Eurostat published their latest National Account estimates for the Eurozone on Wednesday (February 15, 2012) – Flash estimate for the fourth quarter of 2011 – which allows us to complete the picture for the 2011 calendar year. Overall, the results are appalling. Many nations are now double dipping and even the European powerhouse, Germany contracted last quarter. Over the Channel, the British economy also contracted in the 4th quarter 2011. None of this should come as any surprise. An economy cannot grow when the private sector is deleveraging and is in constant fear of unemployment and the public sector deliberately refuses to step in and provide fiscal support. It is even worse when the government further undermines the capacity of the private sector to spend (by harsh cuts in pensions etc) and cuts its own net spending into the bargain. As one commentator noted yesterday “it makes no sense to drive an economy into recession where it stops people from working and thus paying more taxes” if the goal is to reduce budget deficits. The political leadership in Europe and the UK is deliberately sabotaging their economies. The same mentality is gathering pace in the US. Spare us!
This week I seem to have been obsessed with monetary aggregates, which are are strange thing for a Modern Monetary Theory (MMT) writer to be concerned with given that MMT does not place any particular emphasis on such movements. MMT rejects the notion that the broader monetary measures are driven by the monetary base (hence a rejection of the money multiplier concept in mainstream macroeconomics) and MMT also rejects the notion that a rising monetary base will be inflationary. The two rejections are interlinked. But that is not to say that the evolution of the broad aggregates is without informational content. What they paint is a picture of the conditions in the private sector economy – particularly in relation to the demand for loans. In this blog I consider recent developments in the US broad aggregates and compare them to the UK and the Eurozone, which I analysed earlier this week. But first I consider some fiscal developments in the US, which, as it happens, are tied closely to the movements in the broad monetary measures. The bottom-line is that the US is growing because it has not yet gone into fiscal retreat and the broad monetary measures are picking that growth up. The opposite is the case of the European economies (counting the UK in that set) where governments have deliberately undermined economic growth and further damaging private sector spending plans.
Recent data releases suggest that the current economic experience on the two sides of the Atlantic is very different. The latest data shows that the UK economy is now contracting and unemployment is rising as fiscal austerity begins to bite. Conversely, the latest US data shows that growth is on-going and the unemployment rate is finally starting to fall. This may be a temporary return to growth because the political developments that may occur later in this year could see some serious, British-style fiscal austerity being imposed on the US economy. At present though, my assessment of these disparate trends is that fiscal austerity is contractionary if non-government spending is insufficient to offset the decline in public spending. However, some observers are trying to hold out the US experience as vindicating those who believe in the notion of a “fiscal contraction expansion”. But the data tells us clearly that the US is not an example of this mania.
Mike Rhodes reported from California in Homeless attacked in Fresno that in February 2004, a “a coordinated multi-agency attack on homeless encampments earlier this month, the City of Fresno destroyed tents and other shelters used by the homeless … the Fresno Police Department … has returned to the tactic of not allowing the homeless to build any permanent structures. With thousands of homeless on the streets in Fresno, and homeless shelters able to provide only a couple hundred beds, a majority of the homeless have been turned into criminals. If you are homeless and can’t get into a shelter, you are breaking the law if you try to sleep anywhere in this city. This new policy penalizes the homeless and criminalizes poverty … There have also been public service announcements telling the community not to give money to the homeless … ”
In the New York Times, December 27, Brent Staples explains – Why Some Politicians Need Their Prisons to Stay Full – and outlines how public spending can clearly be a tool for essential job creation underpinning regional development. The problem is that it seems the Americans haven’t quite got it right.