Gold standard and fixed exchange rates – myths that still prevail

There has been a lot of E-mail traffic coming in after my blog on The Greens the other day. At the heart of the matter is the fundamental difficulty people have in appreciating that there has been a fundamental shift since the 1970s in the way our monetary system operates. This shift redefines how we should think about macroeconomics and the role of a national government which issues its own currency. The defenders of The Greens economic policy clearly misunderstand this historical shift. To really get to the heart of how a modern monetary system functions you have to appreciate the difference between a convertible and non-convertible currency and a fixed versus a flexible exchange rate system. The economics that apply to convertible currency-fixed exchange rate systems bears no relation to that which applies to the fiat currency-flexible exchange rate systems that prevail in most economies today. So before you attack my macroeconomics, make sure you understand what a government can do in a modern monetary paradigm. Otherwise, you are a dinosaur and they became extinct.

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Social inclusion principles – another failed vision

The Australian Government has now released its so-called Social inclusion principles which are apparently intended “to guide individuals, business and community organisations, and government on how to take a socially inclusive approach to their activities”. I couldn’t find a commitment to full employment among the principles. Pity about that. Another strategy that is rich in rhetoric but squibs the essential nature of the problem. My advice: scrap the plan and start again.

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More neo-liberal atrocities from the Fourth Estate

It is interesting when a local journalist exploits the work of a foreign journalist to perpetuate neo-liberal myths about the way the modern monetary economy works without any critical scrutiny of the underlying ideas that he is mimicking. So we have one US journalist reiterating the views of a so-called “top US policy maker” without critical scrutiny then being copied a few days later by a senior Australian journalist who also doesn’t bother to question whether the underlying economics being fed to his readers makes any sense at all. Pretty poor really – the power of the conservative press!

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Norway and sectoral balances

Some readers have written in and asked about whether Norway behaves like a modern monetary economy after they read the New York Times article titled Thriving Norway Provides an Economics Lesson. The short answer is yes but this is a case that raises interesting issues about the way the government and non-government sectors interact and how sustained economic growth and high employment can be accompanied by a budget surplus. Yes, it is possible but atypical. In this blog I provide the explanation. We also encounter some very dodgy manipulation of data to push an ideological line! Not good.

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Employment guarantees in developing countries

Continuing the developing country theme of Friday and in response to a comment from a reader I decided to write a short blog on the applicability of employment guarantees to poorer nations. They have particular issues which means that a Job Guarantee scheme has to be carefully designed. But with the experience of several countries and extensive research and evaluation of these schemes, I conclude that the employment guarantee approach to income security is broadly applicable. Most of the arguments against providing a buffer stock of jobs to insulate the workers against the fluctuations of the private economy are based on false neo-liberal arguments about national government budget constraints. Once you get over that sort of fallacious reasoning, then there are real issues left to confront and overcome. This is now an important part of my academic work and a very interesting part to say the least.

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Are our pollies lining their own nest?

Today, I was investigating pay structures and then became interested in the emerging public debate about Members of Parliament pay, after the Remuneration Tribunal has recommended that Electoral allowances go up 17 per cent per year to $32,000. Every time the pay of parliamentarians is increased there is a hue and cry from the media. In this case, even the Green’s Leader and an independent MP have also rejected their “own self interest” to oppose the pay rises. However, the Government will not stop the rises going through even though last year the PM froze the base rate pay to lead the wage restraint path in these difficult economic times. This raises two questions: (a) Are our pollies just lining their own nest? and (b) Should wages growth be restrained in times of recession? My spare moments today were filled with those issues.

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The dreaded NAIRU is still about!

The dreaded NAIRU is still about! I was thinking – rather optimistically – that it would just disappear from whence it came! But sorry to disappoint. Some economists just won’t learn. Yesterday the ABS released the latest data from the Australia Treasury Model (TRYM) database. You can get it here. Among other things of great interest that you can find in that database, is the Treasury TRYM model’s estimates of the so-called NAIRU. Sounds scary. Well, it stands for the the Non-Accelerating Inflation Rate of Unemployment and has a central place in neo-liberal mythology. The NAIRU is an important component of the TRYM model and influences the way it produces economic outcomes and policy simulations. So how much reliance should we place on this important component of the policy making process. Answer: not much!. My conclusion: any model that relies on a NAIRU is a crock!

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