US opinion polls expose mainstream economic theory

I am currently quite interested in the formation of consumer expectations after being asked by a major financial institution to consider constructing a new series for them. So in developing the project I have been enmeshed in technical detail the last week or so. I am also interested in the way different polls are interpreted. In the last few days two major polls in the US have been released. They are broadly in agreement but there are some interesting differences. The other interesting aspect of the polls is that they provide further evidence against the way the mainstream of my profession thinks about the economy. They reveal that individuals are not likely to behave as Ricardian agents. The mainstream theorist claim that individuals will spend once governments cut deficits and politicians have used this assertion to justify imposing (or suggesting) harsh fiscal austerity. The reality is very different as these polls suggest.

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Australia – falling inflation belies all the boom talk

The Australian Bureau of Statistics released the Consumer Price Index, Australia data for the September 2011 quarter today and it revealed that the easing in the inflation rate detected in the June quarter has continued. The last three quarters have delivered inflation rates of 1.6 per cent in March 2011, 0.9 per cent in the June quarter and now 0.6 per cent in the September quarter. If that trend continues the annualised rate will fall below the Reserve Bank of Australia’s (RBA) lower inflation targetting bound. The annualised inflation rate fell from 3.6 per cent in the June quarter to 3.5 per cent in the 12 months to September 2011. The ephemeral factors associated with the impacts of the natural disasters (floods and cyclones) that our food growing areas endured earlier this year are now dissipating. The major factors driving inflation now are utility price increases, travel and accommodation. The RBA’s preferred inflation measure (explained below) grew by 0.3 per cent. That will put downward pressure on interest rates. You might ask whether the “bank economists” (the private sector mavens who always think inflation is about to accelerate out of control) predicted this significant easing. The answer is that they predicted that inflation for the September would be running at twice the actual rate. That is, a 100 per cent error – which raises the question yet again – why does the mainstream media rely on their input to guide the public on where the economy is heading.

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The skill shortage ruse is re-appearing

I had a meeting today with well-known personnel management professional who is keen to fund some research on skills development. It is a topic that my research group has concentrated on for many years now. It is an interesting topic because it bridges the technical and the political. There is a pattern emerging, as it always does when we have recession, which seeks to deflect attention to what is really going in favour of promoting “faux” issues. The “skills shortage” claim by business lobby groups and peak bodies is one of the perennial examples of the way the elites deny that the system is failing to produce enough jobs and helps them deflect the blame onto individuals – the victims – the unemployed. The ruse is used then to pressure governments into further undermining the rights of workers and conditions of work (and reducing welfare benefits) which serve the interests of the elites. So the constraints on growth become constructed in terms of the laziness of the unemployed workers to invest in themselves. This narrative then diverts our attention from the real causes of stagnation and unemployment – not enough spending and not enough jobs. We fall for it every time.

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What if economists were personally liable for their advice

Economists have a strange way of writing up briefing documents. There is an advanced capacity to dehumanise economic advice and ignore the most important economic and social problems (unemployment and poverty) in favour of promoting non-issues (like public debt ratios). It reminds me sometimes of how the Nazis who were brutal in the extreme in the execution of their ideology sat around getting portraits of themselves taken with their loving families etc. The training of economists creates an advanced state of separation from human issues and an absence of empathy. Such is the case in a October 21, 2011 document – Greece: Debt Sustainability Analysis – which is labelled STRICTLY CONFIDENTIAL by its authors and was intended as input to the upcoming meeting of the Eurozone leaders – which is in fact the EU/ECB/IMF – aka and hereafter referred to as the “Troika”. As I read the document – in all its luridly obscene detail – I wondered what if economists were personally liable for their advice? The jails would be full of bankrupted economists. I am sure that the Troika economists would plead “only following orders” but then we have heard that before too.

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Saturday Quiz – October 22, 2011 – 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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The scourge of youth unemployment

The International Labour Organisation (ILO) released their updated this week (October 19, 2011) – Global Employment Trends for Youth: 2011 Update – which reminds us of how long the current policy failures will continue to generate negative consequences. That is, the world will be enduring the costs of the policy failures for decades to come by denying our youth the opportunity to fully participate in the economy. The increasing incapacity of our economies to provide sufficient work in hours and quality to meet the requirements of our youth is one of the major characteristics of the neo-liberal era. It is a deliberate, policy-induced outcome – that is, governments are squarely to blame for the malaise. At a time when neo-liberals use rising dependency ratios to justify their attacks on budget deficits but then fail to realise that our unemployed youth are a major casualty of the fiscal austerity – that is, our future workforce. The scourge of youth unemployment is condemning our future workers to a low-wage, unstable and productive employment history.

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When an Excel spreadsheet runs wild

US Presidential candidate Ron Paul released his – Plan to Restore America – yesterday, saying that it will deliver a balanced budget within three years – cutting public spending by $1 trillion in year one, slash “regulations” and “reign in the Federal Reserve and get inflation under control”. The 11 -page document has lots of tables and graphs and says that “America is the greatest nation in human history” (plaudits) but if you search for some theoretical framework or some evidential-basis for the numbers presented you will be very disappointed. You will read that Americans have a “respect for individual liberty, free markets, and limited constitutional government” and that returning (public) spending (mostly) to 2006 (nominal) levels is somehow good. Cutting federal employment by 10 per cent is also good. Cutting all regulations is also good. But that is about as far as the textual rendition goes before you hit the tables and graphs. When I read the document I couldn’t help thinking that someone had run wild with an Excel spreadsheet.

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You do not increase spending by cutting it

Last weekend, on the eve of the G-20 meeting in Paris over the weekend, the Australian Treasurer was talking tough and giving ultimatums to our Northern friends – telling them that the “time for half measures is over. The time for action is here. So people will be looking for a comprehensive plan on October 23”. Of-course, in the Communiqué of Finance Ministers and Central Bank Governors of the G20 from the Paris meeting you don’t get any sense of urgency. Not once do they mention the word “unemployment”. The problem is that the world leaders remain in denial and still want us to believe that you can have “growth-friendly” cuts in spending. To increase spending you do not cut it.

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Myths about China

Today we learned that – China posts slowest GDP growth in two years – yes, the annual rate of growth has dropped to 9.1 per cent which was 0.4 per cent lower than the second-quarter and 0.2 per cent lower than the estimate provided by the Bloomberg News survey of 22 economists. The reason given for the “slowdown” was “monetary tightening and weaker export demand”. The anticipation of a slowdown over the last week has fuelled a host of doomsday projections about how the Chinese investment boom will crash and how it will cripple the rest of the world. My view is different. I consider the Chinese government to be totally on top of managing their economy, which sets them apart from the leaders in the advanced world. They will not let a major economic crisis occurring within their own borders. They have so much more scope to expand although all of us will rue the environment impacts of that expansion. Their problems are going to political – taming an increasingly rowdy middle class. For the rest of us, China provides an economic example – when all other sources of expenditure fail, turn on public spending and do it quickly and don’t err on the conservative side.

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