Welcome to The Weekend Quiz. The quiz tests whether you have been paying attention or not to the blog posts that I post. See how you go with the following questions. Your results are only known to you and no records are retained.
Today, the Prime Minister of Australia indicated that the ‘effective’ unemployment rate in Australia is heading to 13 per cent as a result of the harsh lockdowns that have just begun in Victoria as it reels under a second wave of coronavirus (Source). The effective rate incorporates the official estimate (based on activity tests – search and willingness), the number of workers who have dropped out of the labour force due to a lack of opportunities, and those on wage subsidies who are not working at all. The Stage 4 Melbourne lockdown for the next six weeks will cut GDP by a further 2.5 per cent. While economists fuss about microeconomic losses, the daily output and income losses from the unemployment and underemployment are massive, not to mention the huge personal, family and community losses. A responsible government, which issues its own currency and can procure any productive resources that are idle, would be doing everything it could to ensure these losses do not occur. It is not rocket science. The Federal government could ensure those who are unable to work due to the lockdown maintain their current incomes. The overwhelming impression I am getting as we enter the fourth month of this crisis is that the federal polity in Australia is lost. The scale of the disaster has so confronted the neoliberal DNA of the major parties that they are failing to articulate a coherent and viable short- and medium-term plan to deal with the crisis. The challenge is for the government to abandon its inclination to see a ‘return to surplus’ as a benchmark it aspires to. That mentality is making this disaster a catastrophe. We can do much better.
Here is Episode 10 in our weekly MMTed Q&A series. This is the last episode in Season 1. We are experimenting with new formats and will be back later in 2020 with some live shows (if the virus abates). In this episode, I continue my talks with special guest is Warren Mosler. We talked about the Modern Monetary Theory (MMT) approach to trade, which confounds a lot of people but is really quite straightforward. And, as usual on a Wednesday, we have some great music.
This will be a multi-part series and is part of the new book that Thomas Fazi and I are finalising. The series could have easily been sub-titled: How the middle-class Left abandoned the class fundamentals, became obsessed with individualism, and steadily descended into political obscurity, so much so, that the parties they now dominate, are largely unelectable! Because the discussion largely covers that problem. I have been thinking about why a modern so-called ‘progressive’ position draws a line in the sand about retaining a pernicious unemployment benefits system, which provides below poverty rate payments coupled with a harsh system of work tests, despite there never being enough jobs, and think that a guaranteed employment commitment from government with benefits that allow for a decent life, is somehow offensive. The corollary is that somehow the educated Left think that a duty to contribute to society through work is also offensive and they would rather people who can work be able to have the right to output when they are not prepared to contribute to the production of that output. None of these people would approve of a person walking into their homes and raiding their fridge for food. None would approve of some person taking their expensive racing bike parked outside some cafe while they were inside sipping latte! And yet, they do not seem to seem to appreciate the contradiction, when they also rail against capitalists who access the distribution system without contributing to the generation of output. It is no wonder that the traditional working class find the modern ‘Left manifesto’ repugnant and vote accordingly. This is Part 1 of an extended discussion that is the product of some months of research (work!).
The US Bureau of Economic Analysis (BEA) released the – Gross Domestic Product, Second Quarter 2020 (Advance Estimate) – data last week (July 30, 2020). It shows that the US economy has declined by 9.49 per cent between the March- and June-quarters. On an annual basis the decline was 9.54 per cent. This is the largest quarterly contraction in recorded history. Consumption expenditure declined by 10.1 per cent in real terms and business investment by 17.4 per cent. The collapse in consumer expenditure was mostly concentrated in services (-22.6%), which reflected lockdowns and the unwillingness of consumers to continue normal practices. Personal saving as a percentage of disposable personal income jumped dramatically from 9.5 per cent in the March-quarter to 25.7 percent in the second quarter. That is a testament to the endemic uncertainty that the pandemic has created. The contribution of net exports actually rose, not because exports rose (their individual contribution was -9.38 points), but because of the slump in imports – a smaller leakage from the expenditure system (adding 10.1 points t growth!). Overall, there is no trend – just a massive mess. How the second wave of the virus impacts is anybody’s guess but lots more deaths and more disruption is certain.
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.