Wage rises are required – real wages must grow in line with productivity

There was an interesting article in the UK Guardian last weekend (March 29, 2015) – Why falling inflation is a false pretext for keeping wages low – which examined wage trends in the UK and the validity of the argument that “Falling inflation now provides employers with a pretext for keeping wage settlements low”. Employer groups never support wage increases and are continually trying to suppress real wages growth below productivity growth so that they can enjoy a greater share of national income. As part of my research to discover the nature of the ideological shift accompanying the emergence of Monetarism as the dominant policy paradigm I have been examining wage distributions. This is part of a book I will complete next year (fingers crossed) on the demise of the political left. In this blog we examine the shifting relationship between labour productivity growth and real wages growth since 1960. The results are illuminating and open up a broad research front about which I will write more as time passes.

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ECB should start funding government infrastructure and cash handouts

I was a signatory to a letter published in the Financial Times on Thursday (March 26, 2015) – Better ways to boost eurozone economy and employment – which called for a major fiscal stimulus from the European Central Bank (given it is the only body in the Eurozone that can introduce such a stimulus). The fiscal stimulus would take the form of a cash injection using the ECB’s currency monopoly powers. A co-signatory was Robert Skidelsky, Emeritus Professor, Warwick University, renowned Keynesian historian and Keynes’ biographer. Amazingly, Skidelsky wrote an article in the UK Guardian two days before the FT Letter was published (March 24, 2015) – Fiscal virtue and fiscal vice – macroeconomics at a crossroads – which would appear to contradict the policy proposal we advocated in the FT Letter. The Guardian article is surrender-monkey territory and I disagree with most of it. It puts the progressive case on the back foot. What the hell is going on?

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Saturday Quiz – March 28, 2015 – answers and discussion

Here are the answers with discussion for yesterday’s quiz. The information provided should help you work out why you missed a question or three! If you haven’t already done the Quiz from yesterday then have a go at it before you read the answers. I hope this helps you develop an understanding of modern monetary theory (MMT) and its application to macroeconomic thinking. Comments as usual welcome, especially if I have made an error.

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European Youth Guarantee audit exposes its (austerity) flaws

On Tuesday (March 24, 2015), the European Court of Auditors, which is the EU’s independent external auditor and aims to improve “EU financial management”, released a major report – EU Youth Guarantee: first steps taken but implementation risks ahead (3 mb). The Report reflects on the experience of the program which was introduced in April 2013. When the European Commission proposed the initiative I wrote that it was underfunded, poorly focused (on supply rather than demand – that is, job creation) and would fail within an overwhelming austerity environment. The Audit Report is more diplomatic as you would expect but comes up with findings that are not inconsistent with my initial assessment in 2012.

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The neo-liberal emperors are naked and its not a good look

Recall back to the worst part of the GFC when the Australian government announced a relatively large fiscal intervention in late 2008, we had a swathe of financial market commentators predicting the worst. This article (published July 11, 2009) – Alarming debt bomb is ticking – was representative of the hysteria that the public was confronted with. We read about “a nearly saturated bond market” and the ticking time bomb of government debt. Apparently, the Australian government was soon to run out of money and would not be able to fund itself. There were predictions of a “failed auction, when there are insufficient bids from authorised dealers to cover the volume of bonds offered”. The intent of all these sorts of articles were to put public pressure on the government to impose austerity (but leave any handouts to the corporate sector) intact. Some five years later, the fiscal deficit is still rising. Yesterday (March 24, 2015), the Australian Office of Financial Management (AOFM), which issues and manages Federal government debt, issued its latest press release – Pricing of New June 2035 Treasury Bond. I wonder when all the retractions are going to come from the financial market commentators, the Treasurer and a range of academics who were claiming there was a calamity approaching. Amazing really. Read on.

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Syriza must stay left of the line – more is at stake than Greece

There were regional elections in the autonomous community of Andalusia (Spain) over the weekend which saw the Spanish Socialist Workers’ Party (PSOE) hold onto power. The results showed that the left-wing political party – Podemos – which received nearly 8 per cent of the Spanish vote (5 seats) at the European Parliament elections in May 2014, was third in the Anadulusian election, gaining 15 of the 109 seats. The parallels with Syriza in Greece are now routinely being made. I am forming the view, however, that unless things change rather dramatically in Greece, Syriza may actually end up only undermining progressive agendas in Europe as they self-destruct under the iron fist of the Troika (I do not use the terms “the institutions” or the “Brussels Group”). This is of great interest to me at present because I am sketching out a 2016 book project at present with a co-author, which broadly focuses on the demise of the left and social democratic movements in the World, although we might pare the scope down with more discussion to concentrate on Europe. Of particular interest is the morbid inferiority of the French left relative to the Germans in the Post World War II period and the way in which American Monetarism has infiltrated and built on that inferiority. Much of the design of the monetary union can be understood through that sort of lens. So a broad canvas right now but that is always the case. Of immediate interest, though, is the possibility that Syriza will set progressive causes back rather than become the spearhead for a sweeping change in Europe and the end of this destructive era of neo-liberalism.

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Eurozone unemployment – little to do with international competitiveness

The so-called ‘Informal European Council’ released a document on February 12, 2015 – Preparing for Next Steps on Better Economic Governance in the Euro Area: Analytical Note – which has been used as a background paper to batter the Greeks into submission in the latest round of the Eurozone crisis. It was published under the authorshop of Jean-Claude Juncker (President of the European Commission) with “close cooperation” with Donald Tusk (President of the European Council), Jeroen Dijsselbloem (President of the Eurogroup of Finance Ministers) and Mario Draghi (ECB boss). All that is missing is the Madame from the IMF to complete the Troika. This is a very dishonest document, deliberately framed to advance the austerity agenda and damage the living standards of some of the nations within the monetary union. It is hard how any serious economist would put their name to this sort of analysis.

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Saturday Quiz – March 21, 2015 – answers and discussion

Here are the answers with discussion for yesterday’s quiz. The information provided should help you work out why you missed a question or three! If you haven’t already done the Quiz from yesterday then have a go at it before you read the answers. I hope this helps you develop an understanding of modern monetary theory (MMT) and its application to macroeconomic thinking. Comments as usual welcome, especially if I have made an error.

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