I am in working in Seoul all day today and then rushing to the airport to get back to Sydney – so this blog has to be quick. When I saw the headline in the UK Telegraph (October 20, 2012) – A rude awakening for those who refuse to play by the rules – I thought it could have referred to the British government who are intent on defying the rules of responsible fiscal policy by pursuing pro-cyclical austerity and who are seeing the unfolding problems that their policies were generating. I didn’t really think that but it should have been referring to the abandonment of proper fiscal practice in the UK. Upon reading the article I learned it was about the British government – in that it was written by the Minister for Employment. The article was like deja vu for me and the message was one that Australians will be familiar with. It said that the unemployed are in that state because they game the “most generous” system of support and benefits that the UK provides to its citizens. Forget about the lack of jobs. The smokescreen descends – the victims become the perpetrators.
As a researcher one learns to be circumspect in what one says until the results are firm and have been subjected to some serious stress testing (whatever shape that takes). This is especially the case in econometric analysis where the results can be sensitive to the variables used (data etc), the form of the estimating equation(s) deployed (called the functional form), the estimation technique used and more. If one sees the results varying significantly when variations in the research design then it is best to conduct further analysis before making any definitive statements. The IMF clearly don’t follow this rule of good professional practice. They inflict their will on nations – via bullying and cash blackmail – waving long-winded “Outlooks” or “Memorandums” with all sorts of modelling and graphs to give their ideological demands a sense of (unchallengeable) authority before they are even sure of the validity of the underlying results they use to justify their conclusions. And when they are wrong – which in this case means that millions more might be unemployed or impoverished – or more children might have died – they produce further analysis to say they were wrong but we just need to do more work. So who is going to answer for their culpability?
I am “on the road” again today so short of time (as usual). But yesterday, Eurostat released the latest labour force data from the EU and the Eurozone for the month of August 2012. It showed that the labour market continues to deteriorate and youth unemployment in some countries is heading into unprecedented territory. I have examined various speeches that representatives of the Troika have made when discussing fiscal austerity over the last few years and I have failed to find any specific reference to the the labour market collapse. There is lots of talk about fiscal consolidation and the need to maintain confidence with the “investors” (the bond market recipients of corporate welfare). But very little focus on the real human tragedy – which is epitomised by the rising joblessness. There is a huge disconnect operating between the policy makers and the people. I saw something of the way the European policy makers live and interact during my recent trip to Brussels. They should get out more and travel to Greece and see what is happening on the street where there are now more than 55 per cent of the 15-24 year olds unemployed – and without very many future prospects.
It is a public holiday in NSW today – Labour Day – to celebrate the 8-hour day although for many workers that victory is now a thing of the past as labour market deregulation bites harder on the hard-won conditions that workers enjoyed during the full employment period. I am also ailing (with “the bug” that is “going around”) and I have two major pieces of work to finish (one completed this morning). There is also a birthday in my immediate family and so I am partying tonight (in relative terms). So all that means a shortish blog. I was giving a talk in Perth last week about the absurdity of state (non-currency issuing) governments running down public infrastructure because they refuse to borrow all in the name of preserving their AAA credit rating from the corrupt ratings agencies. The obvious question seems to evade people – why have AAA credit rating if you refuse to borrow. The ridiculousness of the ratings game raised its head again last week when one of the ratings agencies threatened to downgrade the British Government’s rating. It is clear that the agency is probably needing a revenue boost so tried to attract some publicity. If I was the Chancellor I would have told them to buzz off and to stress how irrelevant they really are. But the reaction was typical – angst and worry. For what? Nothing. The only thing it demonstrated was how mislead the public are and how mindless this “dark age” that we are living through at present really is.
I am in Perth today speaking at a public service employees union congress. The talk is based on a major report we have just finished tracking the implications of public spending cutbacks in Australia on the volume and quality of public service delivery. We did several case studies – one of which was child protection – and the cutbacks will lead to increased child abuse in Australia without doubt. The story is pretty grim and I will write about it once the Report is made public by the commissioning party. But with travel (Perth is a long flight from anywhere and I have to get back to Newcastle tonight – 6 hours) and commitments I haven’t much time to wax lyrical on my blog. But I have been meaning to write about the upcoming Scottish referendum on independence from Britain and it fits a nice theme with yesterday’s blog – The demise of social democratic parties – they are all neo-liberals now – where I argued that good intentions come to naught if the economic policy paradigm used is erroneous. I would recommend the Scots vote yes at the 2014 referendum. But only if they introduce their own unpegged, floating currency and avoid any talk of joining the Eurozone. Further, the yes vote should be conditional on the government committing itself to achieving full employment on the back of their newly created currency sovereignty. Then the yes vote will improve welfare for the Scottish people. If they continue to use the British pound – then nothing will be gained.
It will be a relatively short blog today as I am off travelling again. Yes, I was home one day! Real GDP gaps, which measure the extent to which economies are producing below their potential (indicated by full employment of labour and existing capital resources), remain large across many of the large advanced economies. That means one thing – current output growth is not strong enough given the real resources available to these nations. It means another thing – that potential growth will start to fall as investments in productive capital and human capital falters as a result of the lack of demand for current output. Given current capacity (labour and capital), the utilisation of it depends on spending and spending alone. That means another thing. Policies that deliberately undermine the current demand for output will not help economies to exit this crisis. So the only debate worth having is how to stimulate spending and that leaves all the discussions about the need for fiscal austerity on the sidelines of irrelevance. At what point will the economists supporting austerity realise that?
Today’s article from the relics (my office clear out continues) is actually two articles. One by Arthur Okun and the other by fellow US macroeconomist Gardner Ackley. Both economists are now dead but during their careers were aware of the role of government in a monetary economy. They were antagonistic to the conservative views of economists that wanted to push fiscal rules such as balanced budgets. They understood that these views not only undermined democracy but also made it impossible for governments to pursue their legitimate goals of promoting public purpose. In the current environment, if they were still alive they would be castigating those who seek to impose pro-cyclical fiscal austerity. Their insights remain relevant today. Just think about yesterday’s public finance data release in Britain. The debt reduction forecasts from the British government are in tatters because tax revenue is collapsing further and welfare spending is rising. The operation of the automatic stabilisers is signalling that the British government has more than adequately demonstrated its incompetence.
I am doing a bit of cleaning up old filing boxes each day now as the date I will be moving offices approaches. It is actually an interesting process – looking through boxes and articles that have been stored away for some years now. Today, I came across an article that was in the US Magazine Challenge (March-April, 1982) entitled The Guilds of Academe and written by one Jack Barbash, who was an academic at the University of Wisconsin. It discussed the way in which the economics profession protects its belief system from criticism and avoids, as far as possible, addressing real world problems. The mainstream will talk as if they are addressing a real world problem – such as entrenched unemployment – but when you realise the models they are dabbling with you know that they are really talking about nothing real at all. This leads onto a forthcoming book by some British conservative MPs who have the temerity to argue that the British unemployment problem is due to the workers being to idle and diverted by pop music to bother working. You know instantly that the underlying model has come from a mainstream economist who hasn’t recently looked out the window or read any data.
Here is a list of my professional colleagues who have learned nothing in the last 5 years. That is no surprise because they didn’t learn very much before that about how the monetary system works anyway. If their ideas were to be implemented I would guess that very few of them would publicly recant and admit they were wrong. They would obfuscate, deny, misconstrue but they wouldn’t admit they were wrong. At least prospective students have a good list of departments to avoid should they wish to study economics in the US. Keep it handy for future reference. Back in February 2010, there was a letter by 20 economists supporting the Tory proposals for fiscal austerity published in the Sunday Times. It was an unashamed attempt to influence the result of the May 2010 election. A week later 60 economists wrote that the 20 were nuts. It seems that some of the 20 rats have now deserted the Tory ship but won’t really tell us why.
Eurostat released the second-quarter 2012 National Accounts data for the Europe yesterday and, predictably, the recession is deepening in many countries. The Southern European nations saw their performance worsen and data shows that Spain’s house prices fell by 11.2 per cent last month (Source) and have fallen by 31 per cent since the crisis began in 2008. The deflationary impact of that alone would push the economy into recession. The Euro elites claim they will do everything to resolve the situation. And anything they do undertake – just makes it worse. Meanwhile, across the Atlantic, the Romney camp has put out a very suspect economic paper – authored by some notable suspects in the propaganda campaign the neo-liberals are sponsoring to prevent governments from acting responsibly. The economic paper has been categorically demolished – even in the mainstream media. So it is another day – some more evidence against fiscal austerity – and still the criminals maintain their grip on the throne.