Britain approaches the 1976 currency crisis

When the Labour Party resumed minority government in March 1974 after a close victory over the Tories in the February election, which had delivered a hung parliament, the British economy was in recession and inflation was running at 12.9 per cent. To resolve the political impasse, he called a further election on October 10, 1974 and gained a majority. The contraction in real GDP began in the third-quarter 1973 under the Tories as the Dash for Growth ended badly and Britain recorded three consecutive quarters of negative growth. Thus, British Labour was on the back foot from day one as a result of inheriting an economy that was in decline as a result of declining investment in best-practice technology as British capital sought lucrative speculative investments abroad. Productivity was falling and the scope for rising standards of living were becoming limited, thus intensifying the struggle over the distribution of income. Many coalmines, a major source of employment and growth, were also reaching the end of their economic life. However, key figures in the Labour government (such as the Chancellor Denis Healey) had fallen into the sway of the emerging Monetarist thinking, which had the consequence of elevating the fraught Monetarist causality to centre stage at the neglect of policies that might have actually addressed the underlying issues. The IMF entered the fray and made matters worse, as usual. Today, we trace the events leading up to this turning point.
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    Posted in Britain, Demise of the Left, UK Economy | 1 Comment

    The government has all the tools it needs, anytime, to resist recession

    Several new articles have appeared in the last few weeks in the major media outlets expressing surprise that central banks have had little effect on economic growth despite the rather massive buildup of their ‘balance sheets’ via various types of quantitative easing programs. I have indicated before that I am coming to the view that most of the media, politicians, central bankers and other likely types (IMF and European Commission officials etc) seem to be in a constant state of ‘surprise’ as each day of reality fails to confirm what they said yesterday or last week (allowing for lags :-)). What a group of surprised people we have to effectively run our nations on behalf of capital. Poor souls, constantly be shocked out of their certainties. That is what Groupthink does – creates mobs that deny reality until it smacks them so hard in the face that they can only utter “that was surprising!” And in that context, the latest media trend appears to be something along the lines of ‘well let’s get the turbines moving’ or ‘those helicopters are about to launch’ and when we read that and what follows we learn that the media input into our lives only reinforces the smokescreen of ignorance that we conduct our daily lives within.
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      Posted in Central banking, Economics, Japan | 26 Comments

      Don’t fall for the AAA rating myth

      We once believed the Earth was flat. Then someone sailed out to the edge and came back the other way or something like that with apologies to Pythagoras and others in 5BC. At some other point in history, alchemists were convinced that they could take base metals (for example, lead) and turn them into ‘noble’ metals (like gold). More recently, the German Nazis convinced a nation that there was a Master Race (them) which had to purify civilisation by exterminating the parasitic (non-Aryan) races. The lowest races were considered to be Lebensunwertes Leben. Millions died unnecessary and cruel deaths as a result of that piece of national deception. Sometimes these demonstrations of national ignorance are relatively benign. Other times, as history shows the outcomes are devastating. The World is, once again, in the grip of another major deception, which is generating negative consequences at the worse end of the scale. As Australia approaches May, fiscal hysteria reaches its apex each year. Add the prospect of a general election (as early as July 2016) and the lying politicians and the media frenzy that support them extend themselves beyond the normal day to day idiocy and prevarication. On the world stage, the IMF prances around, wiping the blood of millions of citizens that it has impoverished over the years with its incompetence and bloody-mindedness, lecturing nations on what they should do next. Whenever, a nation follows their advice unemployment and poverty rises and the top-end-of-town walk off with even more loot. Loot is what pirates stole. These looters, however, do not even have the panache and elan that we associate with the romance of piracy. They are just sociopaths and cheats. Welcome to a new day in neo-liberal hell!
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        Posted in Fiscal Statements, Japan | 25 Comments

        Cancel your subscriptions to Time Magazine

        Ordinary citizens find it difficult expressing their dissatisfaction with the overall state of affairs in their nations. Sure enough we can vote a poor government out in many nations but the neo-liberal infestation is now so entrenched that the choices in terms of macroeconomic policy have narrowed to be no choice at all. At the corporate level, shareholders can cause trouble at annual meetings as they did last week in Australia when the bosses of the poorly-performed BP tried to push through a massive executive pay deal for themselves. 60 per cent of shareholders rejected the deal. But then not many of us a shareholders so that is a limited strategy. One thing we can do however is use our powers as consumers to punish corporations that lie to us in pursuit of profit. Consumers, united, do have power. Enough of us, pursuing a common goal, can send a corporation broke, just like the mainstream textbooks, which claim ‘consumer sovereignty’ drives the pattern of production, tell us. In this respect, I urge all readers of this blog to cancel any subscriptions that you might have to Time magazine and run a social media information campaign urging everyone you know (and everyone they know) to do the same. If you are a company who advertises in Time Magazine, I urge you to stop doing business with them. And then seek information on other products the owners of the magazine sell and boycott them too. That might given the company some reason to stop publishing erroneous material designed to distort the public debate.
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          Posted in Economics | 20 Comments

          The Weekend Quiz – April 16-17, 2016 – answers and discussion

          Here are the answers with discussion for the Weekend 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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            Posted in Saturday quiz | 3 Comments

            The Weekend Quiz – April 16-17, 2016

            Welcome to The Weekend Quiz, which used to be known as the Saturday Quiz! The quiz tests whether you have been paying attention over the last seven days. See how you go with the following questions. Your results are only known to you and no records are retained.
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              Posted in Saturday quiz | 2 Comments

              Australian labour market – still weak with a moderate upturn

              In the previous two months, there was virtually zero employment growth and labour force participation declined. The latest labour force data released today by the Australian Bureau of Statistics – Labour Force data – for March 2016 show that those ominous signs are still hovering above the labour market. Total employment growth was modest at best – 26,100 (net) jobs created but full-time employment fell by 18,800. There was also a decline in hours worked which is now trending downwards. The growth in part-time work suggests that overall the quality of work in Australia declined in March 2016. So overall a poor outcome. Unemployment fell this month but this is largely because the weak employment growth is interacting with even weaker labour force growth. But still, a decline in unemployment, not induced by a fall in the participation rate is a welcome outcome. The teenage labour market remains in a poor state even though the 15-19 year olds enjoyed part-time employment growth. Overall, with private investment forecast to decline further over the next 12 months, the Australian labour market is looking very weak and the Federal government should be introducing a rather sizeable fiscal stimulus in its upcoming fiscal statement. This should include large-scale public sector job creation which would ensure teenagers regained the jobs that have been lost due to the fiscal drag over the last several years. However, the Federal government appears incapable of addressing this dire issue. It is embroiled in mythical discussions about running out of money and not being able to defend the economy if there is another crisis. All make believe, while the real world does head towards another major rift.
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                Posted in Labour Force | 2 Comments

                The British Labour Party path to Monetarism

                The Bank of England’s failure in the early 1970s to control the money supply under the Competition and Credit Control (CCC) policy should have discouraged the Monetarist support base. However, while the monetary targets were abandoned, the Monetarist infestation was firmly alive among economists in the British Treasury and the Bank of England and the junior ministers in Edward Heath’s government. The City was also a hotbed of Monetarist support, with the likes of Gordon Pepper, an economist in the private sector who edited the Greenwell Monetary Bulletin prominent. Pepper, was very vocal and very influential within government circles. The ‘Greenwell Monetary Bulletin’ became a vehicle for the monetarist views to penetrate the highest levels of government. The British Labour Party was struggling with its factions. On the one hand, the Left was becoming more powerful within the Party and deeply rejected the attempts to diminish union operations. They formulated a new and far reaching industrial policy, which was light years away from the approach adopted by Harold Wilson’s government in the 1960s. But there was also a significant rump of Labour Monetarists, mostly concentrated in the Parliamentary party who were closer to the Tories on macroeconomic policy than their colleagues on the Left. Major tensions developed and would, ultimately lead to the famous 1976 surrender to Monetarism by James Callaghan at the National Conference. We trace this evolution in this blog so that we can understand the next instalment, which analyses the 1976 IMF loan arrangement that the British government entered into. This arrangement is a significant turning point in the way that social democratic governments have been captured by the neo-liberal myths.
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                  Posted in Britain, Demise of the Left, UK Economy | 6 Comments

                  Spanish government discretionary fiscal deficit rises and real GDP growth returns

                  I am off to Spain in a few weeks to undertake a lecture tour associated with the publication of a Spanish translation of my current book – Eurozone Dystopia: Groupthink and Denial on a Grand Scale (see details below if you are interested). I noted by way of passing in a blog last week that a recent article in Spain’s highest-circulation newspaper El País (March 31, 2016) – Public deficit for 2015 comes in at 5.2%, exceeding gloomiest forecasts. The latest data shows that the Spanish government is in breach of Eurozone fiscal rules and is growing strongly as a result. Those who claim that Spain demonstrates how fiscal austerity can promote growth should examine the data more closely. The reality is that as growth has returned (albeit now moderating again), the discretionary fiscal deficit (that component of the final deficit that reflects the policy choices of government) has increased. Government consumption and investment spending has supported the return to growth, which had collapsed under the burdens of fiscal austerity between 2010 and 2013. Spain demonstrates how responsible counter-cyclical fiscal policy works.
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                    Posted in Eurozone | 8 Comments

                    Rising urban inequality and segregation and the role of the state

                    Last week, 61.1 per cent of Dutch voters who turned out (the turnout was above the legal threshold to make the vote legal) voted against the referendum proposal to ratify a ‘preferential trade’ agreement between the European Union and Ukraine. It means that the Dutch government cannot, from a political perspective, ratify the EU initiative. It is the second time in its history that the Dutch have rejected a referendum about the EU – the last time was in 2005 when the EU Constitutional Treaty was soundly rejected. Then, the EU elites just ignored the democratic intent and bundled the initiative up into the Treaty of Lisbon and went about business as usual. Democracy is only useful to the EU elites if it ratifies their own self-interest. The same will happen this time. Merkel and Hollande have already said (in as many words) that they will disregard the Dutch outcome. The interpretations of last week’s voting outcome are now coming ‘fast and furious’ and the denialists are out in force – ‘oh, it doesn’t mean what it appears’ etc, and so the EU will just go about business as usual, as it always does, and that ‘culture’ is one of the reasons the whole European Project (now dominated by the common currency) is now proving to be an abject failure. It is a dysfunctional dystopia! Then citizens are watching the unfolding story from The Panama Papers, which only serve to confirm how top-level corruption, hypocrisy etc is rife and there is one (no) rule for them and another, harsher, binding rule for the rest of us. And, recent research findings suggest that our social settlements, where we live, bring up families, develop our aspirations and behaviours, are riven with rising inequality and increased segregation. Juxtapose that with the facts coming out about the urban backgrounds of young Belgians who achieve their aspirations by blowing themselves up and taking as many of us with them. The souls typically come from highly segregated urban enclaves in our cities with joblessness and poverty a daily burden. All of the above has been created by a neo-liberalism that works for the elites and aims to extract as much real income out of the system for the few as possible with as little democratic oversight as possible.
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                      Posted in Demise of the Left, Economics, Eurozone | 10 Comments