It is Wednesday and so my light blog writing day today. A few interesting things have come up today and yesterday which will promote further research. Also Week 4 of our edX MOOC – Modern Monetary Theory: Economics for the 21st Century got underway today so there is lots of new content and discussions to check out. The most important revelation in a week of shocking news from the Australian government that illustrates their incompetence was the fact that a job scheme that was meant to have created 10,000 jobs by now has only actually recorded – wait – and whisper this – 521 jobs. And the extent to which the Government is going to try to brush that up as good news and avoid obvious questions like why not just create work rather than try half-baked wage subsidy schemes that had no real chance of working is a thing to behold. Ducking and weaving but demonstrating gross incompetence. The pity is that the Labor Party opposition just keep kicking own goals and cannot be taken seriously.
While progressive-sort-of politicians, at least they say they are progressive, work out all the ways they can parrot mainstream macroeconomics textbooks about fiscal deficits and public debt to make themselves appear ‘credible’, even using credibility in the title of key fiscal rules they advocate, the world passes them by rather quickly. British Labour is crippled by, among other things like Europe, their belief that the City (finance) is powerful and the state has to appease the interests of the speculators. The Australian Labor Party is no different and so it goes everywhere. Give a traditional social democratic politician any latitude and they privatise, cut welfare spending, deregulate, give handouts to the top-end-of-town and more. We have four decades of this behaviour to back that accusation up. Well one of the more conservative central banks in the world – the Reserve Bank of Australia – is currently demonstrating what Modern Monetary Theory (MMT) economists have said all along – the financial markets can always be subjugated by the power of government, any time policy makers choose to exercise their capacity. It is time that these progressive types realised that and became much more ambitious and, yes, progressive, really progressive rather than adopting the sycophantic stance that the ‘financial markets will destroy our currency’, which has undermined traditional social democratic politics.
Australia was established a federation in 1901 after being a collection of colonies after the British consficated the land space from the indigenous population that had been here for more than 30,000 years. In 1916, the Australian government as one of the important early initiatives in establishing Australia as a nation under white rule created the – Commonwealth Serum Laboratories – as a national manufacturer of vaccines. Its early priorities was to produce antivenom to deal with snake bites, insulin and tetanus vaccines, and, later, vaccines for diptheria, whooping cough, and polio. It became a leader in manufacturing blood products for HIV and more. It was a jewel in Australia’s crown, guaranteeing that we could deal with the dangerous human conditions with our own capacity and without being held ransom by profit-seeking corporations. In 1994, the Labor government privatised the public body, claiming it did not have sufficient funds to update some equipment. The Government has now contracted this private corporation (CSL) to the tune of $A1.7 billion to supply the AstraZeneca vaccine, while at the same time, refusing to provide pandemic support to workers in the arts and university sectors.
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.
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.
The latest data from the Australian Bureau of Statistics – Labour Force, Australia, February 2021 – released today (March 18, 2021), shows that the labour market has accelerated its pace of recovery from the pandemic recession. Employment increased by 0.7 per cent (88,700) in the month and unemployment fell by 69.900 to 805.2 thousand persons. As a result the unemployment rate fell by 0.5 points to 5.8 per cent, which with participation stable, is a good outcome. The main uncertainty now is that the recovery is still dependent on government fiscal support, which is due at the end of this month (March 2021). Given the labour market is still quite a margin from where it was in March 2020, the idea that the government would withdraw its fiscal support is not a compelling option. Overall, the recovery is still too slow and more government support by way of large-scale job creation is needed.
It is Wednesday and I am travelling most of the day. We are now entering Week 3 of the edX MOOC and I outline what students can expect this week. And some ideas about why it is wrong to think mainstream economists have got it wrong. Plus a reflection on one of Australia’s great musicians who died this week.
One of the problems of neoliberalism is that it is anti-people. This makes it hard for governments to actually impose austerity and so they work out ways to lessen the visibility of their pernicious policy choices, except if you are in Greece that is. The ways they deflect the political fall out are many and include use the depoliticisation strategy – like appealing to TINA demands from external bodies such as the IMF (circa British Labour Party 1976), claiming central banks are independent, and hacking into expenditure items that delay recognition in the public eye that damage is being done. This blog post focuses on the latter. I have been studying the shifts in government spending in the European Union since the GFC and it is apparent that final consumption expenditure and outlays on social benefits have not been the focus of the austerity to the same extent as government spending on capital formation (public infrastructure). It is much harder politically for governments to cut recurrent spending because it usually impacts on people straight away. Cut a pension and the hurt is visible. Cut lots of pensions and there is a political problem. But cutting back on public infrastructure is less visible and the damage takes time to manifest as the depreciation process sets in, maintenance delayed and additional new capacity is lagging. But make no mistake – cutting capital spending undermines the future productivity of the nation and paves the way for a diminished future for our grandkids, the very ones, mainstream economists claim they are protecting by advocating austerity.
It is clear that the Reserve Bank of Australia (RBA) management is at odds with the elected Federal Government over the current state of the economy and what needs to be done to get through the COVID-19 pandemic. The Federal government is about to significantly wind back its fiscal stimulus, which although was insufficient at the outset, did help reduce the damage that the health responses to the pandemic caused (lockdowns, etc). The Government has the view that the private sector will now rebound quickly especially as the vaccination process has begun. The RBA though is clearly not convinced and its senior officials are wont to point out (regularly) that growth will struggle for years unless the stimulus is maintained and the government promotes an environment where wages can grow more quickly. The RBA clearly blames the Government for the record low growth in wages given the penchant of the latter to impose wage freezes and wage caps on public sector workers, which spill over into poor private sector outcomes. And that is quite apart from the damage that Government industrial relations legislation has done to the capacity of unions to gain wages growth for workers. The chances that we will break out of this malaise are close to zero. The Government is anti-union and anti-wages growth. It thinks that suppressing wages growth to historically record lows and further attacking the unions, will drive the wage share down even further (as the profit share rises). And, of course, the funding of the conservative political forces largely comes from the beneficiaries of these trends. For the vast majority of Australians the situation gets worse. Our real incomes stagnate and to maintain consumption levels we have to borrow more, even though household debt is at record levels in relation to disposable income. It is not a sustainable future but the damage will get worse until there is a pushback from the population. And one of the things holding that back is the deplorable state of the Australian Labor Party in electoral terms. We can generalise all this to most nations. The neoliberal score card: Biggest F you can find.
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.