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Saturday Quiz – September 19, 2015 – answers and discussion

Here are the answers with discussion for yesterday’s quiz. The information provided should help you understand the reasoning behind the answers. 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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When one false starting premise leads to progressive confusion

Its my Friday lay day and brevity will triumph today. It might just be a case of a poorly edited title, but a current article in the Jacobin Magazine (September 17, 2015) – Why Leftists Should Be Deficit Hawks – shows that if one starts from a wrong premise the conclusions will lead one astray no matter how noble the intentions are. Progressives have to get the basics of macroeconomics correct before they launch into critiques of this and that. Otherwise they get stranded in this ‘neo-liberal’ space of government financial constraints without really realising it. And then the wheels fall off because they are reduced to arguments like “we have to tax the rich to pay for the services to the poor”, which of course, is nonsense and self-defeating. There are much smarter ways to proceed.

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Only the top-end-of-town in the US have seen real income gains since 1999

The US Census Bureau released the latest edition of the – Income and Poverty in the United States 2014 – yesterday (September 16, 2015) along with a treasure trove of Income data and Poverty data. The data comes from the 2015 Current Population Survey Annual Social and Economic Supplement. Enough detail to keep anyone of the streets for a considerable time! The data can tell a lot of stories if prompted in a variety of ways but what I was interested in exploring was the cyclical movement as the US economy started its recovery and is now, seemingly, reaching the end of the current upturn. Who has gained from the recovery in national income and to what extent have the massive losses incurred during the Great Recession been recovered? That is what the blog is about today. A data hunt!

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Rejecting the TINA mantra and the second ‘Gilded Age’

There was an interesting article by US historian Jackson Lears in the in the London Review of Books (July 16, 2015) – The Long Con: Techno-Austerity. I recommend people regularly reading the LRB because it has some fabulous articles. In this case, the review by Jackson Lears is of the recent book by Steve Fraser – The Age of Acquiescence: The Life and Death of American Resistance to Organised Wealth and Power (published by Little, Brown). I have taken time to write about this because I had to read the book being reviewed myself first. There is also an excellent review of the book by Naomi Klein in the New York Times – ‘The Age of Acquiescence,’ by Steve Fraser (March 16, 2015). So what is it about?

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Universities should operate in an ethical and socially responsible manner

I was first really exposed to the concept of what social responsibilities a university has when I was a student at Monash University in the early 1970s. The issue was the University’s decision to allow the napalm-producing company, Honeywell to use the Monash Careers and Appointments office facilities on campus to conduct interviews and recruit potential graduates. I was reminded of this dispute the other day for two reasons. First, I did a radio interview for the national broadcaster (ABC) where I was asked about the decision by the Newcastle City Council (my local council) to divest itself of fossil fuel investments (see story – Newcastle Council abandons fossil fuel investments). This is a global trend. This was a shock to some, given that Newcastle is the largest coal exporting port in the world and there are major coal mines nearby up the Hunter River valley (the river flows into the Pacific Ocean at Newcastle). Second, around the same time, we learned that the University of Newcastle, my homeinstitution, had awarded a lucrative contract to Transfield Services, who hold the contracts to provide welfare and garrison support services in the offshore prisons (detention centres) which the Australian government established to ensure that asylum seekers who try to reach Australia by boat never reach the mainland. These prisons house families including young children for lengthy periods. There is strong evidence that the detainees incur mental illnesses and other health issues from the isolation. There have also been allegations against Transfield staff in relation to rapes and sexual assaults on detainees. These instances raise questions about the responsibilities of public institutions such as universities to operate according to acceptable community standards which makes the decision by the University of Newcastle (NSW) to enter into a commercial arrangement with Transfield rather odd indeed.

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Jeremy Corbyn’s ‘New Politics’ must not include lying about fiscal deficits

One cannot but be very happy that Jeremy Corbyn has assumed leadership of the British Labour Party if you sit on the progressive side of politics. His elevation to the top job has all but closed the door on the compromised years of New Labour. The so-called Blair-ites have been declared yesterday’s new and not before time. Their embrace of neo-liberalism and the ‘light touch’ approach to the financial sector allowed the destructive period set in place by Margaret Thatcher in the 1980s to become more intense (for example, the decline of manufacturing and the increasing dominance of the unproductive financial sector). But as I have indicated before, some of the language and promises coming out of the Corbyn camp appear to be within the neo-liberal paradigm and, in many ways, not an advance on the New Labour shemozzle. I know that the claim will be that they have to be cautious for political reasons not to open themselves to attacks from the conservatives given the public fear of fiscal deficits, after years of indoctrination. But then their claims to be heralding in a ‘new politics’ would seem to be rather lame if they are prepared to lie or obfuscate about the role and meaning of fiscal deficits just to get some political advantage. Further, at some point they will have to take this issue on if they want to forge a truly progressive new political agenda. Otherwise, they will wallow in the confused space where they cannot break out of the neo-liberal mould while banging on about how fair they will be. They have five years before the next election – and that is plenty of time to reeducate the public. That process of messaging and re-framing should start now. Accordingly, they should take the political flack now and trust in their messaging and re-framing.

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Saturday Quiz – September 12, 2015 – answers and discussion

Here are the answers with discussion for yesterday’s quiz. The information provided should help you understand the reasoning behind the answers. 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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Friday – when banks were banks

It is my Friday lay day and I am quite distracted with other commitments. But at the London presentation a few weeks ago, I mentioned that I would scrap central banks and consolidate their functions within a division of what we now think of as Treasury departments (or Finance Ministries). Whenever you say that there is a ridiculous response from those who claim to know something about banking along the lines of either, it would cause hyperinflation or that the politicians cannot be trusted. Both arguments are as I say – ridiculous. There are some things that central banks do that are necessary, for example, maintain financial stability through the integrity of the payments system. They also, depending on the nation, manage foreign reserves although that function is unnecessary if exchange rates float. Yes (flame suit on) I know less developed countries face exchange rate volatility and have to import food to survive. Which brings me to the point. The first part of scrapping central banks is to eliminate their ideological/political function. They are bastions of conservative mythology – pick whichever one you like – expanding the money supply is inflationary, ‘printing money’ is inflationary, politician meddling in monetary policy is inflationary, financial markets will desert a country that does not have an independent central bank, etc ad nausea. Politicians also use the so-called independence of the central banks as a way of deflecting policy responsibility for mass unemployment. Modern Monetary Theory (MMT) does not advocated doing away with the functions that are legitimately performed within the current central banks. It would stream-line some and make other functions redundant, but what it would do away with is this incessant cycle of ideology that emanates from these institutions.

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