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The Weekend Quiz – September 21-22, 2019 – answers and discussion

Here are the answers with discussion for this Weekend’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.

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Australian Labour Force – unemployment and underemployment rises and the Government celebrates

On a day that the Federal government was telling Australians that it was time to celebrate as a result of the fiscal situation achieving balance, the unemployment and underemployment rates rose. This is neoliberalism – August 2019 style. The Australian Bureau of Statistics released the latest data today – Labour Force, Australia, August 2019 – which reveals a fairly weak labour market with where employment growth is not strong enough to absorb the increasing labour force as participation continues to creep up. As a result, unemployment rose again, albeit modestly. The disturbing trend in this rather weak environment is that underemployment rose by 0.2 points) to 8.6 per cent further and the total labour underutilisation rate (unemployment plus underemployment) rose as a consequence to 13.7 per cent. In the last two months, underemployment has risen by 0.4 points. Both the unemployment and underemployment rates are persisting around these elevated levels of wastage making a mockery of claims by commentators that Australia is close to full employment and that the fiscal position represents something desirable. The unemployment rate is 7 percentage points above what even the central bank considers to the level where inflationary pressures might be sourced from the labour market. This persistence in labour wastage indicates that the policy settings are to tight (biased to austerity) and deliberately reducing growth and income generation. My overall assessment is the current situation can best be characterised as remaining in a fairly weak state.

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ECB confirms monetary policy has run its course – Part 2

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.

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ECB confirms monetary policy has run its course – Part 1

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.

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Travelling all day today …

There will be no blog post today as I am travelling for the next 24 hours or so to Europe via LA. I have a detective novel to read – well 79 in fact, I have just started the complete Maigret series written by Belgian author Georges Simenon – so in the spirit of that great song from the Who – I hope I get finished with the series before I get old! And regular transmission will probably resume from Paris on Tuesday. While I am flying I will not be attending to comments that need moderation. So it might be some time before you see your comment published (or not). I hope to see many MMT people at one or more of the events where I will be speaking in the next two weeks – the details are overleaf.

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The Weekend Quiz – September 14-15, 2019 – answers and discussion

Here are the answers with discussion for this Weekend’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.

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Germany to play smokes and mirrors again

Germany is proposing some more smokes and mirrors so that it can maintain its position as the exemplar of fiscal responsibility by obeying its ‘Debt brake’ yet inject significant deficit spending into its recessed economy, which is starved of public infrastructure spending. They are proposing to set up new institutions which will be funded by government-guaranteed debt and spend billions into the economy while ensuring these transactions do not show up on the official fiscal books of the German government. The only financial constraint these new agencies will be bound by are the European Commission’s Stability and Growth Pact rules. But because the allowable spending difference between the ‘Debt brake’ and the SGP is huge (but still well below what is needed to redress the years of austerity and infrastructure degradation) and so will provide a much-needed stimulus to the ailing German economy. Meanwhile, the Germans will tell the world how thrifty they are and how they obey their own rules. And then they can say that all other Member States should also stick to the rules. Meanwhile, the smoke and mirrors are going hammer and tong to create spending growth that bears no resemblance to the allowable growth under the Debt brake. The Debt brake then is just a sham. The upside is that needed public spending will enter the economy which tells us that the Debt brake should never have been introduced in the first place. Such is life in the EU – a daily circus.

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On visiting Japan and engaging with conservative politicians

It is my Wednesday blog post and my relative ‘blog day off’. But there has been an issue I want to write briefly about that has come up recently and has become a recurring theme. I am writing today to put the matter on the public record so that spurious claims that arise elsewhere have no traction. As our Modern Monetary Theory (MMT) work gains popularity, all manner of critics have started coming out of the woodwork. There is now, quite a diversity of these characters, reflecting both ends of the ideological spectrum and places in-between. The mainstream economists and those who profess to be ‘free marketeers’ bring out their big guns pretty quickly – inflation and socialism/Stalinism. Standard stuff that any progressive proposal to use government fiscal policy gets bombarded with since time immemorial. Easily dismissed. More recently, those who claim to be on the ‘progressive’ side of the debate have become more vociferous in their attacks, sensing, I suspect, that MMT have supplanted their relevance as the defenders of the anti-neoliberal wisdom. These characters resort to all sorts of snide-type attacks ranging from accusations of anti-Semitism (which I have covered previously), siding with Wall Street, ‘America-first corporatist sycophants’ (latest ridiculous book from G. Epstein as an example), giving succour to fascists and the Alt-Right, and that sort of stuff. Today, I want to address that last claim, which recently has been raised by a number of so-called progressive critics.

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