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The monetary institutions are the same – but culture dictates the choices we make

In discussions about the significant differences that we have observed over the last 30 odd years between the conduct of economic policy in Japan and elsewhere, the usual response from mainstream economists, when challenged to explain the outcomes in the former nation, is that it is ‘cultural’ and cannot be applied elsewhere. I always found that rather compromising because mainstream economics attempts to be a one-size-fits-all approach based on universal principles of maximising human behaviour. So, by admitting ‘cultural’ aspects to the discussion, this is tantamount to admitting that the ‘market-based’ micro founded approach to macroeconomics is incapable of explaining situations. That is the first black mark against the veracity of mainstream theory. But when one prods further, it becomes clear that the term ‘culture’ is fairly vacuous and blurred in this defense of the mainstream framework. I respond by pointing out that essentially the monetary system dynamics in Japan are identical to the way the system works elsewhere. The institutions might have subtle variations but essentially the operations are so similar that the ‘culture’ bailout doesn’t help resurrect the appalling lack of predictive accuracy when it comes to examining the macroeconomics of Japan. Cultural aspects, however, are crucial to understanding the differences. The trick is understanding how these monetary and fiscal institutions are managed. This is where the cultural aspects impact. And, while I have learned a lot about Japanese cultural nuances, some of the more important ‘cultural’ drivers are transportable to any nation – if only we cared enough and valued people in the same way.

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It all adds up to the conclusion that system change is required not progressive tinkering

It’s Wednesday and some short items that caught my interest over the last week. The FAO’s latest – Food Price Index – shows that even though food prices fell 8.6 per cent from June (to August), “the fourth consecutive monthly decline”, they are still massive inflated (13.1 per cent higher than August 2020) and the “world’s top four grain traders” are profiting from record sales in the face of supply disruptions. The World Food Program informs us that 345 million people are enduring ‘acute food insecurity’ which is nearly 3 times the pre-pandemic number. The system is not working and I have some things to say about that below. Further, latest PMI data from Europe shows that price pressures are declining, which brings into question those (with vested interests) calling for even higher interest rates. And then some music.

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The RBA has lost the plot – monetary policy is now incomprehensible in Australia

It’s Wednesday and I have some comments to make about yesterday’s RBA decision (July 5, 2022) to continue increasing its interest rate – this time by 50 points – the third increase in as many months. If the rhetoric is accurate it will not the last rise by any means. In its – Statement by Philip Lowe, Governor: Monetary Policy Decision – the RBA noted that global factors were driving “much of the increase in inflation in Australia” but there were some domestic influences – like “strong demand, a tight labour market and capacity constraints” and “floods are also affecting some prices”. It is hard to make sense of their reasoning as I have explained in the past. Most of the factors ‘driving inflation’ will not be sensitive to increase borrowing costs. The banks are laughing because while they have increased borrowing rates immediately, deposit rates remain low – result: massive gains in profits to an already profit-bloated sector. But the curious part of the RBA’s stance is that they are defending themselves from the obvious criticism that they are going to drive the economy into the ground and cause a rise in unemployment by claiming that “many households have built up large financial buffers and are benefiting from stronger income growth” – so the increased mortgage and other credit costs will be absorbed by those savings (wealth destruction) allowing households to continue spending. You should be able to see the logic gap – if “strong demand” is driving inflation and that needs to come off for inflation to fall but the buildup of savings will protect demand – go figure. Monetary policy is in total chaos and being driven by ideology. And to calm down after that we have some great music as is the norm on a Wednesday.

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Biodiversity Sensitive Urban Design and the silence of our political parties

Australia is in the last week of a federal election campaign, which has been marked by a disturbing absence of any policy vision by either main party which might address the most important issues confronting society and our land. Hopefully, the conservatives will get their marching orders this coming weekend (I have scheduled a rare glass of champagne around 22:00 on Saturday, when the result should be known) and the worst government in my lifetime will be gone. The problem is the Labor opposition is also short of policy mission. They have been too scared to enunciate anything much worth thinking about on climate, housing, education, health care, urban planning etc because, as the main narrative goes, they feared being wedged by the conservative government who lacks any remotely acceptable. The rival explanation for Labor’s timidity is that they are not committed to root-and-branch reform because they are inherently neoliberal themselves – a light version of the conservatives – without the extreme right tendencies on gender and those sorts of issues that dominate conservative politics. So, for whatever reason, the main challenges ahead are not being prosecuted by the major parties, which means our society will just be compounding the unsustainable evolution under the neoliberals and the price we will increasingly pay is rising.

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The same erroneous logic that created the social housing shortage is apparently the solution

Australia has a dire housing crisis, particularly in the low-income or social housing end. Since the 1990s, successive federal governments, who fund the social housing, have abdicated from their responsibilities citing a lack of funds and the need to run fiscal surpluses in order to save money for the future. While it has been starving the social housing sector, it has been investing billions of dollars in its Future Fund, ostensibly to cover future liabilities. So instead of spending funds on hospitals, education, housing and other important infrastructure needs, the government has been spending on speculative financial assets in global markets, some of which have been scandalous (see below). The whole narrative has been based on the falsehood that the government is like a household and has to save to expand its future spending possibilities. That logic has killed off many valuable initiatives, including maintaining adequate social housing stocks such that now low income Australians are increasingly becoming poor or homeless due to the high cost of private-provided housing at market rents. Today, a new proposal was launched by a think tank advocated that the Australian government should borrow to build the Future Fund so it can deliver speculative returns to help fund the dramatic shortfall in social housing. That is, they are using the same logic (the government is financially constrained) to solve a problem the logic created. It would be hard to make this stuff up.

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The pandemic that just keeps giving, and not in a good way!

Today, we have a guest blogger in the guise of Professor Scott Baum from Griffith University who has been one of my regular research colleagues over a long period of time. Today, he has taken a breather from teaching and exam marking to write about the long-run uneven labour market impacts of the COVID-19 pandemic. The COVID-19 pandemic has been the global emergency that just keeps giving. And not in a good way! Daily figures from around the world show that the pandemic’s health impacts continue to be widely felt. So, it’s over to Scott to explain how.

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Marx’s dream does not justify ignoring day-to-day human suffering

One of the recurring criticisms I face when presenting at events comes from those who say they are ‘socialists’ or ‘Marxists’. They accuse me in various ways of being an apologist for capitalism, for offering palliative solutions to workers, which will delay the break down of the system and the revolution to socialism and communism. These critics proudly announce they follow Marx’s solutions and that they reject Modern Monetary Theory (MMT) because it is just a stooge for capitalism. The problem is that Marx had no real vision of how we would transit to Communism. A recent book referred to Marx’s philosophical position on this as a ‘dream’ (more later). And MMT is not specific to any mode of production, by which I mean, who owns the material means of production. It is applicable to any monetary system, and I cannot imagine any modern, technologically-based society functioning outside of that reality – socialist, capitalist or otherwise. But, moreover, the critics seem to be displaying a lack of basic humanity where they exercise reasoning that Noam Chomsky regularly refers to as belonging in a philosophy seminar. Even progressives (and socialists) have to be aware of humanity – as they plot and scheme for the revolution.

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Plenty left behind in a national economy that the Government claims is ‘roaring back’

Today, we have a guest blogger in the guise of Professor Scott Baum from Griffith University who has been one of my regular research colleagues over a long period of time. Today he is continuing his discussions around the uneven regional impacts of job losses since the start of the COVID-19 pandemic. So while I am tied up today it is over to Scott …

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Using a regional lens reveals the uneven impact of the COVID employment crash

Today, we have a guest blogger in the guise of Professor Scott Baum from Griffith University who has been one of my regular research colleagues over a long period of time. Today he is writing about the uneven impact of the COVID employment crash. This theme – the spatial unevenness of fluctuations in aggregate economic activity – is one we often explore (in our past research together) because understanding these patterns is essential for designing appropriate policy interventions. It is one of the reasons we both favour employment creation programs that respond to local conditions, like the Job Guarantee. It is also the topic a new large grant application that we are currently putting in (as part of the annual funding circus in Australia). Anyway, while I am tied up today it is over to Scott …

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