Ah Sunday. I don’t go to my office at the University. I ride lots of kms on my bike. I mix working at home on my research with digging in my food production system (garden). And … if I am stupid, I read the financial press and study the data trends. At that point, any sun that is around becomes a dark cloud and I sink into a malaise and wonder why modern monetary theory (MMT) ….
Some readers have asked me to comment on the economic policy of The Australian Greens and how it sits with the other major political parties. I base this assessment on what appears to be the policy statement which was current as at November 2008. There is not a single reference to employment, unemployment or full employment as key economic goals. Moreover, there is as much neo-liberal macroeconomics in the document as you would find in the papers espousing the approach of the main parties. And worse still … if The Greens actually tried to implement some of their macroeconomics principles then they would undermine most of their other major policy goals. So there is no joy to be found in this place for a progressive who understands how the modern monetary system operates.
It’s Wednesday and we have discussion on a few topics today. The first relates to the new agreement between the European Parliament and the European Council that was announced on February 10, 2024, which purports to reform the fiscal rules structure that has crippled the Member States of the EMU since inception. The reality is that the changes are minimal and actually will make matters worse. I keep reading progressives who claim the EU fiscal rules are no longer operative. Well, sorry, they are and the temporary respite during the pandemic is now over and the new agreement makes that very clear. I also express disappointment that high profile progressives continue to misrepresent Modern Monetary Theory (MMT) as they advance their own agenda, which effectively provides support to the sound finance narratives. Then some updated health data which continues to support my perspective on Covid. And then some anti-fascist music. What’s not to like.
As part of a another current project, which I will have more to say about soon, I was trawling through early Internet archives of the Post Keynesian Thought (PKT) listserv archives and was reminded that I began my degrowth journey many years ago. Going back in time and coming across things that one has written is an interesting experience. In this case, I reflected on my changing narrative style, my naivety in places, and the continuity of my thinking over the course of my academic career. The following discussion is the product of my archival research for another project of the Post Keynesian Thought (PKT) discussion list archives. It has been an interesting exercise and brought back interactions, personalities and the like that I have forgotten about. Many on that list have since died (sadly). But what is established is that 30 or more years ago there was widespread resistance still within the progressive economics community to the idea that the destruction of the planet would require major systemic change. This resistance bears on the debates now between the dominant ‘green growth’ group who think capitalism aided by global financial capital can achieve the changes necessary to meet the climate challenge and the degrowth camp who want fundamental system and behavioural change. My writings in 1995 placed me firmly in the latter cohort.
It’s Wednesday and I have looked at the US CPI release overnight that has set alarm bells off in the ‘financial markets’ and among mainstream economists. My assessment is that there is nothing much to see – annual inflation less volatile items is still falling and the lagged impact of shelter (housing) is still evident even though that component is also in decline. I also examine an argument that the trend towards increasing self-reliance among nations is likely to precipitate renewed global conflict. My own view of this trend is that it must accelerate to allow us to shift to a degrowth trajectory. And I finish with some fine concertina music.
On November 27, 2023, the Economic Affairs Committee of the British House of Lords completed their inquiry into the question – Bank of England: how is independence working? – by releasing their 1st Report after taking evidence for several months – Making an independent Bank of England work better. The report is interesting because it contains a confusing array of contrary notions. On the one hand, the witnesses to the Inquiry claimed it was “Groupthink” in operation that prevented the Bank from raising rates earlier and that it was obvious the inflationary pressures were traditional excess spending driven by excessive monetary supply growth (classic Monetarism). That assessment is contested by the alternative, which I adhere to, that the inflationary pressures were supply driven and not amenable to interest rate shifts. And the Groupthink arises because these economists consider interest rate changes would solve the inflation irrespective of the contributing factors. While the Report is sympathetic to the mainstream view as above, it then launches into a critique of the mainstream forecasting approaches. A confusing array of notions.
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.
So last week, the Bank of Japan remained the last bank standing, the rest in the advanced world have largely lost the plot by thinking that raising interest rates significantly will reduce the global inflationary pressures that are being driven by on-going supply disruptions arising from the pandemic, the noncompetitive behaviour of the OPEC oil cartel and the Russian assault on Ukraine. The most recent central bank to buckle is the ECB, which last week raised interest rates by 50 basis point, apparently to fight inflation. But the ECB did it with a twist. On the one hand, the rate hike was very mainstream and based on the same defective reasoning that engulfs mainstream macroeconomics. But on the other hand, they introduced a new version of their government bond-buying programs, which the mainstream would call ‘money printing’ and inflationary. So, contradiction reigns supreme in the Eurozone and that is because of the dysfunctional monetary architecture that the neoliberals put in place in the 1990s. The only way the common currency can survive is if the ECB continues to fund Member State deficits, even if they play the charade that they are doing something different. Hilarious.
A few years ago, various policy makers, but mostly central bankers were keen to disabuse anyone of the notion that they were ‘doing’ Modern Monetary Theory (MMT). Some were aggressive in denial, such as US Federal Reserve boss Jerome Powell, who on February 26, 2019 announced to the US Senate Banking Committee that MMT was ‘just wrong’. There was a general pile on from other central bankers and commentators. No way, they were doing MMT. Okay, they were right, one doesn’t ‘do’ MMT, given it is an analytical framework (see below). But, curiously, now, the commentators are falling over themselves claiming that MMT is dead in the water given that it has been tried over the course of the pandemic to date and failed because inflation is out of control. Hilarious really. But what is interesting is Japan (as always). And I wonder whether any of these MMT critics now have considered why the Bank of Japan has not followed the lead of the other central banks that are rushing to exacerbate the temporary inflation spike by deliberately creating unemployment. It seems that there are different paths that policy makers can take within a capitalist monetary economy. They can allow corporations to profit gouge at the expense of the workers and then turn on the workers (creating unemployment) or they oversee a system where all parties (workers and corporations) take real income hits as a result of imported price pressures and wait it out. Japan is in the second category to its credit.
Neoliberal governments and their supporters have a habit of spruiking gee whiz solutions to the world’s problems, where gee whiz means make it easier for corporations to make profits and harder for workers to get pay rises, claiming that the destiny of individuals is in their own hands (denying systemic failures), and reducing regulations that ensure equity is enhanced. Australia added another dimension to that list (which is not exhaustive) – being mean spirited when it comes to the less well-off nations in the world. The problem with this approach is that it does not live up to promise – it certainly enriches those who are already well-off – but when the rest of us realise something is wrong, the horse has already bolted and picking up the pieces becomes more ‘costly’ than before. In the last few weeks, our government has been bellowing again about China. China is a threat, China is a crook, China is this, China is that. The trigger point this time is the revelation that China’s external strategy has come to the Solomon Islands and the anti-China paranoid gang within the Australian government has a problem. The Solomon Islands are less than 1,700 kms from our mainland and the fear that China will establish a military base there is sending shivers up the spines (euphemism) of our conservative government. Perhaps if we had have been more generous to this region, the Chinese would not have so easily been able to invest there.
It is hard work being an economist. Especially when about 90 per cent of what one reads each day is fiction masquerading as truth. That wouldn’t be so bad because fiction is good when it is in the right place. But in this context, the fiction that comes out from economists and their lackeys in the financial media causes massive damage to innocent citizens who lose their jobs, have their pay aspirations stifled, enter poverty, lose their homes and commit suicide out of sheer hopelessness with the situations that are forced upon them. When you dig into some of the media coverage you realise that it is really just a self-serving promotion for speculators in financial and share markets and has very little foundation in a deeper understanding of economics. This so-called Op Ed piece in The Age (March 14, 2022) – No-win situation: The Fed is paying the price for dragging its feet – is representative of the nonsense that parades as economic commentary. It reflects a sad state of affairs.
Some years ago, I did some work for the Asian Development Bank on Pakistan and Central Asia. It was a really interesting experience because it taught me a lot about the challenges facing poorer regions who have dependencies on imported energy and food and limited export opportunities. Since then I have been studying a number of countries and am convinced that development strategies have to fundamentally change if the poorer nations are to achieve any hope of sustainable development. At present, I am working on the development of such a framework, which will incorporate the best-practices proposed by scholars who similarly reject the traditional IMF/World Bank development model. Specifically, I am focusing on Timor-Leste, which is about to stage a presidential election (March 19, 2022). Xanana Gusmão’s party – National Congress for Timorese Reconstruction (CNRT) – has backed former president Jose Ramos-Horta against the incumbent Fretilin President, Francisco Guterres and the third candidate Martinho Gusmão (United Party for Development and Democracy – PUDD). It appears that if Jose Ramos-Horta is elected, there will be a dissolution of parliament and early elections will be held after a period of political turbulence following the 2017 election. Early indications are that Ramos-Horta is well placed after the conduct of Guterres in recent years. The new government must consider a new development strategy and so I am working to provide some structure to that goal from a Modern Monetary Theory (MMT) perspective.
I learned long ago that when you consult a surgeon the recommendation will be surgery. After about 10 or more knee operations (both legs) as a result of sporting injuries, and, then some, to undo the damage done by previous surgery, I ran into a physiotherapist who had a different take on things. He showed me ways the body can respond to different treatments and retain the capacity for high-level training and performance even with existing damage. I still run a lot and his advice was worth a lot. The point is to watch out for one-trick ponies. The analogy is not quite correct because sometimes surgeons get it right. I don’t think the same can be said for a mainstream economist, who are also one-trick ponies. If you ask a mainstream economist what to do about macroeconomic policy they recommend hiking interest rates and cutting fiscal stimulus if the CPI starts to head north, irrespective of circumstances. But the message is getting blurred by realities, especially since the GFC. More pragmatic policy makers realise that just responding in the textbook manner hasn’t provided a sustainable basis for nations to follow. In the last week, we have seen the contradiction between the one-trick ponies, who are desperate to get back into their textbook comfort zone, and those who see the data more clearly. In Britain, one part of the Bank of England, the Financial Policy Committee has indicated the way forward is going to require careful policy support for businesses because many SMEs have loaded up on debt during the pandemic and face a precarious future. In the same week, a private sector bank economist, who is also an external member of the Bank of England’s Monetary Policy Committee, called for interest rate hikes and a deeper withdrawal of fiscal support (and central bank coordination of that support) to deal with, an as yet, unclear inflation threat.
Last Saturday, September 11, we observed the anniversary of a terrible terrorist act, inflicted on a free people with a democratically-elected government by multinational conspiratorial forces. The terrorist attack happened on a Tuesday. It resulted in the death of thousands of innocent people and the offenders have never been brought to justice. We should etch that day – Tuesday, September 11, 1973 – in our consciences, especially if you are an American, British or Australian citizen, given the culpability of our respective governments in that despicable coup d’etat. Today, a bit of a different blog post as I remember this historical event and the way it undermined progressive thought for years. The type of economic policies introduced by Pinochet on advice from the ‘Chicago Boys’ became the standard approach for even the traditional social democratic parties in the 1980s and beyond. We still haven’t abandoned the macroeconomic ideology that accompanies this approach. And Chile, 1973, was the live laboratory. Yes, the Blairites and the Delors-types and the American Democrats, etc don’t chuck inconvenient people out of planes in the ocean to get rid of them like Pinochet did on a daily basis, but the macroeconomics invoked is not that different.
Last week, the Reserve Bank of Australia governor, Philip Lowe, confirmed that the claim that the central bank is independent of the political process is a pretense. The Governor was adopting a political role and made several statements that cannot be analytically supported nor supported by the evidence available over many decades. He is insistent on disabusing the public debate of any positive discussion about Modern Monetary Theory (MMT), which, of course, I find interesting in itself. More and more people are starting to understanding the basics of MMT and are realising that that understanding opens up a whole new policy debate, that is largely shut down by the mainstream fictions about the capacities of the currency-issuing government and the consequences of different policy choices. People are realising that with more than 2.4 million Australian workers currently without enough work (more than a million officially unemployed) that the Australian government is lagging behind in its fiscal response. They are further realising that the government is behaving conservatively because it still thinks it can get back to surplus before long and so doesn’t want to ‘borrow’ too much (whatever that means). An MMT understanding tells us that the government can create as many jobs as are necessary to achieve full employment and the central bank can just facilitate the fiscal spending without the need for government to borrow at all. They are asking questions daily now: why isn’t the RBA helping in this way. The denial from the RBA politicians (the Governor, for example) are pathetic to say the least.
I have been commissioned to write the Introduction (Preface) to the upcoming book – The Last Colonial Currency: A History of the CFA Franc – by Fanny Pigeaud and Ndongo Samba Sylla, which is an English version of the original 2018 book, L’arme invisible de la Françafrique. It will soon be published by Pluto Press (UK) – as soon as I finish this introduction. The book is incredibly important because it shows the role that currency arrangements play in perpetuating colonial oppression and supporting the extractive mechanisms that the wealthy have used for centuries to further their ambitions. It also resonates with more recent neoliberal trends where these extractive mechanisms, formerly between the colonialist (metropolis) and the occupied peripheral or satellite nation, have morphed into intra-national urban-regional divides. I am very appreciative for the chance to write this introduction for these great authors. This is Part 2 of a three part series, which I will edit down to my preface for the book.
It is Wednesday and I have only a short blog post today as I have had a lot of commitments that stop me from writing. But I did read a recent Australian Treasury paper – Wage Growth in Australia: Lessons from Longitudinal Microdata (July 2019) – which purports to model the reasons why there is wage stagnation in Australia. The results were presented at the Australian Economists Conference earlier this week and set off a storm because it appeared, at first blush, to blame workers lassitude and excessive risk averse attitudes for the lack of wages growth. I read it slightly differently. It tells me that, first, the Treasury is reluctant to acknowledge the legislative attacks on unions’ capacities to gain wage increases that have been characteristic of the neoliberal era; and, second, that the unions might take the message as a call to arms – take the employers on more often through costly industrial action within the tight legal environment that is left to them.
My Wednesday blog post is designed to give me some more writing space. But in the last week, Syriza has lost the Greek election (about time) and the British Labour Party confirms it is more interested in satisfying the demands of the urban (London) middle classes and big business than keeping faith with its regional working class support base. That is a lot to consider. Tomorrow, I consider the Greek election. Today, I comment a little on the state of Brexit in the UK and the Labour Party surrender. And then I offer some great music (for those with similar tastes).
I am in transit for most of today on my way to Scotland for the first of the presentations in my current speaking tour. You can find details of all the activity during this tour on my – Events page. The blog will resurface on Thursday. But don’t despair – overleaf is a movie, some audio and some great guitar playing to while away the hours. Or there are plenty of past blog posts to re-read and think about.
It is Wednesday and only a short blog post. I am also ailing with the flu and my head hurts. As I noted in Monday’s blog post – The conservative polity is fracturing – an opportunity for the Left (August 27, 2108) – Australia now has a new prime minister, the former Treasurer. His elevation has been celebrated as a victory for the ‘moderates’, given that his main contender, the guy who attempted the coup in the first place and succeeded in getting rid of the incumbent PM, was rather obviously extreme right in his views. Some are saying we have been saved by the fact that he didn’t succeed. But to call the new PM ‘moderate’ is to lose all sense of meaning to our language. He is a dangerous neoliberal ideologue who has inflicted untold pain on many people as he has made his way to the top.