Australian labour market – remains in a sluggish state

The latest labour force data released today by the Australian Bureau of Statistics – Labour Force data – for January 2017 shows total employment barely increased for the second month in a row and Australia’s status as a part-time employment nation firms. Over the last 12 months, Australia has lost 56.1 thousand full-time jobs (in net terms) and added only 103.4 thousand overall. This status as the nation of part-time employment growth carries many attendant negative consequences – poor income growth, precarious work, lack of skill development etc. The teenage labour market remains in a poor state but improved slightly in January. It requires urgent policy intervention. The unemployment rate fell by 0.1 points but only because the labour force contracted as participation declined. In other words, hidden unemployment rose while official unemployment fell. Not a win-win. Overall, the Australian labour market is weak and showing no signs of improvement. With weak private investment now on-going and real GDP contracting (in the September-quarter), the poor outlook signals the need for a policy shift biased to expansion. It is clear that the current restrictive fiscal policy position adopted by the Federal government is not sufficient to redress the inadequate non-government spending growth.

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The neo-liberal colony of Greece takes another step backwards

The Eurozone flash National Accounts estimates for the fourth-quarter 2016 was released yesterday by Eurostat – GDP up by 0.4% in the euro area and by 0.5% in the EU28. The annual growth rate for the Eurozone in 2016 was 1.7. The news also indicated that the Greek economy fell back into its Depression and was followed by the other basket case, Finland. Both recorded negative growth in the December-quarter, Greece -0.4 per cent, Finland -0.5 per cent. Both results reflect the on-going fiscal austerity. Spain, on the other hand, allowed by the European Commission to run large structural deficits (to keep the PPP in power) recorded another strong growth result. Perhaps if Syriza had demonstrated some spine, they too could have got away with the Spanish solution – where Brussels turns a blind eye to the blatant breach of the Stability and Growth Pact rules, while its economy starts to growth strongly. But, then history tells us that Syriza caved in almost immediately and the continued decline of the Greek situation is a direct result of the policies they were then co-opted to inflict on their own people. Deeper analysis of the Greek situation reveals how dire the future is likely to be. I present a few indicators of that future in this blog. As the neo-liberal colony of Greece takes another step backwards, it isn’t hard to understand why? Basically, the Troika conspired to destroy the prosperity of Greece as a nation and its political leadership joined that conspiracy by refusing to broach an exit from the Eurozone. Simple really.

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US labour market deteriorating – the losses from GFC will be long-lived

In September 2016, I assessed that – The US labour market is nowhere near full employment. This was in the context of an increasing number of commentators claiming that the US economy had already returned to full employment. The IMF World Economic Outlook is also estimating that the output gap in the US (actual relative to potential) has turned positive (meaning the US is beyond full employment). By way of contrast, the Congressional Budget Office considers the US had an output gap of around 0.9 per cent (actual below potential) in the December-quarter 2016. The facts point to even higher output gaps. The current BLS data release – Employment Situation Summary – January 2017 – has not altered my view. It showed that total non-farm employment from the payroll survey rose by 227,000 and the unemployment rate remained “little changed” at 4.8 per cent. But from the perspective of the labour force survey (Current Population Survey), total employment fell by 30 thousand. See below for an explanation of that paradox. The point is that employment still remains well below the pre-GFC peak and the jobs that have been created in the recovery are biased towards low pay. Additional research reveals that the losses from this sluggish economic performance will be long-lived and undermine the prospects of future generations. Fiscal austerity is bad for our grandchildren! In general, the problem is less job creation as quality of the work being created and the capacity of US workers to enjoy wage increases.

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Market manipulation and electricity blackouts

Australia is suffering the conjunction of a number of events in recent weeks which demonstrate the poverty of the neo-liberal approach that governments on both sides of the political fence have followed over the last three decades. Electricity prices are rising and the governments have bowed to pressure from the power companies to end the favourable feed-in tariffs that promoted the widespread adoption of solar power by households. Further, our climate change denying federal government has seized on recent power outages in South Australia to attack that state’s accelerated move to renewable energy. The federal government claims it validates its decision to back coal (and they are planning to provide $A1 billion to the Adani group to build transport infrastructure for a new coal development that will never be economic. The problem with the federal narrative is that in the extreme weather Australia is now enduring (very prolonged hot spells with major bush fires) the state with about the lowest renewable mix in its electricity also had to cut power late last week. Further investigation shows that the privatised electricity generating sector has been deliberately manipulating the supply of power (maintaining spare capacity) to exploit price spikes while the captive regulator turns off power to thousands of homes and businesses. Profits before public service – that is what privatisation has delivered. And then, we have to put up with a rising ‘star’ treasurer who thinks government infrastructure spending is unfair to future generations and more privatisation is required. It is best not to put all this together – it is not good for one’s equanimity.

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The Weekend Quiz – February 11-12, 2017 – answers and discussion

Here are the answers with discussion for this Weekend’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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How to create a divided society

I am travelling a lot today and using my spare time to catch up on things. I have two major end-of-February deadlines impending for publishers – my book with Thomas Fazi, which will be published by Pluto Press and launched in London in late September (more details soon); and our new Modern Monetary Theory (MMT) textbook (with Randy Wray and Martin Watts) which will be published by Macmillan later in 2017. Both manuscripts have to be delivered by the end of this month. So busy busy. Today’s blog is thus a little different and considerably shorter than usual. It loses nothing in its brevity. The main text is from a friend of mine (who wishes for professional reasons to remain anonymous) but succinctly captures the anger and angst that many progressive thinkers are feeling about how things are turning out. The culmination of several decades of neo-liberalism has been an eroding of material well-being for workers, a massive financial then economic crisis, which the world is still enduring, and, then Donald Trump as President of the United States. And the progressive political voices have been largely complicit in all of this. Sure enough, they sprout about child care, gay rights, inequality, and all the rest of it, but at the core, they have embraced the neo-liberal economic lies and gone along with or even initiated and overseen fiscal austerity, privatisation, welfare cuts, deregulation – it is just, we are told, they do all that in a more moderate and fairer manner. They don’t stop for a second to think that they also have become captive to capital. Something big has to happen to stop all this. History tells us that it will. And the longer the progressive political voices remain complicit, the probability that that ‘something’ will be violent, increases.

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Greece still should exit and escape the grip of the vandals

Greece is back in the news as the IMF, the Germans and the European Commission slug it out pretending to talk tough and propose solutions to the Greek tragedy. There is no solution of course. All the debate about whether the primary surplus target should be 3.5 per cent of GDP (European Commission position) or slightly lower (IMF position) is just venal hot air. Anybody who knows anything and isn’t protecting their past mistakes would assess that a fairly large and sustained fiscal deficit is required in Greece to rebuild some of the lost capacity and to provide an inkling of hope to the youth who are facing a lifetime of diminished prospects as a result of the decisions the adults around them took. All the talk about ‘deficits mortgaging the grand kids future’ – sick. The austerity has meant the grand kids might not ever emerge given the constrained circumstances their would-be parents will face as they progress through adulthood. The reality remains – firmly – Greece should exit the Eurozone, convert any outstanding liabiliites into a new currency at parity, and stimulate its domestic economy with expansionary fiscal policy. It should continue to impose capital controls. As part of the stimulus, it should introduce an unconditional Job Guarantee at a decent wage to provide a pathway back into employment for the many that the Troika have rendered jobless.

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More fun in Japanese bond markets

The Japanese bond market has been very interesting in the last week proving yet again that private bond markets cannot set yields on government bonds if the government does want then too. Next time you hear some mainstream economist claiming a currency issuing government is running deficits at the will of the investors (read bond markets) politely tell them they are clueless. Japanese once again provides the real world Modern Monetary Theory (MMT) laboratory – every day it substantiates the underlying insights contained within MMT and refutes the core mainstream propositions. The financial media referred to the Bank of Japan as putting a whipsaw to the bond markets, which in context means that the BoJ is forcing the ‘markets’ into confusion (Source). The bond markets have misinterpreted recent Bank of Japan conduct in the JGB markets (less purchases than expected, and even missing a scheduled buy up) as a sign that the Bank was weakening on its QQE commitment from last September that it would hold the 10-year JGB yield to zero and thereby allow the longer investment rates to fall. Why they doubted that commitment is another matter but within a few days over the last week the Bank demonstrated that: (a) it remains committed to that target; and (b) it has all the financial clout it needs to enforce it; and (c) the bond market investors do not call the shots.

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MMT predicts well – Groupthink in action

This blog will be a bit different from my normal fare. It provides insights into how entrenched a destructive and mindless neo-liberal Groupthink pervades the economics profession. For the last several years I have been on the ‘expert’ panel for the Fairfax press Annual Economic Survey. Essentially, this assembles a group of well-known economists in Australia from the market, academic and institutional (for example, union) sectors and we wax lyrical about what we expect will happen in the year ahead. To be fair, there is a large element of chance in the exercise as there is in all forecasting. So I am never one to criticise when an organisation such as the IMF or the OECD or some bank economist gets a forecast wrong. The future is uncertain and we have no formal grounds for even forming probabilistic estimates, given we cannot even assemble a probability density function (an distributional ordering of all possible events ) to extract these probabilities. So guess work is guess work and you have to be guided by experience and an understanding of how the system operates and the elements within the relevant system interact. What I do rail against is the phenomenon of systematic bias in forecast errors. For example, the IMF always predicts stronger growth than occurs when it is advocating imposing austerity (thereby underestimating the costs of the policy). The systematic bias in their errors is traceable to the flawed models they use to generate the predictions, which, in turn, reflect their ideological slant against government deficits and in favour of fiscal surpluses (as a benchmark). As luck would have it, in the 2016 round of the Fairfax Scope survey, I was fortunate enough to achieve the status of Forecaster of the Year (shared with 2 other members of the panel) – see Scope 2017 economic survey: Stephen Anthony, Bill Mitchell; and Renee Fry-McKibbin tie for forecaster of the year – for detail. I tweeted over the weekend that as a result “MMT predicts well”. There was a lot underlying that three-word Tweet and it intersected with recent events that demonstrate how far gone mainstream macroeconomics is – it is in an advanced state of denial and has lost almost all traction on the real world.

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