Just speak to the truth …

The title of today’s blog comes from a speech given on January 12, 2011 by Richard W. Fisher, boss of the Federal Reserve Bank of Dallas – The Limits of Monetary Policy – which carried the sub-title – Monetary Policy Responsibility Cannot Substitute for Government Irresponsibility. It is a speech littered with ideological assertions parading as sensible public commentary. It will resonate with the deficit terrorists and reinforce the policy agenda that will only make the situation in the US worse not better. The ideas were echoed elsewhere in the world in the last week. Japan is considering hiking tax rates “because they want more private growth and less public net spending”. The (un)truth brigade have thus been out in force in recent days – spreading a litany of lies and falsehoods which only aim to perpetuate their irrational obsession that government economic activity is bad. I only wish they would just speak the truth.

Read more

Saturday Quiz – January 15, 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.

Read more

Australian Labour Force data – bad news again

I have very limited time today as I am heading to the airport soon and have a full set of commitments once I get to where I am going. But today the Australian Bureau of Statistics (ABS) released the Labour Force data for December 2010. As usual the bank economists got it wrong and grossly overestimated the growth in employment (last month they grossly overestimated it). Today’s data shows that the labour market has falling in a heap – employment growth is barely above the zero line and the participation rate fell sharply. While this combination led to a decline in unemployment and the unemployment rate it just meant that we have traded unemployment for hidden unemployment – not a good option. The situation is now very unclear and the impact of the natural disasters that have consumed Queensland and are heading south will clearly cause a contraction in real economic activity in the coming months before the reconstruction phase gets into gear. If the Federal government continues with its moronic line that it will see oversee a net contraction in fiscal policy despite promising billions for the reconstruction phase then the labour market will contract. This will mean that the modest gains in reducing labour underutilisation that we have seen in the recovery period to date will probably be lost – mining boom notwithstanding. Today’s data definitely doesn’t support the claims by the Government and the RBA that there is an inflation threat building and fiscal and monetary policy should contract. The data tells me 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.

Read more

When you know they don’t quite get it

I am travelling and engaged with commitments today and so am fitting this blog into a shorter time-span than I usually make. The floods in Australia have now become tragic (loss of many lives) but the Prime Minister still is insisting that the Federal government “will bring the budget to surplus in 2012-13, and, yes, that will entail some tough choices” even though it is being predicted that the impact on real growth of the Queensland economy virtually shutting down at present might be of the order of 1 per cent (see this account). Given the tepid economic growth that was revealed in the September quarter this would suggest that we are going back into recession territory. My advice to PM Julia in relation to her surplus aspirations – “automatic stabilisers – learn about them”. You can see the negative impact of the excessive rain over the last few months on coal exports already – see ABS data release yesterday for International Trade in Goods and Services. Anyway, I was thinking about this early today before I started attending to my commitments here (in Melbourne) and it related to something that I read in the New York Times this week. The issue is that so-called progressives often let the team down by using inappropriate constructs in the public debate. I am never absolutely sure whether they use these constructs because they don’t know better or they want some point of intersection with the mainstream debate. I usually conclude the former and there are times when you realise you know they don’t quite get it.

Read more

Monetary system not behaving according to textbooks – system is wrong!

In a speech in Maryland on January 7, 2011, one of the US Federal Reserve Governors, Elizabeth A. Duke spoke about current monetary trends in the US. It was hot on the heels of the testimony that the Federal Reserve boss Ben Bernanke made to the US Senate (January 7, 2011). They echoed similar messages. The reality is that the US economy is stagnating with very moderate growth and a very weak labour market. The overwhelming reliance on monetary policy as the saviour (low interest rates and quantitative easing) is misguided and will not provide the spending support that the private sector requires to regain their confidence again. But the interesting point to come from Duke’s speech was her observation that the US monetary system is not behaving according to how the mainstream macroeconomics textbooks (and thousands of orthodox teachers) depict it. That comes as no surprise when it is clear from the perspective of Modern Monetary Theory (MMT) that the textbooks are a joke. But given the monetary system is not “behaving itself” you can guess what all those mainstream professors are out there telling their students. Simple, the system is wrong!

Read more

Saturday Quiz – January 8, 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.

Read more

Flooded with nonsense

As the days go by we begin to realise the huge scale of the problem that the floods in Northern Australia are presenting our country. Whole communities are being forced to leave their homes and major disruptions to economic activity (in very important regions) are being experienced. The floods are being labelled the worst in Australian history (well the white European occupation of indigenous land history) although that depends on the area – certainly the worst since the early 1950s. The areas that are affected are major sugar, coal, iron-ore and food production regions. So real GDP growth will be reduced and this will exacerbate the already slowing economy. What should be the correct federal government response? Answer: to expand the budget deficit (via discretionary spending increases) to ensure that essential public infrastructure is replaced and private economies are able to function again. What is the current federal government contemplating? Answer: spending cuts. My assessment of this: they have no credibility as fiscal managers.

Read more

Employment guarantees are better than income guarantees

A debate in development economics concerns the role of cash transfers to alleviate poverty. This was reprised again in the New York Times article (January 3, 2011) – Beat Back Poverty, Pay the Poor – which I hopefully began reading with employment creation schemes in mind. I was wrong. The article was about the growing number of anti-poverty programs in the developing world, particularly in the left-leaning Latin American nations, based on conditional cash transfers. There is no doubt that these programs have been very successful within their narrow ambit. They also are used by some progressives to argue for an extension of them into what is known as a Basic Income Guarantee (BIG). For reasons that are outlined in this blog I prefer employment guarantees as the primary way to attack poverty. I think the progressives who advocate BIGs are giving too much ground to the conservatives.

Read more

The aftermath of recessions

In Paul Krugman’s New York Times Op Ed (January 2, 2011) – Deep Hole Economics we are advised not to get carried away with the signs that the US economy is at last showing signs of consistent growth. I discussed the positive movements in the US jobless claims data in this blog – The year is nearly done … but spending still equals income – last week. Krugman’s point is that while growth is good, the US economy has a huge aftermath (high unemployment) to deal with even once growth returns. The political imperative therefore is to ensure that growth is maximised and not to withdraw fiscal support as soon as the “green shoots” bob up. It is a point that most commentators are ignoring. So can we make sense of this caution?

Read more

The Big Society aka BS

Happy new year to everyone! It is starting out pretty poorly despite the nice weather and personal fun. On the last day of last year, the British Government released its Giving Green Paper, which apparently provides some detail about how it sees its Big Society concept working. As one commentator said it reads like it was written by a bunch of amateurs. But what it tells me is that the conservatives haven’t really evolved much since Maggie Thatcher declared there was no such thing as society. The Big Society is just a reprise of that concept with some mention of mobile phone apps and ATMs to match the historical period of technology that the latest attack on the welfare of the citizens is occurring. The Big Society is a blatant relinquishment of essential government roles and in that sense is a politically cynical attempt to cover up the impossibility of individual action relaxing systemic spending gaps. My training as a macroeconomists tells me that individuals cannot ease such macroeconomic constraints. Only the national government via appropriately sized budget deficits can do that. Which is exactly the responsibility the British government is recoiling from. The Big Society aka BS. More the fool anyone who believes in it.

Read more

Saturday Quiz – January 1, 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.

Read more

The year is nearly done … but spending still equals income

It is a beautifully warm and sunny end to the 2010 which in general has been a pretty awful year. Yesterday, US Department of Labor released the latest Jobless Claims data. That was good news and suggested that not only has the fiscal expansion in the US been supporting growth but that the economy may be turning the corner – albeit very slowly. Earlier in the week the extremists – the unrelenting deficit terrorists who don’t understand what has been going on were at it again. Like an old gramophone record stuck in a worn out groove they chanted their mantras about record debt levels and how best to cut the deficit. They appear to be stuck in a pre-1971 monetary system as well and haven’t yet caught up with the fact that times have changed. We have CDs, DVDs, MP3s and a fiat monetary system. Anyway, I guess we know have an inkling as to their problem now – see this blog – We always knew it – their brains are thinner!. They do not seem capable of understanding that if you want deficits to fall then you need growth. Growth occurs because spending equals income – public or private the cash till operators don’t discriminate. When there is insufficient private spending to support robust growth, then you have to supplement it with public spending. End of story.

Read more

What is the balanced-budget multiplier?

I have been working today on the modern monetary theory text-book that Randy Wray and I are planning to complete in the coming year (earlier than later hopefully). It just happens that I was up to a section on what economists call the balanced-budget multiplier which is a way to provide stimulus without running a deficit when I read an article in the New York Times (December 25, 2010) by Robert Shiller – Stimulus, Without More Debt. I also received a number of E-mails asking me to explain the NYT article in lay-person’s language. So a serendipitous coming together of what I have been working on and some requirement for explanation and MMT interpretation. So what is the balanced-budget multiplier?

Read more

We always knew it – their brains are thinner!

Research has shown conclusively in the past that those who undergo mainstream economics training are more selfish, less co-operative, less honest and less generous than other groups. These insidious qualities are reinforced and strengthen over the course of their undergraduate years. There has also been conjecture about the political role played by conservative economists – that is, that they provide authority for the industrial and financial elites to lobby politicians to introduce policy regimes that create the conditions whereby these groups can appropriate an ever increasing share of real income. They have been used to perpetuate the myth that the “business cycle” was dead and hence governments should have limited involvement in the “market economy” which was promoted as being self-regulating and capable of maximising wealth creation for the benefit of everyone. It was clear that this was always a sham and ideologically based rather than ground in any theoretical legitimacy or evidence-based standing. The fact that the mainstream failed to predict the crisis and have no tools in their models to provide a solution to the dramatic private spending collapse reinforced the notion that mainstream economists were ideological warriors. But new research has provided another clue – their brains are thinner!

Read more

There is no positive role for the IMF in its current guise

Most of my blogs are about advanced nations. Many of these nations are being plunged back in time by misguided applications of fiscal austerity and even when growth returns they will take a decade or more to get back to the per capita income levels that prevailed prior to the crisis. Many children and teenagers in these nations will be denied essential education, training and workplace experience by the deliberate choice by their governments to entrench long-term unemployment and to starve their economies of jobs growth. But it remains that these nations are not poor in general and while people are losing houses and other items on credit only a small proportion will starve. Not so the poorer nations that I rarely write about. These are the nations where a high proportion of the citizens live below or around the poverty line. These are the nations that are at the behest of the IMF and suffer the most from their erroneous policy interventions. Today I reflect on how those nations have been going during this crisis. The bottom line is that the way the Fund reinvented itself and reimposed itself on the poorer nations after the collapse of Bretton Woods in 1971 has damaged their growth prospects and ensured that millions of people around the world have remained locked in poverty. Along the way … children have died or have failed to receive the levels of public education that any child anywhere deserves. There is no positive role for the IMF in its current guise.

Read more

The dead cat bounce – Latvian style

It is a holiday week in Australia – the cricket is on (not interested); the weather is good and it is virtually impossible to get a tradesperson to fix a new electricity connection. But who am I to complain when our fortunes are compared to the costs being endured in other nations where governments have deliberately followed policy trajectories which are designed to inflict damage on their real economies – in the mistaken belief that TINA rules. TINA (There Is No Alternative) is one of those neo-liberal ploys which hoodwinks citizens into believing that gross damage is better than really gross damage but which is really an agenda for retrenching the welfare state and freeing markets up for further private sector rape. There are alternatives to what is going on at present and it requires much stronger public sector intervention. I was thinking about this today when I was reviewing the latest data from Latvia which is now being held out as the “model” for the rest of Europe to follow. It is clear that eventually growth does return to these ravaged economies but that doesn’t validate the policy approach. It just says that business cycles cycle. The real way of assessing the alternatives is to compare how deep the policy-induced damage becomes and how long it lasts. The neo-liberal austerity line does not look good in that regard.

Read more

Saturday Quiz – December 25, 2010 – 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.

Read more

Saturday Quiz – December 18, 2010 – 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.

Read more

Very costly fiscal programs are needed

In yesterday’s blog – Our children never hand real output back in time – I canvassed the recent speech by Japanese financial market expert Eisuke Sakakibara who emphasised that the world recession will be protracted (until 2015 at least) because governments are refusing to support output and income generation with appropriately scaled fiscal interventions. It was a timely warning I think. But organisations like the OECD are pressuring governments to do exactly the opposite. They want governments to accelerate their pro-cyclical fiscal austerity plans – that is, withdraw public spending while private spending languishes. It is a purely ideological demand – and will worsen the recovery prospects of any country that follows that course – Ireland is our beacon! What is required at present are very costly fiscal programs – programs that utilise as many real resources as are idle. Such a strategy would be the exemplar of responsible fiscal policy management.

Read more

Saturday Quiz – December 11, 2010 – 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.

Read more
Back To Top