Low pay workers dudded again in Australia

On Friday (June 3, 2011) Fair Work Australia which is the body that formally sets the minimum wage in Australia handed down its Annual Wage Review 2010-11 decision. The Minimum Wage Panel of FWA released its second Annual Wage Review under the Fair Work Act 2009 and awarded minimum wage workers an additional $19.40 per week which amounted to a 3.5 per cent rise. With inflation running around the same rate or higher, the decision fails to provide for a real wage increase especially given productivity growth is running at around 1.5 per cent at present. The decision will apply over from July 1, 2011 to June 30, 2012. The decision further cements the real wage losses that low-paid workers have endured over the decade and is not sufficient to arrest the deterioration of low-pay outcomes relative to average earnings in the economy.

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Australian economy falls of a cliff – at least for now

Today, the Australian winter officially begins yet where I am the sun is shining. Not so for the Australian economy though. The Australian Bureau of Statistics released the National Accounts data for the March 2011 quarter which shows that in the first three months of this year the Australian economy contracted by a staggering 1.2 per cent. The result has been dismissed by the Government and many of the commentators as a “one-off” result driven by the extraordinary weather events (floods and cyclones) earlier in 2011. There is some truth in that statement. But overall once we net out the likely effects of the natural disasters the data suggests that the Australian economy is growing modestly – but not strong enough to eat into the pool of idle labour. We have to appreciate that this is a rear-view mirror of what the economy was doing 3 months ago. The contemporary data (flat credit demand, construction, retail sales, employment growth) tells us that the current performance of the Australian economy is very weak. With the contribution from government now negative and the household sector saving ratio rising sharply we are increasingly dependent on the external sector for on-going growth. The fact is that with China introducing contractionary policies there is still some uncertainty ahead on that front notwithstanding the evidence today (terms of trade) that demand for our exports remains strong.

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The role of bank deposits in Modern Monetary Theory

I get a lot of queries from readers about how the banking system operates. One recurring theme relates to the role of deposits in the banking system. Mainstream economic theory considers banks to be institutions that take in deposits which then provides them with the funds to on-lend at a profit. Accordingly, the ability of private banks to lend is considered to be constrained by the reserves they hold. While students find it hard to think outside of this construction, the reality is very different. Banks do not operate in this way. From the perspective of Modern Monetary Theory (MMT) private bank lending is unconstrained by the quantity of reserves the bank holds at any point in time. We say that loans create deposits. So then what is the role of deposits in MMT. That is the topic for today. I am deliberately simplifying to get the essential understanding across.

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Reality check for the austerians

Individuals often carry history on their shoulders by virtue of the positions they hold and the actions they take. When these individuals hold views about the economy that are not remotely in accord with the way the system operates yet can influence economic policy by disregarding evidence then things become problematic. It is no surprise that my principle concern when it comes to economics is how we can keep unemployment and underemployment low. That was the reason I became an economist in the late 1970s, when unemployment sky-rocketed in Australia and has been relatively high ever since. So when I read commentary which I know would worsen unemployment (levels or duration) if the opinion was influential I feel the need to contest it. That has been my motivation in economics all my career. A daily contest given that the mainstream of my profession is biased to keeping unemployment and underemployment higher than it otherwise has to be. Today I present a simple reality check for the austerians.

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Australian labour market goes into reverse

Labour Force data today for April 2011 which shows that employment and participation contracted sharply over the last month. The data confirms recent trends (March being the outlier) that the labour market is not very robust at present. Total working hours also contracted sharply. With full-time employment sharply negative, and modest part-time employment growth – I also suspect that underemployment rose again this month. I do not consider this data supports the popular view being promoted by politicians and bank economists that we are close to full employment and interest rates will have to rise. My view is that there is a lot of slack left in the economy. A stunning aspect of this observation is that teenagers continue to suffer employment losses having lost 73 thousand jobs overall since the crisis then recovery began. The other reality is that trend employment growth is barely keeping pace with population growth so unemployment is hovering at high levels. If the “once-in-a-hundred-year” mining boom was really delivering a bounty then we should be eating into unemployment and underemployment. The reality is that the Australian economy is, at best, growing modestly with most regions close to contraction.

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I don’t wanna know one thing about evil

Yes, I only want to know about love … which brings me to the royal wedding today which seems to be dominating the media over here. So I am focusing on Britain today. The British monarchy has banned Australian comedians making any commentary on the wedding which seems to miss the point. I wish the couple well as I do all wedded couples – marriage is a great institution – but at the same time there’s something base about millions of public dollars going into this flippancy at the same time as the British government is undermining the prosperity of its own nation and committing millions to remain jobless and moving towards poverty. So here’s my royal wedding commentary which can be summarised by – I don’t wanna know about evil …

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Australia CPI data – benign inflation outcome

The Australian Bureau of Statistics released the Consumer Price Index, Australia data for the March 2011 quarter today and it revealed a sharp spike in the headline inflation rate (up 1.6 per cent for the quarter) but a very benign underlying inflation story. Overall, the impacts of the natural disasters (floods and cyclones) are driving food prices up and world oil price movements are causing local petrol prices to rise. These impacts are likely to be transitory. It is interesting that there is considerable disagreement among bank economists about what the data release means. Many are joining my chorus and suggesting that the transitory nature of the inflation influences will not compel the Reserve Bank to push up interest rates. At present, the data tells us that there is no inflationary outbreak evident and other data suggests that the economy is slowing.

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When you’ve got friends like this … Part 5

Today I continue my theme “When you’ve got friends like this” which focuses on how limiting the so-called progressive policy input has become in the modern debate about deficits and public debt. Today is a continuation of that theme. The earlier blogs – When you’ve got friends like thisPart 0Part 1Part 2Part 3 and Part 4 – serve as background. The theme indicates that what goes for progressive argument these days is really a softer edged neo-liberalism. The main thing I find problematic about these “progressive agendas” is that they are based on faulty understandings of the way the monetary system operates and the opportunities that a sovereign government has to advance well-being. Progressives today seem to be falling for the myth that the financial markets are now the de facto governments of our nations and what they want they should get. It becomes a self-reinforcing perspective and will only deepen the malaise facing the world. Today I focus on the Peoples’ Budget proposal recently released by the Congressional Progressive Caucus (CPC) in the US.

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Australian Labor Government abandons its roots

Last night (April 13, 2011) the Australian Prime Minister Julia Gillard gave a speech to the right wing think tank – the Sydney Institute – entitled The Dignity of Work. The Sydney Institute has taken positions in the past which include supporting the labour market deregulation (removal of trade union privileges); financial deregulation; need for budget surpluses in times of prosperity; privatisation; welfare reform (emphasising private solutions); the expansion of private education at the expense of public education and more. So it is a strange place to give a lecture on the dignity of work. The labour market policies which the Sydney Institute has supported have undermined workers’ rights, held back the growth of real wages, and been responsible for a massive redistribution of income from wages to profits over the 20 or 30 years.

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Australian labour force data – some positive signs

The Australian Bureau of Statistics (ABS) released the Labour Force data today for March 2011 which sends some very positive signals unlike the mixed news we have been receiving over the last few months. Overall, my interpretation of the data is that the labour market is adding jobs and providing some modest scope to reduce the huge pool of unemployed. Full-time and part-time employment growth was positive and the participation rate rose slightly – a virtuous duet. Total hours of work rose for the month. But despite the media narrative that we are now “below” full employment. The bank economists were claiming this meant that the RBA should put interest rates up. My view is that there is a lot of slack left in the economy. A stunning aspect of this observation is that teenagers continue to suffer employment losses having lost 86 thousand jobs overall since the crisis then recovery began. The other reality is that employment growth is barely keeping pace with population growth so unemployment is hovering at high levels – at at time when we should be really eating into it. Given related data series recently, the RBA would be mad to increase the interest rate.

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Budget deficit basics

I get many E-mails every week from people asking me to explain exactly what a deficit is. They understand that a budget deficit is the difference between revenue and spending but then become confused as a result of being so ingrained with narratives emanating from politicians and lobbyists who misuse terms and always try to conflate deficits and debt. So today’s blog is a basic primer on deficits and why you should welcome them (usually) and why we all should sleep tight when the government is in deficit. So – budget deficit basics …

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How are the laboratory rats going?

I am all done writing letters – at least for today. I forgot to send both. I noted someone mentioned that he had never read any admissions of error from me. True enough. Over the course of my academic career I have made many predictions and none have turned out to be qualitatively wrong (sometimes the quantum us shaky but the direction is correct). But I am not trying to sell tickets for myself. Economists like me who comment regularly on current affairs are always subject to empirical scrutiny. So I am regularly putting my neck on the line – in written word (blog, Op-Eds etc) and speech (presentations, media interviews etc). So far so good. I note that a correct empirical observation doesn’t mean the underlying theoretical explanation which might have motivated the prediction is correct. But it is a lot better than missing the empirical boat altogether and suggests that there is some worth in the theoretical framework being employed. From a personal perspective the current period of economic policy is very shattering (if you share my values about the dignity of work etc). But from an intellectual perspective, as an economic researcher, the current period is very interesting. It is providing us with real world data which directly relates to theoretical statements made by economic schools of thought. So I am keeping a running tally of how the laboratory rats are going? You can judge which theoretical structure you consider useful yourself when thinking about what is happening at present.

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Beyond austerity

I stole the title of today’s blog from an article I wrote for the US weekly – The Nation – which will come out on April 4 in print. The on-line version is out now. It comes out in the same week that the nations that are leading the austerity charge – Ireland and Britain – publish disastrous labour market data. The Irish data is nothing short of atrocious some 2 years after their government led them down the austerity path promising salvation. Where are the economists who from the desks of their safe jobs were highly vocal in promoting the myth of the “fiscal contraction expansion”? Still sipping Chardonnay from their safe jobs I dare say. The article, in part, is about how these liars have convinced governments to push their economies over the brink. It is also about how the same lies that are being to used to justify the austerity barrow were used to justify the massive deregulation that led to the financial sector feeding frenzy and caused the crisis in the first place. When we will ever learn? In today’s blog I offer a video commentary on the thoughts behind the article in this blog (which as it turns out didn’t save me much time – I seem to type faster than I speak!).

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Australian labour market – mixed signals – but subdued overall

Today the Australian Bureau of Statistics (ABS) released the Labour Force data for February 2011 which sends mixed signals. Overall, my interpretation of the data is that the labour market is fairly subdued at present. Today’s data shows that employment growth was negative (but there is probably some flood impact in that figure). Participation fell which took the pressure off unemployment so the unemployment rate was steady. The positive news is that full-time employment growth was stronger and total hours worked rose in February (leading to a modest decline in underemployment). While some of the parrots in the bank economist ranks are already predicting an interest rate rise to combat some “imaginary” inflation threat, today’s data would not support a change in monetary policy in the coming months. The related data (sharp drop in housing finance) reinforces the view that there is no inflation threat building. The data tells me that exactly the opposite is the case. There is still plenty of slack in the Australian labour market and employment growth is doing nothing to mop it up. Its not my opinion – just take a look at the data! The signals are mixed today but you will not see me smiling!

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US public sector workers are paid less than their private counterparts

Whenever I hear some empirical proposition used by a politician my curiosity is immediately aroused and I go searching for evidence to support or refute the statement. That is the nature of my professional life as a researcher. I often find that politicians twist the facts to suit and when put in context the argument becomes more nuanced to say the least. I also often find out that the politician has just made things up which in other words is referred to as lying. The fiscal austerity push in the US and elsewhere is being justified by a number of erroneous propositions but one of the worst claims is that public workers are so well paid that they are bankrupting governments all over the world. That is a claim that needs investigating and fortunately some credible researchers in the US have done the hard yards and come up with some definitive results. They all show the claims by the austerity proponents to be lies, to say the least. Progressives should focus on these lies and construct simple messages to drown the public in – like – US public sector workers are paid less than their private counterparts! Then we can progress and discuss what deficits mean etc.

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Misusing public information

This blog is about right-wing distortion of evidence and how opinion formation in the US appears to be, as expected, inconsistent and ill-informed. The US President brought down his 2012 Budget yesterday and as expected he promised very large public spending cuts at a time when the US economy cannot afford them. In doing so, the President was bowing to the extremist conservative views that get all the airplay and column inches in the mainstream media in the US. Fox News pumps this extremism out all day every day. But if you sought to understand what the “main street” American actually thought about deficits you might be surprised. The New York Times and CBS sponsor a regular poll and recently they delved into the issue of budget deficits. One right-wing journalist actually had the audacity to use this Poll as a vehicle for her claim that even larger cuts are required to balance the budget. It is easy to show how she misused this public information.

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The third great US “reds under the bed” scare

As an outsider, I am always perplexed by American attitudes. Some of the great writers have come from the US so their schooling system must have something going for it. Some of the great musicians have come from the US so there is creativity there. I could go on. But then you think back to the 1950s, when a whole nation was whipped up in the great propaganda traditions that would have made the Reich’s Ministry of Propaganda under Joseph Goebbels proud. Except this was America, alleged land of the free, unless you happen to take that seriously and find out that in fact the place is a repressive society bound to torture people and use martial force to suppress minority viewpoints. I refer here, specifically, of-course, to the McCarthy purges. Remember the Nazis hated the communists too. But today I read a speech from a governor of one US state who has identified a continuing red menace that will eat up the freedom of all US citizens and is the work of a sneaky but determined group of left-wing zealots (with Chinese overtones). If it wasn’t so serious it would be comical and all we would have to do is send the men in the white coats out to the governor’s office to take him away for treatment. The problem is that this is the third great US “reds under the bed” scare and like the previous scares this one is damaging millions.

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