The non-existent but remarkable austerity-depreciation mechanism

The conservative lobby (often dominated by Austrian school types) are increasingly running the narrative that neither monetary or fiscal stimulus can engender growth as nations wallow in stagnation. Their rejection of the use of fiscal stimulus – aka spending of one sort or another – would appear to be in denial of the basic macroeconomic rule – one person’s spending is another person’s income – or in a sectoral sense – government spending equals non-government income. Their arguments against monetary policy have some resonance with my own views. But, for example, is any one really going to argue that if the government hired all the unemployed and paid them a stable wage (in excess of any income support they might be receiving) that the shops would not experience rising sales, which, in turn, would stimulate rising orders to suppliers and increased production and higher growth. Are they really saying that all stimulus spending leaves the shores via net exports? While historical evidence is often cited, when one digs further it becomes clear that the evidential basis of the anti-government claims cannot be substantiated. And – the arguments reduces to a rather crude expression of their dislike of government activity.

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Europe is really having a lost decade

I am sick of reading about Europe’s lost decade. For example, in the UK Guardian article (July 27, 2012) – Spanish recession to last until 2014, IMF warns – the economics editor Larry Elliot says that the IMF is “Predicting a lost decade of growth for the eurozone’s fourth biggest economy”. The lost decade terminology emerged to describe the experience of Japan in the 1990s after its spectacularly damaging property crash. But I think it is offensive to use the term in relation to the Eurozone crisis. We are not seeing a lost decade emerge Japanese-style. Rather, we are witnessing a self-imposed humanitarian disaster driven by the ideological arrogance of the Euro elites (aided and abetted by the OECD and IMF). The experience of Japan in the 1990s was nothing compared to what these elites are doing in the name of neo-liberalism. Journalists should stop making the comparison and, instead, call the current crisis in Europe for what it is.

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British solution to unemployment – make them work for free

There was a story in the UK Guardian yesterday (July 29. 2012) – Million jobless may face six months’ unpaid work or have benefits stopped – that described how the failed neo-liberal British government is following the path that the conservatives followed in Australia in attempting to “manage” the unemployment that their flawed policy regime created. The Australian approach has failed dramatically and imposed considerable hardship on the most disadvantaged citizens in our midst. The same approach is unfolding in Britain and it to is already looming as a failure.

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Saturday quiz – July 28, 2012 – 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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Saturday Quiz – July 28, 2012

Welcome to the Olympic Games Opening Ceremony Version of 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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Investment and profits

I am now using Friday’s blog space to provide draft versions of the Modern Monetary Theory textbook that I am writing with my colleague and friend Randy Wray. We expect to complete the text by the end of this year. Comments are always welcome. Remember this is a textbook aimed at undergraduate students and so the writing will be different from my usual blog free-for-all. Note also that the text I post is just the work I am doing by way of the first draft so the material posted will not represent the complete text. Further it will change once the two of us have edited it.

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Nothing good in sight for the UK economy despite the Olympics

The British Office of National Statistics have published two new data releases in the last week which show that the British economy is plunging further into a deepening recession. On July 20, 2012, it published the Public Sector Finances, June 2012, which showed that the deficit is increasing. Then it published the – Gross Domestic Product, Preliminary Estimate, Q2 2012 – yesterday (July 25, 2012), which showed that the British economy had contracted n real terms by a staggering 0.7 per cent in the June quarter. The one hope on the near horizon for the British economy might be the Olympic Games, which are being use to gloss over the savage recession that the British government has deliberately created. However, a closer understanding of the way in which events such as the Olympic Games impact on the host economy suggests that the majority of benefits are already in the data and the dismal future facing Britain will not be attenuated by the running and jumping (and the rest of it).

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Buy a cake on the way to the airport – inflation continues to fall in Australia

The Australian Bureau of Statistics released the Consumer Price Index, Australia data for the June 2012 quarter today and the inflation rate continues to plummet in the face of a slowing economy. The trend over the second half of 2011 was for inflation to ease. But the plunge in the first six months of 2012 that today’s data reveals is suggesting a weakening economy notwithstanding the first-quarter national accounts data which showed above-trend growth. pointing to a very sick economy. The annual inflation rate is now estimated to be 1.2 per cent (down from 1.6 per cent in the 12 months to March 2012) with a downward trend. The Reserve Bank of Australia’s preferred inflation measures – the Weighted Median and Trimmed Mean – are now at or below its inflation targetting range. This suggests that they will soon have to consider inflation to be “too low” and as a result engage in significant monetary policy easing. The inflation trend clearly contradicts the commentators who have been predicting the opposite on the basis of the (modest) rise in the budget deficit over the last few years as the downturn hit Australia. Their standing in the predictions stakes continues to be dented by the data. The evidence is suggesting that the economy is slowing under the weight of the federal government obsession with achieving a budget surplus in the coming fiscal year.

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Another macroeconomist who is blind

Everyday the major financial newspapers and magazines provide Op Ed space to so-called leading economists. For the majority of the public, it is these Op Ed articles that provide their interaction with my profession. It is a pity. The majority of the reasoning presented by these characters, most who occupied senior positions in US academic departments, is spurious to say the least. The public is thus being poorly educated (to put it mildly) on a daily basis and this represents a major problem for our democracies. Voting in elections is one thing. But when citizens are voting based on faulty understandings that they have derived from these economists, then what is the value of a free vote? Today I consider the views of leading Princeton economist Alan Blinder – who is another macroeconomist who is blind to the way the economy works.

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Off-shore tax havens – be sure we define the issues correctly

I was asked today what the Modern Monetary Theory (MMT) position was on the new report about to be published by the – which reports trillions of dollars (and other currencies) being secreted in tax havens by the wealthiest citizens and the role that the top 10 banks have played in arranging these fund transfers. Progressives are clearly up in arms about the research findings and for good reason, especially if one holds equity to be a valid policy and national goal (as I do). But the way MMT analyses these trends is somewhat different. Once we get a good understanding of what the off-shoring of wealth and tax evasion actually means for domestic economies, it is clear that the progressive attacks often miss the point.

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