On the trail of inflation and the fears of the same …

Today I’ve been following a document trail concerning the French government decision to adopt the so-called Barre Plan in 1976. This is part of the research on doing for my next book on why the Left abandoned progressive economic strategies and became what we now think of as austerity-lite merchants. I am hoping the manuscript will be finished by April 2016 and the book will emerge a bit later in the year. while the approach that will be taking is emerging, the strategy is to pinpoint key events in history where significant economic policy changes occurred and to analyse the rationale that was used to defend those policy shifts and to assess whether the circumstances that applied at those points in time provide any guidance to current day challenges. One of the big events that lead to deep uncertainty among Social Democratic politicians and their advisers, which arguably, was a key driver in the shift of these parties to the Right, was the Stagflation of the 1970s. The phenomenon of the simultaneous coincidence of accelerating inflation and rising unemployment had not previously been witnessed in the period following the Second World War. It needs a careful analysis because much of the popular understanding of this period and the claims that it demonstrated a failure of Keynesian policy approaches are incorrect and provide no basis for rejecting fiscal intervention to maintain full employment.

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European Left face a Dystopia of their own making

Last week, I re-read an article from May 1, 2012 by Abraham Newman – Austerity and the End of the European Model – that was published in Foreign Affairs. The article carried the sub-title “How Neoliberals Captured the Continent”. The author is a US political scientist and observed that given the unprecedented austerity that the European politicians have inflicted on their nations with such damaging consequences, the “Tea Party loyalists in the United States should be green with envy”, The hard-line US Republicans don’t go close to their European brethren. The thrust of the article was that independent of the short-term effects of the austerity it “will transform Europe’s political economy in the long term, lending credence to neo-liberal ideas of limited government and loosely regulated markets. The irony of this transformation is that it reinvigorates the very ideas that helped cause the financial crisis in the first place …” This is a theme that I share. It is also a starting point for a very interesting essay I read last week by Slovenian lawyer Bojan Bugaric – Europe Against the Left? On Legal Limits to Progressive Politics – published May 2013. I have been seeking to understand these perspectives more deeply as part of my larger book project concerning the demise of the European left.

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Australian inflation trending down – where are all the gold bugs?

There was a time, in better days, that the evening news had news, sport and weather. Then, at some point, around the 1980s the national news started to host a Finance segment. Sometimes these segments are meagre reporting of what happened in the share markets. Even that benign news is symptomatic of the way neo-liberalism has infested our daily thinking and made the common folk feel part of the game that they are really can never be part of – wealth creation. At other times, the finance segments introduce economic theory and analysis as if it is news. Then the insidious nature of the neo-liberal propaganda machine becomes stark. But the starkness is lost on most because they think it is news and we have been led to believe that what gets pumped out at 19:00 on the national broadcaster (and other times by other broadcasters) are facts. Facts don’t lie do they? Well, when it comes to finance segments they are mostly lies.

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The tale of two nations – democracy dies in Portugal and lives in Canada

The tale of two nations – two monetary systems – two continents – Canada and Portugal. It is reasonable to assume that when voters in so-called free democracies elect members to their parliaments who then freely coalesce across ‘party’ lines to form an absolute majority that they will be given the right to govern irrespective of the ideology they represent and the policies that they have put forward to the voters to win their approval. That seems to happen in Canada. It definitely doesn’t happen in Portugal. The Portuguese President dropped his so-called “bomba atómica” last week when he refused to endorse the coalition of parties that held the absolute majority of seats in the Assembly as a result of the recent national election. He indicated that he would not allow a government that would relax the fiscal austerity and consider exiting the Eurozone. His motivation was that financial markets had to remain appeased. It was an extraordinary intervention and will come back to haunt the nation given that the conservative austerity government will lose its authority as soon as it puts its platform to the new Parliament for endorsement (within the next 10 or so days). Then the nation is in chaos and the President will be compelled to accept the anti-austerity left coalition or something worse will happen. But, happily, in Canada, the election of the Liberal Party is a rejection of the obsession with fiscal surpluses – at least for now.

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Rejecting the TINA mantra and the second ‘Gilded Age’

There was an interesting article by US historian Jackson Lears in the in the London Review of Books (July 16, 2015) – The Long Con: Techno-Austerity. I recommend people regularly reading the LRB because it has some fabulous articles. In this case, the review by Jackson Lears is of the recent book by Steve Fraser – The Age of Acquiescence: The Life and Death of American Resistance to Organised Wealth and Power (published by Little, Brown). I have taken time to write about this because I had to read the book being reviewed myself first. There is also an excellent review of the book by Naomi Klein in the New York Times – ‘The Age of Acquiescence,’ by Steve Fraser (March 16, 2015). So what is it about?

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Mitterrand’s turn to austerity was an ideological choice not an inevitability

As background research to one of my book projects I have been reading a recent biography of François Mitterrand by Philip Short. Its title “Mitterand: A Study in Ambiguity” points to the capacity of Mitterand himself to blow with the wind but only when it suited his sense of personal ambition. Hiding behind his statesmanship was a man with “infinite shades of deviousness, an aesthete and intellectual, a sensualist, a crook”. The story of Mitterrand and his famous turn to austerity in March 1983 is very important to understand because it is used by progressives to justify their ‘austerity-lite’ stances with respect to economic policy. The New Labour politicians that are attacking Jeremy Corbyn’s policy proposals fit into this camp. The ‘left’ narrative is that the demise of Keynesian policy options was inevitable in the face of globalisation of capital and the growing importance of Transnational Corporations (TNCs). But, my argument is that there was nothing inevitable at all about Mitterrand’s poorly contrived shift into austerity. The progressives who advocate the inevitability thesis conflate the development of the TNCs with the emerging dominance of the neo-liberal ideology (which is concoction from economists intent on pushing the textbook competitive free market model with minimal state intervention). The development of the TNCs didn’t undermine the capacity of currency-issuing nation states. That has been accomplished by the imposition of the neo-liberal ideology and is reversible if the politics can be won. That is what I see as Jeremy Corbyn’s challenge – to win the politics. There is plenty of strong economic argument to help him do that.

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The origins of the ‘leftist’ failure to oppose austerity

I note the calls for more discussion on the trap that the ‘left’ has made for itself by buying into the globalisation/political capture myth. As I have noted previously, I am currently researching a new book on this topic which might appear in 2016 but more likely early 2017, such is the delays in publishing. My current research is focusing on the 1960s and 1970s. I am exploring the deep infighting within the French state between the ‘Keynesians’ in the planning ministry and the ‘Monetarists’ in the finance ministry, which shaped the way the French ‘left’ dealt with issues of monetary integration and the like. I am also tracing the evolution of ‘left’ macroeconomic thinking, or rather, the absence of it, in the late 1960s as the Bretton Woods fixed exchange rate system collapsed and fiat currency freedom was taken up by governments around the world. In 1973, after several years of work, American sociologist James O’Connor published his book “The Fiscal Crisis of the State”, which was considered by many on the ‘left’ to explain why the Keynesian policy era had failed. This book and the derivative literature that followed it was extremely influential among ‘left’ scholars and effectively negated their capacity to challenge, what by the mid-1970s, was becoming the Monetarist resurgence. We can trace back the failure of the ‘left’ to fight against austerity to this period. This is just part of the work I am doing on this topic at present.

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The European Project is dead

When the GFC emerged and confirmed what Modern Monetary Theory (MMT) proponents had been predicting for more than a decade, I initially thought that this might be the ‘paradigm-shift’ line in the sand with respect to economic theory and policy. The OPEC oil price hikes in the 1970s provided the ‘space’ for Monetarism to usurp Keynesian thinking – not as a triumph of evidence and facts but as an ideological shift in thinking. The ideological battle had been going on for three decades in the academy but the oil crises exposed policy flaws in the Keynesian orthodoxy that were exploited by the Monetarists to allow them to reintroduce ideas (and policies) that had been completely discredited during the Great Depression of the 1930s. In the same that the dominant paradigm collapsed in the 1970s, I thought the GFC would so destroy the public credibility of Monetarism’s latest iteration, which we call neo-liberalism, that we could find intellectual space to restore rigor to economic policy and the way economics was taught in the universities. I even thought that the pragmatic and dramatically successful use of fiscal stimulus in most advanced countries would provide the empirical reinforcement necessary to repudiate and expunge neo-liberalism forever. I was wrong. But what the GFC has achieved as neo-liberalism hangs onto the reigns of power in policy making circles is a major breakdown of the so-called ‘European Project’. The creation of ‘Europe’, which was conceived after World War 2 as a means to maintain peace and create prosperity among previously hostile nations, was a major human achievement in the C20th. That vision is now in tatters as the neo-liberals, blinkered by their own Groupthink, steadily dismantle the meaning and application of that great Post WW2 experiment. Jean Monnet and Robert Schuman would be turning over in their graves to see what their ‘Project’ has become under the domination of Wolfgang Schäuble and his lackeys in the Eurogroup. So we might see the demise of neo-liberalism after all as it destroys the grand European political project

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Friday lay day – South Korea shows us a different way

Its my Friday lay day blog where I pretend to take it easy. Today I have a nice story to contrast with the shocking news we have been following over the last month or so from Europe. The economics news has been dominated by the madness and badness of the EU in recent weeks and how the miserably depressed Greece has been brought to heel by the EU bullies and will have to inflict even more austerity on its suffering people. Unemployment already above 26 per cent will rise further and more of its youth will head to other shores in search of opportunities. It is a process that is hollowing out the capacity of a nation. They do things differently in South Korea. The Korean government appears to actually care about its people. It provides a lesson for all nations who have become infected by the Recession Cult of Austerity (RCA).

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A Greek exit could not be more costly than the current path

It appears the Germans (with their Finish and Slovak cronies) have lost all sense of reason, if they ever had any. Germany has the socio-pathological excuse of having suffered from an irrational ‘inflation angst’ since the 1930s and has forgotten its disastrous conduct during the 1930s and 1940s and also the generosity shown it by allied nations who had destroyed its demonic martial ambitions. Finland and Slovakia have no such excuse. They are just behaving as jumped-up, vindictive show ponies who are not that far from being in Greece’s situation themselves. Sure the Finns have a national guilt about their own notorious complicity with the Nazis in the 1940s but what makes them such a nasty conservative ally to the Germans is an interesting question. It also seems to be hard keeping track with the latest ‘negotiating offer’ from either side. But the trend seems obvious. The Greeks offer to bend over further and are met by a barrage of “it is going to be hard to accept this”, followed by a Troika offer (now generalised as the Eurogroup minus Greece which is harsher than the last. And so it goes – from ridiculous to absurd or to quote a headline over the weekend – From the Absurd to the Tragic, which I thought was an understatement. There are also a plethora of ‘plans’ for Greece being circulated by all and sundry – most of which hang on to the need for the nation to run ‘primary fiscal surpluses’, with no reference to the scale of the disaster before us (or rather the Greek people). It is surreal that this daily farce and public humiliation (like the medieval parading of a recalcitrant in stocks) is being clothed as ‘governance’. Only in Europe really.

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The ECB has to maintain ELA to Greek banks

Despite the shamelessly dishonest press barrage from the conservative owners of the highly concentrated Greek media (the ‘oligarchs’) to vote YES; despite many articles popping up in world newspapers about how the Greeks are to blame for their own problems because they overspend and undertaxed; despite the lies coming from other European leaders about what the vote was about (it was not about leaving the Euro but rather about whether the Greek people wanted further failed austerity); despite the ridiculous claims of the German SDP about “bridges being burned” (that party should change its name because it is a disgrace to the social democratic tradition) – despite all of that and heaps more, the Greek people voted overwhelmingly NO to reject austerity as a viable policy model for their country. This is a case of democracy coming head to head with the dominant political-economic ideology within which the Greek nation is situated – the Eurozone. It also demonstrates the flaws of the democratic process – the people have voted for an end to austerity but also consistently tell opinion polls they want to remain in the Eurozone, a monetary system that is built on austerity. They voted yesterday to reject the very basis of the monetary system they want to stay in – which tells us they don’t really understand the nature of the system and therefore how informed is the NO vote.

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Structural reform – code for smash the worker resistance

The ECB had another lavish annual talkfest in Portugal over the weekend just gone in the guise of their – Forum on Central Banking. Like all these EU-type gatherings there was plenty of fine food and wines. They even provided footage along those lines. The President of the ECB Mario Draghi gave the opening speech – href=”http://www.ecb.europa.eu/press/key/date/2015/html/sp150522.en.html”>Structural reforms, inflation and monetary policy – on May 22, 2015. There was also talk about how “structural and cyclical policies … are heavily interdependent” but then a denial of the same. The message from the President was like a record stuck on the turntable – “to accelerate structural reforms in Europe … even in a weak demand environment”. Well here is my message – similarly like a stuck record – structural imbalances occur because of weak demand and the best time to assess structural policy is when you have first attained full employment by appropriate setting of fiscal deficits, not before. It is madness to deliberately constrain fiscal balances to levels that ensure high and entrenched unemployment and rising underemployment and then expect citizens to support microeconomic policies that further undermine their welfare and damage what job security they have. But that is the EU way and that is why the Eurozone is a massive basket-case failure.

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The existential crisis of Labour-type political parties

At one point in my student days anyone who wasn’t reading Marx on a particular day, was reading Satre, Camus and Merleau-Ponty, among others, at least in the groups that I mixed in. But then they were also reading Dostoyevsky. Whichever way – they learned a lot about class conflict and existentialism. Labour-type political parties might reflect on the concept of an existential crisis because the declining electoral fortunes around the World are of their own making and reflect a lack of identity and certainly little ‘essence’. These parties have lost their meaning and purpose of existence and everyone knows it. The reasons are relatively straightforward. They have bought into the free-market myths and demeaned the role of the State. They now only argue about how much fairer their version of fiscal austerity will be relative to the conservatives, never challenging the underlying lies that drives the austerity agenda in the first place. Here are some lunchtime thoughts on the matter.

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The neo-liberal emperors are naked and its not a good look

Recall back to the worst part of the GFC when the Australian government announced a relatively large fiscal intervention in late 2008, we had a swathe of financial market commentators predicting the worst. This article (published July 11, 2009) – Alarming debt bomb is ticking – was representative of the hysteria that the public was confronted with. We read about “a nearly saturated bond market” and the ticking time bomb of government debt. Apparently, the Australian government was soon to run out of money and would not be able to fund itself. There were predictions of a “failed auction, when there are insufficient bids from authorised dealers to cover the volume of bonds offered”. The intent of all these sorts of articles were to put public pressure on the government to impose austerity (but leave any handouts to the corporate sector) intact. Some five years later, the fiscal deficit is still rising. Yesterday (March 24, 2015), the Australian Office of Financial Management (AOFM), which issues and manages Federal government debt, issued its latest press release – Pricing of New June 2035 Treasury Bond. I wonder when all the retractions are going to come from the financial market commentators, the Treasurer and a range of academics who were claiming there was a calamity approaching. Amazing really. Read on.

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Syriza must stay left of the line – more is at stake than Greece

There were regional elections in the autonomous community of Andalusia (Spain) over the weekend which saw the Spanish Socialist Workers’ Party (PSOE) hold onto power. The results showed that the left-wing political party – Podemos – which received nearly 8 per cent of the Spanish vote (5 seats) at the European Parliament elections in May 2014, was third in the Anadulusian election, gaining 15 of the 109 seats. The parallels with Syriza in Greece are now routinely being made. I am forming the view, however, that unless things change rather dramatically in Greece, Syriza may actually end up only undermining progressive agendas in Europe as they self-destruct under the iron fist of the Troika (I do not use the terms “the institutions” or the “Brussels Group”). This is of great interest to me at present because I am sketching out a 2016 book project at present with a co-author, which broadly focuses on the demise of the left and social democratic movements in the World, although we might pare the scope down with more discussion to concentrate on Europe. Of particular interest is the morbid inferiority of the French left relative to the Germans in the Post World War II period and the way in which American Monetarism has infiltrated and built on that inferiority. Much of the design of the monetary union can be understood through that sort of lens. So a broad canvas right now but that is always the case. Of immediate interest, though, is the possibility that Syriza will set progressive causes back rather than become the spearhead for a sweeping change in Europe and the end of this destructive era of neo-liberalism.

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Australia – the Fourth Intergenerational Myth Report

The Australian government will release the Fourth Intergenerational Report today with much fanfare, scaremongering and lies. Our boofhead Treasurer has been doing the rounds of the media outlets giving his evangelical sales pitch on how scary the future is unless we cut the fiscal deficit now and get the balance back in surplus as soon as possible. These intergenerational reports are really a confection of lies, half-truths interspersed with irrelevancies and sometimes some interesting facts. There is very little economics in these reports. What parades as economic analysis is just the usual neo-liberal mainstream nonsense that currency-issuing governments have run out of money and fiscal deficits are dangerous. The Treasurer is selling the Report on the grounds of “intergenerational theft” (the classic anti-fiscal deficit argument about mortgaging our future grand children’s future). Apparently, this justifies large cuts to the fiscal deficit now in order to turn it into a surplus so that our future generations are left with no debt. The real intergenerational theft though is embodied in a current fiscal strategy that leaves around 45 per cent of our teenagers unemployed, underemployed or NEET (Not in Education, Employment or Training) and hacks into public infrastructure provision as a strategy to create fiscal surpluses now. With private spending subdued at present and the external sector also draining expenditure from the economy relative to its income, trying to impose fiscal austerity now in the name of defending future prosperity is a grand lie and will ensure that the future prosperity is undermined.

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Employer group demands free labour from Government

Last week, the peak body representing small business in Australia, the Australian Chamber of Commerce and Industry (ACCI) called on the Federal Government to hand over free labour under the guise that “making coffee” will enhance the skills of the workers. The free labour they want to get their hands on are the unemployed on income support. They want the Government to continue to pay the below-poverty income support but force the recipients to work in small and medium-size businesses “making coffee or serving customers” as a solution to youth unemployment. This is the same group that thinks the pay of the lowest-paid workers (like kitchen hands, cleaners etc) should be cut. They also claim that rising unemployment in Australia is being caused by structural rigidities in the workplace (job protection, occupational health requirements etc). There is a wide-ranging attack on workers going on at the moment. This is just one aspect of this attack. Austerity is forcing more onto the unemployment pile. Once there they are being increasingly subjected to pernicious policy requirements (see yesterday’s blog – Job Services Australia – ineffective and rife with corruption – scrap it!). Then employer groups lobby government to cut wages and conditions and scrap regulative environments that protect workers. It is an important era for social democrats. Either we regain some political equanimity and coherence or we continue to call parties Socialist that impose austerity and talk about being ‘pro-business’, while attacking pensions, wages, and employment.

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Germany has a convenient but flawed collective memory

There is a lot of discussion at present about the historical inconsistency of the German position with regard any debt relief to the Greek government. Angela Merkel has reiterated over the weekend that there would be no further debt relief. Why she is now a spokesperson for the Troika that does not include the German government is interesting in itself. In this context, I recall a very interesting research study published in 2013 – One Made it Out of the Debt Trap – by German researcher Jürgen Kaiser, who examined the London Debt Agreement 1953 in great detail. After becoming familiar with the way the Allies handled the deeply recalcitrant Germany and its massive debt burden in that period, one wonders why the German government is so vehemently against giving relief to Greece. This is especially in the context that the only mistake that Greece made was joining the Eurozone and surrendering its own capacity to deal with a major financial crisis. The ‘mistakes’ of the German nation before the London Agreement have been paraded before us all again with the 70th anniversary of the liberation of the Auschwitz death camp featuring in world events last week.

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Conceding to Greece opens the door for France and Italy

The economics news is currently dominated by the Greek election results and their implications, and, rightly so. Without assuming anything about how much Syriza will compromise (although I suspect too much), the voting has demonstrated that a large proportion of voters in Greece have rejected the basis of the European Commission strategy. The Greek voters know from personal experience, what armchair commentators like me know from theory, that fiscal austerity fails to achieve its aims. It is not rocket science – spending equals income and if you hack into it then the economy contracts. A private spending resurgence is not going to happen when sales are falling, unemployment is sky-rocketing, and incomes are being lost. The basis of Keynesian economics – that when the private economy is caught in a malaise the way out is for government deficits to kick-start economic activity, which, in turn, engenders confidence among private spenders and allows a sustainable recovery to occur – has been amply demonstrated by the GFC in all nations. Where that strategy has been employed the nations have been recovering (at a macroeconomic level). Where it has been defied, such as the Eurozone, the economies have stagnated. Thinking ahead (speculating) the election results have clearly shocked the cosy ECOFIN club, which has smugly swanned around Europe over the last 6 or so years dishing out misery to the disadvantaged citizens in the Member States. But I doubt that they will agree to a 50 per cent write-off in Greece’s debt because then the citizens of Spain, Italy and, even France, would line up for the same. Then it is game-over for the Eurozone. More likely, if Syriza sticks to its promises, then there will be an organised way to ease them out of the game. Greece will win either way.

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The sham of central bank independence

Let it be noted that the Japanese government 10-year bond yield hit 0.33 per cent overnight. That tells you that all the scaremongering that has been going on over the last twenty years about hyperinflation, the Japanese government running out of money, the bond markets dumping the yen, and the rest of it were self-serving lies designed to advance a particular ideological position at the expense of the broader social well-being. A year ago, the yields were 0.88 per cent – so they are going in the opposite direction to that predicted by many mainstream economists, blinded by their irrelevant textbook theories about how markets work. In that neo-liberal textbook fairyland, the yields should be sky high now, inflation accelerating out of control and the government forced to admit it had run out of money. Get over it, it won’t happen because the real world doesn’t operate like that. Students of macroeconomics are continually being taught a myth, which is detrimental to their education and life experiences. Many turn into the future doomsayers and sociopaths in organisations such as the IMF, the European Commission and other like policy making institutions. They always rave on about the need for more central bank independence to insulate monetary policy from political decision-making as if that will foster the well-being of the population. The idea of central bank independence is a sham and in the last week there has been stark evidence to support that view.

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