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.
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.
I keep reading ridiculous articles about Brexit in the UK Guardian. The latest was comparing it to pre-WWI Britain and suggesting there were no signs of a “Damascene moment remainers hoped for”. I thought that reference was apposite – given the reference invokes St Paul’s conversion after he was struck blind. Good analogy – blind and remainer. The Brexit imbroglio is all the more puzzling because it seems to be a massive mismatch of scale – a currency-issuing nation and an organisation with no currency and no democratic legitimacy. And that is before one even contemplates the nature of that organisation. On August 20. 2019, the European Union provided us with a perfect example of why no responsible government would want to be part of it. In its – Daily News 20/08/2019 – there were three items. The last item told us that construction output in the EU28 had declined by 0.3 per cent in June 2019. The first item was a sort of cock-a-hoop boast about how great Greece is after the EU saved it from disaster. Parallel universe sort of stuff. Britain will thank its lucky stars after October 31, 2019 when it goes free from that madness. Even though the remainers remain ‘blind’ without their Damascene moment”
I read an interesting research report recently – Exportweltmeister: The Low Returns on Germany’s Capital Exports – published by the London-based Centre of Economic Policy Research (CEPR) in July 2019. It tells us a lot about the dysfunctional nature of the Economic and Monetary Union (EMU) and Germany’s role within it, in particular. Germany has been running persistent and very large external surpluses for some years now in violation of EU rules. It also suppresses domestic demand by its punitive labour market policies and persistent fiscal surpluses. At the same time as these strategies have resulted in the massive degradation of essential infrastructure (roads, buildings, bridges etc), Germany has been exporting its massive savings in the form of international investments (FDI, equity, etc). The evidence is now in that the returns on those investments have been poor, which amounts to a comprehensive rejection of many of the shibboleths that German politicians and their industrialists hold and use as frames to bully other nations
Last week (August 9, 2019), the British Office of National Statistics (ONS) – GDP first quarterly estimate, UK: April to June 2019 – told us that the UK economy contracted by 0.2 per cent in the June-quarter 2019 after having grown by 0.5 per cent in the March-quarter. The UK Guardian pundits and the Remain cheer squad all screamed Brexit and were heard to be walking around in circles saying “see, we told you so”. Meanwhile (August 7, 2019), not far away (according to the Remain crowd’s much-loved gravity trade models), Germany’s Statistisches Bundesamt (Destatis) press release – Production in June 2019: -1.5% seasonally adjusted on the previous month – told a sorry tale. In annual terms, Germany’s industrial production has contracted by 5.2 per cent. We also learned that Germany is probably in recession. According to the Remain-logic, that must be Brexit too, n’est-ce pas? Meanwhile, just a bit further south, Italy is in turmoil. Obviously, Brexit uncertainty. I jest of course (well a bit). But in a real sense, this is all tied into Brexit in one way – and it is not the way the Remain camp would like us to believe. In fact, what I have in mind gives more weight to the Leave position and reflects on how intransigent the European Union elites are in dealing with the Member States.
My Wednesday blog post is designed to be short in time commitment. It clears a bit of space in the day to catch up with other more mundane matters (research contracts, some coding – I am learning Swift at present, and stuff like that). But I thought a small viewpoint on the latest dealings over who will become IMF boss were easy to dispense with today. And in that context, it was hard to go past Wolfgang Münchau’s Financial Times column – Do not treat the IMF as an EU consolation prize (July 21, 2019). He sums up the situation perfectly – “The world needs a first-rate person to run the IMF. It should not allow Europe to treat the fund as a dumping ground for washed-up officials.” Adam Tooze also weighs in on the same issue in his Social Europe article – The International Monetary Fund leadership is not a bargaining counter (July 22, 2019). His conclusion is also spot on – “The eurozone crisis created a toxic codependency between the eurozone and the IMF which needs to be dissolved once and for all.” But it goes beyond the revolving door aspects of these positions and the Troika relationship that emerged during the GFC. The IMF is already in tatters – still in denial but realising its old positions are untenable – to allow the toxic austerity culture of Europe to take over the IMF would destroy any hope that the latter might abandon its neoliberalism and embrace the emerging macroeconomics paradigm that will replace dependency on monetary policy with fiscal dominance – just what Modern Monetary Theory (MMT) has been promoting.
I thought the most interesting aspect of last weekend’s Greek election was the post election response of the European Commission. I had thought prior to the election, when it was obvious that Syriza would lose office to the New Democracy Party, that the European Commission would perhaps turn a blind eye for a time to the new Greek government and allow them to break some of the ridiculous fiscal shackles that the Greek colony is enduring. Just like the Commission ignored the rule breaking by the Spanish conservative government in the lead-up to the December 2015 general election to ensure the Government could stimulate the economy and restore growth and retain office. I was wrong. Spain is not yet a colony. Greece is. It is to be spared no quarter by the sociopaths. Within hours of gaining office, the New Democracy leaders were confronted with news from the Eurogroup President, Mario Centeno – “Commitments are commitments” – the fiscal surpluses will continue and the “strict budget targets that were agreed” will not be relaxed (Source). As you were Greece – remain in permanent depression.
I saw a Tweet overnight suggesting the so-called progressive British Remainers had been a little quiet in recent days following the comical display of anti-democratic, corporatism aka filling leadership positions in the EU and the Eurozone. Where are they? Why aren’t they out there in the media (social or otherwise) extolling the virtues of their much-loved European Union, where progressive policies are the norm and the peoples’ interests are held above the narrow corporate interests? The problem is that they cannot show up at present. The EU has managed to appoint a cabal of new leaders, many of whom are plagued by past scandals, allegations of nepotism, convictions for negligence in public office, and the Presidential nominee is under investigation in the Bundestag and has been acknowledged as a failure in her management of the German defense department. Come to think of it they seem perfect for the top jobs in the EU. And how was this motley lot selected? By denying even the limited sense of democracy that has been present in this process in the past. It is beyond a joke. But then this is the Europhile cosmo left’s vision for the future. One could not dream all this stuff up one they tried.
One of the shifts I have observed in the last year or so in the way that Modern Monetary Theory (MMT) is being discussed in the public domain and the type of speaking invitations I am receiving is a growing interest from large financial market entities, who have not bought into the visceral, knee-jerk attacks from the populist academic type economists (Krugman, Summers, Rogoff, and all the rest that have jumped on their bandwagon). I spoke at a few workshops some years ago where economists from the large investment banks were the main audience and it was clear that they, in the main, appreciated what MMT was about. It is clear the characters that have to deal with putting funds at stake are keen to understand how the monetary system actually operates rather than how the mainstream macroeconomists pretend it operates – a pretense that advances particular ideological interests. What is also coming out more clearly is that the response from the mainstream is revealing a dissonance that they cannot seem to manage in any coherent way. We have seen statements from mainstream macroeconomists dismissing MMT as just ‘printing money’ and proposing Zimbabwe-like disasters. Others claim that they knew MMT all along and so there is nothing new. Others claim that all the insights that MMT holds out come down to whether one thinks monetary policy is less or more effective as a counter stabilisation told than fiscal policy. All statements attempt to simplify our work down to the level of irrelevance or downright crazy. Other interventions, such as the recent statements from the Bank of Japan Governor border on the surreal – ‘we are not doing MMT’ – well one doesn’t ‘do MMT’ anyway. But an MMT understanding provides a remarkably accurate depiction of what has been going down in Japan for nearly 3 decades – a depiction that the mainstream macroeconomists is incapable of providing. It seems that now, the financial markets are starting to get this point and seeking more engagement with MMT (if my invitations are anything to go by). This engagement is not without issues though. This is Part 1 in a two-part series discussing this topic. Part 2 will come tomorrow.
While the Europhile progressives are publishing papers and holding talkfests to discuss their latest EU reform proposals, the on-going reality of the European Union continues to reveal itself – the pretense that there is a rule of law operating – as laid out in the Treaties and the idea that all are equal under that law. When I was researching my 2015 book – Eurozone Dystopia: Groupthink and Denial on a Grand Scale – and over the long period I have studied the concept of European integration it was obvious to me that despite the chimera of a strict, rule-based system that is run by technocrats, the actual practice of the Union is vicariously ad hoc – rules applied in cases where doing otherwise would present ideological problems, abandonment of the rules and outright illegal behaviour when there the interests of the corporate elites are at stake or the existence of the Union is threatened. And while law breaking, relevant officials produce complicated justifications of their behaviour as if what they are doing is within the boundaries specified by the Treaties. The Europhile progressives, meanwhile, continue to hold this embarrassing monstrosity out as the exemplar of freedom, globalism, cosmopolitanism and sophistication. They have reached such a state of denial that what is obvious to those looking in from the outside escapes their attention, or, in the mould of the European technocrats they just ride along with the spurious justifications for the unjustifiable. Europe in 2019.