I had to double-check over the weekend whether I had actually read an article in the Fairfax press – Alarming debt bomb is ticking – given that my flu-ridden state was playing havoc with the clarity of my eyesight. Upon checking today, I concluded that I had read it. It is one of those articles that uninformed readers will consider erudite given the technical language it uses but which in fact is so misinformed at a theoretical level that it is has to be considered pure propaganda. It is sad that this sort of techno-mumbo-jumbo nonsense gets any space in our leading daily newspapers. I would rather more cartoons or brain teasers if they are struggling to fill their pages. Even an advertisement about the latest skin cream that not only eliminates wrinkles but also increases the reliability of the left-hander at Nobby’s would be better (Nobby’s = surf break)!
Been down, but now back on air … sounds like the opening of a blues song …
The monthly wait for the Labour Force data is over and we now know that how all the confusing messages coming from various indicators in the last few weeks are playing out in the labour market. Today’s data suggests that the labour market is starting to now turn for the worse. While today’s 5.8 per cent headline unemployment rate was less than the prediction by most economists (5.9 per cent), employment growth has fallen 3 out of the last 4 months and the in last month this descent quickened. The broader rate of labour underutilisation (sum of unemployment plus underemployment) is now worse at a comparable point in the cycle than it was in 1991 or 1982. That is a sign that things are sick and the employment growth slowdown is a sign that the situation will become sicker.
Some economists who are pushing the so-called de-leveraging story to explain the current downturn consider that the only sustainable basis for economic recovery requires that overall debt levels in the economy decline dramatically. They rightly argue that this requires a significant reduction in private debt. But they also argue that the public debt increases associated with the net public spending (the stimulus packages) – they erroneously use the term “to fund” the net spending – is self-defeating. In other words, they claim we are just substituting public debt for private debt and creating a new form of vulnerability (public insolvency – higher inflation etc) as we eliminate the private leverage. Apart from the failure of this story to link the private debt explosion with the pursuit of budget surpluses in the past, the major error that this camp makes is of the “oranges and apples” variety. That is, debt is not debt!
Sometimes in public policy a poor decision is made. Other times you conclude a very bad decision has been made. Then there are times when you witness one of the worst decisions that could be made. Today’s Australian Fair Pay (Not) Commission decision falls into this latter category. It was a decision made by highly-paid officials in secure employment which will impacts disastrously on the lowest paid workers and their families. in the context of a demand-deficient (that is, spending failure) downturn, the FPC has denied the low-paid workers a pay rise. The decision consolidates the triple whammy attack against the poor which is the Government is largely turning a blind eye too while it swans around preaching social inclusion.
While all the green shooters out there are constantly searching for signs that things are improving the fact is they are typically focusing on financial variables. So they feel good that the share market is recovering a bit (for the time being). But I almost always focus on real variables and then more usually on the labour market. Employment is the connection that the vast majority of us have with the economy and the distribution system and the quality and quantity of employment is a crucial indicator of how well things are travelling. The latest data out today reinforces the data from last week and shows one thing and one thing only – the labour market is sick. It also points to the urgent need for a third stimulus package which unlike its predecessors should be “job laden”. If the Government fails to take responsibility in the coming weeks and funds direct job creation projects on a massive scale then the situation will worsen and we will be stuck with high rates of labour underutilisation for the next several years.
Saturday morning traditions … a long early ride on my bike (70 odd kms), then off to the local cafe for a cup of tea. Yes, time to read an actual paper paper. Time to talk about the state of the swell and wind direction (off-shore and pumping at present). The big match (Saints v Geelong, both unbeaten after 13 rounds – note no rugby here!). Perhaps some local gossip (who paid off who to get what development up!) … that sort of thing. Probably some politics. But no, before anything interesting could be raised by the assembled regulars … someone (a non-economist who claims he is just interested) had to begin proceedings with “Bill, why does the federal government borrow when you say it does not have too?” Can you put a sock in it, please! What about the surf? But why if they don’t have too? Saturday morning … the problem of being a macro economist. Things started getting ugly at this point.
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 five questions. Your results are only known to you and no records are retained.
I was interviewed on the ABC PM Programme tonight about whether the Stimulus package continues to boost Australian economy.
A regular reader sent me a recent financial market report written by Tokyo-based economist Richard Koo which raises some interesting issues about the association between prolonged recessions and democracy. Koo has achieved some notoriety in the last decade or more by coining the term “balance sheet recession” to describe what happened to Japan during its so-called “lost decade”. He also applies the analysis to the present global economic crisis. While he is not a modern monetary theorist, he recognises the need for considerable fiscal intervention and the futility of quantitative easing. So this blog is about all of that.