British government designs fiscal policy within a flawed framework – result = poor policy

This week, the UK Chancellor releases the latest fiscal statement (aka ‘the budget’) and will also have a eye to the general election which must be held before January 28, 2025. One would expect the government would stall the announcement and delay the election for as long as is possible, given the current situation and the cumulative impacts of 12 years of Tory rule, which are plain to see at all levels of British society. All the talk is of tax cuts, that typical ‘sugar hit’ approach to winning votes that soon works it way out of the system. The debate as to what the British government should now be doing is clouded, as these debates are always clouded, by the input of organisations such as the Office of Budget Responsibility, which claims its charter is to “to examine and report on the sustainability of the public finances”, yet consistently provides input which is irrelevant to the substance of the issue and just feeds the flawed political scrum. In the end, the policy choices are not based on the actual opportunities and threats that are available to and confront the currency-issuing government but rather a fictional mindset that all the players are trapped within.

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Apparently the bond vigilantes are saddling up – on their ride to oblivion

When I was in London recently, I was repeatedly assailed with the idea that the Liz Truss debacle proves that the financial markets in Britain are more powerful than the government and can force the latter to comply with lower spending and lower taxes. It seems the progressives have a new historical marker which they can use to walk the plank into conservative, sound finance mediocrity. For decades it was the alleged ‘IMF bailout of the Callaghan government in 1976’ when Chancellor Dennis Healey lied to the British people about running out of money and needing IMF loans to stay afloat. They, of course, never needed any loans but Healey and Callaghan knew the people wouldn’t know that and they used the fiction as a vehicle to keep the trade unions in a subjugated position. That lie has resonated for years and has been a principle vehicle for those advocating smaller government, more privatisation, and more handouts to the top-end-of-town while at the same time cutting welfare payments to the poor, killing the national health system, degrading public utilities, transport and education and all the rest of it. Well now that gang, which now rules the Labour Party in Britain has a new fiction – the ‘Truss surrender to the markets’. And the logic is spreading elsewhere with lurid claims emerging that the so-called bond vigilantes are saddling up to force the US government broke.

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The Smith Family manga – Episode 12 – the Season 1 finale – is now available

Episode 12 – the finale for Season 1 in our new Manga series – The Smith Family and their Adventures with Money – is now available. We will let everyone calm down from the excitement for a little while to give us time to write and draw Season 2, which will begin on May 24, 2024.

In the meantime, have a bit of fun with it and circulate it to those who you think will benefit …

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British Labour Party no longer fit for purpose

It was interesting to spend a few weeks in London recently and catch up with friends and research colleagues. It always focuses the mind on issues when one is in situ rather than gazing at data and reports from afar. My view of British Labour as being incapable of providing the British people with a progressive solution to the poly crisis the nation confronts has strengthened in the last few weeks and was emphasised once again by the decision of the leadership to backtrack on its £28 billion green investment strategy – its second U-turn on this key policy in the last few years. Touted as making Britain “A fairer, greener future” for Britain, “Labour’s Green Prosperity Plan” certainly differentiated it somewhat from the ruling Tories. Now that differentiation has been abandoned and the Labour politicians are claiming that “Labour’s fiscal rules … [are] … more important than any policy”, which is about as moronic as it gets. More of the same from the so-called political voice of the working class. I told an audience in London a few weeks ago that I considered the ‘institutions’ that had been created in the late C19 and into the C20 to give political voice to the working class had past their use-by date and were no longer fit for purpose. The British Labour Party is one such institution and it has been so captured by ‘conservatism’ of the worst type (sound finance etc) that it no longer is capable of delivering sustainable prosperity.

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New research report finds massive price gouging across all sectors of Australian economy

Over the last few years, the RBA has been emphatically denying that price gouging from corporations with significant market power has been driving the movements in the inflation rate. They knew that if they conceded that reality then there would be no justification for the 11 interest rate hikes they have introduced since May 2022. It was obvious that firms were pushing up profit margins – that is, increasing prices beyond the increases in costs. Still, the RBA denied it and claimed that firms were facing wage pressures and excessive demand, which justified the interest rate rises, despite the evidence not being supportive. On Tuesday (February 6, 2024), a new study has found that there is massive price gouging across all sectors of Australian economy by corporations, many of them operating in sectors that were heavily privatised (for example, airlines, electricity, child care, banking). There is systematic profit margin push going on which has been a significant contributor to the persistent inflationary pressures. These findings strip the RBA of any justification for their unconscionable rate rises which have transferred billions to the financial elites at the expense of low income mortgage holders.

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RBA is now a rogue organisation and the Government should act to bring it back into check

Yesterday (February 6, 2024), the Reserve Bank of Australia (RBA) released its so-called – Statement on Monetary Policy – February 2024 – which is a quarterly statement that “sets out the RBA’s assessment of current economic and financial conditions as well as the outlook that the Reserve Bank Board considers in making its interest rate decisions”. It accompanied the latest decision by the RBA, which held the policy target rate constant at 4.25. However, the Governor told the press that they had not ruled out further rate rises despite the inflation rate falling quickly and strong indications that the economy is slowing rapidly. Just yesterday, the ABS released the latest – Retail Trade, Australia – for December 2023, which showed that volume trade is down 1.4 per cent over the last year. In the September-quarter 2022, growth in volume was 9.8 per cent (a sort of pandemic overshoot after the restrictions were eased). By the December-quarter 2023, the volume growth was minus 1 per cent, the third consecutive quarter of negative volume growth. It would be totally outrageous for the RBA to consider further hikes. But it has become a rogue organisation and its statements reveal how deviant its reasoning has become.

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Anything we can actually do, we can afford

I often make the point in talks that the fictional world that mainstream economists promote leads to poor decisions in the real world by our policy makers. We saw that in the 1980s and 1990s with the large scale privatisations of public enterprises, touted as employment-enriching, productivity-boosting strategies to provide ‘more money for government to spend on welfare’. We now have enough data to know that in almost all the examples the promises have not been fulfilled and the outcomes worse than what would have been had the enterprises been maintained in the public sector and motivated to provide public service rather than private profit. The same mistake is being made with the response to the climate emergency. Economists and commentators are claiming we need to ‘repeat the privatisations’ to get enough investment cash to facilitate the necessary restructuring. They are wrong and if governments, operating on the assumption that they do not have ‘enough cash’, rely on private funding for climate initiatives then the outcome will be poor for societies.

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Lower British fiscal deficit gives the central government no more or no less capacity to net spend to reduce unemployment

It’s Wednesday and I am bound for London later today. We will see how that turns out having not travelled there since the beginning of the pandemic. I will take plenty of precautions to avoid Covid. But it will be good to catch up with friends in between several engagements, including my teaching responsibilities at the University of Helsinki, which I have been acquiting for the last few years via Zoom. Today, I reflect on the latest public finance data released by the British Office of National Statistics which shows the fiscal deficit is smaller than expected. Even progressive journalists have written this up as providing more scope for pre-election largesse to be provided. The fact that the fiscal balance is lower provides no more or no less scope for the government to net spend. The relevant questions that should be answered before such an assessment can be made are ignored by the journalists, including the fact that the unemployment rate is rising and the supply-driven inflation is falling fast. After some announcements of events in London and Europe, we have some violin music to end today’s post. There will be no blog post tomorrow as I will be in transit.

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Civil society is in jeopardy in the UK as funding cuts erode local government capacity

I keep hearing from friends who live in Britain that I will be shocked when I get there on Thursday of this week after a nearly four year absence. One friend, who has just returned said that the deterioration in the public infrastructure is now fairly evident. Despite my absence, I have been keeping a regular eye on the data and so these anecdotal reports and reflections come as no surprise. It is obvious that the Tory government has sought a depoliticisation strategy by cutting local government spending capacity as a way of diverting blame for the consequences of their austerity push. The problem now is that after 13 or so years of Tory rule, the cuts are eating into the very essence of civil society in Britain. Like all these neoliberal motivated cuts, the cuts to council grants will prove to be myopic. The dystopia they are creating will come back to haunt the whole nation.

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British Labour Party running scared of the usual shadows

This is an election year in the UK and unless something dramatically changes, the Labour Party will be in power for the next term of Parliament and will have to manage a poly crisis that they will inherit from 40 or more years of neoliberalism. Note, I don’t confine the antecedents to the Tory period of office since 2010 because the decline started with James Callaghan’s Labour government in the 1970s and then just got worse during successive periods of Labour and Tory rule. During that long period, there has been no shortage of economists and public officials predicting that the financial markets would soon reap chaos as a result of the public debt levels being ‘too high’ (whatever that means). The most significant chaos came in 1992 when Britain was forced out of the European exchange rate system, which it should never have joined in the first place. While all these economists are now pressuring the likely next British government to pull back on their promises to ‘assuage’ the financial markets, there is not even a scintilla of evidence to support their predictions of doom. And the Labour party leaders are too stupid to realise that.

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Whether real wages have stopped declining depends on how one measures it

For the time being I will continue my Wednesday format where I cover some things that crossed my mind in the last week but which I don’t provide detailed analysis. The items can be totally orthogonal. The latest inflation data for Australia continues to affirm the transitory narrative – dropping significantly over the last month. I will analyse that tomorrow in the context of a recent ECB paper that decomposes the different factors that drove the inflationary pressures across the globe. Today, I consider the basis of a claim by the Australian Treasurer that real wages are now growing. Like many things in statistics, the numbers can say almost anything that you want them to via different ways of measurement and combination. In one sense, the Treasurer is correct. But when we use a more careful method of calculating purchasing power loss, he is incorrect. If the Treasurer was wanting to be really honest with the Australian people he would admit that rather than try to score petty political points against an opposition that has no clue at all. I also consider the role of the US in the on-going massacre of innocent people in Gaza. The US could stop the conflict immediately and the fact that they don’t demonstrates the poverty of the capitalist system in terms of advancing humanity in general. And some old folk music to finish.

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Welcome to 2024 – the 20th year of my blog

Welcome to 2024. This marks the 20th year that my blog has been operating although there were a few years early on when I was experimenting with the technology etc and nothing much emerged. In continuous terms, the blog has been going for 15 uninterrupted years this year. Over that time, it has evolved from a 7-day a week commitment to a reduced offering. Here are my latest thoughts on how I will use the medium in the coming year.

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So-called ‘Team Transitory’ declared victors

On June 8, 2021, the UK Guardian published an Op Ed I wrote about inflation – Price rises should be short-lived – so let’s not resurrect inflation as a bogeyman. In that article, and in several other forums since – written, TV, radio, presentations at events – I articulated the narrative that the current inflationary pressures were transitory and would abate without the need for interest rate increases or cut backs in net government spending. In the subsequent months, I received a lot of flack from fellow economists and those out in the Twitter-verse etc who sent me quotes from the likes of Larry Summers and other prominent mainstreamers who claimed that interest rates would have to rise and government net spending cut to push up unemployment towards some conception they had of the NAIRU, where inflation would stabilise. I was also told that the emergence of the inflationary pressures signalled the death knell for Modern Monetary Theory (MMT) – the critics apparently had some idea that the pressures were caused by excessive government spending and slack monetary settings which demonstrated in their mind that this was proof that MMT policies were dangerous. Of course, they were just demonstrating their ignorance (deliberate or otherwise) of the fact that there are no MMT policies as such. MMT is an analytical framework not a policy regime. Anyway, in the last week, on mainstream economist seems to have recanted and has admitted that “Those who believed inflation would be transitory were proven right, and those who demanded the sacrifice of mass unemployment proven wrong”. For those E-mail warriors who think it is okay to send abusive messages to people you don’t know (or abusive messages in general) please do not send me apologies!

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GIMMS London Event – Friday, January 26, 2024

As I previously indicated I am returning to Europe and the UK in a few weeks for the first time since the Covid pandemic began. I will provide further details in due course, but for now, here is a link to the first event I will be speaking at in London on Friday, January 26, 2024 that is organised by the wonderful women from GIMMS. See over for details and how you can get tickets to the event.

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The parallel universe in Japan continues and is delivering superior outcomes, while the rest look on clueless

It’s Wednesday and I have some commitments in Melbourne (recording a podcast with the Inside Network) and that requires some travel. So time is tight. Today, I update the latest from Japan courtesy of yesterday’s release from the Bank of Japan of its ‘Statement on Monetary Policy’. The parallel universe continues and is delivering superior outcomes, while the rest of the world’s policy makers, smitten with neoliberal nonsense, have their heads in the sand and the economies are turning to dust. I also provide some links to the video recording of the launch of the Japanese version of Reclaiming the State, which was held in Kyoto in November 2023. And I provide some links to a major article that I was featured in with one of Japan’s leading magazines. And if that isn’t enough, we have Voodoo Child.

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Central banks and climate change

Today, I discuss a recent paper from the Bank of Japan’s Research and Studies series that focused on how much attention central banks around the world give to climate change and sustainability and how they interpret those challenges within their policy frameworks. The interesting result is that when there is an explicit mandate given to the central bank to consider these issues, the policy responses are framed quite differently and are oriented towards solutions, whereas otherwise, the narratives are about how climate change will impact on inflation. In the latter case, the central banks do not see their role as being part of the solution. Rather, they threaten harsher monetary policy action to deal with inflation. I also consider the most recent US inflation data. Finally, some live music from my time in Kyoto this year.

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US labour market – no sign of a major slowdown underway

Last Friday (December 8 , 2023), the US Bureau of Labor Statistics (BLS) released their latest labour market data – Employment Situation Summary – November 2023 – which showed payroll employment rising by 199,000 which is a good sign. The unemployment rate also fell as employment growth outstripped the growth in the labour force – down to 3.7 per cent (from 3.9 per cent). The participation rate rose by 0.1 point, indicating optimism among workers. I see no sign of a major slowdown emerging. Real wages have also started rising – modestly.

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Prosperity of Australian households going south, while Keir Starmer praises Margaret Thatcher

I am covering a few topics today, given that I used yesterday’s post space to analyse the national accounts release. There is a further point I wish to make about the latest national accounts data. A focus on real household disposable income shows the full extent of the impacts of monetary policy (rate hikes) and fiscal policy (tax bracket creep) on household prosperity. The Australian government is overseeing one of the largest falls in household prosperity in recent history aided and abetted by the RBA. And the only thing the Treasurer has announced this week is his intention to alter the RBA Act to rescind his power to change monetary policy if it acts against the national interest. Meanwhile, the British Labour Party leader was out there praising Margaret Thatcher and equating her shock therapy to his own purges within the Labour Party of anything that resembles a progressive voice. After all that, I have some spiritual jazz for our listening pleasure.

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Australian national accounts – growth falls to 0.2 per cent in September – and only because of fiscal support measures

Today (December 6, 2023), the Australian Bureau of Statistics released the latest – Australian National Accounts: National Income, Expenditure and Product, September 2023 – which shows that the Australian economy grew by just 0.2 per cent in the September-quarter 2023 and by 2.1 per cent over the 12 months. If we extend the September result out over the year then GDP will grow by 0.8 per cent, well below the rate required to keep unemployment from rising. GDP per capita fell by 0.5 per cent and Real net national disposable income fell by 0.6 per cent – a measure of how far material living standards declined. Households cut back further on consumption expenditure growth while at the same time saving less relative to their disposable income in the face of rising interest rates and temporary inflationary pressures. Temporary fiscal policy measures (to ease cost-of-living pressures) were the difference between poor growth and no growth at all.

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British House of Lords inquiry into the Bank of England’s performance is a confusing array of contrary notions

On November 27, 2023, the Economic Affairs Committee of the British House of Lords completed their inquiry into the question – Bank of England: how is independence working? – by releasing their 1st Report after taking evidence for several months – Making an independent Bank of England work better. The report is interesting because it contains a confusing array of contrary notions. On the one hand, the witnesses to the Inquiry claimed it was “Groupthink” in operation that prevented the Bank from raising rates earlier and that it was obvious the inflationary pressures were traditional excess spending driven by excessive monetary supply growth (classic Monetarism). That assessment is contested by the alternative, which I adhere to, that the inflationary pressures were supply driven and not amenable to interest rate shifts. And the Groupthink arises because these economists consider interest rate changes would solve the inflation irrespective of the contributing factors. While the Report is sympathetic to the mainstream view as above, it then launches into a critique of the mainstream forecasting approaches. A confusing array of notions.

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