On January 5, 2018, the US Bureau of Labor Statistics (BLS) released their latest labour market data – Employment Situation Summary – December 2017 – which showed that total non-farm employment from the payroll survey rose by 148,000 in December, well down on the 228,000 rise in November. While the payroll data showed a fairly strong employment outcome, the Labour Force Survey data estimated a that 104 thousand (net) jobs were created in November, up from the weaker rise in employment (57 thousand) in November. The labour force was estimated to have risen by 64 thousand with participation constant. The BLS thus estimated that unemployment fell by 40 thousand and the official unemployment rate fell slightly from 4.12 to 4.09 per cent. There is still a large jobs deficit remaining and other indicators suggest the labour market is still below where it was prior to the crisis.
This is the third and final part of my response to an article posted by American political analyst Jared Berstein (January 7, 2018) – Questions for the MMTers. In this blog I deal with the last question that he poses to Modern Monetary Theory (MMT) economists, which relates to whether currency issuing governments have to raise revenue in order to “pay for public goods” and whether prudent policy requires the cyclically-adjusted fiscal balance to be zero at full employment to ensure “social insurance programs” are protected. The answer to both queries is a firm No! But there are nuances that need to be explained in some detail. While Jared Bernstein represents a typical ‘progressive’ view of macroeconomics and is sympathetic to some of the core propositions of MMT, this three-part series has shown that the gap between that (neoliberal oriented) view and Modern Monetary Theory (MMT) is wide. I hope this three-part series might help the (neoliberal) progressives to abandon some of these erroneous macroeconomic notions and move towards the MMT position, which will give them much more latitude to actually implement their progressive policy agenda. For space reasons, I have decided to make this a three-part response. I also hope the three-part series have helped those who already embrace the core body of MMT to deepen their knowledge and render them more powerful advocates in the struggle against the destructive dominant macroeconomics of neoliberalism.
This is the second part of my response to an article posted by American political analyst Jared Berstein (January 7, 2018) – Questions for the MMTers. Part 1 considered the thorny issue of the capacity of fiscal policy to be an effective counter-stabilising force over the economic cycle, in particular to be able to prevent an economy from ‘overheating’ (whatever that is in fact). Jared Berstein prescribes some sort of Monetarist solution where all the counter-stabilising functions are embedded in the central bank which he erroneously thinks can “take money out of the economy” at will. It cannot and its main policy tool – interest rate setting – is a very ineffective tool for influencing the state of nominal demand. In Part 2, I consider his other claims which draw on draw on the flawed analysis of Paul Krugman about bond issuance. An understanding of MMT shows that none of these claims carry weight. It is likely that continuous deficits will be required even at full employment given the leakages from the income-spending cycle in the non-government sector. Jared Bernstein represents a typical ‘progressive’ view of macroeconomics but the gap between that (neoliberal oriented) view and Modern Monetary Theory (MMT) is wide. For space reasons, I have decided to make this a three-part response. I will post Part 3 tomorrow or Thursday. I hope this three-part series might help the (neoliberal) progressives to abandon some of these erroneous macroeconomic notions and move towards the MMT position, which will give them much more latitude to actually implement their progressive policy agenda.
There was an article posted by American political analyst Jared Berstein yesterday (January 7, 2018) – Questions for the MMTers – which I thought was a very civilised exercise in engagement from someone who is clearly representative of the more standard Democratic Party view, that the US government has to move towards balancing its fiscal position and reducing government debt in order to meet the social security challenges posed by an ageing population and the accompanying increase in dependency ratios. He is sympathetic to Modern Monetary Theory (MMT), given that he wrote “there’s no distance between my views and a core principal of MMT: the need for deficit spending when the economy is below full employment”. In other words, he notes that “MMT or whomever else argues on behalf of expansionary fiscal policy is correct”. But that is a fairly standard ‘progressive’ position when the economic cycle is below full capacity. This position typically alters quite dramatically when so-called longer terms considerations are brought into the picture. Jared Bernstein worries about the inflationary consequences of fiscal policy (so do MMT economists by the way) and thinks central banks should be the primary macroeconomic policy makers (MMT economists reject this). He also thinks that if the government doesn’t sell bonds to match its deficits then there will be “currency debasing”. MMT economists have pointed out the fallacies of that proposition but he is still in the dark about it. And he also things that fiscal position should be balanced at full employment. MMT economists do not agree with that proposition pointing out that it all depends on the state of saving and spending decisions in the non-government sector. It is likely that continuous deficits will be required even at full employment given the leakages from the income-spending cycle in the non-government sector. So while his queries are conciliatory and written in an inquiring fashion, the gulf between this typical ‘progressive’ view of macroeconomics and MMT is rather wide. This is Part 1 of a two-part series that responds to the questions that Jared Bernstein raises and hopefully puts the record a bit straighter.
I recently wrote about the degraded infrastructure in Europe as a result of years of unnecessary fiscal austerity – see Massive Eurozone infrastructure deficit requires urgent redress. Not only is the public amenity degraded but when transport cannot access key international trading routes (for example, bridges across the Rhine), then industrial prosperity and exports are undermined. The Eurozone nations are sinking into a mire of both human and physical infrastructure decay and the negative consequences will reverberate for decades to come. This is a global phenomenon. Recently, the American Society of Civil Engineers (ASCE) released its – 2017 Infrastructure Report Card – for the US and the results are dire. This Report comes out every four years and provides a good guide to the “condition and performance of American infrastructure”. It gives grades (like “a school report card”) “based on the physcial condition and needed investments for improvements”. Overall, the US, the richest country in the World, was awarded a D+, which means “Poor at Risk” or mostly below standard and “approaching the end of their service life”. You don’t really have to be an engineer to appreciate this. Any drive or walk through a US city these days will allow you to see this decay. It is totally unnecessary, totally preventable and very damaging to the well-being of the people and firms that rely on the public infrastructure for their own activities. Myopic and ridiculous.
On December 8, 2017, the US Bureau of Labor Statistics (BLS) released their latest labour market data – Employment Situation Summary – November 2017 – which showed that total non-farm employment from the payroll survey rose by 228,000 in November, slightly less than the October net increase. While the payroll data showed a fairly strong employment outcome, the Labour Force Survey data estimated a weaker rise in employment (57 thousand) in November. The labour force was estimated to have risen by 148 thousand after October’s results showing a sharp contraction. The BLS thus estimated that unemployment rose by 90 thousand and the official unemployment rate rose slightly from 4.07 to 4.12 per cent. There is still a large jobs deficit remaining and other indicators suggest the labour market is still below where it was prior to the crisis. I also update my ‘low-wage jobs bias’ to November 2017 and conclude that in the recovery, there has been a bias towards low wage and below-average wage job creation.
On August 19, 1964, the then US President Lyndon B. Johnson established the – National Commission on Technology, Automation, and Economic Progress. He established the Commission in response to growing concern during the deep 1960-61 recession that the unemployment had been created by the pace of technological change. Ring a bell! He wanted to an inquiry to explore this issue and come up with recommendations on how to deal with the possibility that automation was wiping out jobs and the future would be bleak. Before the Commission had reported, the Federal government had reversed its fiscal austerity and the resulting stimulus had driven the unemployment back down to relatively low levels. The Commission noted that unemployment was largely the result of inadequate total spending and that the Government had the tools at its disposal to eliminate it. They considered that there would be workers (low-skill etc) who would suffer more displacement from technology than those with more skill etc, but that ultimately even those workers would be able to get jobs if the public deficit was large enough. In this regard, they eschewed pointless training programs that did not provide immediate access to jobs. Instead, they recommended (among other things) the introduction of a Job Guarantee (Public Service Employment) financed by the Federal government but administered at all levels of government. It would pay the Federal minimum wage and be available on demand. This is the preferred Modern Monetary Theory (MMT) approach and rejects solutions that rely on the provision of a basic income guarantee to resolve the problems created by unemployment.
One wonders what goes on in the heads of politicians sometimes. Perhaps not much other than a warped sense of their purpose in life – which for some seems to be to advance themselves rather than advance societal well-being. In recent days, fiscal debates have raged on both sides of the Atlantic. In the US, there is the Trump tax cut debate. The correct progressive response would be to focus on why these cuts will not advance anybody but the rich and will do very little if anything to create new jobs. Unfortunately, prominent Democrats such as the awful Nancy Pelosi have been spouting stuff about the tax cuts increasing the federal deficit and federal debt. At a time, when the Republicans are abandoning the deficit terrorism to advance their own interests, the Democrats seems to be reinforcing the ‘deficits are bad’ narrative. Instead, they could have seized the opportunity to say to the American people – see deficits are fine but the real issue is what we do with them. Pelosi and her ilk seem incapable of adopting that quality of leadership. In the UK, the reality is dawning on the British government that the austerity harvest is anything but what they had hoped it would be. No surprises there. Austerity undermines growth which can easily increase the fiscal deficit when the goal is the opposite. But the way that reality is being handled in the progressive press is pathetic. The UK Guardian, for example, has headlines about ‘black holes’ and is giving oxygen to reports that talk about the deteriorating fiscal situation in the UK. Readers are left with nothing but neoliberalism reinforcement of the ‘deficits are bad’ myth. A shocking indictment of the progressive debate in the UK.
Yesterday, I discussed the latest US labour market data, including the 0.4 percentage point drop in the participation rate, which is a large decline for a month. Whether that is subject to revision or not remains to be seen. The monthly data fluctuates quite a bit due to sampling errors and uncertainties regarding population benchmarks. It is clear that during the recession, many workers opted to stop searching for work because there was a dearth of jobs available. As a result, national statistics offices considered these workers to have stopped ‘participating’ and classified them as being ‘not in the labour force’, which had had the effect of attenuating the official estimates of unemployment and unemployment rates. These discouraged workers are considered to be in hidden unemployment. But the participation rates are also influenced by compositional shifts (changing shares) of the different demographic age groups in the working age population. In most nations, the population is shifting towards older workers who have lower participation rates. Thus some of the decline in the total participation rate could simply be an averaging issue. This blog updates my previous estimates for the US. The aggregate participation rate has been in decline since the beginning of this century and the compositional shifts account for around 73 per cent of the decline over that time.
On November 3, 2017, the US Bureau of Labor Statistics (BLS) released their latest labour market data – Employment Situation Summary – October 2017 – which showed that total non-farm employment from the payroll survey rose by 261,000 in October, which the BLS said “mostly offset … a decline in
September that largely reflected the impact of Hurricanes Irma and Harvey”. For more on that issue see my analysis from last month – US labour market – hit by two hurricanes but improvement suggested. While the payroll data showed a strong rebound in employment, the Labour Force Survey data estimated a sharp drop in employment (484 thousand) in October while the labour force was also estimated to have contracted sharply by 765 thousand. The latter was due to a rather implausible decline in the participation rate (0.4 points), which will probably be revised next month. But, taking the data on face value, the BLS estimated that unemployment fell by 281 thousand and the official unemployment rate fell by 0.2 points to 4.1 per cent. There is still a large jobs deficit remaining and other indicators suggest the labour market is still below where it was prior to the crisis. What was striking about the October data though was the dramatic fall in the labour force participation rate – by 0.4 percentage points allied with the decline in the Employment-Population ratio (0.2 points). I analyse those movements in this month’s focus section of this blog. On the face of the aggregate data, the US labour market is getting back to its pre-GFC position but there is evidence that the quality of work has declined and negative cyclical effects remain in the system.