Here is some analysis of Tuesday’s Fiscal Statement from the Australian Treasurer. It was touted as the most important fiscal statement in 100 years (or something like that). What we got was a supply-side statement about markets creating jobs, massive tax cuts for high income earners and virtually nothing for the lowest paid. There was very little about the climate crisis. There was a lot of talk about jobs, jobs, jobs but no direct job creation. And the Government’s own estimates suggest that unemployment will remain at elevated levels through 2023 which means that the scale of the fiscal intervention is grossly inadequate. I see very little good in this fiscal strategy and a lot of bad. There are many commentaries available in the mainstream media which cover specifics and so I am just concentrating on things that I find important.
The latest data from the Australian Bureau of Statistics – Labour Force, Australia, August 2020 – released today (September 17, 2020) shows that employment rose by 0.9 per cent as the economy struggled to shift back into growth mode. In part, the moderate result was due to the impact of the Stage 4 restrictions in Victoria as that state dealt with the second virus wave. Victoria was the only state or territory to endure negative employment growth in August. As the virus situation is coming under control and the lockdowns are easing, Victoria will rebound fairly quickly – how far depends on the damage done during the closures. The lack of external migration is also seeing the labour force growth moderate significantly, which allowed unemployment to decline by 86.5 thousand on the back of the modest employment boost. Participation also rose. The reality is that if we take a broader view of the labour underutilisation rate (adding in the hidden unemployment who have left the labour force since March) to the official unemployed and underemployed, we find around 19.5 per cent of the available labour supply is not working in one way or another. Any government that oversees that sort of disaster has failed in their basic responsibilities to society. It must increase its fiscal stimulus and target it towards large-scale job creation. My overall assessment is: (a) The current situation can best still be described as near catastrophic; (b) The Australian labour market needs massive fiscal policy intervention targetted at direct job creation; (c) The pre-pandemic need for a fiscal stimulus of around 2 per cent has changed to a fiscal stimulus requirement of several times that; (d) The Federal government’s attempts to date have been seriously under-whelming and we will soon see the results of their withdrawal of the unemployment benefit supplement (a ridiculous decision); and (e) Any government that oversees that sort of disaster has failed in their basic responsibilities to society.
Last week, the Australian Bureau of Statistics released the latest data – Retail Trade, Australia, Preliminary , July 2020 – which showed that retail turnover in July 2020 had risen by 3.3 per cent, the second month of improvement since it fell off a cliff in the two months from March. The exception was for Victoria, which is now in Stage 4 lockdown, which caused retail sales to fall by 2 per cent. Today, the ABS released the latest data for – Weekly Payroll Jobs and Wages in Australia, Week ending 8 August 2020 – which gives us the most up-to-date picture of how the labour market is coping with the on-going restrictions and the reimposed of harsh Stage 4 restrictions in Victoria. Unsurprisingly, payroll employment fell in the fortnight ending August 8, 2020 in Victoria by 1.6 per cent. But what was also surprising was that employment fell in every other state or territory bar Tasmania and ACT. The Victorian case is about lockdown. The other declines are about failed macroeconomic policy, which goes to the performance of the federal government. Regular readers will know that I have routinely analysed this dataset ever since it first became available in March this year. It uniqueness is that it provides the most recent data upon which an assessment of where the labour market is heading. The data shows that after a partial recovery from the downturn, payroll employment is declining again. The fact that the first recovery period failed to regain the jobs lost was an indicator that the policy intervention was insufficient. The second-wave job losses tell us clearly that that more needs to be done by the Federal government. I am not holding my breath.
Today (June 16, 2020), the Australian Bureau of Statistics released their latest weekly employment data taken from Australian Tax Office data. They have slowed the release cycle on this data (for reasons they have not disclosed), so it is a month since I have analysed it. The latest edition came out today – Weekly Payroll Jobs and Wages in Australia, Week ending 30 May 2020 – which covers the new data from May 2, 2020 to May 30, 2020. The monthly labour force data to be released on Thursday covers a period that ends around May 12, 2020, so today’s data provides a more recent snapshot of the state of affairs. At the beginning of May, the data was suggesting that the worst of the job losses were over. The severity of the lockdown has eased a little since then, although the pattern of easing has been quite different across the states and territories. So we might have expected some variations to arise from that. And today’s data shows just that. In the Accommodation and food services sector, where some easing has occurred, jobs are returning, albeit at a slow rate. But in the Arts and recreation services sector, where little change in lockdown restrictions has occurred to date, there has been very little employment growth. The question is how many businesses will go to the wall before we get a more usual scale of operation and interaction. My prediction is that many will disappear and so the recovery in employment will be protracted given how many jobs have been lost to date. A much larger fiscal intervention is required and it has to be directed at workers rather than firms and support direct job creation. The problem now is that the Government is starting to reassert its neoliberal ideology and withdrawing the inadequate stimulus far too early. The future is not looking good. We might be virus free but there will be massive unemployment remaining into the distant future.
The Australian Bureau of Statistics has started publishing weekly employment data – Weekly Payroll Jobs and Wages in Australia, Week ending 4 April 2020 – which is drawn from a new series made available as a result of the Single Touch Payroll data provided by the Australian Tax Office. For the first time, researchers like me can have up to date information as the economy cycles. Usually we get the labour force data some 5-6 weeks behind time and although a lot doesn’t necessarily happen in a month, this crisis is the exception – the whole box-and-dice is collapsing so quickly that we need weekly data, like is provided in the US through the Department of Employment’s unemployment claimants data to stay in touch with how things are tracking. But for now I estimate that the unemployment rate rose to around 10.9 per cent in the 3 weeks to April 4, 2020 (up from 5.2 per cent for the March data – which was surveyed in the early part of the month). In that time, unemployment has more than doubled and is around 1.5 million and rising. The conclusion from my analysis of the latest available data (released April 21, 2020) – is that some sectors in the Australian labour market have experienced a sudden and catastrophic contraction – like nothing we have ever seen in the data. Both employment losses and major wage cuts are underway and the policy response is totally inadequate for the task. A much larger fiscal intervention is required and it has to be directed at workers rather than firms. I will say more about those issues next week. But I am guessing that the Government’s response so far is less than half of what it should have been – it needs at least another $A200 billion.
It’s Wednesday, and a quiet day for writing blog posts for me. But I want to comment briefly on the latest economic news that sees the IMF claiming the Australian economy will contract by 6.7 per cent in 2020 and the Treasury estimates that the unemployment rate will rise to 10 per cent (double) by June this year. While this all sounds shocking, the emerging narrative in the media and among politicians is that this is sort of inevitable given the health crisis and the Government’s Job Keeper wage subsidy, which the Treasury claims will constrain the unemployment rate rise to 10 per cent rather than 15 per cent without it is a jolly decent thing for the politicians to have done and keeping the unemployment rate down to 10 per cent is a “tremendous achievement”. Well, apart from the wage subsidy leaving a million workers outside of any benefit and cutting wages for thousands who will receive the support, I fail to see why the unemployment rate should rise at all. The government has options: (a) wax lyrical about achieving a disaster – 10 per cent unemployment; or (b) create jobs via a Job Guarantee and see the unemployment rate fall to 2 per cent or so. For the neoliberals who run the place and their media supporters, a 10 per cent as a “remarkable achievement” and that is the TINA narrative they are pumping out to assuage the population. For the likes of yours truly, a 10 per cent unemployment rate is not a “tremendous achievement” – it is a sign of total policy failure. The government can always intervene and create sufficient jobs that will be of benefit to the society, can be designed to be safe in the current health context, and maintain the connection for most of us with paid work? Even if some of them would require the workers stay at home while being paid. For me that is a no-brainer.
This post continues my thinking and analysis of the issues relating to the design of a fiscal intervention by the Australian government to ameliorate the damaging consequences of the coronavirus dislocation. Today, I delve a little bit back in history to provide some perspective on the current fiscal considerations. Further, I consider some of the problems already emerging in the policy response. And finally, I consider the lessons of history provide an important guide to the sort of interventions that the Australian government might usefully deploy. While the analysis is focused on Australia at present, the principles developed are portable across national boundaries. And the underlying Modern Monetary Theory (MMT) understanding is applicable everywhere there is a monetary system. This series of blog posts are building up to the production of my 10-point or something plan to address the crisis.
On February 7, 2020, the Reserve Bank of Australia’s Governor, Philip Lowe appeared before the Federal House of Representatives Standing Committee on Economics to discuss the – Reserve Bank of Australia Annual Report 2019 – which is a bi-annual event where the Parliament scrutinises the activities of the unelected and largely unaccountable central bank. The – Transcript – of the session makes interesting reading. The discussion highlighted how mainstream economists fail to understand the nature of the monetary system. Last year, the Federal government introduced a fiscal stimulus (tax cut) as a bribe in the May election campaign. But economic growth continued to slow, in the face of flat real wages growth and an overall fiscal contraction (despite the tax cuts). The tax cuts didn’t stimulate private spending growth and mainstream economists then claim this proves that fiscal policy is ineffective, and by implication, that Modern Monetary Theory (MMT) is a load of nonsense. The problem is that the tax cuts were used by households to reduce the precarious debt levels that have been building up as they try to maintain spending growth in the face of fiscal drag and flat real wages growth. All that this episode tells us is that the government really should have introduced a much larger fiscal stimulus in the first place to help the balance sheet restructuring effort and provide net growth stimulus.
Last Wednesday (November 13, 2019), the Australian Bureau of Statistics (ABS) released the latest- Wage Price Index, Australia – (September-quarter 2019). Both private and public sector wages growth was just 0.5 per cent in the September-quarter – keeping growth at record lows. Over the year to September 2019, overall wages growth was 2.2 per cent and in decline. With the annual inflation rate running at 1.7 per cent, workers were able to enjoy some real wages growth. However, over the longer period, real wages growth is still running well behind the growth in GDP per hour (productivity), which has allowed profits to secure a substantially increased share of national income. And, as the federal government continues to sabotage the economy as a consequence of its obsession with recording a fiscal surplus, the moderating wages growth will likely undermine it planning targets. In the last fiscal statement, the government was forecasting annual wages growth would be 2.75 per cent rising to 3.25 per cent. At the current rate, nominal wages will be lucky to top 2 per cent in 2019-20, which means the tax revenue estimates in the fiscal plans are likely to be over-stated. And, if the mainstream narrative was remotely correct, why is employment growth flatlining when wages growth is at record lows?
After yesterday’s disastrous wages growth data release, today’s Australian Bureau of Statistics release of its latest data – Labour Force, Australia, October 2019 – confirms, as if we need confirmation, that the Australian economy is weakening and the labour market is is poor shape. The culprit – the Australian government which is starving spending by its obsessive pursuit of a fiscal surplus. It is likely that the economy will thwart that ambition anyway – in the wrong way – by reducing tax revenue below that projected. Meanwhile the well-being of millions of Australian workers is being abused by our elected officials. Employment growth was negative. Full-time employment fell sharply. The participation rate fell. Unemployment rose even though the participation rate fell. Hidden unemployment is up. Underemployment is up. The broad labour underutilisation is at 13.8 per cent with an upwards bias. The unemployment rate is 0.8 percentage points above what even the central bank considers to the level where inflationary pressures might be sourced from the labour market. My overall assessment is The current situation can best be characterised as deteriorating from an already weak state. The Australian labour market remains a considerable distance from full employment and the gap is widening. This persistence in labour wastage indicates that the policy settings are to tight (biased to austerity) and deliberately reducing growth and income generation. There is clear room for some serious fiscal policy expansion at present. The Federal government is willfully undermining our economy with its irresponsible policy position.
It is Wednesday and I am travelling a lot today with limited opportunity to write. I am reading a lot though. Highly significant political debates with far reaching effects on the well-being of citizens once policies are implemented are conducted on a daily basis in our national Parliaments and in the media with little correspondence to reality. This is the norm for debates on macroeconomics, which dominate political news every day. There is this fictional world that has been created to keep citizens in check. When the painful policies the neoliberals haul out inflict pain, the solution is to blame something erroneous, attack it, which then just causes more pain. This is the norm these days when it comes to macroeconomic policy. And for the rest of us we suffer in the real world but reason in this fictional world, which is why it persists.
The Brexit issue in Britain has been marked by many different estimates of GDP (income) loss arising from different configurations of the Brexit. The media is flush with lurid headlines about the catastrophe awaiting Britain. As regular readers will appreciate, I am not convinced by any of those predictions. But as I said the day after the Referendum in this blog post – Why the Leave victory is a great outcome (June 27, 2016) – that when I tweeted it was a ‘great outcome’ I didn’t say that good would come out of it. I also didn’t suggest that it would be a short-term recovery of prosperity or that the workers would benefit. I was referring to the fact that class struggle now has a clearer focus within the British political debate. There is now a dynamic for a truly progressive leadership to emerge and bring the disenfranchised along with them and wipe out the neo-liberal hydra once and for all.” I think that is lost in this debate. When the British Labour Party claim the latest agreement will irrevocably damage workers’ rights or environmental protections they seem to be implying that they will never be in power again. No legislation or regulation is irrevocable in a democracy. But being part of the EU will always tie a nation to the EU’s rules which usurp any national interests. That is why I maintain strong support for the concept of Brexit. But amidst all these predictions of gloom and doom, I was listening to the radio last week and heard some statistics that are truly alarming. The on-going GDP losses from the obesity epidemic in the UK, which will increase over time rather significantly, are significant when compared to the estimates of GDP loss arising from Brexit. I wonder why that fact isn’t part of the daily narratives coming out from the Remain crowd to justify their view that the 2016 Referendum result should be disregarded so they can have another go at getting their own way!
I am now back in Australia after the latest cross-country run and so am falling back to routine. Which means a relatively short Wednesday blog post. Yesterday, the Reserve Bank of Australia cut their policy interest rate by 0.25 points to 0.75 per cent, a record low level. The RBA governor cited the weakness in the labour market as the reason for the cut and continued to suggest that the Government, which is pursuing its mindless austerity goal to record a fiscal surplus as the economy tumbles towards recession, should expand fiscal policy to kick-start growth. Once again, a central bank is being pushed into ‘record-making’ policy territory because the treasury-side of government will not use its fiscal capacity responsibly. This is now a global trend and even the likes of Dr Schwarze Null is calling for more fiscal action. Another day passes that demonstrates the mainstream New Keynesian approach is rapidly being abandoned by policy makers and an era of fiscal dominance approaches. Not before time.
I am typing some of this on the train from Brighton back to London, after a day of speaking events in Brighton, where the British Labour Party conference is currently being held. I spoke at two events: (a) the GIMMS event on MMT and the Green New Deal and a video will be available soon; and (b) at an event alongside British Labour MP Chris Williamson, where were talked about how an Modern Monetary Theory (MMT) understanding can enhance the progressive policy cause and advance a transformation towards a ‘socialist’ (whatever that might be) state. It was great to see everyone at the events. The second event was attended by many people involved in the Labour Party itself and I hope that being exposed to new ideas will activate further grassroots resistance to the neoliberal system that undermines our material prosperity. So this two-part series is a reflection on the state of economic policy thinking within British Labour in the context of the paradigm shift that is going on now, around the world, in macroeconomic policy thinking. As I noted in – Part 1 – we are now seeing economists and policy makers, lining up, to tell us that a reliance on monetary policy has run its course and a new era of fiscal policy dominance is the only viable way ahead. That means that New Keynesian economics is over. That means that fiscal credibility rules that reflect an adherence to neoliberal constructs will need to be abandoned. And it seems that British Labour are lagging behind these major shifts that have been going on in economic policy thinking. Only Modern Monetary Theory (MMT) offers a consistent and credible path for Labour to make the shift into this era.
As I type this (Sunday), I am heading to Brighton, England from Edinburgh. We had two sessions in Edinburgh yesterday (Saturday) and it was great to share ideas with some really committed people. We had to dodge a Hollywood closure of the streets (‘Fast and Furious 9 had commandeered the inner city to film a car or two swerving out of control or whatever, and I hope the city received heaps for the inconvenience to its citizens. But, with the direction now south, and tomorrow’s two events (more later), I am thinking the place of the British Labour Party in the progressive struggle. It doesn’t look good to me. The news overnight has been that the Party’s “head of policy and the author of the party’s last election manifesto” (quoting the Times today) has quit the Party claiming “I no longer have faith we will succeed”. The blame game starts and, as usual, Jeremy Corbyn’s leadership is in focus. The Times cartoon had the caption “They’ve got what it takes to form a government” with two ducks (in Brighton) looking at a sign against a wall saying “Labour Civil War Chaos”. What should we make of all this? My take is this: there is a clear paradigm shift going on in macroeconomic policy thinking. Every day (it seems) a new article pops up with someone claiming monetary policy has run its course and a new era of fiscal policy dominance is the only viable way ahead. That means that the central bank imprimatur on policy – determining whether such policy can continue to be effective and relying on interest rate adjustments etc as the primary counter-stabilisation policy – is over. That means that New Keynesian economics is over. That means that fiscal credibility rules that are neoliberal central are over. And that is why I think British Labour are looking poorly in the polls. They have taken advice from a number of characters who have pushed them into a ‘New Keynesian’ mindset and they are now ‘yesterday’s news’. They have missed the boat on these major shifts that have been going on. That is why they need a major shift in macroeconomic thinking. Only Modern Monetary Theory (MMT) offers a consistent and credible path for them to make that shift.
This is Part 2 of my two-part commentary and analysis of the – Monetary policy decisions – by the ECB (September 12, 2019). In Part 1, I discussed the shifts in the deposit rate and the changes to the Targeted longer-term refinancing operations (TLTROs). In Part 2, I am focusing on the decision to introduce a two-tiered deposit rate on excess reserves, which is designed to reduce the costs of the penalty arising from the negative deposit rate regime that the ECB has had in place since June 2014. But the most important aspect of the ECB decision was not the monetary policy changes, which will have relatively minor impacts on the real Eurozone economy. The telling part of the whole episode was Mario Draghi’s comments on fiscal dominance. We are entering a new era where the neoliberal obsession with so-called monetary policy reliance is becoming increasingly discredited and exposed by the evidence base. Fiscal dominance is approaching. And the only body of work that has consistently argued for this approach to macroeconomic policy making has been Modern Monetary Theory (MMT) despite what the mainstream economists who are now starting to realise their reputations are in tatters might say.
I will have little time to publish blog posts in the next two weeks. But as I travel around I have to sit in trains, planes and cars and that is when I tend to write when I am away from my desk(s). Today, I am in Maastricht – after travelling by train from Paris. I have two events – one on framing and language and the other on Reclaiming the State and Modern Monetary Theory (MMT) basics. Then I am heading to Berlin for a talk at PIMCO and on Friday I am presenting an MMT workshop at the European Central Bank. Last week, the ECB made its next move, the last one for current President Mario Draghi. It will also lock in Madame Lagarde for a time and represents a rather overt statement about the failure of mainstream macroeconomics. While the mechanics of their various policy decisions are interesting and are worth discussing (albeit briefly) the overall optics were more powerful. The ECB has now joined a host of central bankers around the world in, more or less, admitting that monetary policy has run its course and is being pushed into ever more desperate configurations. At the same time, the corollary is that fiscal policy makers are failing in their responsibility to use policy to avoid stagnation and elevated levels of unemployment. Despite rather significant monetary policy gymnastics, aimed at stimulating economic growth and lifting inflation rates, central bankers have largely failed. They have failed because they are wedded to mainstream theory. Fiscal policy makers are constrained by an austerity-biased ideology and/or voluntary institutional machinery that has been created to stifle fiscal initiative (destructive fiscal rules). The cracks are widening. We are approaching the period of fiscal policy dominance – finally! This is Part 1 of a two-part series on this topic. Part 2 will follow tomorrow.
I have regularly noted how the UK Guardian, the so-called newspaper for progressives as opposed to The Times, which serves the Tories, has been a primary media instrument for propagating neo-liberal economic myths. It has also been part of Project Fear, which the Remainers thought would see the June 2016 Referendum resolved in their favour, and have ever since been moaning about the need for another vote – you know, democracy as long as it delivers what you want. But when the Tories outflank them by electing Boris Johnson who then determines he will take the intransigent European Union on by calling their bluff and pushing ahead with Brexit by hook or by crook, the Remainers scream about democracy being trampled and all the rest of it. And when the Johnson Tories announce that they will introduce a significant fiscal stimulus to head-off any possible non-government recessionary forces (which is sensible and responsible fiscal conduct), the Remainers open their beloved Guardian to find their favourite journalists raving on about how such a move is risky because it will ‘damage public finances’ and predicting, derisively, that the Government will have to break their ridiculous fiscal rules because of the scale of the stimulus required. This is par for the course for the Europhile Left these days – champions of neoliberalism.
Wednesday and a short blog post. I regularly work for unions as an expert analyst/witness in their struggles to achieve wage justice with employers who are intent on paying as little as possible. Often these are private employers but at the moment I am helping a union with their campaign to win a reasonable wage increase against a state government. The logic deployed by the government in relation to their fiscal affairs and their wage setting behaviour is a classic demonstration of how neoliberalism has distorted any sense of reason and created self-fulfilling problems. So today, I will just introduce this issue – given how fascinating it is.
The dissonance in mainstream economics and the political debate about policy settings is getting deeper and more public. We now have examples of central bankers ‘throwing their hands up in the air’ and nearly begging governments to abandon their obsession with fiscal surpluses, and, instead, use fiscal policy to stimulate waning economic growth. What I think is happening is that we are entering a period of fiscal dominance, which will represent a categorical rejection of the mainstream macroeconomics consensus that has dominated policy making since the 1980s – the neoliberal era. In turn, this shift will ratify the main precepts of Modern Monetary Theory (MMT). We are observing paradigm shift occurring as the dominant neoliberal paradigm fails at every turn. There is a long way to go though before the practitioners acknowledge that such a shift has occurred. But there is progress.