IMF now claiming that Japan has to inflict austerity when the government’s current policy settings a maintaining stability

It was only a matter of time I suppose but the IMF is now focusing its nonsensical ‘growth friendly austerity’ mantra on Japan. In a recent interview, the former Portuguese Finance Minister now in charge of the IMF’s so-called ‘Fiscal Affairs Department’, Vitor Gaspar claimed that Japan is now in a precarious position and must start to impose austerity. Recall last week that I concluded that – The IMF has outlived its usefulness – by about 50 years (April 15, 2024). The current interventions from senior officials such as Gaspar only serve to reinforce that assessment. The problem is that they are still able to command a platform and a significant number of people in policy making circles actually believe what they say. It would be a much better world if the IMF and its toxic ideology and praxis just disappeared off the face of the Earth. Then we could send all the highly educated officials to thought reassignment camps to allow their considerable intellectual capacity to search for cures to cancer or whatever.

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Not trusting our political class is no reason to avoid introducing progressive policies

There is a consistent undercurrent against Modern Monetary Theory (MMT) that centres on whether we can trust governments. I watched the recent Netflix documentary over the weekend – American Conspiracy: The Octopus Murders – which reinforces the notion I have had for decades that there is a dark layer of elites – government, corporations, old money, criminals – that is relentlessly working to expand their wealth and maintain their power. Most of us never come in contact with it. They leave us alone and allow us to go about our lives, pursuing opportunities and doing the best we can for ourselves, our families and our friends. But occasionally some of us come into contact with the layer and then all hell breaks loose. The documentary started with a journalist being killed because he had started penetrating an elaborate conspiracy which began with the US Department of Justice stealing software from a company and then multiplied into money laundering scams (Iran contra), murder of various people who got in the way, and went right up to Ronald Reagan, George Bush and other senior politicians. It was a sobering reminder. I will write more about this topic in the upcoming book we are working on (with Dr L. Connors) but I was reading some articles over the weekend (thanks to Sidarth, initially) about the way the MGNREGA in India, which is a public job guarantee-type scheme has been corrupted as the ideology of the government shifted and it bears on this question of trust.

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Fiscal austerity does not on average reduce public debt ratios

The resurgence of economic orthodoxy is a great example of how declining schools of thought can maintain dominance in the narrative for extended periods of time if the vested interests are powerful enough. In the case of the economics profession, mainstream New Keynesian theory persists because it serves the interests of capital. Recently, the IMF urged the Australian government to engage in ‘fiscal consolidation’ in order to support further interest rate hikes by the RBA aimed at reducing inflation quickly. In general, the IMF is urging nations to engage in fiscal austerity in order to bring their public debt ratios down. The problem is that even their own research shows that these fiscal adjustments on average do not succeed. And, usually, they leave a damaged society where the lower income and disadvantaged cohorts are forced to endure the bulk of the negative effects.

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The tax extreme wealth to increase funds for government spending narrative just reinforces neoliberal framing

Despite the rabble on the Right of politics that marches around driven by conspiracies about government chips in the water supply or Covid vaccines and all the rest of the rot that lot carry on with, the reality is that the well-funded Right that is entrenched in the deepest echelons of capital are extremely well organised and strategic, which is why the dominant ideology reflects their preferences. That group appears to be able to maintain a united front which solidifies their effectiveness. By way of contrast, the Left is poorly funded, but more importantly, divided and on important matters appears incapable of breaking free from the fictions and framing that the Right have introduced to further their own agenda. So, the Left is often pursuing causes that appear to be ‘progressive’ and which warm their hearts, but which in reality are just reinforcing the framing that advance the interests of the Right. We saw that again this week with the emergence of the Tax Extreme Wealth movement and with the release of their open letter to the G20 Heads of State – G20 Leaders must tax extreme wealth. This is the work of a group which includes the so-called Patriotic Millionaires, Oxfam, Millionaires for Humanity, Earth4All and the Institute for Policy Studies. It demonstrates perfectly how these progressive movements advance dialogue and framing which actually end up undermining their own ambitions.

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Another mythical intergenerational report from the Australian Treasury

In my most recent podcast – Letter from The Cape Podcast – Episode 14 – I provided a brief introductino to why economic reports that project fiscal crises based on ageing population estimates miss the point and bias policy to making the actual problem worse. Today, I will provide more detail on that theme. Last week (August 24, 2023), the Government via the Treasury released its – 2023 Intergenerational Report – which purports to project “the outlook of the economy and the Australian Government’s budget to 2062-63”. It commands centre stage in the public debate and journalists use many column inches reporting on it. Unfortunately, it is a confection of lies, half-truths interspersed with irrelevancies and sometimes some interesting facts. Usually, these reports (the 2023 edition is the 6th since this farcical exercise began in the 1998) are a waste of time and effort.

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Beware: pension systems about to collapse. Not! More mainstream fiction

Sometimes, one thinks that the intellectual world should evolve as intelligent people take account of the dissonance between their ideas and the facts before them and adapt their views. I know that doesn’t happen much but it should. I have studied the philosophy of science deeply enough over my student and postgrad days and beyond into my career to know that intelligent people have the capacity to completely fool themselves and hang onto defunct ideas as part of a paradigm-resistance to change. We know why that happens: senior professors have their reputations and legacy at stake, they control appointments, promotions, access to research grants, publication success for junior academics, and continuity of lucrative consulting empires. But sometimes I still am amazed when I read some research paper that I know has taken months to research and write up and which has been presented and talked about in seminars and conferences, and after dinner drinks and all the rest of it, but which bears no correspondence with the underlying reality. That was the situation when I read a research paper from three economists who were claiming that taxes have to rise and pensions cut if governments are to escape insolvency in the face of ageing societies. This continues, obviously, to be a powerful framework for proselyting the neoliberal mantra and a narrative that most people cannot see their way through to a conclusion that is all a fiction.

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A nation does not shift to an MMT regime

Earlier this week (April 25, 2023), I saw a Twitter exchange that demonstrated to me two things: (a) some mainstream media commentators are now understanding some of the principles of Modern Monetary Theory (MMT) and relating that knowledge to practical matters that concern them (lens being applied to values); and (b) high profile financial market players still command a platform in the media but have little understanding of what MMT is and consistently issue false statements. A lot of misinformation continues to be circulated about our work. Cursory inferences, usually based on an extrapolation of what the flawed mainstream theories say about policy interventions, are then conflated with assertions about MMT. In other words, MMT is interpreted through the terminology and conceptual structure of a rival paradigm. We reject such inferences and comparisons.

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US inflation has peaked and monetary policy had nothing much to do with it

It’s Wednesday, and I have two things to write about briefly before exposing readers to some more music. First, the evidential base for my ‘this inflationary period is transitory’ narrative gains more weight. The latest CPI data from the US Bureau of Labor Statistics shows that inflation has peaked in the US and falling rapidly in the goods sector, which started this episode off. The second topic relates to measuring progress in the development and spread of new ideas. It is often difficult to know how far a new framework has penetrated the broader debate. But sometimes things happen that remind me of how far we have to go in changing the framing and language surrounding fiscal capacity and the related topics, that Modern Monetary Theory (MMT) has brought to the fore. We finish with some calming guitar playing.

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Dangerous anachronisms continue – and I am not talking about the British royalty

It’s Wednesday and as usual I just present some short snippets that have attracted my attention this week and other things that distract me from economics. Today, we don’t talk about the British royalty at all – the events this week were from another world really. But what is not from another world is the continual nonsense being spoken and written about this inflationary period and how central banks and treasuries have to tighten up to ‘beat it’. Talk about anachronism. And once we have discussed those things, I offer some soothing music to reduce the state of angst.

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Governments should not ‘cool’ an economy or cut deficits when there are millions unemployed still

It’s Wednesday and only a few items today. It seems that the mainstream economists are emerging again and making all sorts of claims that fiscal policy has to target lower deficits and monetary policy needs to tighten (interest rates rise) to stop our governments going broke and inflation going wild. It really is like a tired broken record, isn’t it. They have sort of gone underground during the crisis and more are thinking it is time to reassert the nonsense of the past. And so it goes. But at least Wednesday brings music to this blog – and what a treat we have today.

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And the winner is Brisbane … well kind of … or maybe not

Just when we were meant to be waving our national flags, standing to attention at the medal ceremonies and enjoying the Olympic Games from our various states of lockdown or in my case (day 12) quarantine, Professor Scott Baum sends me his latest guest blog telling us how bad the Games are. What a spoilsport (sorry). So, today, Scott from Griffith University, who has been one of my regular research colleagues over a long period of time, brings the wet blanket to wreck our fun, and just as Victoria (where I am holed up in quarantine at present) comes out of lockdown. Over to Scott …

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Don’t say its over until its over – MMT is not close to dominating the narrative

Don’t say its over until its over. There has been progress in the macroeconomics narrative since the GFC, which accelerated during the pandemic. Governments have certainly expanded fiscal deficits and taken on more debt and the usual hysteria, which many of those same governments helped to ferment in the public debate, has fallen away. Obviously, for political reasons, a government that has previously been terrorising the population about the dangers of deficits and rising debt as a cover for ideologically-driven austerity programs, has no incentive in continuing those narratives while they have been dragged into maintaining capitalism on life support. The question has been whether these narratives will return once the health emergency starts to fade a little. There is clear evidence emerging that the lessons that the pandemic has taught us are not being absorbed by the economics commentariat, who dominate the public space with their opinions. Two clear examples of this came out this week (already) in the Australian press, which replicates the sort of commentary I am increasingly seeing around the globe. Deeply sad.

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Dr Die Schwarze Null still not thinking beyond more austerity

Project-Syndicate recently published the latest Op Ed (April 16, 2021) from former German finance minister and current President of the German Bundestag, Wolfgang Schäuble – Are We Risking a Debt Pandemic?. He is the person who personified the so-called ‘die schwarze null’ (Black Zero) while finance Minister. His conduct as finance minister was an instrumental element in extending the GFC across the Eurozone. He is still influential in European politics and his latest Op Ed makes it clear that the austerity mindset is still alive and well despite the current relaxation of the Stability and Growth Pact rules during the pandemic. The problem is that if Europe reverts back to that mindset, the essential changes to the monetary union that are necessary to make it viable will never be discussed. It will be just more of the same. And that same is pretty ordinary for the common folk across the EMU.

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Central banks should just write off all their government debt holdings

The tensions in the public policy debate between economists is intensifying and on show in Europe, where these sort of obvious conflicts between adherence to dogma and a recognition that ‘out-the-box’ solutions are not only possible but preferred. More of these latter thought offerings are starting to appear as more people come to understand that the mainstream dogma has become more of a security blanket for reputations rather than saying anything about reality. One such proposal emerged last week in the form of a letter to the major European newspapers signed by more than 100 economists and politicians calling for the ECB to write-off its massive public debt holdings, which currently amount to around 25 per cent of total outstanding public debt. It is a good idea but some of the framing leaves a lot to be desired. At any rate, central banks everywhere should be buying up massive amounts of government debt and hitting the keyboard with zeros and writing it off. The world would be a much better place if they did that.

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Tax cuts are unlikely to work at present and are less effective than government spending increases

As governments grapple with the dissonance that the pandemic is causing them – realising that their old mainstream economics narratives are not going to cut it any more but still reluctant to admit that and pass onto a new phase of creative policy making – we are observing these contradictions in both statements about fiscal policy and monetary policy. The Australian government, for example, is convinced tax cuts are required but have observed that recent tax cuts, before the pandemic hardly stimulated any spending. Further research from the US is demonstrating that payments to households under the – Coronavirus Aid and Economic Security (CARES) Act – may not have resulting in the spending boost that was modelled as part of the policy design. And then on the monetary policy front, central bankers like Madame Lagarde are strutting around making grand statements about becoming flexible with their definition of price stability (that is, saying they will allow for higher inflation before they increase rates) despite not being able to remotely meet their current stability levels with deflation looming. I covered a statement along similar lines from the US Federal Reserve Bank boss recently – US Federal Reserve statement signals a new phase in the paradigm shift in macroeconomics (August 31, 2020). It all adds up to what happens when a paradigm is shifting and the old school are caught out – no longer able to really offer anything of use but hanging on to their status nonetheless. Pragmatism usually passes them by as it will in this case.

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Why do currency-issuing governments issue debt? – Part 1

One question that continually comes up when I do interviews is this: If governments are not financially constrained in their spending why do they issue debt? Usually, the question is expressed in an incredulous tone, meaning that the person asking the question considers this to be the gotcha moment, when they pierce the impeccable logic of Modern Monetary Theory (MMT) and show it for what it is – a sham. One problem is that there is a tendency to confuse motivation with function and many people sympathetic to MMT reduce it to simple statements that belie the reality. One such statement, relevant to this topic, is that government’s issue debt to allow the central bank to maintain a specific short-term interest rate target. Central banks have traditionally used government debt as an interest-rate maintenance tool. But that is a function of the debt rather than being the motivation for issuing the debt in the first place. So we explore those differences today as a means of clarifying the questions and confusions around this issue. This is Part 1 of a two-part series, which I will finish tomorrow.

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The coronavirus will redefine what currency-issuing governments can do – finally

Life as we knew it is changing fast, almost by the hour. Most of my speaking engagements, which were heavily booked for the foreseeable future, have been cancelled or deferred. All the gigs that my band was booked for have been cancelled until people start returning to the now, empty venues. And, more significantly, the ideologues are giving way to the pragmatists in the policy space. Almost (see below). The sudden realisation that even Germany will now spend large amounts to protect their economy exposes all the lies that have been used in the past (up until about yesterday) to stop governments doing what they should always do – maintain spending levels in the economy to sustain full employment and ensure no-one falls through the cracks and misses out on the material benefits of growth. In the early days of the GFC, I thought that the neoliberal era, supported by the mainstream macroeconomists, might be coming to an end. Maybe I was a decade out in my prediction. Perhaps this crisis, induced by a human sickness, will end the madness that has redistributed massive volumes of income to the top-end-of-town, sustained elevated levels of labour underutilisation and seen the traditional progressive political voices become mouthpieces and even agents for the neoliberal economic lies. I was wrong in 2008 on this score. I hope something good like this comes out of the current disaster. The coronavirus comes on top of already growing dissent over the failure of mainstream economic policy. It will redefine what governments can do with their obvious fiscal capacity and will demonstrate once-and-for-all the lies that the mainstream economists tell about deficits, inflation, interest rates, etc. It will categorically demonstrate the capacity of the currency-issuer. All that will lay the foundation for a better future, if we get beyond this current malaise.

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Work not UBI – the hopeful not the surrender

I have long disagreed with Guy Standing about the solutions to unemployment. 20 years ago we crossed paths on panels and in the literature where he would argue that UBI was the way forward and I would argue that it was a neoliberal plot and that, instead, we needed to push for job creation. My view has always been that to surrender to the neoliberals on their claim that governments cannot generate sufficient jobs to satisfy the desires for work of the unemployed was a slippery slope. Standing continues to publish his fiction. In his latest Social Europe article (January 15, 2020) – Building a progressive alliance in Britain – he seeks to integrate UBI proposals with a recovery plan for British Labour. My view is that would not help Labour recover from the shots they fired into their own feet in the period before the December election by listening to the likes of Standing and those who advocated the Fiscal Credibility Rule and the reneging on the Brexit commitment. Standing’s aversion to job creation is in contradistinction with a recommendation from the Wetenschappelijke Raad Voor Het Regeringsbeleid (WRR or in English, The Netherlands Scientific Council for Government Policy) to the Dutch government to deal with the challenges of achieving “good work”, in part, by introducing a ‘basic job’ which in my parlance means by introducing a Job Guarantee. They are motivated by a deep vein of social science and medical research that extols the virtues of work beyond its obvious income generation qualities. Pushing a UBI in the light of that research is just a pitiful bailout.

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Left-liberals and neoliberals really should not be in the same party

This week’s theme seems to be the about how the so-called progressive side of the economic and political debate keeps kicking ‘own goals’ (given a lot of this is happening in Britain where they play soccer) or finding creative ways to ‘face plant’ (moving to Europe where there is more snow). Over the other side of the Atlantic, as America approaches its mid-term elections, so-called progressive forces who give solace to the New Democrats, aka Neoliberal Democrats are railing against fiscal deficits and demanding that the left-liberals in the Democratic Party be pushed out and that the voters be urged to elect candidates who will impose austerity by cutting welfare and health expenditure and more. And then we have progressive think tanks pumping out stuff about banking that you would only find in a mainstream macroeconomic textbook. This is the state of play on the progressive side of politics. The demise of social democratic political movements is continuing and it is because they have become corrupted from within by neoliberals. And then we had a little demonstration in London yesterday of the way in which the British Labour Fiscal Rule will bring the Party grief. The Tories are just warming up on that one.

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Public infrastructure investment must privilege public well-being over profit

One of the principle ways in which so-called progressive political parties (particularly those in the social democratic tradition) seek to differentiate themselves from conservatives is to advocate large-scale public infrastructure investment as a way of advancing public good. You can see evidence of that in most nations. Nation-building initiatives tend to be popular and also are less sensitive to the usual attacks that are made on public spending when income support and other welfare-type programs are debated. Capital worked out long ago that public spending on infrastructure provided untold benefits by way of profits and influence. In the neoliberal era, the bias towards ‘competitive tendering’ and public-private partnerships has meant that private profit tends to dictate where and what public infrastructure is built. The problem is that large-scale projects tend to become objects of capture for the top-end-of-town. Research shows that these ‘megaprojects’ typically deliver massive cost overruns and significantly lower benefits than are first estimated when decisions are being made about what large projects to fund. Further, evidence suggests that this is due to corrupt and incompetent behaviour by private project managers (representing their companies) and empire-building public officials. They lie about the costs and benefits so as to distort the decision-making processes in their favour. Any progressive government thus must be mindful of these tendencies and behaviours. A progressive policy agenda needs to be more than just outlining a whole lot of nice sounding public infrastructure projects that the government will pursue. The whole machinery of public procurement that has emerged in this neoliberal era needs to be abandoned and replaced with decision-making processes and rules that privilege the advancement of public well-being over profit.

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