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The one-trick New Keynesian ponies are back in town

I learned long ago that when you consult a surgeon the recommendation will be surgery. After about 10 or more knee operations (both legs) as a result of sporting injuries, and, then some, to undo the damage done by previous surgery, I ran into a physiotherapist who had a different take on things. He showed me ways the body can respond to different treatments and retain the capacity for high-level training and performance even with existing damage. I still run a lot and his advice was worth a lot. The point is to watch out for one-trick ponies. The analogy is not quite correct because sometimes surgeons get it right. I don’t think the same can be said for a mainstream economist, who are also one-trick ponies. If you ask a mainstream economist what to do about macroeconomic policy they recommend hiking interest rates and cutting fiscal stimulus if the CPI starts to head north, irrespective of circumstances. But the message is getting blurred by realities, especially since the GFC. More pragmatic policy makers realise that just responding in the textbook manner hasn’t provided a sustainable basis for nations to follow. In the last week, we have seen the contradiction between the one-trick ponies, who are desperate to get back into their textbook comfort zone, and those who see the data more clearly. In Britain, one part of the Bank of England, the Financial Policy Committee has indicated the way forward is going to require careful policy support for businesses because many SMEs have loaded up on debt during the pandemic and face a precarious future. In the same week, a private sector bank economist, who is also an external member of the Bank of England’s Monetary Policy Committee, called for interest rate hikes and a deeper withdrawal of fiscal support (and central bank coordination of that support) to deal with, an as yet, unclear inflation threat.

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    US labour market – recovery in a fairly languid state

    Last Friday (October 8, 2021), the US Bureau of Labor Statistics (BLS) released their latest labour market data – Employment Situation Summary – September 2021 – which reported a total payroll employment rise of only 194,000 jobs in August and a 0.4 points decline in the official unemployment rate to 4.8 per cent. The combination of rising employment and falling unemployment might suggest that things are improving. But the reality is that the active labour force shrunk significantly as the participation rate fell by 0.1 points in the face of declining employment opportunities. The results suggest that the labour market recovery has slowed quite significantly from the situation mid-year. The US labour market is still 4,970 thousand jobs short from where it was at the end of February 2020, which helps to explain why there are no fundamental wage pressures emerging. Further, it is clear that there has been a slight bias towards low pay jobs being added in the recovery at the expense of above-median wage jobs, particularly in the service occupations.

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      The Weekend Quiz – October 9-10, 2021 – 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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        The Weekend Quiz – October 9-10, 2021

        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.

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          Australian government issues debt, buys most of it itself, and then pays itself interest into the bargain

          These are rather extraordinary times indeed. I have been trawling through the Australian public debt data which is spread across the federal sphere and the various states and territories. The official data published by the ABS is always dated (lagging a year or so) and the state-level debt data is actually quite hard to put together – their various ‘debt management’ offices do not make it easy to put a time series together. My interest is in working out the impact of the rather radical shift in usual conservative Reserve Bank of Australia behaviour when the pandemic hit. They started buying government bonds (at all levels) and now own large swathes of public debt. They have also effectively been funding the rather large deficits that the governments in Australia have been running. And interest rates and bond yields remain low after nearly 18 months of this shift.

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            We will soon see just how ‘pragmatic’ Sunak really is

            At present, Britain is still in the throes of a global pandemic that has devastated the nation. Last week, at Brighton, the key economic spokespersons for the TLP or the Tory-lite Party (short form, British Labour Party) told the voters of Britain why they should remain in opposition. They were sterling performances by the leader and shadow chancellor. Clarifying for all, the fact that the Party hasn’t learned much at all about their recent history. A history that has seen them lose 4 national elections in a row and in the face of one of the worst British governments in history (and that is really saying something), the TLP’s electoral fortunes continue to wallow in loss-making percentiles. Then we had the Tory version outlined by the actual chancellor on Monday. Taking advantage of the political space the TLP has given them to reinstate all the religious nonsense about the immorality of public debt and the rest of the stuff that cultists (mainstream economists) dish up.

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              Live Stream on Currencies footage – Helsinki, October 2, 2021

              It is a public holiday today celebrating – Labour Day – which recognises the struggles to successfully gain an 8-hour working day for workers. The first of the many marches in this struggle occurred in my hometown of Melbourne on April 21, 1856, and history shows that this march was successful in achieving the first 8-hour day decision in the world, without loss of pay. So today we think of that. If workers unite they have the capacity to achieve great things. What follows is a brief report and footage from a debate I participated in on October 2, 2021, which was organised by some groups in Helsinki, Finland.

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                The Weekend Quiz – October 2-3, 2021 – 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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                  The Weekend Quiz – October 2-3, 2021

                  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.

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