This is Part 2 of the series I started earlier this week in – An MMT-Green New Deal and the financial markets – Part 1 (September 2, 2019). In the first part, I discussed Chapter 12 in John Maynard Keynes’ General Theory, published in 1936, where he outlined how the growth of financial markets was distorting investment choices and biasing them towards speculative wealth-shuffling exercises, which had the potential to destabilise prosperity generated by the real economy (production, employment, etc). His insights were very prescient given what has transpired since he wrote. He was dealing with what we would now consider to be a tiny problem given the expansion of the financial markets over the last three decades. In this part, I am briefly outlining what I think an MMT-Green New Deal agenda would encompass in the field of financial market changes. The MMT association is that such an understanding opens us up to appreciate a plethora of policy options that a strict sound finance regime rejects or neglects to mention. That policy proposals and reform agenda I outline here reflects my MMT understanding but also, importantly, my value set – what I think are important parameters for a futuristic progressive society. So we always have to separate the understanding part from the values part (although that is sometimes difficult to do). The point is that a person with a different value set who shared the MMT understanding could come up with a totally different agenda to deal with climate issues and the need for societal restructuring. You can see all the elements of my thinking on this topic under the category – Green New Deal – which also contains a long history (now) of relevant commentary. Most of my writing on the topic are about the societal aspects of the GND transformation rather than the specific climate issues. That is obviously because I am not a climate scientist. But as I signalled in Part 1, I am about to announce a coalition (in the coming week I hope) which does include climate science expertise to broaden the capacity of the MMT-GND agenda.
I am in Brisbane today as an expert witness in an industrial hearing where the public education workers are trying to secure a wage increase in the face of fierce opposition from the Labor State government who insist on maintaining a wage cap that is depressing income growth and helping to cause the economic slowdown. The Government’s defense is that a wage rise would damage their fiscal plans which are to record recurrent surpluses of such magnitude that they can fund all capital spending out of recurrent revenue. Yes, a modern Labor government at work. They seem unable to that their suppression of wages growth is undermining overall growth, which undermines their tax revenue and makes their ridiculous fiscal goal unattainable anyway. Walking around in increasingly smaller circles. Anyway, it was a good day to be discussing these matters as it coincided with the latest release by the Australian Bureau of Statistics of the – June-quarter 2019 National Accounts data (September 4, 2019). That data shows that annual GDP growth of 1.4 per cent (down from 1.6 per cent) and now around 1/3 the historical trend rate. This is a very poor on-going result. The weaker performance started in the last 6 months of 2018 and has continued into the first six months of 2019. However, due to a fairly strong terms of trade, Real net national disposable income rose, which signifies rising material living standards. But those terms of trade gains will prove to be ephemeral and a related to disturbances in world markets (Brazil, etc). Overall, the quarterly growth rate was just 0.5 per cent. Net exports were strong (terms of trade effect) and government consumption expenditure was strong courtesy of some policy measures in disability, health and aged care coming on-line. Their boost will also dissipate fairly quickly. Longer-term worries include the weak household consumption growth and the on-going negative business investment growth. Further, the fall in the saving ratio once again illustrates the folly of suppressing wages growth through wage caps etc. It is also apparent that the positive spending effects of the large government infrastructure projects (State-level) are now working their way through the system and their impact is declining. The overall picture is not good and the future is looking rather dim at present. A major shift in fiscal policy towards expansion is definitely now required.
I have regularly noted how the UK Guardian, the so-called newspaper for progressives as opposed to The Times, which serves the Tories, has been a primary media instrument for propagating neo-liberal economic myths. It has also been part of Project Fear, which the Remainers thought would see the June 2016 Referendum resolved in their favour, and have ever since been moaning about the need for another vote – you know, democracy as long as it delivers what you want. But when the Tories outflank them by electing Boris Johnson who then determines he will take the intransigent European Union on by calling their bluff and pushing ahead with Brexit by hook or by crook, the Remainers scream about democracy being trampled and all the rest of it. And when the Johnson Tories announce that they will introduce a significant fiscal stimulus to head-off any possible non-government recessionary forces (which is sensible and responsible fiscal conduct), the Remainers open their beloved Guardian to find their favourite journalists raving on about how such a move is risky because it will ‘damage public finances’ and predicting, derisively, that the Government will have to break their ridiculous fiscal rules because of the scale of the stimulus required. This is par for the course for the Europhile Left these days – champions of neoliberalism.
Next week, I am attending a meeting which I hope will finalise discussions I have been having with some key prospective partners in putting together a major MMT-Green New Deal initiative in Australia which will have global ramifications. It will bring together MMT with climate action and indigenous rights interests. We propose to begin a ‘roadshow’ in November to start our campaign. Our discussions to date have been very productive and we will issue a ‘White Paper’ in the coming months to articulate what we conceive as a jobs-first, equity-first MMT-Green New Deal might look like. This work will also form the basis of talks I am giving in the coming month throughout Europe and the UK. I have already started sketching elements of my thinking on this topic under the category – Green New Deal – which also contains a long history (now) of relevant commentary. Today, I am focusing on another element that I consider to be a core part of a progressive MMT-Green New Deal campaign – dealing with unproductive financial markets. I am not for one minute thinking any of the analysis today (or any of the GND stuff) is likely to be implemented without a massive and lengthy struggle. I think I understand vested interests. So a valid retort to the ideas is not to accuse me of being politically naive. My role, as an academic, is to work through things and lay out blueprints to guide directions of activity based on that thinking. It is not to assess the likelihood of success of the blueprints being implemented. I sort of see these blueprints as being benchmarks – to assess where we are at and how far it is to go. And as debating vehicles which define what opponents have to address. But, moreover, I do see them as being guides for campaigning strategies, which can then be implemented by those who know more about those things than I ever will. This is a two-part series.
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 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.
It is now clear that to most observers that the use of monetary policy to stimulate major changes in economic activity in either direction is fraught. Central bankers in many nations have been pulling all sorts of policy ‘rabbits’ out of the hat over the last decade or more and their targets have not moved as much or in many cases in the direction they had hoped. Not only has this shown up the lack of credibility of mainstream macroeconomics but it is now leading to a major shift in policy thinking, which will tear down the neoliberal shibboleths that the use of fiscal policy as a counter-stabilisation tool is undesirable and ineffective. In effect, there is a realignment going on between policy responsibility and democratic accountability, something that the neoliberal forces worked hard to breach by placing primary responsibility onto the decisions of unelected and unaccountable monetary policy committees. And this shift is bringing new players to the fore who are intent on denying that even fiscal policy can stave off major downturns in non-government spending. These sort of attacks from a mainstream are unsurprising given its credibility is in tatters. But they are also coming from the self-proclaimed Left, who seem opposed to a reliance on nation states, and in the British context, this debate is caught up in the Brexit matter, where the Europhile Left are pulling any argument they can write down quickly enough to try to prevent Britain leaving the EU, as it appears it now will (and that couldn’t come quickly enough).
It is Wednesday and a quite blog writing day for me. I have to catch a flight a bit later and finish some other things before I do that. But I receive a lot of E-mails from readers puzzled by the fact that the low-interest rate environment (even negative) has not stimulated economic activity to the point of accelerating inflation. As part of the paradigm shift that is now, finally, occurring in macroeconomic policy-making, the RBA governor Phillip Lowe continued his theme that monetary policy has basically exhausted its counter-stabilisation potential, when he made his – Remarks at Jackson Hole Symposium (August 25, 2019). He talked about the “the elevated expectations that monetary policy can deliver economic prosperity” against the reality that central banks do not have “the best lever” to manage the economy. This theme has been expressed by many central bankers now. And there is emerging research to show that the low-interest rate environment is actually achieving the opposite – reducing the inflationary pressures. This is no surprise to Modern Monetary Theory (MMT) economists. Our basic presumption is that monetary policy is an ineffective tool for modifying aggregate spending and that rising interest rates, which are designed to quell inflationary pressures, probably actually intensify those pressures through their impact on business costs. Today, I will briefly discuss a paper I read yesterday that adds to the growing research evidence on this theme.
This is Part 2 (and final part) of my series on printing money, debt and power. The two-part series is designed to draw a line through all the misconceptions and errors that abound on the Internet about the Modern Monetary Theory (MMT) treats deficit spending and bond issuance. The social media debate about MMT is at time nonsensical, thriving on falsehoods and fantasy. I get many E-mails after some robust Twitter exchange between some self-proclaimed expert who has found the latest fatal flaw in our work. Often these characters have just stumbled across MMT for the first time and, full of dissonance, wade into the discussion without thinking for a moment that we have been working on this Project for 25 or more years and, just may have, come across these points before. In other cases, the critics just make stuff up to make themselves sound erudite. In the process, well motivated readers get confused. In the first part I dealt with the ‘money printing’ story about MMT. Today I want to discuss the issue of bond issuance and whether MMT economists are Wall Street stooges who want to perpetuate the interests of the financial sector over all else. Seriously!
Dear Readers: Sorry for the downtime overnight. We had a disk failure which could not be resolved immediately. We have also been building a new system to provide for greater security and I will be migrating to that set up…