Australian labour market – flat

It is always time to celebrate when unemployment falls and participation rises it. But when unemployment is 591,000 and it only falls by 2,600 which means at the one decimal point level the unemployment rate remains constant you realise that employment growth is barely keeping pace with population growth and the labour market, still damaged by the crisis, is not nothing much is happening at all in the labour market. This is the conclusion I draw after today’s release by the Australian Bureau of Statistics (ABS) of the Labour Force data for June 2011. It was good to see full-time employment growing again after two months going the other direction but the overall scene is very subdued and far from the “bursting at the seams” rhetoric that we hear in the daily media. The headline discussion, however, should be the appalling state of the teenage labour market who continue to lose jobs. The Australian economy is nowhere near full employment and the slack remained about constant in June 2011.

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It is all about aggregate demand

Today will be a relatively short blog as an attempt to honour my Friday promise to myself to make more space for other things I want to do. Further I have had some major hardware crashes at my research centre which have taken time today. But I had to comment on an Op-Ed article in the UK Guardian (June 30, 2011) – Public spending has not been cut, it’s just been stopped from rising – which was written by one Baron Desai. The good Baron tries to give us (and a fellow Lord) a lesson in macroeconomics. Unfortunately, before one starts lecturing they should first understand the topic. In this case, it is all about aggregate demand and the way government spending adds to that (including the operations surrounding government spending).

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Leadership lacking in the US

I am sitting in one of my “offices” – the little nook I have found at Melbourne airport that lets me work while waiting for planes – watching the video fo the US President’s recent Press Conference (June 29, 2011). I have “offices” like this at various airports. In the speech he berates the Republicans for refusing to show leadership in the current budget debate. My assessment is that after reading the full speech (the video goes for 67 minutes and 5 minutes is too long) – is that the US President outlined in the most categorical terms why he shouldn’t be in charge of the largest economy in the World. In the short time I have to write my blog today I will tell you why that is the case. But overall – as I noted the other day – it is looking more every day like a case of RIP USA.

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Ignorance undermining prosperity

I gave a talk about Modern Monetary Theory (MMT) today at a workshop on Stock-Flow consistent macroeconomics organised at the University of Newcastle by the economics group here. While I hold the research chair in Economics at this university I am not formally part of the economics group – my affiliation is with my research centre (CofFEE) which stands outside the Department/Faculty structure. So it was good to interact with the economics group. It is coincidental because the things I was talking about were being played out in the US and elsewhere (for example, Greece). The US conservatives are now pushing hard for a balanced budget amendment to the US Constitution. If they understood economics they would never consider doing that. If they succeed they will undermine US prosperity forever. It is a case of ignorance undermining prosperity which really describes a lot of what is going on at present in the public debates.

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The land of the free – sliding further into oppression

Overnight, the US Bureau of Labor Statistics released their latest Mass Layoffs data (May 2011) which showed that the number of mass layoff events in May increased by 2 percent. Further, another month went by and the US national unemployment rate remained unchanged at (a very high) 9.1 percent. There is very little happening to reduce it and the omens are bad. Also yesterday the US Federal Reserve decided to keep interest rates on hold in the 0 to 1/4 per cent range indefinitely and the Congressional Budget Office (CBO) released its 2011 Long-Term Budget Outlook. The statements accompany the central banks decision by its Chairperson Ben Bernanke about long-run fiscal problems and the very aggressive message in the CBO Outlook suggest that the politicians will continue to retard the US economic recovery and lock millions into entrenched unemployment and poverty. The US leaders are sure making a mess of things and the advice they are getting is appalling. The omens are clear – aggregate demand growth is desperately required to attack unemployment. But the land of the free is sliding further into oppression – self-induced by its political class.

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Memo: US Treasury – E-mail me for my bank details

I saw a bit of the recent US Republican candidates’ debate. It was extremely boring to say the least. If that field is the best conservative America can muster and Obama is the best the conservatives who think they are progressives can muster then que dieu nous aide. I thought the policy discussion from the candidates in the debate were woeful and I longed for Sarah Palin to walk in and say something sensible. But one influential commentator did find something rather interesting and pleasing about the debate. In this Wall Street Journal article (June 16, 2011) – Republicans Return to Reality – Peggy Noonan tells us that the GOP has at least demonstrated a new sobriety when it comes to policy. The reason? Read on. But my reaction is to draft a memo to the US Treasury – headline – E-mail me for my bank details.

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British labour market deteriorating

I have very little spare time to write my blog today so this will truly be brief. Amidst all the riots in Athens as the Eurozone farce descents further into the mire, the UK Labour Force data came out yesterday (June 15, 2011). There are some who are saying that the data presents good news. A closer examination reveals nothing of the sort. Others are claiming that there isn’t really a problem of unemployment in Britain because the unemployed are largely unemployable. That is a familiar refrain after a deep recession as the labour market struggles to keep pace with the underlying population growth. The conservatives always try to redefine what we might call full employment and claim that a much higher unemployment rate is now indicative of full capacity. The same game is being played out in Australia where despite unemployment and underemployment totally 12.2 per cent at present the Reserve Bank governor had the audacity to claim there were not that many spare labour resources (like 1.3 million odd workers don’t count any more).

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Saturday Quiz – June 11, 2011 – 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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The time has come to tell the American people the truth

On May 17, 2011, the US Social Security Trustees Report and the US Medicare Trustees Report were released. The releases set the conservative deficit terrorists into a tail spin. They would have been better making a nice cup of tea, relaxing with a book and generally chilling out. In fact, the most interesting part of the US government’s Social Security Administration Home Page seems to be its Popular Baby Names search engine which allows you to plug in a name and find out how popular it has been over x years and its ranking by the year. My parents chose a name for me that remains popular. I don’t know whether that is good or bad. But playing around with that little toy is much better fun than reading the Trustees’ Report and the resulting hysteria in the media. The point is that these Trust Funds are just elaborate accounting smokescreens that ultimately mean nothing if one comprehends the financial capacity of the US government. They represent a case of a government creating a farcical structure to administer some program and then elevating the structure to a false level of importance that actually leads them to introduce policies which undermine the initial purpose of the program – and all without any basis. The time has come to tell the American people the truth.

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Australian labour market continues to weaken

The Australian Bureau of Statistics (ABS) released the Labour Force data today for May 2011 which shows that the labour market is in a very weak state. Full-time employment collapsed further (having falling sharply last month) and part-time employment growth was very weak. Employment growth is failing to keep pace with population growth which means that no dent is being made in the very high labour underutilisation rates. Total working hours barely moved and total labour underutilisation (the sum of unemployment and underemployment) rose from 11.9 to 12.2 per cent. The teenage labour market remained in an appalling state. Even the usually optimistic bank economists (who predicted that employment growth would have been much stronger than it was) are starting to sound circumspect in media interviews today – “weakness”, “softness”, “poor result” – were descriptors that were heard today. The Australian economy is nowhere near full employment and the slack increased in May 2011.

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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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