. The Labour Party was cock-a-hoop as they continued the purge of the progressive elements in the Party. Then the second estimate came out on June 30, 2023 using additional data which the ONS said provides ‘a more precise indication of economic growth than the first estimate’, we learned that GDP “increased by an unrevised 0.1% in Quarter 1”. Brexit this. Brexit that. William Keegan who is like a cracked record stuck in a rut, wrote more UK Guardian articles bemoaning the democratic choice to leave the European Union. The problem is that all this data-centric inference was based on an illusion, which is why one must always be circumspect when dealing with this sort of data. The latest national accounts data released by the ONS on Friday (September 29, 2023) revised the first quarter result – scaling it up by a factor of three – to 0.3 per cent, which is still slow but hardly the disaster the pundits claimed.

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Claiming the European Union is close to full employment defies the meaning of language

Last week (September 13, 2023) in Brussels, the President of the European Union delivered her annual – 2023 State of the Union Address. We all know that these events are spin-oriented and the leader of the 27-nation bloc is hardly going to come out and talk the arrangement down. But this was an election speech – with the next major elections coming in the year ahead. The President lauded all the half-baked and under-funded programs that they have initiated under her ‘leadership’ and when it came to assessing the state of the labour market she made the extraordinary statement that as a result of Commission policies (such as – SURE) “Europe is close to full employment.” Yes, they are spinning the view that the problem is not a lack of jobs but “millions of jobs are looking for people” while admitting that “8 million young people are neither in employment, education or training” – the so-called NEET generation. Language should above all else convey meaning. Trying to claim that Europe is close to full employment violates that basic aspiration. The reality is that Europe is nowhere close.

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With central banks chasing shadows, many nations are now plunging towards or into recession

Yesterday, the – Flash Germany PMI – was released, which shows that “German business activity” has fallen “at fastest rate since May 2020”. Also released was the – Flash Eurozone PMI – which revealed that “Eurozone business activity contracted at an accelerating pace in August as the region’s downturn spread further from manufacturing to services”, Europe is heading to recession or should I rather say – stagflation – because the unemployment will rise sharply while inflation is still at elevated levels. All because the policy settings are wilfully and unnecessarily driving nations into recession. Over the Channel, Britain is going through a similar experience – inflation is falling rapidly and the economy is plunging towards recession. The common link is the policy folly. The European Central Bank and the Bank of England have been increasing interest rates as a ‘chasing shadows’ exercise – meaning that the drivers of the inflation they claim to be fighting are not sensitive to the interest rate changes. But the interest rate hikes are causing damage to the real economy by increasing borrowing costs. Meanwhile, fiscal policy is in retreat because the government thinks it has to set policy to complement the central bank hikes – meaning two sources of austerity. And for those commentators who pine for re-entry to the EU – they should look East and see what a mess the European economy is in!

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The New Global Financing Pact equals the old failed global financial arrangements

It’s Wednesday and I cover a few topics usually in less depth than usual and provide a musical entree. From tomorrow (June 22 to 23), the so-called world leaders are meeting in Paris for the – Summit for a New Global Financing Pact – which is being hosted by the French president. The aim, apparently, is to build a new global architecture to replace the Bretton Woods system (they left it a while!) to ‘address climate change, biodiversity crisis and development challenges’. The solution that is being proposed is to allow the financial markets to create debt and speculative derivative products to fund the new architecture because, apparently, governments do not have the financial capacity. The whole initiative is about replacing defunct financial architecture but it still proposes to rely on the same (defunct) approach to public infrastructure development and the like that has failed dramatically to reduce inequality and poverty. It has certainly massively enriched the top-end-of-town and the same result will come out of this Pact. I also comment on the latest Brexit claims and provide a brief entree into some Covid research that I found interesting. Then some music.

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The end of the common currency (euro) cannot come soon enough

In my 2015 book – Eurozone Dystopia: Groupthink and Denial on a Grand Scale (published May 2015) – I traced in considerable detail the events and views that led to the creation of the Economic and Monetary Union (EMU, aka the Eurozone) once the Treaty of Maastricht was pushed through as the most advanced form of neoliberalism at that time. The difference between the EMU and other nations who have adopted neoliberal policies is that in the former case the ideology is embedded in the treaties, that is, in the constitutional system, which is almost impossible to change in any progressive way. In the latter case, voters can get rid of the ideology by voting the party that propagates it out of office. It is true that in current period, even the parties in the social democratic tradition have become neoliberal and there is little choice. But the EMU is different and has entrenched the most destructive ideology in its legal structures. We are reminded of this recently (April 26, 2023), when the European Commission released its latest missive – Commission proposes new economic governance rules fit for the future. Once operational, the policies advocated in this new governance structure will ensure that Europeans are once again made to endure persistent and elevated levels of unemployment and continued deterioration in the quality and scope of public infrastructure and welfare provision. The collapse of this ideological nightmare cannot come soon enough.

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The climate emergency requires us to reset our understanding of fiscal capacity. It is already, probably, too late.

In Tuesday’s fiscal statement, the Australian government made a lot of noise about dealing with the climate emergency that the nation faces but in terms of hard fiscal outlays or initiatives it did very little, deferring action again, while ‘the place burns’. The Climate Council assessment was that the government “still seems to be on a warm-up lap when it comes to investing in climate action” (Source) and recommended the nation moves from a “slow job” to a “sprint”. I have previously written about the myopic nature of neoliberalism. There are countless examples of governments penny pinching and then having to outlay dollars to fix the problem they create by the austerity. The climate emergency is of another scale again though. And penny pinching now will cause immeasurable damage to humanity. Food security will be threatened. Urban environments will become unliveable. Pandemics will increase if we don’t stop clearing and if we release viruses stored in permafrost. And all the rest that awaits us. Now is the time to reset our understanding of fiscal capacity. It is already, probably, too late.

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The absurdity of the current monetary policy dominance exposed

We start to see the absurdity of the current reliance on monetary policy as a counter-stabilisation tool, when you read the calls from the Bank of England Monetary Policy Committee member talking about the risk of a ‘significant inflation undershoot’. In a detailed analysis of the current situation, the external MPC member noted that inflation was falling faster than expected because the supply constraints were reversing quickly. She also noted that the interest rate hikes had now reached a point where unemployment was certain to rise and lead to, in the face of the supply reversals, to deflation. And that would require faster and larger interest rate cuts. Here is an insider admitting that the Bank of England is more or less gone rogue and out-of-step with reality. Overshoot at the top of the hiking cycle, swinging to a massive undershoot at the bottom. Absurd.

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Abandoning the euro would have essentially zero negative income effects for the vast majority of Member States

If you cast your mind back to the peak of the GFC, when people were actually talking about the dissolution of the Economic and Monetary Union (EMU), a.k.a. the Eurozone, or more specifically, a unilateral exit by Greece or Italy, we were told by the ‘experts’ that it would be catastrophic. Over and over, headlines shouted at us how disastrous it would be if the Eurozone failed. Well, guess what, even pro-Euro researchers have come to the conclusion that the effects of collapsing the monetary union would be minimal, to say the least. And when we dig into their analysis a bit deeper, using technical knowledge, the results are even more devastating for the pro-Euro camp. Mostly, using techniques that give pro-Europe narratives the best chance of delivering supportive empirical results, they find mostly impacts that are not statistically different from zero, of an abandonment of the common currency and a return to currency sovereignty for the 20 Member States. I haven’t seen any attention given to this in the mainstream media or from those pro-Euro Tweeters that tweet away with all sorts of nonsense about how good the common currency has been. But then that would be a bridge to far for them I guess.

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EU bonds will not become a ‘safe asset’ – Germany and Co won’t let that happen

It’s Wednesday and I have several items to discuss or provide information about today. Today, I discuss the future of the EU-bonds that were issued as part of two main emergency interventions in 2020 as policy makers feared the worse from the pandemic. The question is whether these assets can ever become ‘safe’ in the same way that Japanese government bonds or US treasury bonds are clearly ‘safe’. The answer is that they cannot and the reason goes to the heart of the problem besetting Europe – the fundamental monetary architecture is flawed in the most elemental way. I also provide some updates for MMTed and a great new book. And, of course, this week, I have to remember Jeff Beck in the music segment.

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Two diametrically-opposed approaches to dealing with inflation – stupidity versus the Japanese way

Well things are going to get messier with the decision yesterday by the OPEC+ cartel to significantly reduce the oil supply and push up prices. On the one hand, when OPEC was first formed and pushed prices up, while there was significant disruption to oil-dependent nations, the substitution that followed (home oil heating abandoned, larger cars replaced by smaller cars, etc) was ultimately beneficial. So given that we need less cars on roads and less kms travelled by cars, one might consider the move to be fine. But given the way the central banks and treasury departments around the world are behaving at present, the short term impacts of the OPEC+ decision will be very damaging. How citizens endure whatever extra inflationary pressures that might emerge will depend on the fiscal and monetary policy responses. We have two diametrically opposed models: the one that most nations are following (hikes and austerity) versus the Japanese approach. I explain the difference below and predict that the latter will deliver much better outcomes for the people.

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Elites using monetary policy to deal with paranoid fears that power might shift towards workers

What a world we live in where we are snowed with propaganda from the elites about how the only way forward is that we accept “pain” or “sacrifice” to prevent some inflationary catastrophe from accelerating out of control and that if workers dare seek some cost-of-living redress as corporations go for broke in their margin push, then the pain the policy makers will inflict will be greater. The annual gathering of the elites at Jackson Hole in Wyoming over the last days has been one of those ‘can you believe this lot’ moments. First, we had the US Federal Reserve boss almost joyfully telling Americans that he will inflict pain on them because “these are the unfortunate costs of reducing inflation”. At the same event, the ECB Board member Isabel Schnabel told the gathering that the central banks had to inflict higher unemployment rates to control inflation to stop wages getting driven by inflationary expectations. And then we look at wages growth in Europe and see that real wages are in free fall (dropping 5.9 per cent in the June-quarter 2022).

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It all adds up to the conclusion that system change is required not progressive tinkering

It’s Wednesday and some short items that caught my interest over the last week. The FAO’s latest – Food Price Index – shows that even though food prices fell 8.6 per cent from June (to August), “the fourth consecutive monthly decline”, they are still massive inflated (13.1 per cent higher than August 2020) and the “world’s top four grain traders” are profiting from record sales in the face of supply disruptions. The World Food Program informs us that 345 million people are enduring ‘acute food insecurity’ which is nearly 3 times the pre-pandemic number. The system is not working and I have some things to say about that below. Further, latest PMI data from Europe shows that price pressures are declining, which brings into question those (with vested interests) calling for even higher interest rates. And then some music.

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Germany is in deep trouble and requires a major shift in policy strategy

The latest news I read from Germany was that the Rhine is now so low on water that its importance as a commercial waterway for transporting raw materials and finished products is being significantly compromised. The water level in places is now well below that required for navigation by the barges. It is the second time in the space of a few years that inland shipping in Europe has been thwarted by this sort of problem. The War in Ukraine is also causing bottlenecks in the inland transport routes as grain transports are being diverted as a consequence of the Black Sea blockades. Sure enough there are rail transports still capable of shifting the cargo but this problem is one of many now hitting Germany, which is finding out that its economic growth strategy is deeply flawed. It was only a matter of time before the ‘chickens came home to roost’. It was obvious for years that the Post-unification strategy the German government took as it entered the common currency could not deliver sustainable and stable growth. The reliance on suppressing domestic expenditure and wages growth in order to game its Eurozone partners so they recorded large external deficits in order to buy German exports was problematic given that the German insistence on austerity across the Eurozone resulted in stagnation and weaker export markets. Further, Germany relied heavily on diesel engines to underpin the strength of their dominant motor vehicle industry and not only did they lie about the quality of the products, but they failed to foresee the shifting sentiment away from polluting diesel. And, of course, they relied on imported energy from Russia to feed this industrial strength and supply their consumer markets, which assumed that Russia would remain reliable. At present they are also being impacted by the supply disruptions in China, given they have shifted their external sector towards an increased reliance on China. Some of these problems will ease but the reality is that the German model that they took into the Eurozone is now unsustainable. They must abandon their export led growth obsession, increase their reliance on domestic demand and improve the circumstances for their workers while dealing with the increasingly evident climate emergency.

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British Tory MP spills the beans on government debt

It’s Wednesday and I have a few items of interest (to me at least) to warm us up for the music feature, which is beautiful though sad. First up we learn how a senior Tory MP has made admissions to the media that completely contradict mainstream macroeconomics and validate what Modern Monetary Theory (MMT) tells us. Second, we learn from the latest ECB data just how ‘flexible’ (read: anything goes) it can be in its government funding. Italy and Spain are being rescued at present. As I said anything goes. And third, the vandalism of the Reserve Bank of Australia continues. Then we can rest and listen to some glorious singing.

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Trickle down. Remember that. The evidence base continue to reject the notion as a scam

Trickle down. Remember that? This was the idea that if we redirect real income towards capital by boosting profits via real wage suppression and/or corporate tax cuts, as if by magic, corporations will start investing the largesse in productive capital, which stimulates economic growth, and, the benefits ‘trickle down’ to the workers who made the initial sacrifices. The evidence base has never supported the idea yet it still resonates. I read two interesting articles yesterday, which are related even if at first blush they may not appear to be. The first reveals the shocking decline in productive investment by both private and public sectors and the long-term damage that that will have for our capacity to meet the climate challenge. The second shows that the arguments that cutting corporate taxes is good for economic growth is false.

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The global poly crisis is the culmination of the absurdity of neoliberalism

We are used to segmenting destructive episodes as crises – the Mexican debt crisis in 1982, which gave way to the Latin American debt crisis in the 1980s, the East Asian financial crisis of 1997-98, then the Global Financial Crisis in 2008 and beyond, then the pandemic crisis since 2020. Meanwhile, firefighters are dealing with major fires from Portugal, France to Crete; Britain is about to experience 40 degrees Centigrade; Australia is dealing with a sequence of massive floods; corporations are gouging profits and pushing inflation, which is provoking policy makers to take it out on the most disadvantaged in our societies, with no logical link between the policy and the perceived problem, other than deep recessions stop the gouging; nations considered to be ‘middle income and rising’ are now lining up behind Sri Lanka to see who will be the next to basically collapse into anarchy, unable to feed its population; housing shortages are causing havoc almost everywhere; the quality of employment has declined dramatically (job security, worker agency, etc) and the trade unions are a pale imitation of what they used to be; politicians are more self-serving than ever; and people are still dying in the thousands everyday from the pandemic but our leaders insist we are now ‘living’ with Covid (more like dying with it). The reality is that all these events are linked and part of what some might call a poly crisis. Capitalism has failed and the institutions we created to tame the raw-profit greed of capital – the state, trade unions, etc – have also been compromised to such a degree that they, either are no longer effective or work as agents of capital rather than mediating the labour-capital conflict. A poly crisis requires fundamental change. But, such is the dominance of the mainstream, which has created this crisis, that all we get is more of the same. That means the ultimate solutions will be more painful and destructive and lead to conflagration as this period of human civilisation collapses.

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The Left/Right distinction is as relevant as ever as corporations gouge profits out of pushing inflation

Apparently, the Left/Right Paradigm is dead. This narrative keeps coming back. In the 1980s, when governments, coopted by corporate lobby groups, went on a privatisation spree, which transferred billions of dollars worth of public assets into the hands of private wealth holders, and enriched lawyers, management consultants etc into the bargain, we were told that we are all capitalists now because our pension funds bought the assets. Joke. Anyway, I keep reading and being told that there is no longer any meaningful distinction between Left and Right, with both falling into the hands of totalitarian discourse. Even so-called progressives advocate that the traditional Left should partner up with the traditional Right (and far Right) to keep ‘centrists’ out of power or to stop governments taking basic actions to protect public health. It is the ultimate victory for the neoliberals to have persuaded the Left that they have more in common with the Right than ever before. This is another example of how duped the Left has become.

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French presidential election – some hope for a future progressive, anti-EU Left

Australia will go to a federal election on May 21, 2022 with the current conservative government looking in bad shape and the Opposition Labor Party has been helped a little by interventions from the French president. Emmanuel Macron candidly called the Australian Prime Minister a liar which further dented his already fractured image as the most untruthful politician in Australia. I hope the conservatives are routed but, in saying that, I know it means the Labor Party will take power and continue their embarrassing pretence to be progressive, while preaching the very mainstream economics that has damaged so many of the people that the Labor politicians claim to represent. A bad situation really. We are not yet in a situation where the traditional conservative and labour parties are being challenged by new entrants to the field. The first round of the French presidential election for 2022 were held at the weekend with some very interesting results and definitely showed that the traditional political voices in France are dead – something we could only wish for in this country.

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The IMF shows us that the central bank monetary financing taboo has no substance

Recently (February 22, 2022), I received the latest E-mail update from the IMF blog advertising their new post – Should Monetary Finance Remain Taboo? – which obviously attracted my attention. One of the most deeply entrenched taboos in economics relates to central banks directly facilitating government spending without any other monetary operation. In an important sense, the characterisation of ‘monetary financing’ by the mainstream economists is erroneous and leads to all sorts of fictions that undermine sensible and responsible economic policy making. But, we can work through those fictions to discuss what the IMF is talking about. Importantly, they find that this taboo, which has been broken during the pandemic in many countries (although Japan has been leading the way for decades) does not lead to enduring inflation or a rise in inflationary expectations. Another major plank of mainstream macroeconomics gone. That is something to celebrate.

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The year Australian progressives abandoned the national commitment to full employment

At present, the unemployment rate in Australia is 4.2 per cent and falling. If the rate of new immigrants remains low for a while as our external borders open, then it is likely the unemployment rate will fall into the 3 per cent range soon. What people are learning is that the claims made by mainstream economists that full employment was anything between 5 and 8 per cent (at various times to suit their arguments) was a lie. It just suited their ideological agenda and flawed theoretical framework to maintain that narrative. Of course, underemployment is still very high, which means that even if the unemployment rate falls further, we are still a way from being at full employment. But with prices accelerating at present, we are seeing calls for government to pursue an austerity fiscal approach, which would prevent the unemployment rate falling further. We have been here before. Today, I document a major turning point in Australian politics, when the Labor government became the first to abandon the national government’s commitment to full employment, a policy approach that had defined the post Second World War period of prosperity. So … back to 1974 we go.

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