The US Bureau of Economic Analysis (BEA) released the – Gross Domestic Product, Second Quarter 2020 (Advance Estimate) – data last week (July 30, 2020). It shows that the US economy has declined by 9.49 per cent between the March- and June-quarters. On an annual basis the decline was 9.54 per cent. This is the largest quarterly contraction in recorded history. Consumption expenditure declined by 10.1 per cent in real terms and business investment by 17.4 per cent. The collapse in consumer expenditure was mostly concentrated in services (-22.6%), which reflected lockdowns and the unwillingness of consumers to continue normal practices. Personal saving as a percentage of disposable personal income jumped dramatically from 9.5 per cent in the March-quarter to 25.7 percent in the second quarter. That is a testament to the endemic uncertainty that the pandemic has created. The contribution of net exports actually rose, not because exports rose (their individual contribution was -9.38 points), but because of the slump in imports – a smaller leakage from the expenditure system (adding 10.1 points t growth!). Overall, there is no trend – just a massive mess. How the second wave of the virus impacts is anybody’s guess but lots more deaths and more disruption is certain.
The University of New South Wales Business School seems to be making headlines for all the wrong reasons. They have (at least) two attention-seeking academics that are not helping the reputation of the University. The first, thought he was being smart by trying to put Modern Monetary Theory (MMT) down and lie about my own work only to make a fool of himself. I note that someone at The Conversation, which damaged its credibility publishing the piece, has now edited the original piece (taken my name out of the text). The stupidity of the attack on MMT remains however. I dealt with that in this blog post – When mainstream economists jump the shark and lose it completely (January 23, 2017). Now, another academic who thinks somehow she is a wonderful communicator bringing economics to the public, is causing a national debate about freedom of speech and all the rest of it. She is arguing that the Australia should not have followed its lockdown strategy, and, instead should have allowed around up to 25,000 Australians to die in order to protect the economy. So far, only 155 have died. The controversy is being constructed as one of free speech and academic freedom. But academics should only be free to make statements using their university attribution if they are based on evidence that can be supported. I don’t dispute the academic’s right to be provocative. I do dispute her command of the evidence and her ignorance of matters macroeconomic. That is the problem here. Short recommendation: I would not study economics in this Department.
The evidence that is mounting is allowing researchers to better assess the damage that is emerging from the way in which we are dealing with the coronavirus. One of the important questions that will determine the future trajectory of our economy relates to how many workplaces have disappeared altogether as a result of the businesses disappearing forever as a result of the flow-on impacts of the compulsory lockdown. Last week (July 14, 2020), the Australian Bureau of Statistics released their latest employment data taken from Australian Tax Office data – Weekly Payroll Jobs and Wages in Australia, Week ending 27 June 2020. They have slowed the release cycle on this data (for reasons they have not disclosed), so it is a month since I have analysed it. The latest data covers the period up to June 27, 2020. The monthly labour force data released last Thursday for June 2020, covers a period that ends around June 12, 2020, so the payroll data provides a more recent snapshot of the state of affairs – an extra three weeks. As the enforced restrictions were eased, payroll employment recovered somewhat and by the end of June is now 5.7 per cent below the March 14, 2020 levels. It appears though that, while part-time work has recovered, full-time work continues to decline. Examining the age profiles of the recovery demonstrates that prime age workers have not enjoyed a commensurate recovery. The two observations are linked and are suggestive of the impacts of the initial damage have now permeated the supply chain and employment losses are spreading outside areas initially most impacted by the lockdown. So my prediction in March that many businesses will disappear because the fiscal support by the government was inadequate and poorly targetted in terms of protecting jobs is looking like being validated by subsequent data. But it now seems that the recovery in employment will be protracted given how many jobs have been lost to date and the renewed lockdowns in Victoria. A much larger fiscal intervention is required and it has to be directed at workers rather than firms and support direct job creation.
Today’s blog post is a draft for another deadline I have this week, this time writing for a European publication on the state of affairs in the Eurozone. I have four major pieces of work to finalise this week so, as in yesterday, I am using this time to progress those goals. For many regular readers it will be nothing new. But, putting the arguments together in this way might just provide some different angles for people who haven’t thought about things in this way before. Regular transmission will resume on Thursday (probably).
The – Report of the Special Rapporteur on extreme poverty and human rights – for the UN was released this week (July 7, 2020). It was Philip Alston’s last report in that role. It is a shocking indictment of the way neoliberalism has distorted our societies and the way the governments with the capacity to ‘move mountains should they wish’ have been co-opted as agents of capital and perpetuate those distortions. The Report is 19 pages of horror. It also resonates with the latest information coming out of Australia’s Closing the Gap campaign, which aims to bring indigenous Australians up to the material level of non-indigenous Australians. The first ten years of the campaign have been an abject failure. And the latest targets don’t inspire any confidence that the outcomes will be any different. A lot of talk. A lot of consultants. But little effective action – for example, like just creating some jobs to reduce unemployment, allow for income security and poverty alleviation. How hard is it for the government to create some jobs?
Last Saturday, the Weekend Australian, Rupert Murdoch’s daily national newspaper, had a relative Modern Monetary Theory (MMT) avalanche, with two core MMT-style articles published and two that were supportive rather than hostile. That tells you something about the way the world is shifting. I have received a bit of flack for publishing an Op-Ed piece in that newspaper from those who style themselves as Leftists. It is the same old argument – dealing with the devil. And the same old reply – if you want to influence policy then you have to talk to those who make policy. It is easy plotting revolutions over lunch. There has been a lot of groundwork laid over the last several months to bring people into the conversation. It is quiet stuff. Discreet. And as things unfold I will make some of the developments public. At present, all I can say is that I have a document before the Prime Minister today and there is a lot of behind-the-scenes workshops/briefings going on at state-level. And, while activists spend a lot of time ‘pressuring’ this person and that person on social media, the big shifts that are going on at present, including the publication of Noel Pearson’s piece and my article, are not being helped by aggressive social media confrontations. Sometimes it is better to work in a subtle way and exploit networks where they are available. That is not to say that activism to promote MMT is not appreciated and helpful. But we do need to pick our path. Anyway, a number of people asked me to publish my article here because they cannot get behind The Australian’s paywall. So here is the penultimate version which is a few hundred words longer than the actual article, which I cannot provide due to copyright restrictions. I also cannot provide Noel Pearson’s accompanying and complementary article but it was magnificent.
In May 2020, the IMF published a new Working Paper (No 20/73) – Hysteresis and Business Cycles – which provides some insights into what happens during an economic cycle. The IMF are somewhat late to the party as they usually are. We have known about the concept and relevance of hysteresis since the 1980s. In terms of the academic work, I was one of the earliest contributors to the hysteresis literature in the world. I published several articles on the topic in the 1980s that came out of my PhD research as I was searching for solutions to the dominant view in the profession that the Phillips curve constraint prevented full employment from being sustained (the inflation impacts!). The lesson from this literature in part – especially in current times – is that governments should do everything possible to avoid recessions. The hysteresis notion tells us clearly that the future is path dependent. The longer and deeper the recession, the more damaging the consequences and the longer it takes to recover while enduring these elevated levels of misery. Organisations like the IMF have never embraced that sort of reasoning, until now it seems. They certainly didn’t act in this way during the Greek disaster. But, better late than never.
Insolvency is a corporate term which refers to a situation where a company is unable to pay contractual liabilities when they become due. From a balance sheet perspective, it means that the assets are valued below the liabilities. The term cannot be applied to a national government that does not issue liabilities in foreign currencies. Such a government can always meet its nominal liabilities irrespective of institutional arrangements it might have put in place to create contingent flows of numbers from one ‘box’ (account) to another ‘box’. Those arrangements do not override the intrinsic capacity of the legislator. So when the British press went crazy the other day reporting comments made by the Bank of England governor that the British government was on the cusp of insolvency, they did the British public a disservice. Donald Trump would have been finally justified in accusing the media of pushing out ‘fake’ news.
Whatever way you want to interpret it, the Australian labour market continued to deteriorate in May 2020. The latest data from the Australian Bureau of Statistics – Labour Force, Australia, May 2020 – released today (June 18, 2020) continues to tell a shocking tale. All the main aggregates moved in an adverse direction. Employment fell by 1.8 per cent (227,700). Unemployment rose by 86,700 thousand. But that is a gross understatement of the problem given that the participation rate fell by 0.7 points, which meant the labour force fell by 142 thousand. Without the fall in the participation rate in May 2020, the unemployment rate would have been 8.1 per cent rather than its current value of 7.1 per cent). But relative to August 2019 (peak participation), the unemployment rate would have been 11.7 per cent. The broad labour underutilisation rate is now at 20.2 per cent. There are now 2,639.1 thousand workers either unemployed or underemployed. That number swells to 3,286.5 (or 25.1 per cent) if we add the rise in hidden unemployment back into the ‘jobless’. Any government that oversees that sort of disaster has failed in their basic responsibilities to society. Its fiscal stimulus is totally inadequate.
Today (June 16, 2020), the Australian Bureau of Statistics released their latest weekly employment data taken from Australian Tax Office data. They have slowed the release cycle on this data (for reasons they have not disclosed), so it is a month since I have analysed it. The latest edition came out today – Weekly Payroll Jobs and Wages in Australia, Week ending 30 May 2020 – which covers the new data from May 2, 2020 to May 30, 2020. The monthly labour force data to be released on Thursday covers a period that ends around May 12, 2020, so today’s data provides a more recent snapshot of the state of affairs. At the beginning of May, the data was suggesting that the worst of the job losses were over. The severity of the lockdown has eased a little since then, although the pattern of easing has been quite different across the states and territories. So we might have expected some variations to arise from that. And today’s data shows just that. In the Accommodation and food services sector, where some easing has occurred, jobs are returning, albeit at a slow rate. But in the Arts and recreation services sector, where little change in lockdown restrictions has occurred to date, there has been very little employment growth. The question is how many businesses will go to the wall before we get a more usual scale of operation and interaction. My prediction is that many will disappear and so the recovery in employment will be protracted given how many jobs have been lost to date. A much larger fiscal intervention is required and it has to be directed at workers rather than firms and support direct job creation. The problem now is that the Government is starting to reassert its neoliberal ideology and withdrawing the inadequate stimulus far too early. The future is not looking good. We might be virus free but there will be massive unemployment remaining into the distant future.