It’s Wednesday and I have been on the road most of the day so have had less time to write. A few issues are discussed below, including the problem that climate change is presenting central banks with, recent research on how an initial Covid infection appears to be causally related to a range of life threatening maladies. And then some music.
What a world we live in where we are snowed with propaganda from the elites about how the only way forward is that we accept “pain” or “sacrifice” to prevent some inflationary catastrophe from accelerating out of control and that if workers dare seek some cost-of-living redress as corporations go for broke in their margin push, then the pain the policy makers will inflict will be greater. The annual gathering of the elites at Jackson Hole in Wyoming over the last days has been one of those ‘can you believe this lot’ moments. First, we had the US Federal Reserve boss almost joyfully telling Americans that he will inflict pain on them because “these are the unfortunate costs of reducing inflation”. At the same event, the ECB Board member Isabel Schnabel told the gathering that the central banks had to inflict higher unemployment rates to control inflation to stop wages getting driven by inflationary expectations. And then we look at wages growth in Europe and see that real wages are in free fall (dropping 5.9 per cent in the June-quarter 2022).
It’s Wednesday and some short items that caught my interest over the last week. The FAO’s latest – Food Price Index – shows that even though food prices fell 8.6 per cent from June (to August), “the fourth consecutive monthly decline”, they are still massive inflated (13.1 per cent higher than August 2020) and the “world’s top four grain traders” are profiting from record sales in the face of supply disruptions. The World Food Program informs us that 345 million people are enduring ‘acute food insecurity’ which is nearly 3 times the pre-pandemic number. The system is not working and I have some things to say about that below. Further, latest PMI data from Europe shows that price pressures are declining, which brings into question those (with vested interests) calling for even higher interest rates. And then some music.
I wrote about what I am terming a ‘poly crisis’ in this recent blog post – The global poly crisis is the culmination of the absurdity of neoliberalism (July 18, 2022). I am working on material for my next book to follow up – Reclaiming the State: A Progressive Vision of Sovereignty for a Post-Neoliberal World (Pluto Books, September 2017). The German word ‘Zeitenwende’ means turning point. A fork in the road. It carries with it, from one interpretation, a recognition that the path that has been traversed to date is not the path that should be followed in the future. Something has to give. Whether Albert Einstein actually said “Insanity is doing the same thing over and over and expecting different results” is an interesting literary issue but the essence of the quote (correctly attributed to him or not) is sound. The idea of a ‘poly crisis’ is that big shifts in thinking and behaviour are required. We simply cannot continue to act in the same way as before whether it be on an individual level (us making our own choices) or at a societal level. The organisation of economic activity, our patterns of consumption and conduct of economic policy must all change – radically – for the planet to survive. Tinkering around the edges will be insufficient. Identifying a ‘poly crisis’ is tantamount to declaring the neoliberal experiment has failed dramatically and taken us all to the brink. It cannot form a basis for the future. But there is massive resistance to change and in Australia in the last week we have seen that in spades.
Despite all the hysteria about the current inflationary pressures and the reversion of central bank policy committees to the New Keynesian norm – interest rates have to rise to kill off inflation otherwise it becomes a self-fulfilling process where wage demands are made in ‘expectation’ of more inflation and firms (passively in their view) have to pass on the higher unit costs, I remain of the view that this period is transitory. That doesn’t win me any friends (other than my true friends). It also leads to another hysterical line of Twitter-type statements that the Modern Monetary Theory (MMT) have gone silent because they were wrong about fiscal deficits not causing inflation and are too ashamed to admit it. I haven’t gone silent. I have been continuous in my advocacy both privately and publicly. The rise in fiscal deficits during the pandemic and the central bank bond purchases have had little to do with this inflationary episode. Covid, sickness of workers, War, natural disasters (floods, fires) and noncompetitive cartels and energy markets are the reason for the inflation (variously in different countries) and interest rate increases won’t do much at all to target changes in those driving factors. New ECB research (released August 3, 2022) in their Economic Bulletin (Issue 5, 2022) – Wage share dynamics and second-round effects on inflation after energy price surges in the 1970s and today – reinforces my assessment of the situation.
It’s Wednesday and I have a few items of interest (to me at least) to warm us up for the music feature, which is beautiful though sad. First up we learn how a senior Tory MP has made admissions to the media that completely contradict mainstream macroeconomics and validate what Modern Monetary Theory (MMT) tells us. Second, we learn from the latest ECB data just how ‘flexible’ (read: anything goes) it can be in its government funding. Italy and Spain are being rescued at present. As I said anything goes. And third, the vandalism of the Reserve Bank of Australia continues. Then we can rest and listen to some glorious singing.
So last week, the Bank of Japan remained the last bank standing, the rest in the advanced world have largely lost the plot by thinking that raising interest rates significantly will reduce the global inflationary pressures that are being driven by on-going supply disruptions arising from the pandemic, the noncompetitive behaviour of the OPEC oil cartel and the Russian assault on Ukraine. The most recent central bank to buckle is the ECB, which last week raised interest rates by 50 basis point, apparently to fight inflation. But the ECB did it with a twist. On the one hand, the rate hike was very mainstream and based on the same defective reasoning that engulfs mainstream macroeconomics. But on the other hand, they introduced a new version of their government bond-buying programs, which the mainstream would call ‘money printing’ and inflationary. So, contradiction reigns supreme in the Eurozone and that is because of the dysfunctional monetary architecture that the neoliberals put in place in the 1990s. The only way the common currency can survive is if the ECB continues to fund Member State deficits, even if they play the charade that they are doing something different. Hilarious.
We are used to segmenting destructive episodes as crises – the Mexican debt crisis in 1982, which gave way to the Latin American debt crisis in the 1980s, the East Asian financial crisis of 1997-98, then the Global Financial Crisis in 2008 and beyond, then the pandemic crisis since 2020. Meanwhile, firefighters are dealing with major fires from Portugal, France to Crete; Britain is about to experience 40 degrees Centigrade; Australia is dealing with a sequence of massive floods; corporations are gouging profits and pushing inflation, which is provoking policy makers to take it out on the most disadvantaged in our societies, with no logical link between the policy and the perceived problem, other than deep recessions stop the gouging; nations considered to be ‘middle income and rising’ are now lining up behind Sri Lanka to see who will be the next to basically collapse into anarchy, unable to feed its population; housing shortages are causing havoc almost everywhere; the quality of employment has declined dramatically (job security, worker agency, etc) and the trade unions are a pale imitation of what they used to be; politicians are more self-serving than ever; and people are still dying in the thousands everyday from the pandemic but our leaders insist we are now ‘living’ with Covid (more like dying with it). The reality is that all these events are linked and part of what some might call a poly crisis. Capitalism has failed and the institutions we created to tame the raw-profit greed of capital – the state, trade unions, etc – have also been compromised to such a degree that they, either are no longer effective or work as agents of capital rather than mediating the labour-capital conflict. A poly crisis requires fundamental change. But, such is the dominance of the mainstream, which has created this crisis, that all we get is more of the same. That means the ultimate solutions will be more painful and destructive and lead to conflagration as this period of human civilisation collapses.
It’s Wednesday, and so I have some shorter analysis on a range of matters today. First, some discussion of a technical paper from the US Federal Reserve researchers, which makes it clear they think that the interest rate hikes have a high probability of causing a recession. Second, we analyse some Russian data which suggests the sanctions are having the opposite effect to that intended. Third, I consider the stupidity of the new Australian government which is now falling into the ‘we have too much debt’ to even provide basic health care trap. And, I comment on a State Government that is now openly ignoring its professional health advice because the corporate sector told them to. And if all that wasn’t depressing enough, some music that focuses our attention of the vicissitudes of colonial might. All in a day.
I operate on the basis of first seeking to understand the phenomena I am addressing through logic and recourse to the evidence base. I am very cautious in my public statements – oral or written – and always seek to consult the knowledge base. I noticed a comment in response to yesterday’s blog post – The RBA has lost the plot – monetary policy is now incomprehensible in Australia (July 6, 2022) – that insinuated that I was writing nonsense in relation to my claim that commercial banks enjoy higher interest rate environments because they can make more profit. Anyone is welcome to their opinion, but not all are of equal privilege when it comes to these issues. If you understand the basis of commercial banking and the vast amount of research on the proposition you will have no doubt in concluding that commercial banks do not like it when interest rates are low and will make more profit now that the RBA is hiking rates. To opine otherwise tells me that there is a lack of understanding about the basis of commercial banking and a disregard (perhaps ignorance) of the research literature on the topic.