It is Wednesday, so a truly short blog. We have to proof read the final copy edit of our Macroeconomics textbook by the end of the next fortnight. Tough ask. But apart from a music journey today, the richest people living in Britain are planning journeys as I write (they certainly are not sleeping) because they are scared witless about what Jeremy Corbyn will do to them once he is elected. This fear is even greater than anything Brexit will bring and the proponents of this narrative have also admitted that Brexit will not alter Britain’s position as a “global wealth hub”. Pity about that. I was hoping they would take all their banks and dodgy financial companies with them. Anyway, I am an Australian, as I am being increasingly told these days by those who claim I should stay out of British debates. Primer: I am not uncertain about my nationality. And, I am fast becoming a major critic of Modern Monetary Theory … read on.
Last night in Britain (October 29, 2018), the British Chancellor released the – Budget 2018 – aka the 2018 fiscal statement (my terminology, to avoid triggering the flawed household budget analogy). The detailed analysis is being done by others and I haven’t had enough time to read all the documents produced by the Government and others yet anyway. But of the hundreds of pages of data and documentation I have been able to consult, the Government is trying to win back votes while not particularly changing its austerity bias. That is fairly clear once you dig a little into the outlook statement produced by the Office of Budget Responsibility (OBR). The Government’s strategy is also unsustainable because it continues the reliance on debt accumulation in the non-government sector, which will eventually hit a brick wall as the balance sheet of that sector becomes overly precarious. Nothing much has been learned from the GFC in that respect. The Government can only cut its debt by piling more onto the non-government sector. Second, the response of the Left has been pathetic. The Fabians, for example, has put out a document that uses all sorts of neoliberal frames and language, making it indistinguishable from something the mainstream macroeconomists would pump out – the anathema of the constructs and language that the Left should be using. There is a reason the political Left has fallen by the wayside over the last 3 or so decades. And their penchant to write and speak like neoliberals is part of the story.
This week’s theme seems to be the about how the so-called progressive side of the economic and political debate keeps kicking ‘own goals’ (given a lot of this is happening in Britain where they play soccer) or finding creative ways to ‘face plant’ (moving to Europe where there is more snow). Over the other side of the Atlantic, as America approaches its mid-term elections, so-called progressive forces who give solace to the New Democrats, aka Neoliberal Democrats are railing against fiscal deficits and demanding that the left-liberals in the Democratic Party be pushed out and that the voters be urged to elect candidates who will impose austerity by cutting welfare and health expenditure and more. And then we have progressive think tanks pumping out stuff about banking that you would only find in a mainstream macroeconomic textbook. This is the state of play on the progressive side of politics. The demise of social democratic political movements is continuing and it is because they have become corrupted from within by neoliberals. And then we had a little demonstration in London yesterday of the way in which the British Labour Fiscal Rule will bring the Party grief. The Tories are just warming up on that one.
Over the last weekend, it seemed that we had a return of the Spanish Inquisition with a prominent British academic, who by his own words designed the fiscal rule that British Labour has unwisely adopted, repeatedly demanding that MMT Tweeters confess to knowing that I was completely wrong on my interpretation of the fiscal rule. It is apparent that my meeting with the British Shadow Chancellor in London recently and my subsequent discussion of that meeting has brought the issues relating to the fiscal rule out into the open, which is a good thing. It is now apparent that British Labour is still, to some extent, back in the 1970s, carrying an irrational fear of what financial markets can do when confronted with the legislative authority of a sovereign government. I am not a psychologist so I cannot help them heal that irrational angst. But the claims that I misunderstood the fiscal rule – which are being repeated daily now by the fanboys of the rule are just ludicrous. The rule is simple. And it will bring Labour grief politically. Rolling windows or not!
It is Wednesday and I am reverting to my plan to keep my blog posts short on this day to give me more time for other things. Today, I will briefly outline what happened last Thursday when I met with Shadow British Chancellor John McDonnell in London. As I noted yesterday, I was not going to comment publicly on this meeting. I have a lot of meetings and interactions with people in ‘high’ office which remain private due to the topics discussed etc. But given that John McDonnell told an audience in London later that evening that he had met with me and that I thought the proposed fiscal rule that Labour has adopted was “fine”, I thought it only reasonable that I disclose what happened at that meeting. I did not think the rule was fine and I urged them to scrap it and stop using neoliberal constructs.
I am back in Australia now and I don’t have to stand on my head to write (a reference to the hassles of trying to maintain some order while travelling to different destinations on an almost daily basis). Last week, the IMF released its so-called – Fiscal Monitor October 2018 – and the mainstream financial press had a ‘picnic’ claiming all sorts of disaster scenarios would follow from the sort of financial situations revealed in the publication. At the time of the publication I was in London and the British press went crazy after the IMF publication – predicting that taxes would have to rise and fiscal surpluses would have to be maintained and increased to bring the government’s balance sheet back into balance. Yes, apparently the British government, which issues its own currency, has ‘shareholders’ who care about its Profit and Loss statement and the flow implications of the latter for the Balance Sheet of the Government. Anyone who knows anything quickly realises this is a ruse. There is no meaningful application of the ‘finances’ pertaining to a private corporation to the ‘finances’ of a currency-issuing government. A currency-issuing government’s ‘balance sheet’ provides no help in our understanding of what spending capacities such a government has.
I read a lot of articles in the British and other press about how the Brexit camp lied or mislead voters about the benefits of Brexit. Apparently there is an immorality in the leave camp that led it to deliberately dupe the voting public and allow a bunch of racists to steal the vote. According to this narrative, a new vote is necessary to bring out the truth so that democracy rules. What a joke. The concept of democracy for the Europhiles in Britain is to keep holding national votes supported by a massive disinformation campaign until the votes delivers the result they want. That seems to be what is going on. In the meantime, the unsuccessful voting outcomes are put down to the ignorance of the voters, or the racism of the voters or some deficiency in the voters rather than deficiencies in the proposal the Europhiles are trying to push. And the on-going campaign has to be fuelled by a constant repetition of the disaster estimates. The case of the UK financial services sector is a classic demonstration of this phenomenon. It is at the point of being a ridiculous sham.
The UK Guardian has been publishing a ‘Brexit Watch’ page for some months now claiming it is is a “look at key indicators to see what effect the Brexit process has on growth, prosperity and trade”. They wheel out some economists who typically twist whatever data is actually analysed into fitting their anti-Brexit obsession. The problem is that the data or issue they choose to highlight is usually very selective, and, then, is often partial in its coverage. I commented on the way the Brexit debate is distorted by these characters in this blog post – How to distort the Brexit debate – exclude significant factors! (June 25, 2018) and specifically on the ‘Brexit Watch’ distortions in this post – The ‘if it is bad it must be Brexit’ deception in Britain (May 31, 2018) among others. Yesterday’s UK Guardian column by Larry Elliot (August 27, 2018) – Britons seem relatively relaxed in the face of Brexit apocalypse – does provide some balance by discussing why the general public is not taking these economist ‘beat ups’ about Brexit very seriously at all. This is a case of a profession that systematically makes extreme predictions and forecasts which rarely come to pass. The general public works out fairly quickly that when a mainstream economist says the sky is about to fall in it is time to get the beach gear out because it will be fine and sunny!
Regular readers will know that I have spent a lot of time writing about the demise of the Left political parties as they became subsumed with neoliberal economic ideology, which blurred the political landscape as the ‘centre’ moved to the Right. That topic was the focus of our current book – Reclaiming the State: A Progressive Vision of Sovereignty for a Post-Neoliberal World (Pluto Books, September 2017). The neoliberal infestation has left these parties with declining electoral support, fractured internal organisations and cultures, and a seeming inability to abandon their flawed economic narratives. But there is a mirror image to this demise and that is playing out on the conservative side of politics. In Australia in the last week (but building for years) the far right conservative elements from within the government have brought down their own leader and our Prime Minister in a spiteful clash of ideologies between the more moderate elements in their party and the extremes out on the right. The internal tensions that drove this suicidal mission are being played out around the world. Think about the way that Trump is compromising the Republican party. Think about how Brexit is splitting Tory ranks in Britain. And so on. The problem for the conservatives is that citizens are realising that the neoliberal economic approach has failed to deliver on its promises. And that economic model is ‘owned’ by the conservatives. The adoption of neoliberal economics by social democratic parties is not part of their DNA. It is largely because their ranks have been infested by careerists who have come from the ‘elites’ and have little resonance with workers. The gaps in the policy space that these fractures have created is being occupied by extremist groups. It will be much easier for progressive parties to reclaim that space than it will be for the conservatives who are in the process of a death spiral. But to do that, the social democratic movements has to abandon every vestige of neoliberal economics – the concepts, policies and language and framing. That is the challenge.
The British Office of National Statistics (ONS) published its latest labour market data last week (August 14, 2018) – Labour market economic commentary: August 2018. The results are illuminating because they demonstrate how we must use broad concepts to appraise labour market health rather than just focusing on the official unemployment rate. A marked characteristic of the British labour market has been the near zero rate of growth in wages (and falling real wages) for some years, despite the claims that employment has reached record levels and the unemployment rate is now at levels unseen since the early 1970s. The research question is to dig deeper into the data to see what might be driving these relationships. The conclusion I reach is that the quality of employment has fallen somewhat over the last decade or so and the capacity of workers to successfully achieve wage settlements has fallen significantly as trade union membership has gone south. I am doing more formal research on this question to narrow down all the determinants and will report when I have more to say.