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Real resource constraints and fiscal policy design

There is an interesting dilemma currently emerging in Australia, which provides an excellent case study on how governments can use fiscal policy effectively and the problems that are likely to arise in that application. At present, the Australian states are engaging in an infrastructure building boom with several large (mostly public sector) projects underway involving improvements to road, ports, water supply, railways, airports and more. I travel a lot and in each of the major cities you see major areas sectioned off as tunnels are being dug and buildings erected. Not all of the projects are desirable (for example, the West Connex freeway project in Sydney has trampled on peoples’ rights) and several prioritise the motor car over public transport. But many of the projects will deliver much better public transport options in the future. On a national accounts level, these projects have helped GDP growth continue as household consumption has moderated and private investment has been consistently weak to negative. But, and this is the point, there have been sporadic reports recounting how Australia is running out of cement, hard rock and concrete and other building materials, which is pushing up costs. This is the real resource constraint that Modern Monetary Theory (MMT) emphasises as the limits to government spending, rather than any concocted financial constraints. If there are indeed shortages of real resources that are essential to infrastructure development then that places a limit on how fast governments can build these public goods. The other point is that as these shortages are emerging, there is still over 15 per cent of our available labour resources that are being unused in one way or another – 714,600 are unemployed, 1,123.9 thousand are underemployed, and participation rates are down so hidden unemployment has risen. So that indicates there is a need for higher deficits while the infrastructure bottlenecks suggest spending constraints are emerging. That is the challenge. Come in policies like the Job Guarantee.

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The ‘truth sandwich’ and the impacts of neoliberalism

On June 15, 2018, the OECD released their report – A Broken Social Elevator? How to Promote Social Mobility – which provided “new evidence on social mobility in the context of increased inequalities of income and opportunities in OECD and selected emerging economies”. If you are still wondering why the mainstream progressive political parties have lost ground in recent years, or why the Italian political landscape has shifted from a struggle between ‘progressive’ and conservative to one between anti-establishment and establishment (the latter including both the traditional progressive and conservative forces which are now virtually indistinguishable) then this evidence will help. It shows categorically that neoliberalism has failed to deliver prosperity for all. While the full employment era unambiguously created a dynamic environment where upward social mobility and declining inequalities in income, wealth, opportunity were the norm, the more recent neoliberal era has deliberately stifled those processes. It is no longer true that ‘all boats rise on a high tide’. The point is that this is a situation that our governments have allowed to arise and which they can alter if they so choose. We should be forcing them to restore the processes that deliver upward mobility. And that is where the “truth sandwich” comes in. Progressive politicians that bang on about ‘taxing the rich to deliver services to the poor’ or who ask ‘where is the money going to come from’ or who claim the ‘bond markets will rebel’ and all the rest of the neoliberal lying drivel should familiarise themselves with the way the sandwich works. It is a very tasty treat if you assemble it properly.

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Australian labour market – weaker in May with tepid employment growth

The Australian Bureau of Statistics released the latest – Labour Force, Australia, May 2018 – today which showed that the Australian labour market weakened further over the last month. Overall employment growth was tepid and was marked by a significant decline in full-time employment and a sharp fall in monthly hours worked. In addition, the participation rate fell by 0.2 points (rounded), which is the only reason total unemployment and the unemployment rate declined. Had the participation rate not declined, then the weak employment growth would have caused a rise in overall unemployment. The teenage labour market was the only bright spot. Further, underemployment rose by 19.2 thousand in the three months to May 2018 and the broad labour underutilisation rate remains high at 13.9 per cent. Overall, my assessment is that the Australian labour market remains stuck in a weak state and is still a considerable distance from full employment. There is a lot of slack remaining and defies the foolish calls in recent months from those demanding reductions in the fiscal deficit.

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Australian labour market remains stuck in a weak state

The Australian Bureau of Statistics released the latest – Labour Force, Australia, April 2018 – today which showed that the Australian labour market remains in a weak state even though full-time employment grew. Over the first four months of 2018, the labour market is decidedly weaker when compared to 2017. With relatively modest employment growth and rising participation, unemployment increased by 10,600 and the unemployment rate edged up to 5.6 per cent. The teenage labour market was the only bright spot although most of the employment gains were in part-time jobs. Further, underemployment fell marginally as did the broad labour underutilisation rate as a result of the bias towards full time work (also reflected in the monthly hours gain). Overall, my assessment is that the Australian labour market remains stuck in a weak state and is still a considerable distance from full employment. There is a lot of slack remaining and defies the foolish calls in recent months from those demanding reductions in the fiscal deficit.

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US labour market tepid – there is plenty of scope fiscal expansion

On May 4, 2018, the US Bureau of Labor Statistics (BLS) released their latest labour market data – Employment Situation Summary – April 2018 – which showed that total non-farm employment from the payroll survey rose by just 164,000 in April, which was an improvement on the very modest rise in March. The Labour Force Survey data, however, showed that employment only rose by 3 thousand) in April 2018 but was accompanied by a substantial fall in the labour force (236 thousand) which meant that total unemployment fell by 239 thousand. The unemployment rate fell to 3.93 per cent (from 4.07) but this does not signal a stronger labour market. There is still a large jobs deficit remaining. Finally, there is no evidence of a wages breakout going on. Taken together, the US labour market is showing no definite trend up or down at present and it is still some distance from being at full employment.

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Australian labour market – weakens further in March 2018

The Australian Bureau of Statistics released the latest – Labour Force, Australia, March 2018 – today which showed that the Australian labour market has weakened further in the first three months of 2018 and is decidely weaker when compared to 2017. Employment growth was virtually zero (4,900 net increase) in March 2018 and participation fell, suppressing the otherwise inevitable rise in unemployment, which would have accompanied the weak employment growth. Unemployment fell slightly but only because the participation rate fell. Had the participation rate been constant across the months, the unemployment rate would have been 5.7 per cent rather than the official rate for March 2017 of 5.5 per cent. Further, underemployment rose marginally as did the broad labour underutilisation rate, which stands at 14.3 per cent (nearly 1.9 million workers are either without work or do not have sufficient hours of work. The teenage labour market was slightly improved. Overall, my assessment is that the Australian labour market has weakened again in March and remains a considerable distance from full employment. There is a lot of slack remaining and defies the foolish calls in recent days from those demanding reductions in the fiscal deficit.

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US labour market weaker in March 2018

On April 6, 2018, the US Bureau of Labor Statistics (BLS) released their latest labour market data – Employment Situation Summary – March 2018 – which showed that total non-farm employment from the payroll survey rose by just 103,000 in March – or “edged up” to use the BLS words. The Labour Force Survey data, however, showed that employment fell (37 thousand) in March 2018 but was accompanied by an even larger fall in the labour force (158 thousand) which meant that total unemployment fell by 121 thousand. The weaker labour market means that underutilisation outside of the official labour force will have risen (‘hidden unemployment’). There is still a large jobs deficit remaining and the bias towards low paid work intensified in the first three months of 2018. Finally, there is no evidence of a wages breakout going on. Taken together, the US labour market is showing no definite trend up or down at present and it is still some distance from being at full employment.

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Australian labour market – subdued and weaker in 2018

The latest labour force data released today by the Australian Bureau of Statistics – Labour Force data – for February 2018 shows that the Australian labour market labour market has weakened at the start of 2018. Employment growth was again very modest in February 2018 and participation only marginally rose. The rise in unemployment was due to employment growth failed to keep up with the underlying population growth although the slight uptick in participation exacerbated this a bit. The teenage labour market stood still although this cohort did participate in the overall full-time employment growth. Further, underemployment rose marginally as did the broad labour underutilisation rate in the three months to February 2018. Overall, my assessment is that the Australian labour market has a lot of slack remaining. It is not close to full employment yet.

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Eurozone policy failures laid bare

On March 13, 2018, the OECD released its latest Economic Outlook with accompanying “Interim projections” as at March 2018) suggesting that the current growth phase will continue through to next year as consumer and business confidence improves and translates in higher investment rates. The OECD, however, forecasts that growth in the Eurozone will decline over the next two years. The major Eurozone nations (France, Germany and Italy) are not witnessing the growing investment expenditure. The Eurozone might be seeing a little sunshine creeping out from the very dark clouds. But it is far from recovered and the future is ominously black. Key cyclical indicators remain at depressed levels, which means that when the next cycle hits, the Eurozone will be in a much worse position than before. And the reason: the fundamentally flawed design of the monetary system with its accompanying austerity bias. The reform required is root-and-branch rather than a prune here and there.

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US labour market – strengthened in February but still not at full employment

On March 9, 2018, the US Bureau of Labor Statistics (BLS) released their latest labour market data – Employment Situation Summary – February 2018 – which showed that total non-farm employment from the payroll survey rose by 313,000 in February. The Labour Force Survey data also showed a relatively strong net employment gain (785 thousand (net) jobs were created) in February 2018. The labour force was estimated to have risen by 806 thousand with participation rising by 0.3 points. The BLS thus estimated that unemployment rose by 22 thousand and the official unemployment rate was unchanged at 4.14 per cent. There is still a large jobs deficit remaining and other indicators suggest the labour market is still below where it was prior to the crisis. Finally, there is no evidence of a wages breakout going on. Taken together, while the US labour market has strengthened in the first two months of 2018, it is still some distance from being at full employment.

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