Mitterrand’s turn to austerity was an ideological choice not an inevitability

As background research to one of my book projects I have been reading a recent biography of François Mitterrand by Philip Short. Its title “Mitterand: A Study in Ambiguity” points to the capacity of Mitterand himself to blow with the wind but only when it suited his sense of personal ambition. Hiding behind his statesmanship was a man with “infinite shades of deviousness, an aesthete and intellectual, a sensualist, a crook”. The story of Mitterrand and his famous turn to austerity in March 1983 is very important to understand because it is used by progressives to justify their ‘austerity-lite’ stances with respect to economic policy. The New Labour politicians that are attacking Jeremy Corbyn’s policy proposals fit into this camp. The ‘left’ narrative is that the demise of Keynesian policy options was inevitable in the face of globalisation of capital and the growing importance of Transnational Corporations (TNCs). But, my argument is that there was nothing inevitable at all about Mitterrand’s poorly contrived shift into austerity. The progressives who advocate the inevitability thesis conflate the development of the TNCs with the emerging dominance of the neo-liberal ideology (which is concoction from economists intent on pushing the textbook competitive free market model with minimal state intervention). The development of the TNCs didn’t undermine the capacity of currency-issuing nation states. That has been accomplished by the imposition of the neo-liberal ideology and is reversible if the politics can be won. That is what I see as Jeremy Corbyn’s challenge – to win the politics. There is plenty of strong economic argument to help him do that.
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    Posted in Eurozone, Friends like this, Politics | 16 Comments

    PQE is sound economics but is not in the QE family

    The conservative forces including those ‘Tories’ that are within the British Labour Party (aka New Labourites) continue to gather their forces to counter the growing threat posed by Jeremy Corbyn to their secure world as neo-liberal, Tory-lite hopefuls. They are part of a phalanx of critics, including mainstream economists who seek to diminish his credibility. At the extreme end of this bunch are the evil ones who have accused Corbyn of being antisemitic and a friend to Islamic terrorists. I am reliably informed that the same tactics have been deployed against Bernie Sanders in the US. It tells us that desperation has replaced any sense of decency or reason. It also tells us that the Tory-lites are finally seeing the evidence that their day in the sun has gone and they are being cast into irrelevance. Not before time, I should add. But all is not clear on the Corbyn front either. Today, I want to discuss what appears to be a major economic policy proposal – the so-called People’s Quantitative Easing (or PQE). There are elements of a good idea in this proposal but the QE reference and the resulting language is all wrong, in that it betrays as lack of understanding of the difference between a monetary policy operation and a fiscal policy intervention. The concept should be re-framed so that a consistent narrative can be provided and that a good policy proposal gains the wings it needs. PQE is a wealth generating policy which is in contradistinction to QE which just shuffles wealth portfolios.
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      Posted in Economics | 45 Comments

      Japan needs to abandon its reliance on export growth

      The economic news yesterday from Japan that the economy had contracted in the second-quarter 2015 by 0.4 per cent (Real GDP) on the back of a sharp drop in exports (-4.4 per cent) and private consumption (-0.8 per cent). The economy is 0.7 per cent larger in real terms than this time last year but that is somewhat misleading because of the 1.9 per cent decline in the June-quarter 2014 after the Government introduced its latest sale tax hike fiasco. The only positive contributors to growth in the June-quarter 2015 were inventories and the public sector (both consumption and investment). The continuing declines in real wages and pessimistic consumer expectations are undermining the capacity of the private domestic sector to sustain growth. Without the growth in public spending the quarterly decline in real GDP growth would have been much worse. It is likely that the slowdown in China is impacting negatively on Japanese exports. But with China trying to stabilise around a mean-shift downwards in its growth rate, the future for all export-led growth strategies (that have been relying on China to sustain much higher rates of growth) doesn’t look good. In the same way that China appears to be rebalancing its total output in favour of domestic spending, the same strategy should be adopted by Japan to wean itself of its reliance on continued strong growth in exports. One thing that Japan might re-assess is its – National Pension Scheme – which is not only fairly meagre in income payments but also forces workers to contribute during their working lives. Given Japan is a currency-issuing nation, it could easily increase the pension payment and reduce or eliminate the contribution, thus providing more certainty to workers in retirement.
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        Posted in Japan | 10 Comments

        Governments do not need the savings of the rich, nor their taxes!

        In Chapter 24 of The General Theory of Employment, Interest and Money, Concluding Notes on the Social Philosophy towards which the General Theory might Lead, John Maynard Keynes confronted the issue of the “arbitrary and inequitable distribution of wealth and incomes” in capitalist economies. The argument he advances in that Chapter of his 1936 book contains guidelines for the progressive left that some just cannot seem to grasp. In short, governments (as our agents) do not need the savings of the rich to ensure that society prospers. There was another interesting contribution in 1946 from the American statistician and economist – Beardsley Ruml – who wrote that “Taxes for Revenue are Obsolete”. The progressive left would be advised to study his work and stop building political policy platforms on the claim that governments needs to make the rich pay their fair share of taxes so that adequate public services and infrastructure can be provided. The incomes and taxes paid by the rich are largely irrelevant to the capacity of a national, currency-issuing government to provide first-class public services and infrastructure. It is time to re-frame the debate and the way in which progressive political forces state their policy aspirations. This bears on the current interesting struggle in Britain for the leadership of their Labour Party.
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          Posted in Debriefing 101, Economics | 61 Comments

          Saturday Quiz – August 15, 2015 – answers and discussion

          Here are the answers with discussion for yesterday’s quiz. The information provided should help you understand the reasoning behind the answers. 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 | 9 Comments

            Saturday Quiz – August 15, 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 | 2 Comments

              Friday lay day – the skill shortage myth in Australia

              Its my Friday lay day with respect to blog writing but at the risk of today’s publication looking like an advertising catalogue, I thought I have better write something. There are a number of topics I am delving into at present so deciding what I was interested in writing about today took a little coin-tossing (in virtual space that is). So some notes on corporate greed and management lies. Familiar themes for me. In a week where we learned that wages growth in Australia is at record lows and real wages are skating along the zero growth line despite on-going productivity growth, the big business barons want the government to scrap weekend our wage system and instead allow the ‘market’ (inverted commas!) to rip. This is code for cutting wages for a range of occupations and sectors. Business is also continuing to lie about the state of the economy claiming massive skill shortages exist, which then lead them to recommend more lenient use of short-term migrant visas – which is code for bringing in non-unionised workers from abroad who will work for minimum rates and be susceptible to illegal scams that violate those minimum rates. Even the Government has noted the skills shortage argument which is part of the relentless public relations assault on workers’ conditions does not accord with the evidence. But then since when have the right-wing allowed the facts to get in the road of their ideological push to destroy unions and drive wages down as low as they can.
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                Posted in Friday | 16 Comments

                Corbyn should stop saying he will eliminate the deficit

                The New Labour group are clearly getting desperate in Britain and Blair himself has come out again to vilify Jeremy Corbyn and predict a Labour annihilation at the next general election. Clearly Blair and his cronies haven’t understood that their time in the sun is over. They recreated the Labour Party into a Tory mirror image on key issues and the grass roots of the Party is now reclaiming the lost ground. The UK Guardian article (August 12, 2015) – Syriza’s Greece: the canary in the cage for Corbyn’s Britain? – illustrates how stuck in the neo-liberal mud the British economic debate has become. It tries to claim that Corbyn is a throwback to the past and the policies that old Labour tried in the 1970s failed and would fail again. Clearly, the writer and most of the commentators which resonate the same message haven’t really understood the difference between a currency-issuing government and one bound by a mania for fixed exchange rates and fiscal surpluses. Increasingly, the attempts by Corbyn’s support base to appear to be ‘fiscally responsible’ tells me that he will not succeed in altering the debate if he continues to promote ideas that equate fiscal responsibility with deficit elimination. Fiscal responsibility is equated with achieving full employment with price stability – and in the current climate that would require a fiscal deficit some percent of GDP larger than what it is at present. Corbyn’s camp should be talking about that rather than deficit elimination, which is a ridiculous policy target to aspire to.
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                  Posted in Economics | 40 Comments

                  Australia wages growth drops to a new record low

                  With the Chinese yuan now falling and the Australian dollar going with it, domestic inflation pressures will rise in Australia in the coming months. This doesn’t augur well for Australian workers who were told today that wages growth in the last quarter (June) was at the lowest on record. The Australian Bureau of Statistics published the latest – Wage Price Index, Australia – for the June-quarter today and annual private sector wages growth fell to 2.2 per cent (0.5 per cent for the quarter). This is the third consecutive month that the annual growth in wages has recorded its lowest level since the data series began in the December-quarter 1997. In the 2015-16 fiscal statement, the Government assumed wages growth for 2014-15 would be 2.5 per cent rising to 2.75 by 2017. On current trends, that is highly unlikely to occur, which means the forward estimates for taxation revenue are already falling short and the fiscal deficit will be larger than assumed. Depending on how we measure inflation, the annual wages growth translates into a small real wage rise or fall. Either way, real wages are growing well below trend productivity growth and Real Unit Labour Costs (RULC) continue to fall. This means that the gap between real wages growth and productivity growth continues to widen as the wage share in national income falls (and the profit share rises). The flat wages trend is intensifying the pre-crisis dynamics, which saw private sector credit rather than real wages drive growth in consumption spending. The lessons have not been learned.
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                    Posted in Labour costs | 2 Comments

                    US labour market weakening

                    The Federal Reserve Bank of America has been publishing a new indicator – the Labor Market Conditions Index (LMCI) – which is derived from a statistical analysis of 19 individual labour market measures since October 2014. It is now being watched by those who want to be the first to predict a rise in US official interest rates. If the latest data from the LMCI is a guide to potential interest rate movements then they won’t be rising any time soon. I updated my gross flows database today and also the job openings and quits database. The gross flows analysis suggests that while there has been improvement in the US labour market in the last year, in recent months that improvement is slowing.
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                      Posted in US economy | 2 Comments