I re-read a consulting report from May 2021 – Nature and Net Zero – which was commissioned by the World Economic Forum and prepared by a management consulting company. One of those consulting companies that exemplifies the neoliberal era where everything and anything is classified in terms of its financial value or corporate value and the company’s grand visions for nations amount to little more than transferring massive amounts of public money into their coffers for blueprints about privatising public wealth and skating over local citizens’ rights in their haste to financialise the world. The report is no different really and represents everything that is wrong with the way the elites in the world are taking over the ‘green transition’ agenda and reconfiguring it to suit their own ends – profits and control.
It’s Wednesday and I am flat out finalising writing commitments and my teaching responsibilities at present. I have also been doing a lot of media interviews given the inflation release yesterday. People are believing the nonsense coming out in the financial press that inflation is ‘out-of-control’ and interest rates need to be hiked to stop it in its tracks. How will increasing interest rates allow a Covid sick truck driver to return to work any quicker? How will a rise in rates, increase the number of container ships in the right locations? Etc. It is tiresome to be sure. Today a video, some information about my university classes that we are making available to the general public (starting later today), and then some post minimalism.
There is an increasing frequency of articles appearing in the financial press in Australia about how inflation is back and that the RBA had better start hiking rates and stop buying government debt. Warnings to home buyers that mortgage rates are about to go through the roof. And all that sort of stuff. Moronic. If you examine today’s data release from the Australian Bureau of Statistics – Consumer Price Index, Australia (January 25, 2022) – which relates to to the December-quarter 2021, you might be wondering what the fuss is all about. Inflation rose slightly in the December-quarter 2021 and was driven by rising automative fuel costs (uncompetitive cartel and deliberate government petrol tax policies), global supply chain disruptions (pandemic) and material shortages (supply chain and bushfires). Not much more to see than that really. I note the same journalists are out there beating the inflation mania drum. Don’t they get sick of being wrong all the time. Their wages should be linked to their predictive capacity – they would starve!
Last week (January 20, 2022), Eurostat released the latest inflation data – Annual inflation up to 5.0% in the euro area – which followed the release from the US Bureau of Labor Statistics data (January 12, 2022) – Consumer Price Index Summary , the latter, which shocked people, given that it recorded an annual inflation rate of 7 per cent before seasonal adjustment. The Euro area inflation rate over the same period was published as 5 per cent. It is obviously hard to see clearly through the data trends given the amount of pandemic noise that is dominating. But I stand by my 2020 assessment (updated several times since) that we are still seeing ephemeral price pressures as a result of the massive disruption the pandemic has caused to production, distribution and transport systems. In a sense, I am surprised the inflationary pressures have not be greater.
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.
Welcome to The Weekend Quiz. The quiz tests whether you have been paying attention or not to the blog posts that I post. See how you go with the following questions. Your results are only known to you and no records are retained.
The Australian Bureau of Statistics released the latest labour force data today (January 20, 2022) – Labour Force, Australia – for December 2021. The situation is this: most states have now abandoned Covid restrictions. The December survey was taken a few weeks after the ‘opening up’ and before Omicron got settled at parties, events, restaurants and wherever else it is lurking. Infections are now very high but the data only captures the opening up effect (with some Omicron impact). Employment growth slowed but was still strong and unemployment and underemployment fell significantly. We are seeing the impact of flat population growth coming up against growing demand for workers and that is the reason the unemployment rate has fallen so quickly. It is good for workers but that won’t last long because the government is already trying to lure foreign workers to fill so-called labour shortages. This will stop the wages growth that would benefit domestic workers from occurring. Overall, this is an improving situation although whether it will last is another question given the rapidly rising infection rate. It is certainly time for the Federal government to take advantage of the strengthening situation in the non-government sector and target some really good job creation initiatives in the regions and demographic cohorts that are still lagging behind.
It’s Wednesday and so some short discussion and news then some jazz, the latter being the highlight. I read an interesting research paper yesterday from the – Conseil d’Analyse Économique (CAE) – which is an French-based organisation that brings together professional researchers “to enlighten the government’s choices in economic matters by comparing points of view and analyses”. It operates under the authority of the French Prime Minister. Its latest public report under its – Focus – series – The effect of COVID certificates on vaccine uptake, health outcomes, and the economy (published January 18, 2022) – presents some very interesting empirical results pertaining to the impact that the enforcement of Covid vaccination certificates has had on the rate of vaccination uptake, on health outcomes (short-term) and on GDP growth rates. I consider the research (methods etc) to be credible and the results are in accord with an array of evidence that other researchers are coming up with.
I read an article in the Frankfurter Allgemeine Zeitung (FAZ) yesterday (January 16, 2022) – Ich hoffe auf Deutschland – which made me laugh really. Comedy in absurdity. It also told me that the forces in Europe are firmly against any major progressive change. I considered this issue last week in this blog post – German threats of exit rely on the ignorance of others reinforced by Europhile progressives (January 11, 2022). I know progressives thought that the invocation of the Stability and Growth Pact escape clause in 2020 as the pandemic took hold might have been a sign that things were changing in Europe after years of austerity bias. But as the days pass, more evidence mounts that there is a status quo that is being managed and it won’t be long before we see the familiar claims about excessive deficits and debt. The latest input comes from Austria’s new Finance Minister, Magnus Brunner who was reported in the FAZ article as saying that he rejects a debt union outright and hopes to win over the new German government to ensure they hold the fort. With the new German finance minister also of a similar if not more extreme persuasion about sound finance, I do not think he will have much trouble convincing the German. He also signalled that he wants to use a coalition – the “Staaten der Verantwortung“ (States of Responsibility) to maintain discipline in the Eurozone. The short period of fiscal flexibility is coming to an end. Meanwhile, with the French Presidential election approaching, the Left is fighting among itself for peanuts. The old guard is not about to fall yet.
When I am asked whether I still consider the recent bout of inflation to be transitory, I say that transitory means as long as the pandemic disrupts the balance between supply and demand. Note: demand. I have been getting lots of E-mails telling me that Modern Monetary Theory (MMT) is a fraud because of the inflation spike and our denial of the demand (spending) involvement. Apparently, the data shows that large fiscal deficits and central bank bond-buying programs are always inflationary. Good try. I last provided data and analysis of this issue in this blog post – Central banks are resisting the inflation panic hype from the financial markets – and we are better off as a result (December 13, 2021) – where I made it clear that the spikes are a unique coincidence between abnormal, pandemic-related demand and supply patterns. That couldn’t be clearer. And when that sort of imbalance occurs, with the addition of cartel-type price gouging (which has nothing to do with fiscal or monetary policy settings) then MMT predicts a nation will encounter inflationary pressures. The idea that the economy is defined by periods below full capacity when there will be no inflation and beyond full capacity when there will be inflation is not part of the MMT body of knowledge. It is more complicated than that dichotomy which we address in our textbook – Macroeconomics. Supporting this view, is a recent ECB research paper, which uses fairly advanced econometric techniques to decompose one measure of inflationary expectations in a component that reflects short-term risk and another that reflects longer term inflationary expectations. They find the former is driving the current inflation trajectory while the latter is largely stable. That means, in English, that the current inflation is likely to be of an ephemeral nature driven by how long the pandemic interrupts supply chains.