Never impose austerity in a slump

In September 2013, when the current Conservative government took office in Australia we were told that “At last, the grown-ups are back in charge” (Source). It was the arrogance of the victors who also presumed a sort of divine right to rule as conservatives. They strutted around the media and public events claiming that now was the time to sort things out and to impose fiscal austerity. The economy was already slowing and unemployment had started to rise again as the Labor government had gone back to their now neo-liberal orthodoxy after the success of the fiscal stimulus in 2008 and started cutting into discretionary public spending. They lost office but left an economy that was faltering again and heading towards slump not boom. The conservatives took over with a mission to achieve a fiscal surplus and unleash private spending on the back of the confidence they claimed would accompany the fact that the ‘adults’ were back. They should have read John Maynard Keynes who worked out long ago that a government should never impose austerity in a slump. They didn’t and things have got worse. It was obvious they would. Keynes was right.
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    Posted in Economics, Eurozone | 24 Comments

    Lacklustre British economy all down to Conservative incompetence

    Not much has really changed in Capitalism despite massive changes in technology, market reach, etc. The underlying behaviour is stable – chicanery, bleeding the state for all the advantages that capital can gain while berating workers (unions) and welfare recipients, rigging financial, share and product markets, lying about state finances to gain more access to public handouts, lobbying government to socialise risk and privatise profit, paying off politicians to engage in corrupt behaviour where conflicts of interest dominate, and more. I was reading about the famous – South Sea Company – today, which was a public-private partnership that began life in 1711. It was a total scam and had all of the elements noted above. Its collapse in 1720 on the back of corrupt and incompetent behaviour (GFC anyone?) caused one hell of a recession in the UK. The only thing it managed to do in any significant volume with its trade monopoly between the UK and South America was to buy and sell slaves and, even then, it messed that up financially – quite aside from the repugnance of the venture itself. Interestingly, its collapse led to the rise of the, then private Bank of England, becoming the Government’s banker, and ultimately, its dominant role as the central bank. What is the contemporary relevance of the South Sea Bubble and its collapse? There are many angles that resonate in the current debate, but the point today is that the current recovery in the UK is the slowest in 300 years – that is since the glacial recovery following the collapse of the South Sea Company. And George Osborne thinks he is a champion.
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      Posted in UK Economy | 21 Comments

      Greece goes back into depression – having never left it

      Last Friday (March 6, 2015), Eurostat unveiled the latest – National Accounts estimates for the fourth-quarter 2014. All the Greek news this week will be about the – Letter – that the Greek Finance Minister sent to the president of the Eurogroup, in which he outlined 7 reform proposals. But it should be firmly focused on the fact that the Greek economy is back into depression having recorded two successive quarters of negative real GDP growth (despite the September-quarter data suggesting otherwise). The latest National Accounts data for Greece shows it contracted in the December-quarter 2012 significantly and the accompanying Labour Force data confirms that the unemployment rate is rising again and participation is falling. That is the disaster that the Eurogroup should be addressing. While they claim that internal devaluation will spawn growth through a burgeoning exports sector, the December-quarter 2014 data shows that exports contracted over the last three months of 2014. How long do the Greek people have to wait before the trade-led recovery nonsense is consigned to the nonsense bin? Read the rest of this entry »

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        Posted in Eurozone | 20 Comments

        Saturday Quiz – March 7, 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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          Posted in Saturday quiz | 7 Comments

          Saturday Quiz – March 7, 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 | 1 Comment

            Friday lay day – more Intergenerational Report nonsense

            Its my Friday lay day blog which is designed to divert my attention elsewhere. I have now had a chance to read the 170-page – Intergenerational Myth Report 2015, issued by the Australian Treasury yesterday. The whole nation has become caught up in the doom and gloom that the conservatives are putting out about the projected deficits for the next 40 years. Not a fiscal surplus in sight. But at the same time, all this is based (using their own logic) that we will be back in a steady inflation, full employment Australia within 5 years and sustain that state for the projection period out to 2054-55. Question: What would be so wrong with that? Of course, that statement just assumes their own logic. The projections however are not mutually consistent and there is insufficient information about net export trends for us to understand whether a fiscal deficit of 6 per cent of GDP in 2054-55 (on current legislation) is suitable or not. But again, if that size deficit is producing full employment and price stability why all the ‘sky is about to fall in’ unless we produce fiscal surpluses as quickly as possible? Answer: this is a nonsensical political exercise and has little to do with economics.
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              Posted in Friday | 6 Comments

              Australia – the Fourth Intergenerational Myth Report

              The Australian government will release the Fourth Intergenerational Report today with much fanfare, scaremongering and lies. Our boofhead Treasurer has been doing the rounds of the media outlets giving his evangelical sales pitch on how scary the future is unless we cut the fiscal deficit now and get the balance back in surplus as soon as possible. These intergenerational reports are really a confection of lies, half-truths interspersed with irrelevancies and sometimes some interesting facts. There is very little economics in these reports. What parades as economic analysis is just the usual neo-liberal mainstream nonsense that currency-issuing governments have run out of money and fiscal deficits are dangerous. The Treasurer is selling the Report on the grounds of “intergenerational theft” (the classic anti-fiscal deficit argument about mortgaging our future grand children’s future). Apparently, this justifies large cuts to the fiscal deficit now in order to turn it into a surplus so that our future generations are left with no debt. The real intergenerational theft though is embodied in a current fiscal strategy that leaves around 45 per cent of our teenagers unemployed, underemployed or NEET (Not in Education, Employment or Training) and hacks into public infrastructure provision as a strategy to create fiscal surpluses now. With private spending subdued at present and the external sector also draining expenditure from the economy relative to its income, trying to impose fiscal austerity now in the name of defending future prosperity is a grand lie and will ensure that the future prosperity is undermined.
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                Posted in Economics | 9 Comments

                Australian national accounts – growth well below trend continues

                The – December-quarter 2014 National Accounts data – released by the Australian Bureau of Statistics today confirms that the Australian economy was stuck in a weak growth state in the last three months of 2014. Real GDP growth grew by by a miserable 0.5 per cent in the December-quarter 2014. The annual growth rate of 2.5 per cent is being held up by the strong March-quarter 2014 result (1.1 per cent growth), which was clearly atypical. An growth rate of around 2 per cent is a more reasonable estimate of where Australia began 2015. With fiscal austerity set to worsen this year, today’s date paints a fairly gloomy picture for the Australian economy for the remainder of this year. Now is not the time for fiscal retrenchment. The government needs to stimulate the economy to boost income and employment growth and not squeeze households and lead them into more debt.
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                  Posted in National Accounts | 11 Comments

                  The Balanced Budget silly season is upon us again

                  Wasn’t Chuck Norris the muscle-bound guy with big guns and stuff who blasted the hell out of people and causes a lot of havoc? Well, apparently, he thinks he knows something about macroeconomics. In an article in the right-wing conservative media outlet WorldNetDaily (February 22, 2015) – Ready for a new U.S. Constitutional Convention? – Norris reveals what a knucklehead he really is. The article seems like an exercise in how many scary words, phrases and metaphors about government fiscal policy a writer can get into each sentence. Once you get over that there is nothing of substance left. Mr Action Man clearly needs to do some weights and leave the economics commentary to those who know even more than the slightest thing about it. American politics is once again come around to the more or less regular Balanced Budget Amendment (BBA) cycle. This is a regular comedy event that occupies Congress and all the commentators for a while as they reveal how little they know about the consequences of their grand plans for American prosperity. If they ever took it seriously it would be a disaster for the US economy and the people that depend on it.
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                    Posted in Economics | 14 Comments

                    Germany is not a model for Europe – it fails abroad and at home

                    Some time ago I wrote a blog – The German model is not workable for the Eurozone (February 3, 2012) where I outlined why Germany’s export-led growth strategy could not be a viable model for the rest of the Eurozone nations. More recent data shows that Germany is not even working very well in terms of advancing the prosperity of its own citizens. A recent report (in German) – Der Paritätische Gesamtverband (HG): Die zerklüftete Republik (The Fragmented Republic) – shows that poverty rates are rising in Germany and there is now a dislocation emerging between unemployment and growth and poverty rates. The reason is clear – too much neo-liberal labour market deregulation and ridiculously tight fiscal policy. Both failing policies that Germany continues to insist should be adopted throughout Europe. It would do the other Member States a service if they banded together and rejected the ‘German poverty model’.
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                      Posted in Eurozone | 17 Comments