skip to Main Content

Bank of Japan continues to show who has the power

Its been around 9 months since the central banks of the world (bar Japan) started to push up interest rates. This reflected a return to the dominant mainstream view that fiscal policy should aim to support monetary policy in its fight against inflation and thus be biased towards surpluses, while central banks manipulated interest rates to deal with any inflationary pressures. The central banks would somehow form a ‘future-looking’ view that inflation was about to spring up and they would push rates up to curb the pressures. The corollary was that full employment would be achieved through price stability because the market would bring the unemployment rate to a level consistent with stable inflation. So full employment became defined in terms of inflation rather than sufficient jobs to meet the desires of the workforce. This is the so-called NAIRU consensus that has dominated the academy and policy makers since the 1970s. During the pandemic, it was abandoned and there was hope, particularly after statements made by the US Federal Reserve that this approach had unnecessarily resulted in elevated levels of unemployment for decades, that central bankers would target low unemployment as well as price stability. Progressive economists, of course, rejected the whole deal, noting that monetary policy shifts created uncertain distributional outcomes (creditors gain, debtors lose when rates rise) and also rising interest rates add to business costs which provoke further price rises. Anyway, after a short respite from this pernicious NAIRU logic, we are back to square one with central banks pushing up rates. The Bank of Japan is now standing, again, in the wilderness, resisting this logic and demonstrating how government should deal with the sort of pressures being felt around the globe. And who isn’t happy? The grandstanding financial markets who thought they could make a quick buck but have come up against an ideology that rejects their claim to dominance. That is a happy story.

Read More

The pandemic has caused fundamental shifts in worker behaviour

Jeff Beck has died! A masterful musician. Very sad. We move on. I read an interesting research paper recently – “The Great Retirement Boom”: The Pandemic-Era Surge in Retirements and Implications for Future Labor Force Participation – published in the US Federal Reserve Bank’s Finance and Economics Discussion Series (released November 2022), which illustrates how the pandemic is altering the behaviour of the US labour market. The lessons from the US are relevant everywhere as governments progressively ignore the reality that a dangerous virus is still in our midst and still causing havoc (deaths, long-term disability and more). For those who are continuing to claim the pandemic is some sort of conspiracy to control us or that Covid is less dangerous than influenza or that mask wearing is redundant and all the rest of the nonsense that seems to perpetrated by some on the Left who think they are for ‘freedom’ and those on the Right who just care about profits, this sort of research should presents a serious wake up call.

Read More

Older workers in Australia taking on more work, while in Britain they are bailing out

It’s Wednesday and a few items caught my interest in the last few days. I have been besieged with requests to comment on the Bank of Japan’s announcement yesterday to widen the range in which it conducts yield curve control for the 10-year Japanese government bond yield. Some of the besiegement (which means in English – aggressive pressure or intimidation) claims that the decision shows the private bond investors have finally won and is the last nail in the Modern Monetary Theory (MMT) coffin. If the senders were comics, they would be very funny. Otherwise, it signals a sad reluctance to face reality. It is called yield curve CONTROL for a reason. Anyway, I will analyse the decision for my readership tomorrow I think. Today, though, I saw two pieces of data that demonstrate the impacts of Covid and inflation on two different labour markets. In Australia, they are now calling it the ‘great unretirement’ as older workers flood into the labour market in recent years – allegedly, so the spin goes because of by “more favourable workplace conditions”. I think there is more to it than that. Over the other side of the World in freezing cold Britain, it appears that the impacts of Covid (“rising sickness”) have, in part, been responsible for an “exodus of more than half a million people from the British workforce”, which means the growth capacity is now more limited. These are interesting trends that need thinking about.

Read More

RBA governor apologises for duping Australians – but then says we didn’t read the literature closely enough

It’s Wednesday and I am reverting to my usual pattern of discussing a few items in less detailed form and including some music to lighten the load. Today we consider the apology that the RBA governor issued to mortgage holders that the central bank duped. We also consider the question of what is ‘normal’ in a pandemic. And more.

Read More

Dangerous anachronisms continue – and I am not talking about the British royalty

It’s Wednesday and as usual I just present some short snippets that have attracted my attention this week and other things that distract me from economics. Today, we don’t talk about the British royalty at all – the events this week were from another world really. But what is not from another world is the continual nonsense being spoken and written about this inflationary period and how central banks and treasuries have to tighten up to ‘beat it’. Talk about anachronism. And once we have discussed those things, I offer some soothing music to reduce the state of angst.

Read More

A ‘broad agreement’ on the need for climate change action – doesn’t mean a solution is forthcoming

It’s Wednesday and I have been on the road most of the day so have had less time to write. A few issues are discussed below, including the problem that climate change is presenting central banks with, recent research on how an initial Covid infection appears to be causally related to a range of life threatening maladies. And then some music.

Read More

Australia – wages growth flat and purchasing power of workers is plummeting to new depths

All eyes have been waiting for today’s release (August 17, 2022) of the – Wage Price Index, Australia – by the Australian Bureau of Statistics for the June-quarter, given that the Reserve Bank of Australia has been claiming wage pressures are becoming threatening and using that as a cover for unnecessarily pushing up interest rates. Prior to pushing up interest rates over the last several months, the RBA had been signalling that they would not move on interest rates until there was a concerted increase in wages growth, which has been at record low levels for some years now. On the back of that information, many new entrants to the housing market ran up massive mortgage debts and now feel dudded by the central bank. Whatever, information on wages the RBA is privy too is not gelling at all with the official data, which continues to show that wages growth remains flat (hasn’t moved in three months) and at record low levels. The is no acceleration. Wages growth is not driving the inflation trajectory. Workers are enduring massive real wage cuts and the RBA has made that worse by pushing up mortgage rates for those exposed. The business sector, as a whole, thinks it is clever to always oppose wages growth and the banks love that because they can foist more debt onto households to maintain their consumption expenditure. But the reality is clear – there can be no sustained recovery for the economy post Covid without significant increases in the current rate of wages growth.

Read More

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.

Read More

We should celebrate the ‘work from home’ phenomenon

We will have Wednesday on a Thursday this week, given my detailed analysis of Australia’s inflation data release yesterday. So today I write less here to write more elsewhere and finish with some of the greatest guitar playing you might ever hope to hear. My topic today is the issue of the ‘work from home’ phenomenon, which is one of the better things Covid has produced. I explain why. But I also realise a lot of commentators view the phenomenon negatively. Some on the Left allege it just means the ‘woke’ class have abandoned the low-paid workers to Covid, while those on the Right are aghast because they realise that, at least, some workers have more ‘control’ over their working lives. My view is that we should celebrate the fact that some workers are happier. I don’t accept the argument from the ‘Left’ commentators that every worker should be miserable if every worker cannot be happier.

Read More

Mask mandates should be reintroduced to stop our rising death rate

Today is Wednesday and as usual I feel as though I can roam a bit freer than usual. Today I have some great music but also my latest views on sustainable urban development and the hot topic in Australia at the moment of whether or not the Australian government should reintroduce mask mandates in certain settings given that Covid is rapidly accelerating and our death rate is now at unacceptably high levels and rising. There is a lot of guff on Twitter etc about the oppression of these sorts of restrictions. But wearing a mask is a simple way to protect oneself and those around us. It is hardly a symbol of authoritarianism and conspiracy to destroy our freedom. I see it as basically a civic responsibility. I am in a very small minority though. As usual. Tomorrow I will get back to economics.

Read More
Back To Top