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Shorter hours or layoffs?

I did a radio interview on the ABC Drive program this afternoon about different attitudes that Europeans and Americans have to dealing with recession, specifically in terms of the decision to offer shorter hours or use layoffs to trim the labour force as sales decline. While the solidaristic European model is preferred, both call into question what the national government should be doing.

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A Koala Notes currency?

Can a city or state become a sovereign nation? We know what a sovereign nation is – one that has the capacity to issue its own currency and oblige its residents to pay their taxes in that currency. We also know that a state or city is thus not a sovereign nation because it uses the currency of the sovereign nation it “lives within”. So a state or a city is financially constrained in much the same way as a household. In that context, spending has to be financed either from higher taxes or debt issues which clearly places some limits on what programs a city or state can pursue. Further, a city can go bankrupt (become insolvent) in the local currency whereas a sovereign government cannot. So how might cities solve their infrastructure and social needs when they are so constrained?

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National budgets are not constrained!

I received a call from a journalist at the Financial Review today asking how the Federal government could afford to run labour market programs given that it might suffer a substantial revenue loss if it cuts back net migration. I told him that irrespective of what happens to net migration and any losses to tax revenue that that might bring (should they cut it back), the Government will always be able to fund any labour market program if it thought that was the best use of its funds. It brings to mind a new theme in this period of turmoil – how can the government keep its programs going while at the same time bailing out all and sundry? Answer: easy, just keep funding them. The national government is not financially constrained and the size of its budget is nothing that can be determined independent of the shortfall of aggregate demand.

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More journalistic nonsense!

I am awarding this week’s worst piece of economics journalism to an article that appeared in Saturday’s Australian newspaper and was written by high-profile economics correspondent George Megalogenis. The article makes a sequence of statements that cannot be supported by any credible macroeconomic theory. Why do journalists write things that they do not seem to understand? Anyway, in case any of my readers happened to waste their time reading this article I offer the following clean-up job. Yes, its that time again. Time to debrief.

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Minimum wages 101

The issue of minimum wage adjustments always invokes a lot of debate and invokes the usual (boring) reactions from employer groups and conservative economists. Their narrative is always the same: you cannot have a minimum wage rise because it will cause unemployment among the low-skill ranks of the workforce. If you believed their logic, then there never would be a minimum wage rise. The reality is that there is no evidence available to support these notions and lots of evidence to refute it. The new problem is that the current Federal government is now aligning with the conservatives and using the same defective logic to oppose any reasonable rise in the minimum wage. Its that time again. Time to debrief.

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The US detox lunancy

The US Government has come up with its latest plan to solve the financial crisis which has now well and truly become a real (GDP and employment) crisis. While the initial reaction from the financial markets is generally favourable (and why wouldn’t it be), if you appraise it from the perspective of modern monetary theory and impose an equity bias then you conclude: (a) it will represent a major redistribution of nominal wealth to the already wealthy; and (b) it probably won’t help reduce unemployment because it is not tackling the real problem.

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Back to school for the US President!

The US President appeared on the US commercial television show 60 minutes program on March 22. He was talking about about the AIG debacle, the economy, and his first challenges in his new job. His responses to questions about the economy though were positively scary. The most powerful man in the World and he doesn’t understand how the modern monetary economy works. Very scary indeed.

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Labour market now tanking!

Today CofFEE released our latest quarterly labour market indicators (CLMI) which are hours-based measures (see below) that I have developed to more accurately measure the state of the labour market. The data shows that the impact of the global economic crisis is now manifesting in the Australian labour market with a marked deterioration in conditions in the February 2009 quarter. Total labour underutilisation in February has jumped to 11.2 per cent, up from 9.7 per cent in the November 2008 quarter. Things are heading south.

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Budget surpluses are not national saving

This morning I was reading the Sydney Morning Herald and Economics writer Ross Gittins was talking about the fact that the ALP election victory in Queensland over the weekend violates the dogma that Treasury officials (federal and state) like to put around. Of-course, Gittins is in his own words “has great sympathy for treasuries” so I never expect him to tell his readers how the modern monetary system actually operates. But at one point, he advances without any critical scrutiny one of the greatest myths propogated by neo-liberals (including treasuries) about the way federal government budgets work. The myth: budget surpluses increase national saving. The truth is they do not. Its that time again. Time to debrief.

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Size of deficit 101

I rode my bike 80 kms early this morning (usual Sunday) in the beautiful Autumn weather that Newcastle (NSW) enjoys this time of year. The Pacific Ocean looks superb (although there is nothing surfable in sight – maybe tomorrow morning). The sun was out and we were heading for 26-27 degrees. Then it had to happen. When I returned home I opened this morning’s newspaper and came across an authoritative headline: US faces huge deficit blow-out, with the sub-line “Program cuts, tax hikes likely.” The journalist (added to my bogan list) probably got 0 out of 5 on last night’s quiz. Well the truth is that almost everything the journalist wrote is wrong if he is talking about the real world. Anyway, I thought so. Its that time again. Time to debrief.

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Public infrastructure 101 – Part 1

I read a headline in the Australian newspaper yesterday (March 19) – Nation building funding crisis as private sector fails to find cash. What? Nation building requires significant budget deficits. When was it dependent on the private sector having to trump up cash? I soon recalled that we have been living in the Public Private Partnership (PPP) era where governments have relinquished their responsibilities to build essential public infrastructure that not only supports a sense of public good but also underpins the prosperity of the private market economy. Its that time again. Time to debrief.

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Digressions on IR laws and our freedoms

Two stories today make you wonder about the direction of our Australian government. The first relates to the changes to the industrial laws that the Greens finally were able to push through the Senate last night and the second relates to the threat of mass censorship using lists that are seemingly highly flawed.

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The CofFEE/URP Employment Vulnerability Index – with updates

Today I released a major new research report Red alert suburbs: An employment vulnerability index for Australia’s major urban regions which was the result of a collaboration with Scott Baum (URP, Griffith University) who I share a large ARC Discovery Grant with. The Report and its findings has already received front page coverage in the large Australian dailies – The Age and the Sydney Morning Herald.

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Population policy – cyclical or long-term?

The Australian government announced that as a result of the rising unemployment it would cut the skilled migrant intake by nearly 20,000 to 115,000 this financial year. It also removed some key industries (construction and manufacturing) from the critical skills list which will prevent firms from sourcing tradepersons from abroad unless they can prove local labour is not available. The announcement while seemingly a sensible statement of the jobs equation – less jobs require less workers – once again raises the question of how population policy should be formulated.

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G20 – we should all be worried

Put People First group are running a grass roots campaign for all of us to send a message to the G20 about their priorities. The campaign symbol is the megaphone logo appearing below. Their campaign will culminate in a march in central London on March 28, 2009 to push a case for jobs, justice and climate. I am not associated with this group but I share their priorities, even if I might see them in different terms. Anyway, this is the first of my messages to the G20. In summary: they need to learn how the economy actually operates and then they would use their fiscal policy capacity to ensure everyone has a job in a sustainable economy.

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Social security insolvency 101

Many readers have asked me to explain why social security and pension schemes run by national governments can never become insolvent. Some have heard me commenting on the radio recently about this. In the current recession, where automatic stabilisers are pushing the budget back into deficit to dampen the fall in aggregate demand there are now renewed cries that social security funds around the World are likely to become insolvent. There are the familiar howls that all the “debt” that is being built up as governments go into deficits (mostly because they have been dragged into them by the cycle) will require huge future tax burdens that will undermine the capacity of governments to deliver adequate social security and health care systems. I think its time to de-brief again. The short answer to these claims is: sovereign governments can always fund social security in their own currency. Always, always, and even always.

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Quantitative easing 101

Some readers have written to me asking to explain what quantitative easing is. Some of them had heard an ABC 7.30 Report segment the other night which interviewed the Bank of England Governor who outlined the BOE’s plan to “print billions of pounds” as its latest strategy to stimulate lending and hence economic activity in the very dismally performing UK economy. Once again we need to de-brief and learn what quantititative easing actually is. We need to understand that it is not a very good strategy for a sovereign government to follow in times of depressed demand and rising unemployment. We also need to get this “printing money” mantra out of our heads.

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Oh dear, Lindsay needs sleep!

After yesterday’s shock admission that our Federal Finance Minister Lindsay Tanner was losing sleep because he was worried about the Federal debt buildup, there he was on the ABCs 7.30 Report last night giving us more cause for concern that his sleeplessness is having a negative effect on his ability to conduct reasonable dialogue on economic matters.

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Labour underutilisation now over 11 per cent

Today’s labour force data revealed the the world recession is starting to impact directly on jobs in Australia. Last month’s data surprised people because it suggested the labour market was resisting the global trends. At the time I indicated that the inaccuracy in the data due to the large sample errors was likely to be a factor. Today’s data also carries some surprises although the trends it is indicating are clear enough.

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Labour market discrimination rising

One of the advantages of running the economy at “high pressure” – that is, with low unemployment is that some of the more malevolent aspects of human behaviour are suppressed. We know that when the economy goes into a downturn, firms increase their hiring standards because they have the upper hand – lots of workers are unemployed and so the firms can pick and choose more readily. One of the worst aspects of these adjustments is that pure prejudice begins to reveal itself more openly. The most recent data from the US suggests this is the case.

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