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Central bank priorities are not the priorities of working people

I remember a conversation I had when I was picked up hitch hiking to Melbourne from where I was living down the coast. It was during the 1970s inflationary period, which had morphed into stagflation as a result of deliberate government policy to create unemployment and discipline the wage-price spiral. The driver was a manual worker and during a conversation about the state of the economy (I was studying economics at the time) he said “the government should care about employment because at least then everyone has a job even if prices are rising”. That conversation stuck with me because it summed up what research shows in more sophisticated ways – the costs of inflation are minimal when compared to the devastating costs of unemployment. At present, our policy makers are unwilling to recognise that reality because it is not them that bear the costs.

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The Weekend Quiz – September 17-18, 2022 – 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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Australian labour market – slight improvement in the situation despite rise in unemployment

The Australian Bureau of Statistics (ABS) released of the latest labour force data today (August 18, 2022) – Labour Force, Australia – for August 2022. WThe labour market improved slightly in August 2022 with employment and participation both increasing, but this was just reversing the joint decreases in July. The rise in the official unemployment rate from 3.4 to 3.5 per cent was due to the rise in the participation rate, which meant the modest employment growth could not absorb all the new entrants to the labour force. The underlying (‘What-if’) unemployment rate is closer to 6 per cent rather than the official rate of 3.5 per cent. There are still 1,320.4 thousand Australian workers without work in one way or another (officially unemployed or underemployed). The only reason the unemployment rate is so low is because the underlying population growth remains low after the border closures over the last two years. But that is changing as immigration increases. Overall, the situation improved a bit over August.

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Inflation falling in the US and expectations are sharply in decline

It’s Wednesday and today we discuss the latest inflationary expectations data from the US, which tells me that my assessment that this episode will be a transitory phenomenon, diametric to the experience of the 1979s, was sound, despite the flack I have received over the last several months. The data is now showing consistent, cross-month declines in expected inflation and the latest CPI shows an easing of the general CPI pressure. AS the supply chains return to something like pre-pandemic capacities, then the easing will continue. It is too early to say that this period of elevated CPI rises is over but it sure looks like it and wages have barely moved. Once we get our heads around that I provide some information about an interesting ‘golf’ experiment and finish with some great keyboard playing.

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MMTed edX MOOC – Modern Monetary Theory: Economics for the 21st Century – starts September 14, 2022

The MMTed edX MOOC – Modern Monetary Theory: Economics for the 21st Century – starts tomorrow and enrolments are open. The free, 4-week course will offer a range of learning modes – videos, written materials, interviews with many MMT people, and more. It is designed for the beginner and equips the participant with a broad array of information designed to develop economic literacy.

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IMF reform proposals for the Eurozone are just weak band aids that cannot fix the dysfunctional mess

The Eurozone is currently in a period of ‘temporary’ hiatus – by which I mean that to deal with the obvious system-ending implications of the pandemic (increasing fiscal deficits etc) the European Commission invoked the special clauses to suspend the application of the fiscal rules outlined in the Stability and Growth Pact (SGP) and related Excessive Deficit Mechanism procedures and the European Central Bank introduced an even larger bond-buying program to ensure the resulting deficits would be funded without bond yields rising. Result: fiscal deficits rose well beyond the SGP limit of 3 per cent in 2020 and have remained at elevated levels relative to the rules in 2021. The overall Eurozone deficit is 4.7 per cent of GDP and 11 of the 19 Member States remain in ‘violation’ of the Excessive Deficit Mechansim should that be reinvoked. It is clear that unless the ECB continues funding the deficits across the union (even though it claims otherwise), then the European Commission will tempt disaster if it tries to reassert the Excessive Deficit Mechansim. Already so-called ‘reform’ proposals are emerging and many more will come in the months ahead. The first major effort from the IMF is really just more of the same and fails to deal with the dysfunction at the design level of the monetary union. The proposals so far are just advocating putting band-aids over the mess – and they are weak bandages at best. But how this dilemma is resolved will be interesting for sure.

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The Weekend Quiz – September 10-11, 2022 – 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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