The UK Guardian has its ‘Brexit Watch’ page, which is regularly updated with commentaries from this and that ‘expert’, purporting to provide a sort of on-going scorecard of what is happening on that front. Many commentaries usually include some statement to the effect that “Brexit is a disaster”. That particular opinion appeared in the header of the most recent ‘Brexit Watch’ update (May 29, 2018) – ‘Brexit is a disaster’ – experts debate the latest economic data – which followed the release by the British Office of National Statistics (ONS) of the – Second estimate of GDP: January to March 2018 (released May 25, 2018) – which showed that the British economy (based on the latest updated data) increased by 0.1 per cent in the first-quarter 2018 and ONS said that “we see a continuation of a pattern of slowing growth, in part reflecting a slowing in the growth of consumer-facing industries”. One contributor to the ‘Brexit Watch’ article (David Blanchflower) had his wind-up ‘Brexit is Bad Doll’ working overtime blaming the Referendum vote and the uncertainty that has followed for the poor GDP performance, particularly the decline in business investment. So if its bad its Brexit is the repeating message. If its good, just wait, it will be bad again soon and then it will be Brexit. That is the repeating message. However, if you read the New York Times article (May 28, 2018) – In Britain, Austerity Is Changing Everything – you get a very different narrative. You can guess which one I think is more accurate.
I decided to write an extended blog post today (Wednesday) because events in Italy are so interesting. My usual short post on a Wednesday will resume next week. George Soros is now saying that “everything that could go wrong has gone wrong” in Europe and a financial collapse is in the wind (Source). I doubt the latter but agree with the former assessment. All the flaws in the original neoliberal design of the Eurozone have been revealed and all the reasons why those flaws were created in the first place remain in place. Nothing has changed since 1977 when the MacDougall Report concluded that the cultural and national differences between the (then) Member States of the European Communities were too great to allow an effective monetary union to be created. That assessment and the earlier work of Pierre Werner in his 1970 Report were ignored as the neoliberals in France and Germany rushed headlong to Maastricht. France thought it would have a chance to dominate and Germany was distracted by unification but still firmly in charge of what would be allowed in the new monetary system and what would not. Now, one of the biggest nations – Italy – is is turmoil as the damage of being part of the Eurozone slowly but surely erodes its capacity to deliver anything remotely like prosperity and its social and political system starts to collapse. Italy must leave the Eurozone – the sooner the better. And, that will bring a reality check for the whole disaster and encourage other nations to push for an orderly dissolution.
Although this blog post considers some very technical material its message is simple. Mainstream macroeconomic models that are used to determine policy choices by governments are deeply flawed and the evidence strongly supports a central thrust of Modern Monetary Theory (MMT) – that fiscal policy is powerful and that austerity will kill growth. In that sense, it helps us understand why various nations and blocs (such as the Eurozone) struggled after the onset of the GFC. It also explains why the deliberate attack on Greek prosperity by the Troika was so successful in demolishing any prospect of growth – an outcome that the official dogma resolutely denied as they constructed one vicious bailout after another. It also explains why New Keynesian approaches to macroeconomics are flawed and should be ignored. I was reminded this week by a research paper I had read last year (thanks Adam for the reminder) which presents a devastating critique (though muted in central bank speak) of the mainstream approach to macroeconomic modelling. A research paper from the ECB (May 2017, No 2058) – On the sources of business cycles: implications for DSGE models – provides a categorical critique of DSGE models and a range of other stunts that mainstream economists have tried to introduce to get away from the obvious – economic cycles are demand driven.
The German propagandist Joseph Goebbels would have loved the so-called ‘NHS Funding Tool’ that the London-based Institute of Fiscal Studies has wasted hours of labour producing and making available on the Internet. In fact, history would show that the German menace was probably more circumspect in his propaganda activities that the IFS, which has set about to deliberately distort the public debate in the UK over NHS funding. Its latest entry (May 24, 2018) – Securing the future: funding health and social care to the 2030s – is nothing short of a disgraceful grab for headlines. The problem is that reports such as this then feed into an uncritical press, which then furthers the fictional world that my profession has created to hide their ideological preferences against public intervention – in this case, public health systems. The IFS Report is a typical case of neoliberal analysis, which contains hidden constraints that are designed to lead towards the TINA conclusion. Britain can afford to have a first-class NHS if it chooses and the real resources are available and people desire for them to be used in that sector rather than elsewhere. My bet is that the country would be much better off if there were less bankers and investment speculators (the occupations that the neoliberals revere) and more resources in the health sector. At present, constructing the NHS challenges, which are real and growing, as a tax rise or bust type scenario is dishonest in the extreme.
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.
Welcome to The Weekend Quiz. The quiz tests whether you have been paying attention or not to the blogs I post. See how you go with the following questions. Your results are only known to you and no records are retained.
This is Part 3 (and final) of my mini-series analysing some of the challenges that the newly elected majority government in Timor-Leste faces. In Part 2, I discussed the progress of the Strategic Development Plan and the challenges ahead in terms of poverty, unemployment, and other indicators relating to the development process. In Part 2, I focused more on the currency debate – documenting how the IMF and World Bank had infused its ideological stance into the currency arrangements that Timor-Leste set out with as a new nation. I made the case for currency sovereignty which would require Timor-Leste to scrap the US dollar, convert the Petroleum Fund into its stock of foreign exchange reserves, and to run an independent monetary policy with flexible exchange rates, mediated with the capacity to use capital controls where appropriate. In this final discussion I consider specific policy options that are required to exploit what is known as the ‘demographic dividend’ where the age-structure of the nation generates a plunging dependency ratio. To exploit that dividend, which historically delivers massive development boosts to nations, the shifting demographics have to be accompanied by high levels of employment. That should be policy priority No.1.
It is Wednesday and so I am only writing a few thoughts today for the blog, preferring to spend the day writing other more detailed academic material and doing final edits on our next Modern Monetary Theory (MMT) textbook (current publication date with Macmillan, November 2018). But I wanted to briefly reflect on the discussions over the last week about trade which seem to have sparked some emotion and disagreement. In particular, there has been a lot of misrepresentation of the MMT position and also a lot of mistaken reasoning. After that I will go back to listening to some post minimalist piano music.
Regular readers will recall that Thomas Fazi and I published an article in the Jacobin magazine (April 29, 2018) – Why the Left Should Embrace Brexit – which considered the Brexit issue and provided an up-to-date (with the data) case against the on-going hysteria that Britain is about to fall off some massive cliff as a result of its democratically-arrived at decision to exit the neoliberal contrivance that the European Union has become. There was an hysterical response on social media to the article, which I considered in this blog post a few days later – The Europhile Left loses the plot (May 1, 2018). In recent days, two British-based academics have provided a more thoughtful response in the Jacobin magazine (May 18, 2018) – Caution on “Lexit”. Here is a response which was co-written with Thomas. As a general observation, I noted some prominent progressive voices citing their attack on us enthusiastically, one even suggesting it landed “some good punches” after taking “a while to warm up”. Well, I can assure Andrew that my face (nor Thomas’s) was the slightest bit puffy after reading the critique.
Last Tuesday (May 15, 2018), the new German Finance Minister Olaf Scholz stood up in the German Bundestag and delivered his first fiscal policy presentation. Not only was “die schwarze Null” (Black Zero) sustained but in his address, the new German Finance Minister made it clear that Germany would not entertain any expansion of the EU fiscal capacity (thus rejecting Emmanuel Macron’s proposals) and wanted to delay other ‘reforms’ that Germany had previously suggested they would support (beefing up the Single Resolution Fund and the creation of the European Monetary Union). For those Europhile progressives who have been hanging their hat on the hope that the takeover of the German Finance Ministry by the SPD would be the deal breaker that the Scholz’s presentation was nothing short of a disaster. He reiterated Germany would not be shifting in any major way and that Member States just had to buckle down and follow Germany’s fiscal example – surpluses as far as the eye can see. None of this was a surprise to me. It has been clear for some time that Scholz is just a continuation of Schäuble. Indeed some pointed statements from Bundestag politicians next day in their responses suggested just that.