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US growth surprise will not last

Last Friday July 27, 2018), the US Bureau of Economic Analysis published their latest national accounts data – Gross Domestic Product: Second Quarter 2018 (Advance Estimate), which tells us that the annualised real GDP growth rate for the US was a very strong 4.1 per cent in the was 3 per cent in the June-quarter 2018. Note this is not the annual growth over the last four-quarters, which is a more modest 2.8 per cent (up from 2.6 per cent in the previous quarter). As this is only the “Advance estimate” (based on incomplete data) there is every likelihood that the figure will be revised when the “second estimate” is published on August 29, 2018. Indeed, the BEA informed users that it has conducted a comprehensive revision of the National Accounts which includes more accurate data sources and better estimation methodologies. So I had to revise my entire dataset today to reflect the revisions. The US result was driven, in part, by “accelerations in PCE and in exports, a smaller decrease in residential fixed investment, and accelerations in federal government spending and in state and local spending.” Real disposable personal income grew at 2.6 per cent (down from 4.4 per cent in the first-quarter). The personal saving ratio fell from 7.2 per cent to 6.8 per cent. Notwithstanding the strong growth, the problems for the US growth prospects are two-fold: (a) How long can consumption expenditure keep growing with flat wages growth and elevated personal debt levels? (b) What will be the impacts of the current trade policy? rise is a relevant question. At some point, the whole show will come to a stop as it did in 2008 and that will impact negatively on private investment expenditure as well, which has just started to show signs of recovery. Government spending at all levels has also continued to make a positive growth contribution. But with rising private debt levels and flat wages growth the growth risk factors are on the negative side. When that correction comes, the US government will need to increase its discretionary fiscal deficit to stimulate confidence among business firms and get growth back on track.

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The fundamental realignment of British society via fiscal austerity

In my analysis of the UK fiscal statement that George Osborne released on March 23, 2011 – I don’t wanna know one thing about evil (April 29, 2011) – I noted that the imposition of fiscal austerity in Britain meant that any hope of growth was really dependent on a combination of export growth and household consumption growth. With the former source unlikely and household income growth sluggish (and falling in real terms), households would have to run deficits, which necessitated running down savings and/or increasing borrowing. British households were already overloaded with debt at the time. The New Keynesian economic orthodoxy claimed that my concerns about a growth strategy that was ultimately reliant on increasing household indebtedness were misplaced because the debt would be accompanied by increased wealth via rising house prices. Well the most recent data available from the British Office of National Statistics and other sources (house prices) shows that my concerns were real. Real housing prices have been falling for the last few years in Britain and are now growing at their slowest pace since 2013. Further, ONS data shows that “UK households have seen their outgoings surpass their income for the first time in nearly 30 years” and they “are borrowing more and saving less”. At the same time, households are accumulating more debt than assets and borrowing more by way of non-mortgage loans to cover the squeeze on disposable incomes. Also, it is not just mortgage debt that has been rising. The real burden of short-term household debt (credit cards etc) in Britain has risen dramatically over the last 20 years. The rising debt and household deficits are also concentrated at the lower end of the income distribution and wealth inequality is rising significantly. Then we learn that in excess of 30 per cent of British children are living in poverty. So in the face of withering fiscal austerity that is impacting severely on the prosperity of the current generation of adults, the policy failure is also ensuring that the disadvantage will be taken into the next generation of adults and their children. Deprivation breeds deprivation. This is a fundamental realignment of British society that will take it back to C19th-type relativities.

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The Weekend Quiz – July 28-29, 2018 – 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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Build it in Britain is just sensible logic

After my day in the sun as a poet, I am back to being an economist. I have been researching operational issues relating to how a society can take back control and Reclaim the State, as part of the work I am doing for our follow up book (with Thomas Fazi) that I hope to get out next year sometime. The current book Reclaiming the State: A Progressive Vision of Sovereignty for a Post-Neoliberal World (Pluto Books, 2017) is very conceptual. The Part 2 follow up will be conceptual in part but also operational. How to do it rather than what needs to be done. More specifically, I have been examining public procurement policies and how they have been captured by neoliberal interests to benefit capital at the expense of broader objectives (regional development, skill development, productivity growth, investment, employment, wages growth, etc). Over the last 3-4 decades, the way governments spend their money (contracting etc) has changed dramatically and governments have been bullied into acting as if they are ‘profit-maximising’ firms with no other agenda when making multi-billion dollar market purchases. However, in Britain this might change if British Labour are elected. Jeremy Corbyn announced this week that he was going to dramatically change the way the British government spends if he is elected. His ‘Build it in Britain’ strategy will scrap the narrow, neoliberal approaches to public procurement policies and instead use the spending capacity of government to advance broader goals. So while it might end up that a contract to a local firm requires higher government outlays, if that contract also delivers other benefits to the nation (as above) then the local firm would not be disadvantaged. Under the current ‘value for money’ hype local firms cannot ‘compete’ in many cases and these broader benefits are thus not generated. I see the ‘Build it in Britain’ strategy as an exercise in sensible logic and a major statement that the neoliberal command on British Labour is in retreat – for now anyway.

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The plaintive, I just want to do my art!

Today is Wednesday and only a few observations today as I want more time to write other things. Last night, I gave a talk at a Politics-in-the-Pub event in Newcastle, which is a monthly gathering held at a local hotel and attracts an audience of around 80 people or thereabouts. These are people who purport to be active politically and progressive in bent. The topic was Universal Basic Income and Automation, although it was really a general discussion of UBI, and, with my appearance, a comparison with the Job Guarantee. It was a revealing evening really because the discussion indicated that major policy issues are debated in public and among progressive people without the provenance of ideas being understood or how things fit together in a system. Quite dispiriting really. So I thought I would explore the appeal – I just want to do my art, which was one statement last night in support of a UBI.

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UBI advocates ignore the dynamic efficiencies of full employment

I have written about the concept of dynamic efficiency before. The most recent blog post on this theme was – The ‘truth sandwich’ and the impacts of neoliberalism (June 19, 2018) – which examined how social mobility across generations has been declining as a result of the decades of entrenched unemployment driven by neoliberal austerity biases. I also outlined the proposition in this blog post – US labour market reality debunks mainstream view about structural impediments (January 15, 2018). The point of all this is that establishing high pressure labour markets brings about more than just workers who want to work having jobs. It brings other major benefits that workers can enjoy and forces firms and governments to manage their affairs differently from when there is entrenched unemployment. The UBI proponents never really understand that point as they continue to surrender to the proposition that mass unemployment is inevitable and all the governments should do is keep people alive with some guaranteed income. All these dynamic efficiency gains are then not realised and capital has the run of the field.

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The neoliberal ‘progressives’ and their bankster mates are becoming rattled

You know, an Italian won the British Open golf championship yesterday (the first Italian to ever win a golf major) because of the uncertainty surrounding Brexit negotiations. The causality is impeccable. I am sure about that, although it might take me a while to work it out. But if a British golfer cannot win their Open Championship (Rose tied for second, two shots back) then it must be because of Brexit. Everything else that goes wrong is, so why not the golf? It is the same when three former US policy makers, central bankers, Wall Street-types, claim that the US no longer “have to tools to counter the next financial crisis”. They know full well that that statement is a blatant lie. But they say it. To remain relevant as their stars dim? To do service to their conservative mates? All of the above and more. But the media grab the headline and the American public and the public in general is dealt another piece of neoliberal misinformation that helps entrench the hold on power by the elites. But things are changing, and these entrenched elites and the vested interests they serve don’t like it a bit.

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The Weekend Quiz – July 21-22, 2018 – 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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