Recessions can always be avoided and should be

Recessions are very costly events. The income losses come quickly and sustain for several periods after the worst has occurred. Unemployment rises sharply and if government doesn’t take appropriate action (job creation), it takes a very long time to return to previous levels. The losses of income are huge and are lost forever. The related pathologies such as increased rates of family breakdown, increased crime rates, increased alcohol and substance abuse, increased suicide rates, increased incidence of mental and physical problems, the lost opportunities for skill development and work experience among the young, make the costs of enduring recession very high. These costs dwarf any of the estimated costs of so-called structural rigidities (micro imbalances) that have been produced by researchers over the years. Mass unemployment is the single greatest source of income loss. It is amazing therefore that policy makers do not prioritise the avoidance of recession yet expend vast energy talking about structural reforms etc. The fact is that recessions can always be avoided and should be. Governments can always adjust fiscal policy settings to ensure there is sufficient total spending in the economy to avoid recession, irrespective of what the private sector spending patterns are.
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    Posted in Economics | 27 Comments

    Henry George and MMT – Part 2

    This is the second part in my discussion about Henry George and Modern Monetary Theory (MMT). In general, there is nothing particularly incompatible between the introduction of a broader LVT at the Federal level to replace or reduce other taxes currently levied and the insights provided by MMT. However, once you understand MMT, you realise that the discussion of the design of the tax system is quite different than just raising income from the most ‘efficient’ means. The Georgists would do well to come to terms with that and demonstrate how a land value tax (LVT) would work to free up real resources to give the real space for governments to spend. There doesn’t appear to be any analysis provided by Georgists to calibrate the impacts on non-government spending of such a tax and how this would alter the tax mix required to maintain full employment spending levels and satisfy the socio-economic spending goals of government. There are other things that might be done as well (if not prior to imposing a LVT) which would reduce the likelihood of property price bubbles. Finally, the obsession with the single LVT as a saviour is in denial of the causes of recessions and the the role that financial capital plays in destabilising economic systems. A LVT alone will do little to resolve those problems.

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      Posted in Economics | 28 Comments

      Henry George and MMT – Part 1

      I get several E-mails (regularly) from so-called Georgists who want to know how the Single Tax proposal of Henry George, outlined in his 1879 book Progress and Poverty, fits in with Modern Monetary Theory (MMT). I have resisted writing about this topic, in part, because the adherents of this view are vehement, like the gold bugs, and by not considering their proposals in any detail, I can avoid receiving a raft of insulting E-mails. But, more seriously, I see limited application. In general, the Georgists I have come across and the literature produced by those sympathetic to the Single Tax idea, is problematic because there is a presumption that national governments need tax revenue to fund their spending. Clearly, this is an assertion that MMT rejects at the most elemental level. But there is some scope for considering their proposal once one abandons the link between the tax revenue (which they call rent) and government spending capacity. The question that arises, once we free ourselves from that neo-liberal link, is whether a land tax has a place in a government policy portfolio with seeks to advance full employment, price stability and equity. The answer to that question is perhaps. I am writing about this today and tomorrow (with an earlier related post – Tracing the origins of the fetish against deficits in Australia) as part of my research into the life of Clyde Cameron, given I am presenting the fourth Clyde Cameron Memorial lecture tomorrow night in Newcastle. I hope this three-part blog suite is of interest. In some parts, the text is incomplete.
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        Posted in Economics | 36 Comments

        The Australian government is not akin to a household

        There was an extraordinary article published on the University of New South Wales News page (January 29, 2015) by a Professor of Finance (Peter Swan) entitled – Federal finances and family budgets have a great deal in common. Juxtapose that with a blog I wrote in December 2012 – Government budgets bear no relation to household budgets. Seems – we have a problem, Houston. Well, Peter Swan has a problem and along with him a raft of mainstream economists, including some who claim to be progressive. They are coming out of the woodwork where they hid during the peak of the crisis, as fiscal stimulus packages were saving the World economies, and are now rehearsing their usual erroneous claims about the dangers of on-going deficits. Their grasp of history and facts appears to be flimsy and their logic nonsensical.
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          Posted in Economics | 22 Comments

          Saturday Quiz – February 14, 2015 – answers and discussion

          Here are the answers with discussion for yesterday’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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            Saturday Quiz – February 14, 2015

            Welcome to the Billy Blog 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 | 3 Comments

              Friday lay day – federal government has demonstrated its incapacity to lead

              Its the Friday lay day blog – where I roam free. This week we have had three damning reports released which provide more than enough evidence that the federal government of Australia is way out of its league as visionary leaders of the nation. On three major fronts they have demonstrated their incapacity to lead the nation: the labour market (yesterday, the unemployment rate rose to its highest value in 14 years and is biased upwards; indigenous affairs – the release of the – Closing the Gap 2015, and the release by the Australian Human Rights Commission report – The Forgotten Children – on children in our immigration prisons (so-called detention). Unfortunately, the national election is still 18 or so months away, although the Opposition Labor Party is going to need that time to abandon its own neo-liberal ways. These three reports this week indict them as much as the conservative government in power!
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                Posted in Friday | 18 Comments

                Australian labour market – deteriorating and approaching crisis

                Today’s release of the – Labour Force data – for January 2015 by the Australian Bureau of Statistics shows that the Australian labour market contracted in January 2015, after the slight Xmas boost in December. Full-time employment growth was sharply negative and overall employment fell. Unemployment rose sharply and with the labour force growing at the rate of underlying population growth (participation rate steady), the unemployment rate shot up 0.3 points to 6.4 per cent. This is a disaster that has been unfolding for the last two years and now reflects the incompetent policy position of the current federal government. The Treasurer should now resign before he does any further damage. The broad ABS labour underutilisation rate – the sum of unemployment and underemployment – will now be heading towards 16 per cent (it is published in next month’s release). The teenage labour market went backwards again this month, which signals an urgent policy problem that the Federal government refuses to recognise or deal with. They are so obsessed with cutting fiscal deficits that they cannot see the future damage they are causing as a result of the appalling state of the youth labour market.
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                  Posted in Labour Force | 11 Comments

                  US labour market improving slowly – Eurozone falls further behind

                  Last week (February 6, 2015), the US Bureau of Labor Statistics (BLS) released its latest – Employment Situation Summary – which suggested that “Total nonfarm payroll employment rose by 257,000 in January, and the unemployment rate was little changed at 5.7 percent”. That is a relatively strong result and job gains were reported across all the major private sectors. Public employment continued to fall. The data has already been analysed to death within the media so I wanted to concentrate on some comparisons with other nations, which are quite interesting. Further, the BLS released the related – Job Openings and Labor Turnover – dataset yesterday (February 10, 2015), which allows us to dig deeper into the raw aggregate numbers to make better assessments of what is going on.
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                    Posted in Eurozone, Labour Force, UK Economy, US economy | 10 Comments

                    Tracing the origins of the fetish against deficits in Australia

                    Next week (Wednesday), I am giving the annual Clyde Cameron Memorial Lecture in Newcastle. Details are below if you are interested. Clyde Cameron – was a former Labor government Minister of Labour and other ministries (1972-75), a dedicated trade unionist, a defender of workers’ rights, and was aligned with the old-fashioned left-wing of the Party. He fell out with the Prime Minister at the time (Whitlam) over economic policy, in particular wages policy. The period of his demise is particularly interesting from an economic policy perspective and marked the beginning of the neo-liberal period in Australia and the rise of Monetarism as a macroeconomic policy framework. The type of propositions that were entertained by the Australian Treasurer, which were presented as TINA concepts in the public debate were flowering in policy making circles throughout the world. To some extent the current austerity mindset is the ultimate and refined expression of the trends that began around this time. The fetish against deficits first appeared in detail in the 1975-75 Commonwealth ‘Budget’ Papers. Cameron’s political demise in 1975 was intrinsically linked to his resistance against that fetishism, although his own solutions were similarly based on macroeconomic myths about the capacities of a currency-issuing government.
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                      Posted in Economics | 13 Comments