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The Autumn Statement – an exercise in absurdity and public harm

First, the Bank of England seems to have abandoned credibility. Not to be outdone, the fiscal policy makers in government have now joined in the absurdity of mainstream policy thinking by reimposing austerity at the same time as the economy heads into recession. Milton Friedman and his gang used to claim the problem of fiscal policy was that it was practiced in a ‘pro-cyclical’ manner, by which they meant that because of time lags involved in implementation, by the time a stimulus to deal with a recession was in place and impacting, the private economy was already on the upturn – so that fiscal policy was working to push the cycle harder in the same direction. They claimed that was inherent to the use of fiscal policy, which rendered it unsuitable for use as a counter-stabilising (-cyclical) measure. The fact that that claim (which is contestable) won the debate in the 1970s is why all the central bank independence nonsense entered the scene and why New Keynesians claim that monetary policy should be the tool of choice to stabilise spending fluctuations. Now, the Tories in Britain are deliberately using fiscal policy in a pro-cyclical way – pushing the already recessionary forces further into the morass. A totally unnecessary and patently dangerous action. It almost beggars belief that they are getting away with this and the Labour Party essentially just offers to tune up the governments ‘violin strings’ a bit.

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Why listen to so-called ‘experts’ that were so wrong about Brexit?

There is a short memory in the public discussion about economics. If there wasn’t many players that get the wide platforms to express their views, opinions, forecasts, etc would burnout very quickly given how appalling their track records are. I was thinking about that while looking at the most recent Foreign Direct Investment data and reading UK Guardian articles about the demise of the most recent British Prime Minister. While it is very hard at present to trace the economic events in terms of individual drivers because Covid, the Ukraine situation and OPEC+ have certainly muddied the waters, there is some clear evidence available that demonstrates the mainstream anti-Brexit analysis and predictions was completely wrong. Given the same sort of characters and institutions are consistently given platforms in the media to proselytise and scare the b-jesus out of people about fiscal positions etc, one wonders why they retain credibility after being so wrong about Brexit, while commanding the floor of authority. My position is that they were wrong then and remain unreliable sources of information about what is happening now.

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British currency gyrations are about weak government not fiscal deficits

The British government has descended into high farce. It is rather embarassing to watch adults behave in the way they have conducted themselves in the last longtime. I also note that the usual suspects are out in force claiming (spuriously) that the economic turmoil that has beset Britain demonstrates categorically that Modern Monetary Theory (MMT) is deeply flawed and the real world is now teaching us that we should be discarded into the dustbin of history – or rather disgrace. These characters, which include so-called progressives think that hard core fiscal rules, like the British Labour Party took into the last election would have saved the day for Britain. I guess they are now mates with the IMF, who in their latest fiscal monitor – Fiscal Monitor – overnight (published October 12, 2022) – called for fiscal restraint. Also, central bankers who met in Washington over the last few days decided they had become the elected and accountable government making gratuitous threats that if fiscal policy wasn’t turned to austerity, they would punish citizens with further interest rate hikes. It is actually hard to find anything of sense in the current economic debate. It is despairing really.

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Two diametrically-opposed approaches to dealing with inflation – stupidity versus the Japanese way

Well things are going to get messier with the decision yesterday by the OPEC+ cartel to significantly reduce the oil supply and push up prices. On the one hand, when OPEC was first formed and pushed prices up, while there was significant disruption to oil-dependent nations, the substitution that followed (home oil heating abandoned, larger cars replaced by smaller cars, etc) was ultimately beneficial. So given that we need less cars on roads and less kms travelled by cars, one might consider the move to be fine. But given the way the central banks and treasury departments around the world are behaving at present, the short term impacts of the OPEC+ decision will be very damaging. How citizens endure whatever extra inflationary pressures that might emerge will depend on the fiscal and monetary policy responses. We have two diametrically opposed models: the one that most nations are following (hikes and austerity) versus the Japanese approach. I explain the difference below and predict that the latter will deliver much better outcomes for the people.

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The last week in Britain demonstrates key MMT propositions

There was commentary earlier this week (September 26, 2022) from an investment banker entitled ‘MMT takes a pounding’. I won’t link to it because I don’t want to send traffic to their site. But it is the narrative that the financial market commentators who desire to politicise public debate and use it to attack their pet hates. Modern Monetary Theory (MMT) apparently is a pet hate of this character and like many with similar biases he has been champing at the bit for some semblance of ‘evidence’ that MMT analysis is flawed. This week’s events in Britain have given them more succour. Except when you understand what has actually happened the events demonstrate key MMT propositions.

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Where are all the economists? Its lucky they have gone AWOL

It’s Wednesday and so I write less on the blog to allow me to write more elsewhere. And, we get a chance to savour some music – today some of the best vibraphone playing that was recorded. Simon Jenkins wrote a column in the UK Guardian on Monday (August 8, 2022) – Who knows if Truss or Sunak is right on the cost of living crisis – where are all the economists? – which runs the line that my profession has gone to ground as the two Tory leadership hopefuls come out with diametrically opposed views as to how to fix the ‘cost of living crisis’ in the UK. Well, he could have answered his own question. Who would want the opinion of the ‘economists’ by which I mean the mainstream macroeconomists given they have an appalling record of prediction anyway. The majority are supporting the Bank of England’s kamikaze interest rate increases because they think monetary policy is an effective solution to inflationary pressures and they agree that unemployment should be a policy tool rather than a policy target. He might also have noted in his article that who gets a platform in the public debate about economic matters is heavily biased against those who might offer an alternative view. Try getting an Op Ed in the UK Guardian, for example, if you are non mainstream and not part of the ‘progressive, pro-Europe’ network in London. And on those cost of living pressures, no mainstream economist that the UK Guardian is likely to publish would propose nationalising energy supply, public transport, water supply and telecommunications anyway. Which is the best long-term solution to protect workers and low-income consumers. Further, the latest data from the US indicated that inflation has peaked and inflationary expectations are falling sharply. Did anyone mention the word ‘transitory’ around here?

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Low US unemployment does not negate the conclusion that the US economy is now in recession

The US Bureau of Economic Analysis published the latest US National Accounts data last week (July 28, 2022) – Gross Domestic Product, Second Quarter 2022 (Advance Estimate) – which showed that the US economy is now in technical recession – two consecutive quarters of negative GDP growth. After recording a contraction of 1.6 per cent in the March quarter in real GDP, the advance estimates for the June quarter show a further contraction of 0.9 per cent. Many commentators are, however, denying the recession narrative because they are pointing to the low unemployment rate (of 3.6 per cent). It is true, that the GDP figures are often revised and when the final, second-quarter estimates are available, they might record positive growth. But there is a puzzle emerging. We have long held the view (based on Okun’s Law – see below), that when GDP growth declines, the unemployment rate rises. This is a long-held stylised fact that has until Covid stood the test of time. But Covid has changed things and at present the US (and other nations) are experiencing a major slowdown in the growth of their working age population as a result of quite alarming rises in long-term disability as a result of the enduring impacts of Covid infections (and repeated infections). That has meant that unemployment rates are lower than they otherwise would have been as a result of worker shortages. On the one hand that is good for the employed. But, on the other hand, it is disastrous for workers who are now disabled. So the meagre fact that unemployment is low does not negate the conclusion that the US economy is now in recession, which has been deliberately created first by a massive fiscal contraction, and then, by the irresponsible conduct of the Federal Reserve Bank.

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New Keynesian inflation model is unfit for purpose

It’s Wednesday – a day for a few short comments and then relaxing to music. Today I consider some statements from the Bank of International Settlements, which suggest that the mainstream inflation approach, based on the New Keynesian Phillips curve is subjected to “serious practical shortcomings”. In other words, it is unfit for purpose, which means you should not be surprised that central banks are hiking rates to stifle a transient supply-side inflation burst. Quackery leads to quackery. I also consider some recent evidence that supply disruptions are easing. And, then, we learn that that the British Labour Party no longer things workers should strike. And if that has driven you mad, then we restore calm with some great music from Jiro Inagaki.

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The Left/Right distinction is as relevant as ever as corporations gouge profits out of pushing inflation

Apparently, the Left/Right Paradigm is dead. This narrative keeps coming back. In the 1980s, when governments, coopted by corporate lobby groups, went on a privatisation spree, which transferred billions of dollars worth of public assets into the hands of private wealth holders, and enriched lawyers, management consultants etc into the bargain, we were told that we are all capitalists now because our pension funds bought the assets. Joke. Anyway, I keep reading and being told that there is no longer any meaningful distinction between Left and Right, with both falling into the hands of totalitarian discourse. Even so-called progressives advocate that the traditional Left should partner up with the traditional Right (and far Right) to keep ‘centrists’ out of power or to stop governments taking basic actions to protect public health. It is the ultimate victory for the neoliberals to have persuaded the Left that they have more in common with the Right than ever before. This is another example of how duped the Left has become.

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The Covid trade-off between health and the economy did not exist

With yesterday’s detail CPI analysis, I am transferring the news/music blog post that normally appears on a Wednesday to today. This morning, I read the newly published report from the UK-based – Institute for Public Policy ResearchHealth and prosperity: Introducing the Commission on Health and Prosperity (released April 27, 2022) – which provides a sobering (to say the least) evidence base for how the pandemic has impacted on Britain’s health system and labour market. As more evidence comes out from the experience of the last 2.4 years, I wonder when those who demanded nations learn to live with the virus – by basically denying its existence – will reflect on the folly of their laissez-faire positions.

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