Be careful using first release data – Britain now surges ahead of Europe!

In May 2023, when the British Office of National Statistics (ONS) released the March-quarter national accounts data (first estimate), which showed that real GDP grew by only 0.1 per cent in the first quarter and a rate equal to the December-quarter 2022, the critics were out in force. Brexit this. Brexit that. Graphs were created showing that Britain was recording the worst growth across the G7 nations. Brexit this. Brexit that. The Labour Party was cock-a-hoop as they continued the purge of the progressive elements in the Party. Then the second estimate came out on June 30, 2023 using additional data which the ONS said provides ‘a more precise indication of economic growth than the first estimate’, we learned that GDP “increased by an unrevised 0.1% in Quarter 1”. Brexit this. Brexit that. William Keegan who is like a cracked record stuck in a rut, wrote more UK Guardian articles bemoaning the democratic choice to leave the European Union. The problem is that all this data-centric inference was based on an illusion, which is why one must always be circumspect when dealing with this sort of data. The latest national accounts data released by the ONS on Friday (September 29, 2023) revised the first quarter result – scaling it up by a factor of three – to 0.3 per cent, which is still slow but hardly the disaster the pundits claimed.

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Claiming the European Union is close to full employment defies the meaning of language

Last week (September 13, 2023) in Brussels, the President of the European Union delivered her annual – 2023 State of the Union Address. We all know that these events are spin-oriented and the leader of the 27-nation bloc is hardly going to come out and talk the arrangement down. But this was an election speech – with the next major elections coming in the year ahead. The President lauded all the half-baked and under-funded programs that they have initiated under her ‘leadership’ and when it came to assessing the state of the labour market she made the extraordinary statement that as a result of Commission policies (such as – SURE) “Europe is close to full employment.” Yes, they are spinning the view that the problem is not a lack of jobs but “millions of jobs are looking for people” while admitting that “8 million young people are neither in employment, education or training” – the so-called NEET generation. Language should above all else convey meaning. Trying to claim that Europe is close to full employment violates that basic aspiration. The reality is that Europe is nowhere close.

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With central banks chasing shadows, many nations are now plunging towards or into recession

Yesterday, the – Flash Germany PMI – was released, which shows that “German business activity” has fallen “at fastest rate since May 2020”. Also released was the – Flash Eurozone PMI – which revealed that “Eurozone business activity contracted at an accelerating pace in August as the region’s downturn spread further from manufacturing to services”, Europe is heading to recession or should I rather say – stagflation – because the unemployment will rise sharply while inflation is still at elevated levels. All because the policy settings are wilfully and unnecessarily driving nations into recession. Over the Channel, Britain is going through a similar experience – inflation is falling rapidly and the economy is plunging towards recession. The common link is the policy folly. The European Central Bank and the Bank of England have been increasing interest rates as a ‘chasing shadows’ exercise – meaning that the drivers of the inflation they claim to be fighting are not sensitive to the interest rate changes. But the interest rate hikes are causing damage to the real economy by increasing borrowing costs. Meanwhile, fiscal policy is in retreat because the government thinks it has to set policy to complement the central bank hikes – meaning two sources of austerity. And for those commentators who pine for re-entry to the EU – they should look East and see what a mess the European economy is in!

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US inflation in retreat as housing policy is exposed as a failure

The US Bureau of Labor Statistics released the latest US inflation data last week (August 10, 2023) – Consumer Price Index Summary – which showed that overall monthly inflation to be 0.2 per cent and mostly driven by housing. And, once we understand how the housing component is calculated then there is every reason to believe that this major driver of the current inflation rate will weaken considerably in the coming months. The rent component in the CPI has been a strong influence on the overall inflation rate and that has been pushed up by the Federal Reserve rate hikes.

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Ratings downgrade on US government debt is as ridiculous as it is meaningless

It’s Wednesday and there are a few topics that warrant some comment. But at the top of the topics were headlines this morning shouting out that the US treasury bonds had been downgraded by one of those self-serving credit rating agencies, as if it was an event worthy of some import. The journalists obviously do not understand anything if they think that decision was important. The ratings downgrade on US government debt is meaningless and the rating agency involved just wants to boost its revenue by sounding important. After I explain all that we will have a quiet musical reflection to finish the day.

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Central bankers deliberately trying to increase poverty is not a sound policy framework

On Friday (July 29, 2023), the Australian Bureau of Statistics released the latest – Retail Trade, Australia – data, which showed that total retail turnover fell by 0.8 per cent in June 2023 and was up 2.3 per cent on June 2022. In May 2023, it was up 4.1 per cent. So things have slowed. Almost all the components (Household goods, Clothing etc, Department stores, Cafes etc) were down on the month. The ABS noted that despite the massive EOFY sales, “retail turnover fell sharply … as cost-of-living pressures continued to weight on consumer spending”. By way of contrast, in the US the June data from the US Census Bureau – Advance Monthly Sales for Retail and Food Services (released July 18, 2023) – shows up 0.2 per cent in June. Moroever, the latest University of Michigan Survey of Consumer Sentiment results – Improving personal finances, business conditions lift consumer sentiment (released July 28, 2023) – reveal a sharp increase in consumer sentiment in the US. But there was a twist, which is the point of this post. The Survey reported “the material improvement in the economic experiences of consumers relative to the peak of high inflation last year … with the notable exception of lower-income consumers, who anticipate continued challenges from inflation and a potential weakening in labor market prospects.” What we will discuss today is that central bankers are effectively intent on increasing poverty in their societies. And, whichever way one looks at it, relying on such a pernicious policy tool – one that deliberately seeks to increase poverty – is not a sound basis for achieving social stability. And, and as inflation has been falling anyway, despite the hikes, the negative distributional impacts should militate against using such a nasty and inefficient instrument.

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Australia’s inflation rate continues to fall despite RBA inflationary rate hikes

Today (July 26, 2023), the Australian Bureau of Statistics released the latest – Consumer Price Index, Australia – for the June-quarter 2023. It showed that the CPI rose 0.8 per cent in the quarter (down 0.6 points) and over the 12 months by 6.1 per cent (down 0.9 points). The annual inflation rate in Australia was significantly lower again in the June-quarter as the supply-side drivers abate. This was always going to be a transitory adjustment phase after the massive disruption from Covid and the exacerbating factors associated with the Ukraine situation and the OPEC price gouge. There was never any justification for the RBA pushing up interest rates. The correct policy response should have been to provide fiscal support for lower-income households to help them cope with the cost of living rises and wait for the adjustment after the disruption to come. The approach taken by the Bank of Japan and the Japanese government was the correct one and that is now clear even though the mainstream economists still cannot see past their textbooks.

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US spending data not demonstrating effectiveness of monetary policy

I have been looking for signs that the concerted efforts by most central banks (bar the eminently more sensible Bank of Japan) to kill growth and force unemployment up have actually been effective. My prior, of course, is that the interest rates will not significantly reduce growth in the short run, but may if they go high enough start to impact on spending patterns of low income households. The next data that will help us associate the interest rate effects on spending by income quintile in the US comes out in September 2023, so I will watch out for that. The most recent national accounts data from the US, however, does not support the mainstream belief that monetary policy is the most effective tool for suppressing expenditure. Far from it.

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RBA wants to destroy the livelihoods of 140,000 Australian workers – a shocking indictment of a failed state

My early academic work was on the Phillips curve and the precision in estimating the concept of a natural rate of unemployment, or the rate of unemployment where inflation stabilises at some level. This rate is now commonly referred to as the Non-Accelerating-Rate-of-Unemployment (NAIRU) and my contribution was one of the first studies to show that the rate was variable and went up and down with the economic cycle, rendering it a meaningless concept for discretionary policy interventions. I extended that work into my PhD and built on much earlier work as a undergraduate to articulate the Job Guarantee idea. The NAIRU is unobservable and there have been various ways to estimate it from actual data. The problem is that these estimates are highly sensitive to the approach – so two researchers can get quite different estimates using the same data. Further, the estimates themselves are subject to large statistical errors meaning that we cannot be sure whether the NAIRU is say 4.5 per cent or 3.5 per cent or 5.5 per cent, say. Such imprecision makes it impossible to use the concept as a guide for monetary policy because if the NAIRU actually existed then ‘full employment’ might be at 3.5 or 5.5 per cent today but next week the estimates might be even wider. When would one want to start changing interest rates in pursuit of inflation stability – when the actual unemployment rate was down to 3.5 per cent or at 5.5 per cent or somewhere in between or at higher or lower unemployment rates, depending on what the models pumped out? You can see the problem. For some years, central bankers went quiet on the use of the NAIRU and stopped publishing their estimates exactly because they knew full well about the imprecision and that policy based on such a vague, difficult to estimate, unobservable would be discredited. That is until now. The RBA is now clearly admitting that their damaging and unnecessary interest rate hikes over the last year and a bit have been driven by the NAIRU. A sham. But a tragedy as well given the RBA’s almost obsession with pushing unemployment up by around 140,000. A shocking indictment of where we have reached as a civilisation.

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The New Global Financing Pact equals the old failed global financial arrangements

It’s Wednesday and I cover a few topics usually in less depth than usual and provide a musical entree. From tomorrow (June 22 to 23), the so-called world leaders are meeting in Paris for the – Summit for a New Global Financing Pact – which is being hosted by the French president. The aim, apparently, is to build a new global architecture to replace the Bretton Woods system (they left it a while!) to ‘address climate change, biodiversity crisis and development challenges’. The solution that is being proposed is to allow the financial markets to create debt and speculative derivative products to fund the new architecture because, apparently, governments do not have the financial capacity. The whole initiative is about replacing defunct financial architecture but it still proposes to rely on the same (defunct) approach to public infrastructure development and the like that has failed dramatically to reduce inequality and poverty. It has certainly massively enriched the top-end-of-town and the same result will come out of this Pact. I also comment on the latest Brexit claims and provide a brief entree into some Covid research that I found interesting. Then some music.

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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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