So Italy has now gone the way of the UK and the US in its referendum vote – rejecting the establishment but not sure on what to do instead. It seems that the US voters have been duped by a conman (noting he beat a conwoman). Now Renzi is to go and we will see what happens next. But the trends around the world are unmistakable. Ordinary folk are in rebellion and for good reason. Last night I saw the latest Ken Loach film – I, Daniel Blake, which is a grinding, shocking statement of how society has been so compromised by the neo-liberalism that these voting patterns are rebelling against. I would say that as an Australian the film was a little less shocking than it might have been because our stupid nation led the way in introducing the tyrannical administrative processes that accompany income support systems in this neo-liberal era. Britain (under Tony Blair – never let it be forgotten – he did more than lie about Iraq) followed Australia’s lead in this respect. So, Australians have seen this dystopia for more than 18 years now – and while I hope we have not become inured to it – normalised it – it has been part of our awareness for a long time. Nonetheless, the film is shocking in what it says about the societal compromise and the rise and normalisation of sociopathic relationships between state and citizen.
I am currently working on a book commissioned by Edward Elgar which will form an anthology of influential Modern Monetary Theory (MMT) literature – how it evolved – with a long introduction by me tying all this literature together. It has been a simmering project for the last 18 months and I haven’t mentioned it here until now. The first task was to assemble the literature and then the next task was that the publisher (EE) has to get copyright clearance from the original holders. The second process has taken some time and I have had to alter the proposed table of contents because we cannot get copyright clearance. The reason I mention this is that the work of Hyman Minsky is not among the literature I have selected as being influential in the intellectual development of MMT. That is not to say that some of his earlier work was of no interest. Quite the contrary. But when he makes statements that appear to be consistent with MMT propositions, he is, in my view, just channelling the likes of Abba Lerner and his functional finance. But later in his career, Minsky started to articulate ideas that were consistent with ‘sound finance’, which Lerner had opposed, and, which is anathema to MMT.
The Australian Treasurer gave his first major statement in Sydney last week (August 25, 2016) since being barely re-elected in July. The speech – Staying the course – strengthening our resilience in uncertain economic times – was before an invited gathering of the business world who sat their listening to total nonsense from a man who disgraces the role he holds. Australians have always lagged behind developments in the rest of the world in many ways. It used to be blamed on the ‘tyranny of the distance’ (geography) but that excuse can no longer be used in this digital age. You realise how far behind the times our Treasurer is when you read articles such as this one in Foreign Policy (August 26, 2016) – The Stimulus Our Economy Needs. In that article, we read that “Now, the idea that governments, with or without the help of central banks, should spend substantial resources on creating jobs, both directly and through private sector incentives, is widely accepted among economists across the political spectrum”. Sound advice but lost on the Australian Treasurer. Bad luck for us. He is an embarrassment.
I noted in Monday’s blog – Modern Monetary Theory – what is new about it? – that I am working on a paper (with my colleague Martin Watts) that will form the basis of a a keynote talk I will give at the – International Post Keynesian Conference – which will be held at the University of Missouri – Kansas City between September 15-18, 2016. That talk will now be held at 15:30 on Saturday, September. 17, 2016. I also listed four areas where we would discuss the novel contribution that Modern Monetary Theory (MMT) has made to macroeconomics, despite the claims of both mainstream economists and some Post Keynesians that there is nothing new in MMT. The first two blogs on this topic covered the juxtaposition of employment versus unemployment buffer stocks and the implications of that for how we view the Phillips curve, a central framework in macroeconomics linking inflation to developments in the real sector (unemployment etc). Today’s blog considers another section of the paper – the dynamics of fiscal deficits and public debt. We consider the difference between deficit doves, who consider fiscal deficits are appropriate under some conditions but should be balanced over some definable economic cycle, which we argue has been the standard Post Keynesian position, and the MMT approach to deficits, which considers the desirable deficit outcome at any point in time to be a function of the state of non-government spending and the utilisation of the productive capacity of the economy. We argue that fiscal rules expressed in terms of some rigid balance to GDP target are not only meaningless but dangerous. Fiscal rules in MMT are only meaningful if related to the state of non-government spending and the utilisation of the productive capacity of the economy. This body of MMT work is clearly novel and improves on the extant Post Keynesian literature in the subject which was either silent or lame on these topics.
Here are the answers with discussion for this Weekend’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.
In the last month or so, we have seen the IMF publish material that is critical of what they call neo-liberalism. They now claim that the sort of policies that the IMF and the OECD have championed for several decades have damaged the well-being of people and societies. They now advocate policy positions that are diametrically opposite their past recommendations (for example, in relation to capital controls). In the most recent OECD Economic Outlook we now read that their is an “urgent need” for fiscal expansion – for large-scale expenditure on public infrastructure and education – despite this organisation advocating the opposite policies at the height of the crisis. It is too early to say whether these ‘swallows’ constitute a break-down of the neo-liberal Groupthink that has dominated these institutions over the last several decades. But for now, we should welcome the change of position, albeit from elements within these institutions. They are now advocating policies that Modern Monetary Theory (MMT) proponents have consistently proposed throughout the crisis. If only! The damage caused by the interventions of the IMF and the OECD in advancing austerity would have been avoided had these new positions been taken early on in the crisis. The other question is who within these organisations is going to pay for their previous incompetence?
Here are the answers with discussion for this Weekend’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.
Last week, the Australian Labor Party (the federal opposition) released a new policy platform, which it hopes will give it some electoral leverage in the upcoming federal election. The Party announced that they would be attacking poverty and inequality by restoring full employment. The UK Guardian political editor opined in her article on Friday (March 18, 2016) – A shift in political thinking is giving Labor a sense of purpose – that the announcement by Labor was a policy breakthrough and a recognition that the neo-liberal claims about free markets etc, that emerged in the 1980s, are no longer a viable basis on which to base policy. I agree. I also agree that a currency-issuing government should always pursue full employment. But the reality is that this pledge from the ALP is going to be as hollow as all the other value statements it makes in an attempt to convince the electorate that it is a progressive party looking out for the workers and the disadvantaged. A lot of jobs have to be created to restore true full employment, which will require significantly larger fiscal deficits. Meanwhile, the ALP is claiming it will return the fiscal balance to surplus.
Here are the answers with discussion for the Weekend 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.
There was a time, in better days, that the evening news had news, sport and weather. Then, at some point, around the 1980s the national news started to host a Finance segment. Sometimes these segments are meagre reporting of what happened in the share markets. Even that benign news is symptomatic of the way neo-liberalism has infested our daily thinking and made the common folk feel part of the game that they are really can never be part of – wealth creation. At other times, the finance segments introduce economic theory and analysis as if it is news. Then the insidious nature of the neo-liberal propaganda machine becomes stark. But the starkness is lost on most because they think it is news and we have been led to believe that what gets pumped out at 19:00 on the national broadcaster (and other times by other broadcasters) are facts. Facts don’t lie do they? Well, when it comes to finance segments they are mostly lies.
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.
When Jeremy Corbyn first came into prominence to take over the leadership of the British Labour Party, his offsider, now Shadow Chancellor John McDonnell started talking about “deficit deniers” and he and the Labour Party were avowedly not so inclined, as if questioning the fiscal surplus obsession was a demonstration of stupidity. In fact, for a political group claiming to be the ‘end of austerity’, who aimed to seize control of the Party from the neo-liberal Blairites – those austerity-lite mavens – I thought he was sounded distinctly neo-liberal himself. His defenders who also understood perhaps a bit of Modern Monetary Theory (MMT) wrote to me and said we should be patient – that this was just a political ploy designed to snare the Conservatives in their own hubris. After all, George Osborne has categorically failed to achieve his goals of fiscal cutbacks. I noted that it was actually good that he had ‘failed’ because the U-turn Osborne made in 2012, albeit rather subtle, saved the British economy from a triple-dip recession and has allowed it to continue to grow. Britain is not an example of a successful austerity implementation. It looks rather Keynesian to me. John McDonnell decided he had better make a U-turn of his own in the last few days. This one won’t save the nation and will probably sink British Labour further into the mire. Why McDonnell supported Osborne’s crazy ‘Charter of Budget Responsibility’ two weeks ago is one question. It showed a monumental lack of understanding of what it would mean for the nation to lock the government in, legally, to achieving overall fiscal surpluses. The U-turn now betrays a capricious approach to policy and one that will fail to cut through and offer a truly progressive path. Very sad really.
In 1723, a rather bizarre book was published in London (and then reprinted in Boston a year later) called Onania; or, The Heinous Sin of Self-Pollution, And All its Frightful Consequences, in both Sexes, Considered: With Spiritual and Physical Advice to those, who have already injured themselves by this abominable Practice.. The author was an anonymous Puritan minister who equated “masturbation, homosexuality and bestialy”. It was “addressed predominantly to adolescent males” but was applied to all ages. The book is full of metaphor – and exhorted a “hope in God” to “awaken … the Guilty” who are “Daily, and often-times Dangerously wounded by this foul Practice” and to stop the “Innocent and Unwary from falling into it”. It represented part of a conservative literature that was intent on pursuing its moral agenda by scaring people into believing that certain activities would be injurious to their health and life-threatening. The agenda exploited ignorance among the general population and traded on this ignorance to advance an agenda based on myth. With George Osborne’s Mansion House Speech last week, not a lot has changed. But I have a cure for him!
When I was studying in the UK during the dark Thatcher years there was a rat plague in Manchester. The reason was traced to the public spending cuts that had led to the reduction in rat catchers/baiters who had worked on the canals that go through Manchester. Later that year (December 1982), there were widespread collapses in the Manchester underground sewers which caused effluent in the streets, traffic chaos and long-term street closures. Major inner city roads were closed for a good 6 months while repairs were rendered. The reason – cut backs in maintenance budgets. The repairs ended up costing much more than the on-going maintenance bills. That experience brought hometo me the myopia of austerity. While the austerity causes massive short-term damage, it is clear that it also generates a need for higher public outlays in the future as a response to repairing or attending to the short-run costs. The latest focus in Britain is on rising waiting lists in hospitals and increasing violence in prisons. All these examples of austerity compound and reverberate throughout society in countless little ways that accumulate to one huge mess. The Thatcher years were highly destructive for the well being of the British people contrary to the myths that the conservatives pump out. The current period will be of a similar ilk. And spare a thought for the long-term damage in places like Greece! It is beyond belief.
In a way this blog is being written to stop the relentless onslaught of E-mails coming, which seek to promote so-called positive money. I am regularly told that I need to forget Modern Monetary Theory (MMT) and instead see the benefits of this alleged revelationary approach to running the economy. Other E-mailers are less complimentary but just as insistent. Then there are the numerous E-mails recently with the following document attached – Monetary Reform: A Better Monetary System for Iceland – which I am repeatedly told is the progressive solution to bank fraud and, just about all the other ills of the monetary system. The Iceland Report was commissioned by the Icelandic Prime Minister and is being held out as the solution to economic and financial instability because it would wipe out the credit-creating capacity of banks. It has been endorsed by the British conservative Adair Turner, who formerly was the chairman of the UK Financial Services Authority and who recently advocated so-called overt monetary financing (OMF) as a way to resolve the Eurozone crisis. I agree with OMF but disagree with his view that it is the credit-creation capacity of banks that caused the crisis. The crisis was caused by banks becoming non-banks and engaging in non-bank behaviour rather than their intrinsic capacity to create loans out of thin air. A properly regulated banking system does not need to abandon credit-creation. Further, I am aware that in holding this view, I and other Modern Monetary Theory (MMT) proponents are accused of being lackeys to the crooked financial cabals that hold governments to ransom and brought the world economy to its knees. Let me state my position clearly: I am against private banking per se but consider a properly regulated and managed public banking system with credit-creation capacities would be entirely reliable and would advance public purpose. I also consider a tightly regulated private banking system with credit-creation capacities would also still be workable but less desirable.
There was a story in the Australian press (April 8, 2015) – ‘Impossible choices’ to be made as human cost of foreign aid squeeze measured – that not only exposes the deep flaws in economic reasoning that accompany neo-liberalism’s emphasis on austerity but also makes one ashamed to be Australian. The problem, however, is not Australian-specific. The neo-liberal paradigm rules the World at present and humanity generally is the victim, particularly those most disadvantaged in material terms. The cuts announced by the Australia federal government to our Overseas Aid Program in the next three years will be the largest shift in provision of aid in our history. The projected cuts are now starting to manifest in concrete terms as aid agencies start to cancel programs and lay off staff. Once again the myths of neo-liberal macroeconomics leads us to accept governments doing appalling things in our name.
Its the Friday lay day blog – and we will be brief today. There was a proposal aired in the ABC’s The Drum series (March 26, 2015) by an ABC finance journalist suggesting that – Maybe we need to subcontract the budget process. My response was “why don’t we just subcontract out democracy to a dictator and be done with it”!
The ABC – Four Corners – program tonight will highlight the corruption and inefficiency within Australia’s privatised labour market services sector. The program – The Jobs Game – will screen at 20:30 Eastern Standard Time. I participate in the program although the extent of that participation is at the time of writing not known. I did about 2 hours of filming for it in December. Unfortunately, the ABC geo-blocks its iView service which allows Australians to watch past programs via the Internet. If the program is available via YouTube I will post a link. The flavour of the program is summarised in this promotion piece published by the ABC News service today (February 23, 2015) – Government recovers over $41 million worth of false claims after ‘rorting’ of Job Services Australia scheme. The Guardian newspaper will also publish an article based on this blog for tomorrow’s edition (sometime during the day). So the issue is getting out there finally after successive Governments have been trying to hide the issues. After all, its ideological baby is terminally ill and they don’t want to admit that.
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.
Switzerland – homeof the secret bank vaults, which house treasures stolen from people (particularly the Jewish victims) by the Nazis during WW2 and ill-gotten cash by capitalists who wish to evade scrutiny of prudential and tax authorities of their domiciled nations. Now it is the canary, which has just sung to tell us that all the hubris about Eurozone recovery cannot cover up the reality that the crisis is not yet over and requires root and branch reform to the policy ideology that exposes the floored design of the monetary union. The – Decision – last week (January 15, 2015) by the Swiss National Bank (SNB) to both break the peg of the Swiss franc to the euro and cut its interest rate on sight deposits to -0.75 per cent signals the surrender by that nation to the reality surrounding its borders. The interest rate decision was required after it decided to scrap the exchange rate peg, given that it didn’t want a credit crunch killing the domestic economy. The appreciation of the exchange rate, which has been held artificially low by the peg, will already undermine domestic spending. The SNB said its decision as reversing its previous “exceptional and temporary measure”, which “protected the Swiss economy from serious harm” as the exchange rate became overvalued. But the decision itself was rather extraordinary given it was seemingly so surprising for most and central bankers are meant to be cautious types.