Today I have been working on a project for the Asian Development Bank concerning regional development and macroeconomic risk management in the Central Asian countries (all the “stans” plus a few others). I have also been reading a lot of the development economics literature lately, which is generally a place that the neo-liberal troglodytes really run amok. It certainly focuses one’s attention. In the advanced countries the media focuses on our own losses. In Australia, a lot is written about superannuation losses. And journalists, who largely ignored the fact that during the boom we still had around 10 per cent of our willing workers without enough work – wasted and excluded, are once again talking about unemployment. But overall, the public debate is not at all focused on how the current economic crisis is damaging the weakest of the weak in far off lands and killing people.
Everyday brings surprises as a social science researcher. Today I was gearing myself up for the lunchtime current affairs radio onslaught from the budget nazis – “see unemployment is still rising and stimulus doesn’t work” – that sort of thing. But then at 11.30 (or just after) I looked up today’s Labour Force data released by the Australian Bureau of Statistics and was … to say the least … surprised. Here is what I was expecting – the labour participation rate would fall a little and unemployment to continue rising. I expected full-time employment to fall and perhaps part-time employment to rise a little but for total employment overall to fall. However, given three other pieces of information, two of which were released yesterday, I was thinking that all these “bad movements” would be fairly moderate in size. So a surprise indeed but … we should be careful before we get too carried away.
Today’s ABS retail turnover data is very interesting considering the meltdown that is occuring elsewhere in the world. The summary result that retail turnover grew by 2.2 per cent in the month of March suggests that the Australian economy is still alive – at least in the consumer markets. This figure was a surprise to all those who were in denial of the usefulness of budget deficits – both the discretionary components (the “stimulus packages”) and the automatic stabiliser components.
I have added a new page (see right menu under Other Information) called Comments policy. If you are uncertain about what constitutes reasonable commentary then you might like to consult that page. If anyone thinks the policy is unreasonable then…
In the 1980s, as high unemployment persisted following the 1975 OPEC oil shock and the stagflation that accompanied it and then the 1982 recession and its aftermath, neo-liberals started to seek new ways of justifying the lack of government action in restoring full employment. Being very clever, they came up with an ingenious solution – redefine what full employment means. So as the unemployment rate rose they claimed that the so-called “equilibrium unemployment rate” had also risen which meant that attempts to reduce it by expansionary policy would be inflationary. They claimed the only way the government could act was to initiate “structural reforms” aka privatisation, labour market deregulation, anti-union legislation and harsh welfare measures. Why should we be so surprised that they are at it again? The truth is that recessions cause structural imbalances which are corrected again if economic growth is strong enough in the post recession phase.
The discussion about the relative merits of monetary policy and fiscal policy is on-going. A regular billy blog reader has asked me to give some thought to this discussion, specifically in terms of whether monetary policy is a useful counter-stabilisation option. My view is that if one takes a modern monetary perspective then it is clear that the current reliance on monetary policy (accompanied by the budget deficit phobia) will always fail to deliver full employment and relies on the impoverishment of the disadvantaged for its ability to achieve low inflation. Accordingly, it would be far better for the government to set the short-term interest rate at zero and achieve full employment through appropriate levels of net spending (fiscal deficits).
As the Federal budget week approaches the various commentators and interest groups are whipping themselves into a lather about what choices the Government might have or not have. A recurring theme is whether the Government should honour its election commitment in 2007 to cut income taxes from July 2009. The debate is being constructed along the lines of whether the nation can now “afford these cuts” given the “rising debt” and the “shocking state” of the budget deficit. This debate demonstrates perfectly how bad policy can be made when the Government fails to understand its options as a monopoly issuer of a non-convertible currency.
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Labour market researchers are concentrating their minds at present on how fast the unemployment rate is rising. While that is what the main game is clearly about, there are also interesting trends happening with respect to labour force participation rates. I have been tinkering around with various aspects of this behaviour because I am interested in this notion that there might be wealth effects operating to reverse the usual falls in participation during a downturn. I am also interested in estimating what is happening to hidden unemployment. So here is a brief report on some work to date.
There is a parable that the Australian Government still doesn’t understand – its the 100 dogs and 95 bones story that all children should be told at an early age. I will tell the story presently. I mention the parable because once again it seems that a major Government initiative designed to reduce disadvantage arising from unemployment will be poorly conceived and constrained by a reluctance of the Government to jettison the destructive neo-liberal approach that has dominated labour market policy for the last few decades. I am referring to today’s announcement from the Government that our youth will all be working, studying or training or face a loss of income support.