On February 21, 2019, the British Office of National Statistics (ONS) released the latest fiscal data for the British government – Public sector finances, UK: January 2019. There was a lot of press reaction applauding the result and even progressive writers found it possible to misrepresent what the data actually is telling us has been happening. The fact that the British government recorded a fiscal surplus of £14.9 billion in January 2019 was touted in terms of creating a ‘war chest’ that the Government will be able to delve into when the next crisis arrives (which might be soon if the current Brexit mishaps continue). The reality, is, of course, totally different. There is no stored up spending capacity (stock) created when a government runs a surplus. What is actually happening is that the net flows out of the economy to the government squeeze an already over-indebted non-government sector for liquidity and destroy that much of its wealth portfolio. Moreover, while all and sundry, including the Euro-leaning Left are frothing at the mouth over Brexit, new data now allows us to compute the losses arising from the deliberate strategy of fiscal austerity that the Government has pursued. Guess what? They appear to dwarf all the Project Fear estimates of losses arising from Brexit (notwithstanding the flaky nature of those estimates). Where is the Guardian’s column Austerity Watch to match its hapless Brexit Watch column? Where is the relentless stream of articles from Guardian journalists and Op Writers about austerity? Sorry, that would take up space which is occupied by the relentless stream of articles about Brexit?
There is a campaign on the Internet calling itself CANOO (the Campaign against nonsense output gaps) which one Robin Brooks, economist at the Institute of International Finance and former Goldman Sachs and IMF employee, is pursuing. You cannot easily access his written memos on this because the IIF forces you to pay for them. However, there is nothing novel about his claims and the points he is making are well-known. However, they are points that are worthwhile repeating at loud volume because the implications of the ‘nonsense’ are devastating to the well-being of workers, particularly those most vulnerable to precarious work and unemployment. So while the CANOO is just dredging up old issues I am very glad that it is. The concept of biased estimates of output gaps and so-called ‘full employment unemployment rates’ goes to the heart of the way the neoliberal economists, who dominate policy making units in government and places like the IMF, the OECD and the European Commission, create technical smokescreens to justify their dirty work. The more people find out about the basis of the scam the better. I have been working on this issue (estimating, writing and publishing) since the late 1970s as a graduate student. So welcome Robin Brooks, and make a lot of noise.
It is Wednesday – so just a few observations and then we get down a bit dirty (funky that is). Today, I consider the GND a bit, critics of MMT, Japan, and more. Never a dull moment really. I didn’t really intend writing much but when you piece together a few thoughts, the words flow and so it is. The main issue is the recurring one – the lets have a little, some or no MMT narrative. This misconception regularly crops up in social media (blog posts, Twitter etc) and tells me that people are still not exactly clear about what MMT is, even those who hold themselves as speaking for MMT in one way or another. As I have written often, MMT is not a regime that you ‘apply’ or ‘switch to’ or ‘introduce’. An application of this misconception is prominent at the moment in the Green New Deal discussions. The argument appears to be that we should not tie progressive policies (for example, the Green New Deal) to Modern Monetary Theory (MMT) given the hostility that many might have for the latter but who are sympathetic with the former. Apparently, it is better to couch the Green New Deal in mainstream macroeconomic concepts to make the idea acceptable to the population. That sounds like accepting Donald Trump’s current ravings about the scourge of socialism. It amounts to deliberately lying to the public about one aspect of the economics of the GND just to get support for the interventions. I doubt anyone who thinks democracy is a good thing would support such a public scam. And so it goes.
It is Wednesday – a blog lite day – sort of. I am travelling a lot today and I have a large report to finish. But I couldn’t resist typing out the term “Keynesianisticists”, which refers to those imbeciles who think Modern Monetary Theory (MMT) has any credibility – it hasn’t!. These MMTers types – imbecilic is being kind – are parading around telling people that governments cannot run out of spending power as long as there are things for sale in the currency they issue on a monopoly basis. I have only one word for them – Zimbabwe – well two words – add Venezuela. And Lebanon thrown in! And I should know. I have predicted “9 of the Past 5 Recessions” (a Paul Samuelson quote from 1966). I told people that bond yields would rise sharply, they fell. I told people the share market would collapse, it boomed. I told people the gold price would soar, it fell. But that is nothing compared to what those Imbecilic Keynesianisticists want us to believe. Believe me, I know what I am talking about. They are imbeciles, they are imbeciles, imbecile is too kind a word, they are imbeciles, imbeciles, I am an imbecile … stop the record. Time to catch an aeroplane!
I was reminded this week of an interesting studies published in 1987 by Arjo Klamer and David Colander on the influences that go into the training of a professional economist. This study was repeated by Colander in 2005. The results are rather disturbing although obviously I am an ‘insider’ in the sense I went through the process in one way or another myself (although not in a US graduate program). They demonstrate how far removed graduate students are from learning or being interested in the real world. They compete among each other for ‘technical excellence’ in mathematics so they can solve tricky technical problems but do not think it is important to know anything much about the real world economy nor about the economics literature and history of the discipline that has gone before them. They adopt classic Groupthink characteristics as they are moulded (socialised, brainwashed, choose your own word) by their professors (who then feed them into their own networks for employment etc). There is little wonder the profession has very little to say that makes any sense about the real world. It is largely a disgrace.
On the back of a decelerating inflation rate, Italy in recession, Germany not far behind, terrible PMI in Europe, Eurostat released the latest retail sales data yesterday (February 5, 2019) – Volume of retail trade down by 1.6% in euro area. Not good news. Remember all those Europhile Left reformers telling us that now was the time to reform the EU while the ‘sun was shining’. Well, its black clouds again and they didn’t get to first base in the reform basis. Lots of hot air – none of it got near disturbing the neoliberal austerity bias. But this austerity bias is not just a feature of the currency union. Yesterday, the Australian Bureau of Statistics released two data sets – Retail Trade and Balance of International Trade – and they both tell the same story. The interesting thing was that the trade data recorded a “record trade surplus” and I heard commentators actually claiming this was a great result. Wrong. Exports declined, but more slowly than imports. And imports declined because consumer spending and business investment was weak. Not a great result at all. At some point, the austerity bias around the world has to stop. But nations are heading south again in the meanwhile. With all that gloom, the best thing to do is enjoy my regular Wednesday music spot (if you like). And if you don’t like it, then maybe, appreciate the artistry of the musicians.
The – Final Report – from Australia’s Royal Commission into to Misconduct in the Banking, Superannuation and Financial Services Industry was released to the public yesterday. The Commission was conducted under highly restricted terms of reference and barely scratched the surface of what goes on in this sector because the conservative federal government that was finally forced into establishing it didn’t want their mates to be exposed. Even so, the Report reveals massive fraud, deception and all manner of cheating behaviour from the major players in the financial sector. But its recommendations are pathetic. It is highly likely that no-one will go to jail for their criminal misconduct and no board member will lose anything as a result of their incompetence. Yet, if an indigenous Australia commits a minor infraction they go straight to jail to not pass go! It is also clear than commentators who appear in influential media publications and predict the worse then steer their readers to financial services they offer themselves should be held to account for the veracity of their claims. If a commentator is making money from their predictions then they should be subject to professional negligence claims if these predictions are systematically incorrect. That shift in law would prevent outlandish and wrongful commentary entering the public domain and influencing the way unsuspecting and/or unknowing customers invest their savings.
I was going to write about Jamaica today but this topic emerged that I thought I should deal with before I write about the home of reggae. In fact, some of the material is input into a reasoned discussion about Jamaica so it logically precedes it. With the increasing profile of Modern Monetary Theory (MMT), social media activists are wont to talk about MMT in various ways that, in many cases, do not bear resemblance to our work. But that doesn’t stop them claiming things about what we have written or said and then proceeding to say how this is a ‘big problem’ with MMT that they cannot accept. Then their own local commentators chime in reinforcing the point. It is obvious that the original writer hasn’t read our work or if they have they haven’t grasped it (including the nuance and subtlety) but still feels privileged to hold themselves out as experts to wax lyrical about the technical flaws in the said work. This gets amplified by the responses from the readership who have probably read even less – to the point that we end up with MMT being constructed as something ridiculous and foreign to its original. Sort of like start by saying you are discussing 2, call it 3 and say it equals 4. It is a problem because it confounds people and also gives those who oppose our work ways to further misrepresent it in the public debate.
A short blog post as per my usual Wednesday behaviour these days. Fiscal austerity manifests in many ways, all of them unpleasant, destructive and unnecessary. Here is one of the more insidious ways that mindless cuts in government programs have long-term damaging impacts. In 2013, the Queensland State Government was taken over by a conservative extremist as Premier who thought it was a good idea to hack into sexual health programs targetted at indigenous communities. Over a few short years, this was just one of a huge number of social and health cuts that were made by that particular state government. More than 14,000 public service jobs were cut (a huge relative number). The State government fiscal deficit fell from a predicted $A6 billion in 2013-14 to $A2.58 billion. But like all these austerity cuts which deliver short-run reductions in public spending, the longer-term effects of the cuts lead to much higher amounts of public spending. Neoliberalism is not only mindless but myopic. I have made this point often in regard to infrastructure cuts. In the end, the government has to spend much more fixing the crisis the initial cuts create. Not a sensible strategy at all. The ‘chickens’ (manifestation) of those cuts in Queensland a few years ago are now coming home to roost. As predicted at the time, there is now a health crisis in the form of a STD epidemic moving across the north of Australia from east to west, purely because this idiot wanted to ‘save’ a few pennies. Now serious public cash is being required to put a brake on the health crisis he created. There are countless examples across the world over this neoliberal era of this same phenomena. Myopic and mindless.
The current conflict in France, while multidimensional, is a reflection that the neoliberal austerity system is not working for ordinary people. All sorts of cross currents feed in to this discontent, some of which (for example, distaste for foreigners/migrants) are clearly not to be encouraged. Most of the claims of the Gilets Jaunes are about the alienation, exclusion and poverty that they feel living in the neoliberal, corporatist EU world. A lot of so-called progressives are out there claiming this is a right-wing ruse advancing climate denial and anti-migrant sentiment. But I consider that to be a typical elite response to any EU discontent to avoid discussion of exit and the paint the critics as being stupid and/or racist. A replay of the Brexit accusations from the Remainers. But the writing is on the wall for the Eurozone countries. People will only tolerate being put down and oppressed for so long. And all is not well elsewhere. Even when a nation has its own currency and has the capacity to avoid the sort of stagnation that many European nations are now wallowing in, the universality of the neoliberal austerity bias is making life hard for not only the low-income cohorts, but, increasingly for the lower tiers of the ‘middle class’ (defined in income terms). Australian workers are feeling that pinch in the land of plenty.