Its Wednesday, so a relatively short blog post today. We are just about finished the final responses to the editors from Macmillan on the manuscript for the next Modern Monetary Theory (MMT) textbook, which I am now reliably informed will be published in February 2019. Today, two short topics. First, the disgraceful and on-going propaganda from the UK Guardian about the “Brexit process”. Second, a report released today in Australia showing the damaging effects of a financial sector that is not properly regulated. And then some event announcements and then some music to restore our equanimity.
The Centre for European Reform, which must have little to do given the snail pace of so-called ‘reform’ that goes on in Europe, released a report over the weekend (June 23, 2018) – What’s the cost of Brexit so far? – which all the Europhile Remainers found filled their Tweet and other social media void for the day. I would have thought that they should have been happy, given England’s demolition of Panama in the soccer and 5-zip thrashing of Australia in the ODI cricket tournament. But no, they wanted to amplify the CER propaganda and makes themselves feel sad. Britain’s economy, apparently, is already 2.1 per cent smaller than it would have been had the vote to exit in June 2016 not won. And apparently, this has been a “hit to the public finances is now £23 billion per annum – or £440 million a week”. If you delve into the way the CER came up with these results you will quickly move on with a ho-hum and get back to the World Cup, which is infinitely more interesting (and that is saying something! read: I don’t enjoy soccer). The saying – Apples and Oranges – is relevant.
This is Part 2 in my two-part series analysing the 354-page report from the Scottish Growth Commission – Scotland – the new case for optimism: A strategy for inter-generational economic renaissance (released May 25, 2018). In Part 1, I considered their approach to fiscal rules and concluded, that in replicating the rules that the European Commission oversees as part of the Stability and Growth Pact, the newly independent Scotland would be biasing its policy settings towards austerity and unable to counter a major negative shock without incurring elevated levels of unemployment and poverty. In Part 2, I focus specifically on the currency issue. The Growth Commission recommends that Scotland retain the British pound, thereby surrendering its independence. Moreover, while it is part of the United Kingdom, the British policy settings have to consider the situation in Scotland. Once it leaves, it will still be bound by British fiscal and monetary settings but those settings would be designed to suit the remaining British nations. So if the British government continues with its austerity obsession, Scotland would be forced to endure that end. Hardly, the basis for an independent nation with progressive aspirations.
The 354-page report from the Scottish Growth Commission – Scotland – the new case for optimism: A strategy for inter-generational economic renaissance (released May 25, 2018) – could have been published by the IMF given its adherence to the flawed neoliberal macroeconomic framework that that institution imposes on everything. It is too generous to call the Growth Commission’s work ‘analysis’ – a series of unfounded assertions with logical extrapolation from that flawed basis is more accurate. If Scotland were to create an independent nation on the basis of the ‘blueprint’ outlined in the Growth Commission’s Report then it would soon be heading into a mediocre oblivion – a future where it would be unable to effectively counteract the fluctuations of non-government sector spending and a future where fiscal policy was forced to be pro-cyclical. Scotland would end up another failed austerity state. This is Part 1 of a two-part series where I examine the Report and its implications. In Part 2, I will examine the currency issues in more detail. I hope to be in Scotland in early October as part of my next speaking tour of Europe – more details later.
The UK Guardian has its ‘Brexit Watch’ page, which is regularly updated with commentaries from this and that ‘expert’, purporting to provide a sort of on-going scorecard of what is happening on that front. Many commentaries usually include some statement to the effect that “Brexit is a disaster”. That particular opinion appeared in the header of the most recent ‘Brexit Watch’ update (May 29, 2018) – ‘Brexit is a disaster’ – experts debate the latest economic data – which followed the release by the British Office of National Statistics (ONS) of the – Second estimate of GDP: January to March 2018 (released May 25, 2018) – which showed that the British economy (based on the latest updated data) increased by 0.1 per cent in the first-quarter 2018 and ONS said that “we see a continuation of a pattern of slowing growth, in part reflecting a slowing in the growth of consumer-facing industries”. One contributor to the ‘Brexit Watch’ article (David Blanchflower) had his wind-up ‘Brexit is Bad Doll’ working overtime blaming the Referendum vote and the uncertainty that has followed for the poor GDP performance, particularly the decline in business investment. So if its bad its Brexit is the repeating message. If its good, just wait, it will be bad again soon and then it will be Brexit. That is the repeating message. However, if you read the New York Times article (May 28, 2018) – In Britain, Austerity Is Changing Everything – you get a very different narrative. You can guess which one I think is more accurate.
Although this blog post considers some very technical material its message is simple. Mainstream macroeconomic models that are used to determine policy choices by governments are deeply flawed and the evidence strongly supports a central thrust of Modern Monetary Theory (MMT) – that fiscal policy is powerful and that austerity will kill growth. In that sense, it helps us understand why various nations and blocs (such as the Eurozone) struggled after the onset of the GFC. It also explains why the deliberate attack on Greek prosperity by the Troika was so successful in demolishing any prospect of growth – an outcome that the official dogma resolutely denied as they constructed one vicious bailout after another. It also explains why New Keynesian approaches to macroeconomics are flawed and should be ignored. I was reminded this week by a research paper I had read last year (thanks Adam for the reminder) which presents a devastating critique (though muted in central bank speak) of the mainstream approach to macroeconomic modelling. A research paper from the ECB (May 2017, No 2058) – On the sources of business cycles: implications for DSGE models – provides a categorical critique of DSGE models and a range of other stunts that mainstream economists have tried to introduce to get away from the obvious – economic cycles are demand driven.
The German propagandist Joseph Goebbels would have loved the so-called ‘NHS Funding Tool’ that the London-based Institute of Fiscal Studies has wasted hours of labour producing and making available on the Internet. In fact, history would show that the German menace was probably more circumspect in his propaganda activities that the IFS, which has set about to deliberately distort the public debate in the UK over NHS funding. Its latest entry (May 24, 2018) – Securing the future: funding health and social care to the 2030s – is nothing short of a disgraceful grab for headlines. The problem is that reports such as this then feed into an uncritical press, which then furthers the fictional world that my profession has created to hide their ideological preferences against public intervention – in this case, public health systems. The IFS Report is a typical case of neoliberal analysis, which contains hidden constraints that are designed to lead towards the TINA conclusion. Britain can afford to have a first-class NHS if it chooses and the real resources are available and people desire for them to be used in that sector rather than elsewhere. My bet is that the country would be much better off if there were less bankers and investment speculators (the occupations that the neoliberals revere) and more resources in the health sector. At present, constructing the NHS challenges, which are real and growing, as a tax rise or bust type scenario is dishonest in the extreme.
Regular readers will recall that Thomas Fazi and I published an article in the Jacobin magazine (April 29, 2018) – Why the Left Should Embrace Brexit – which considered the Brexit issue and provided an up-to-date (with the data) case against the on-going hysteria that Britain is about to fall off some massive cliff as a result of its democratically-arrived at decision to exit the neoliberal contrivance that the European Union has become. There was an hysterical response on social media to the article, which I considered in this blog post a few days later – The Europhile Left loses the plot (May 1, 2018). In recent days, two British-based academics have provided a more thoughtful response in the Jacobin magazine (May 18, 2018) – Caution on “Lexit”. Here is a response which was co-written with Thomas. As a general observation, I noted some prominent progressive voices citing their attack on us enthusiastically, one even suggesting it landed “some good punches” after taking “a while to warm up”. Well, I can assure Andrew that my face (nor Thomas’s) was the slightest bit puffy after reading the critique.
Regular readers will know that I have delved into social psychology in the last decade or so as a way of educating myself on why ideas survive when their logical consistency is lacking and their empirical content is zero. I have gained a good understanding of this phenomenon by exploring the literature on patterned group behaviour and the work by Irving Janis in the early 1970s on Groupthink. While I usually demonstrate instances of this destructive group behaviour on the part of the Right, it is also clear that that the Europhile Left is riddled with the problem. To the point of not even valuing debate anymore. At the weekend (April 29, 2018), the excellent Jacobin magazine published an Op Ed piece by myself and Thomas Fazi – Why the Left Should Embrace Brexit – which considered the Brexit issue and provided an up-to-date (with the data) case against the on-going hysteria that Britain is about to fall off some massive cliff as a result of its democratically-arrived at decision to exit the neoliberal contrivance that the European Union has become. The article was rather moderate in fact and considered the on-going failure of the apocalyptic arguments that have been introduced against Brexit, both before and after the Referendum. But the social media response (negative) has been at elevated levels of hysteria. Inane claims. Groupthink in action. And it is why the progressive cause is such a push over by the organised Right.
I have been doing some analysis of British and European Trade patterns over the Post World War 2 period. They reveal some very interesting insights that are seemingly lost in the on-going war by Europhiles against Brexit. One of the recurring themes in the Brexit debate is the so-called importance of membership of the European Union to on-going prosperity of Britain through trade. What the data reveals is that British exports growth did not accelerate with accession to the EU in 1973 and after the introduction of the ‘Single Market’, British exports to the EU started to level off and then decline rather sharply. In other words, Britain has been diversifying its exports and is less reliant on the EU than it was say in the early 1990s. The data also shows that the creation of the Single Market hasn’t even boosted intra-EU or intra-Eurozone trade. Additionally, and laterally, the data suggests that the introduction of the euro has not expanded intra-EMU trade. The claims by the Euro-elites that it would were a major part of their justification for pushing through to the common currency. I consider this sort of evidence has been largely ignored by those in the Remain camp, who prefer to base their assertions on the highly questionable ‘forecasts’ coming from neoliberal-inspired ‘models’, which have so far demonstrated an appalling record of accordance with the facts. The data I have shown here doesn’t provide an open and shut case for Brexit. But it does show that the importance of EU membership to Britain’s prosperity is probably overstated and that Britain will prosper if its own policy settings are appropriate.