The Eurozone Groupthink and Denial continues …

I have been going back through my snippets library looking at what economists and politicians said back earlier in the crisis and comparing the predictions with reality to try to understand better why Europe is lagging behind. I have been compiling national profiles for various nations lately to ensure I remain cogniscant of the detailed developments that have been occurring. It takes some organisation. I have been concentrating by interest on Finland, Spain and Portugal lately. It astounds me when I read or hear that the Eurozone has been a success because the currency is stable. Even that last statement is false given the monetary union is fighting deflation at present with recessed output levels and entrenched mass unemployment. The current statements coming out of European leaders accord almost directly with the same sort of things they were saying in 2010 as the region was plunging deep into recession. It seems that they have learned nothing. Some of the past leaders have retired with handsome pensions and will not be held to account for their policy incompetence. Others remain in office and their public statements demonstrate that they cannot see beyond the blindness of the Groupthink that defines the patterned behaviour of the elite European policy-making institutions.

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Saturday Quiz – October 17, 2015 – 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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Friday lay day – will the German refugees end up in Minijobs?

Its my Friday lay day blog and I am catching up on things that I put to one side while I was away in Finland. But I have been doing some research on the impacts of the massive refugee flows into Northern Europe from the military conflicts in the Middle East. A more detailed analysis will appear later. The very difficult problem facing Europe, in particular, at present, and the World, in general is how to cope with the millions of people that are being displaced from their homelands by war, terrorism and/or environmental degradation. It is no easy task to deal with. The seemingly unending flow of refugees into Turkey and then greater Europe is challenging the archaic decision-making processes of the European Union. Once again it brings into relief the need for a ‘federal’ European government that can make binding decisions across the Member State space and provide fiscal backup to ensure those decisions are viable from a resource perspective. There was a Reuters report (October 15, 2015) – Refugee spending will drive our economy, Germany says – which noted that the refugee flows could underpin an economic boom in Germany, the first nation to announce it would settle large numbers of the asylum seekers. Here is part of the framework I am developing to consider this issue.

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Full video – University of Helsinki lecture, October 9, 2015

Here is the video of the lecture I gave at the University of Helsinki on Friday, October 9, 2015. There were around 450 people in attendance, which the organisers indicated was an exceptional turnout for a cold Friday late afternoon (the presentation started at 17:00). The size of the audience was a demonstration of the concern that Finnish people have for the future of their nation given that the conservative government is signalling it wants to impose an extreme form of economic austerity in an economy that is already in recession. The economics profession in Finland is ultra conservative and as far as I can detect supports the austerity despite, of course, their own jobs not being in the direct firing line of the public spending cuts.

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Plane flying high … you know how I feel

I am travelling for the better part of Monday – so no detailed blog. Just a few snippets to keep things going. I will compile a report on Finland at some point soon once I reflect more on what I have learned in the last week while being here. It has been a very instructive time even though every time one steps out doors the brain freezes (as well as the body). The blog will return on Tuesday (Australian time).

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Monetary policy didn’t work as intended

I read two articles (among others) on the flight over to Europe yesterday that are worth commenting on. The two articles discussed the role of monetary policy and, in particular, whether the policy changes to address the crisis had achieved their aims. I read these articles as I was doing some computations which would suggest that the main game in town remains fiscal policy. The first article was in the Wall Street Journal (October 4, 2015) – How the Fed Saved the Economy – written by former US Federal Reserve Chairman Ben Bernanke. He claims that the US is approaching full employment because of the ‘extraordinary’ policy innovations that the US Federal Reserve Bank introduced during his period as Chairman. The second article was in the New York Times and argued that monetary policy authorities do not have the necessary policy tools to combat the next crisis. The NYTs article captures the ideological bias that entered policy discussions since the emergence of Monetarism in the 1970s. It makes out that policy is powerless, which is largely only a statement about monetary policy. It is a reflection of how perceptions of what we think monetary policy can achieve are way out of line with reality. But that is core Modern Monetary Theory (MMT). But that doesn’t mean that policy overall is powerless. Governments can always prevent a financial crisis and a recession from occurring if they are willing to use their fiscal capacities. Of course, that capacity is the anathema to the neo-liberals which is really the problem. There is no policy powerlessness. Just an ideological bias against using the available tools properly and responsibly.

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A short video to keep things humming

There will be no detailed blog today as I am travelling to Finland for the best part of today. I have posted a short video (23 minutes) of a talk I gave in July to a political group in the Blue Mountains. I have only just received it. The main blog will be back on Thursday.

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Why banks are pushing the US central bank to increase interest rates

A few weeks ago I wrote – US Federal Reserve decision correct – there is no ‘normal’ – and suggested that the reason Wall Street and other well-to-dos were busily invading the media at every opportunity berating the US central bank for not increasing interest rates was because they had a vested interest in rates rising. They massage their call for higher interest rates in terms of global concerns for inflation (mostly) but just below the surface (they are mostly pretty crude in their advocacy) is the real reason – their own profit bottom line improves. On October 1, 2015, the Bank for International Settlements published its Working Paper no. 514 – The influence of monetary policy on bank profitability. The research demonstrates my very point. They find that when the short-term interest rate rise (that is, the policy rate set by the central bank) “bank profitability – return on assets” also rises. They also find that this “effect is stronger when the interest rate level is lower”. The overall conclusion is that “unusually low interest rates … erode bank profitability”. So forget all the spurious arguments about inflation risk etc that the financial media (who are really just ghost writers for the top-end-of-town) write ad nauseum. The real reason the Wall Street lobby keeps pushing for rate hikes is because they want more profit.

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Friday lay day – the neo-liberal real wage scandal

Its my Friday lay day and I am trying to finish one paper that is due and also prepare the presentations that I will be giving in Finland next week. But I was reading a Briefing Paper (No 406) from the US Economic Policy Institute (published September 2, 2015) – Understanding the Historic Divergence Between Productivity and a Typical Worker’s Pay – that resonated with me today. One of the defining characteristics of the neo-liberal era has been the divergence between real wages growth and productivity growth. It has been a deliberately engineered divergence as policy makers have shifted from mediating the distributional struggle between labour and capital to being ‘pro-business’ and introducing a range of initiatives that have allowed capital to gain greater shares of national income and build a booty that has then been pumped into the increasingly deregulated financial markets. Oh, and to allow the bosses and their managers to take out obscenely high salaries and swan around in private jets. The dynamics unleashed by these distributional shifts helped cause the Global Financial Crisis. A sustainable recovery with progressive outcomes (reductions in income inequality etc) will only be possible if Governments abandon the ‘pro-business’ bias and instead introduce policies that ensure real wages grow in line with productivity (along with other changes).

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Capitalists shooting their own feet – destroy trust and layer management

There was a wonderful article – The Origin of Job Structures in the Steel Industry – written by Katherine Stone and published in 1973. It was part of an overall research program that several economists and related disciplines were pursuing as part of the radical economics that was being developed at Harvard and Amherst in the early 1970s. One of the major strands of this research was to understand labour market segmentation and how labour market structure, job hierarchies, wage incentive systems and more are used by the employers (as agents of capital) to maintain control over the workforce and extract as much surplus value (and hopefully profits) as they can. It challenged much of the extant literature which had claimed that factory production and later organisational changes within firms were technology-driven and therefore more efficient. The Harvard radicals found that to be unsustainable given the evidence. They also eschewed the progressive idea that solving poverty was just about eliminating bad, low pay jobs, an idea which had currency in that era. They showed that the bad jobs were functional in terms of the class struggle within capitalism and gave the firms a buffer which allowed them to cope with fluctuating demand for their products. It also allowed them to maintain a relatively stable, high paid segment (primary labour market) which served management and was kept docile via hierarchical incentives etc. I was reminded of this literature when I read a recent paper from Dutch-based researchers on the way firms have evolved in the neo-liberal era of precarious work. Much is made of the supposed efficiency gains of a more flexible labour market. How it spurs innovation and productivity through increased competition and allows firms to be more nimble. The entire ‘structural reforms’ agenda of the IMF, the OECD, the European Commission and many national governments is predicated on these myths. The Dutch research shows the irony of these manic neo-liberals.

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The total Greek election farce – RIP democracy

Last weekend, the Greece people (or a declining proportion of them) elected a new national government. It was a farce. There was no competing electoral mandates sought. The population know what is in store for them. The policy mandate in force wasn’t even supported by popular vote. It comes from the Troika, which now effectively governs the Colony of Greece. The new Prime Minister, who sold the people out prior to the election, is now talking about making changes. Yeh, right! He is now just a tool for the Troika. National elections where the people do not vote for anything much don’t look like a healthy democracy to anyone who isn’t in denial as to what has been going on. Democracy is about the people being able to change governments that do them harm. In the Eurozone that is an old-fashioned idea. National elections have become a sop, a pretense. And the people knew it and stayed away in droves. The Greek election was a total farce – democracy died.

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Euro exit will not be enough for Greece

An editorial article in BloombergView (July 15, 2015) – Leaving Euro Is Better Than Eternal Greek Crisis – argued, with providing evidence, that “it would be better for Europe’s economic policy makers to spend their time figuring out how to manage an orderly Greek exit than continuing to negotiate deal after sure-to-fail deal to keep Greece in the euro”. Regular readers will know that I support an orderly breakup of the entire monetary union and if that is not possible then individual nations should exit on their own accord and reestablish some sane proportion in their macroeconomic policy settings. But exit is not a sufficient condition for restoring prosperity to a nation. They would also have to simultaneously abandon the neo-liberal Groupthink that holds the Eurozone economy in a vice-like grip of austerity. Under those provisos, the Greek economy would return to growth immediately and they could eliminate unemployment within a few quarters.

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Beyond metaphor … comes total nonsense, German style

Under an accompanying heading – “Beyond Greece” – the German Handelsblatt (a daily financial/business newspaper) published the article (July 14, 2015) – The Uncomfortable Truth About Debt. It was meant to be some sort of justification for the touch German stance against Greece. The authors claimed that “Germany has been hounded internationally for taking a hard line on Greece. But there is a bigger problem on the horizon: the debt mountain in Europe, and the world, is too high”. My BS sensors were on high alert as I read the opening paragraphs. There was good reason for my alert – the article, which would have been read by tens of thousands of German corporate sector managers etc, demonstrates a palpable failure to comprehend what the real issues confronting the Eurozone are and how Eurozone Member States (19 of them) are fundamentally different in terms of fiscal capacity relative to nations that issue their own currency. No wonder the political classes in Germany can get away with behaving so abominably.

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There is still a meaningful left-right distinction

There was an article in yesterday’s Australian Financial Review (July 12, 2015) – Left and right labels wear thin, lose definition – which as the title suggests tried to argue that it is hard “to know who or what is left or right wing any more”. The article used a number of examples, including the so-called Communist government of China bailing out its (farcical) share market and the Greek ‘far left’ government agreeing to austerity and on-going debt demands from the creditors, to suggest that it is no longer easy delineating what is left and what is right and dubbing policies accordingly (one way or another) “provides little illumination”. This is a recurring theme in recent years and part of the neo-liberal attempt to blur what it going on and treat ideological stances as reality or factual assessments. It is still very clear to me what is a left-wing position. The rest of the article provides in his own words “little illumination” about the issue. The argument in this blog is that the categories remain influential and meaningful but are blurred through ignorance as to how the monetary system operates. Left-wingers fall prey to right-wing policies because they have bought the TINA myth. That is the only way one could explain the Syriza disaster, for example.

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A Greek exit could not be more costly than the current path

It appears the Germans (with their Finish and Slovak cronies) have lost all sense of reason, if they ever had any. Germany has the socio-pathological excuse of having suffered from an irrational ‘inflation angst’ since the 1930s and has forgotten its disastrous conduct during the 1930s and 1940s and also the generosity shown it by allied nations who had destroyed its demonic martial ambitions. Finland and Slovakia have no such excuse. They are just behaving as jumped-up, vindictive show ponies who are not that far from being in Greece’s situation themselves. Sure the Finns have a national guilt about their own notorious complicity with the Nazis in the 1940s but what makes them such a nasty conservative ally to the Germans is an interesting question. It also seems to be hard keeping track with the latest ‘negotiating offer’ from either side. But the trend seems obvious. The Greeks offer to bend over further and are met by a barrage of “it is going to be hard to accept this”, followed by a Troika offer (now generalised as the Eurogroup minus Greece which is harsher than the last. And so it goes – from ridiculous to absurd or to quote a headline over the weekend – From the Absurd to the Tragic, which I thought was an understatement. There are also a plethora of ‘plans’ for Greece being circulated by all and sundry – most of which hang on to the need for the nation to run ‘primary fiscal surpluses’, with no reference to the scale of the disaster before us (or rather the Greek people). It is surreal that this daily farce and public humiliation (like the medieval parading of a recalcitrant in stocks) is being clothed as ‘governance’. Only in Europe really.

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Friday lay day – Surrendering to the Recession Cult

Its my Friday lay day blog and I have been working on various things today. But for this little blog I am still trying to work out an impression of what is going on in Greece and the Brussels. There is little uncertainty on the Troika side although the various elements of that position are still nuanced. The sheer antagonism of the Baltic States towards Greece is a newly revealed element which is interesting. If their logic prevails then it really is a race to the bottom unless the nation is Germany. Representing the desired benchmark by massive mediocrity if not near disaster (as in Latvia, Lithuania etc) seems to be the new normal in EU debates. Spare the thought. The Baltics should be joining Greece in a solidarity pact to oppose austerity and seek fundamental changes to the EU Treaties instead of siding with the Troika’s death wish for Greece. But there is quite a bit of uncertainty in trying to guage the Greek position. One is led to the most obvious, simple and consistent interpretations of that position – that Syriza is a fractured coalition and those currently in positions of authority (Prime Minister etc) are surrender monkeys who have miscalculated dramatically. But that would tell us that they are so acting with such venality towards their people as to be almost an unbelievable narrative. Looking deeper into the plot doesn’t provide anything consistent, just dead ends and speculation. We are close to finding out though.

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The ‘fiscal space’ charade – IMF becomes Moody’s advertising agency

The IMF has taken to advertising for the ratings agency Moody’s. It is a good pair really. Moody’s is a disgraced ratings agency and the IMF has blood on its hands for its role in less developed nations and for its incompetence in estimating the impacts of austerity in Europe. Neither has produced research or policy proposals that can be said to advance the well-being of nations. Moody’s has shown a proclivity to deceptive behaviour in pursuit of its own advancement (private largesse). The IMF struts around the world bullying nations and partnering with other institutions to wreak havoc on the prosperity of citizens. Its role in the Troika is demonstrative. Anyway, they are now back in the fiscal space game – announcing that various nations have no alternative but to impose harsh austerity because the private bond markets will no longer fund them. They include Japan in that category. Their models would have drawn the same conclusion about Japan two decades ago. It is amazing that any national government continues to fund the IMF. It should be disbanded.

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Friday lay day – Greece back in recession but austerity works doesn’t it?

Its the Friday lay day blog and here are some snippets from the week. The Hellenic Statistical Authority (EL.STAT) released the latest – Quarterly National Accounts ( 1st Quarter 2015 ) – on May 13, 2015. After all the claims that austerity was working and the Greek economy was growing again, we now learn that Greece is back in recession, having recorded two successive quarters of negative real GDP growth. Whatever way one spins it, the policy framework employed by the Eurozone is a failure. The national accounts data released by Eurostat which coincided with the Greek release – GDP up by 0.4% in the euro area and the EU28 – also shows that the German economy slowed considerably in the first-quarter 2015 and Finland, one of the fiercest supporters of austerity entered official recession. The Finnish response was they had to cut public spending harder because they would be in breach of the Stability and Growth Pact rules relating to size of the deficit and the volume outstanding public debt. These nations are so caught up in neo-liberal Groupthink that they cannot see how ridiculous their policies and supporting dialogue have become.

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Latest military expenditure data reveals the hypocrisy of austerity

Yesterday, the Stockholm International Peace Research Institute (SIPRI) released their latest data for – World Military Expenditure 1988-2014. In their – Press Release – we learn that total World military spending has fallen in the last three consecutive years although it “levelled off” in 2014. While the global trends are interesting (the shifting patterns between the big geo-blocks), I was interested in what was happening in the Eurozone in the era of austerity. I was also interesting in juxtaposing the military expenditure and social expenditure dynamics. What you learn is that Greece maintains its position as one of the largest relative spending nations on military items, spending nearly twice the proportion of its GDP compared to Germany and the Netherlands, two nations that lead the charge on imposing austerity. Further, the nations that are pushing the hardest for more austerity are those that benefit the most from Greek military expenditure. The hypocrisy is amazing.

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Eurozone unemployment – little to do with international competitiveness

The so-called ‘Informal European Council’ released a document on February 12, 2015 – Preparing for Next Steps on Better Economic Governance in the Euro Area: Analytical Note – which has been used as a background paper to batter the Greeks into submission in the latest round of the Eurozone crisis. It was published under the authorshop of Jean-Claude Juncker (President of the European Commission) with “close cooperation” with Donald Tusk (President of the European Council), Jeroen Dijsselbloem (President of the Eurogroup of Finance Ministers) and Mario Draghi (ECB boss). All that is missing is the Madame from the IMF to complete the Troika. This is a very dishonest document, deliberately framed to advance the austerity agenda and damage the living standards of some of the nations within the monetary union. It is hard how any serious economist would put their name to this sort of analysis.

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