Indexed bank reserve support schemes will not expand credit

On the Wikipedia page for economist Ricardo Reis we learn he was “Influenced by: Greg Mankiw”, which basically should tell you everything. Everything that is that would lead to the conclusion that his macroeconomics is plain wrong. Yet his connections in the profession are strong and has prestigious academic appointments, is ensconced in senior editorial positions on influential economics journals, advises central banks in the US and has regular Op Ed space in a leading Portuguese newspaper (his home nation). These facts tell you what is wrong with my profession. That someone can write articles that are just so off the mark yet have significant influence in the profession and be held out in the public debate as to be someone who is worth listening to and being reported on. I have received many E-mails in the last few days about the proposal offered by Reis at Jackson Hole last week. Many readers are still confused and actually thought the proposal had credibility. Let me be clear – bank lending is not influenced by the reserve positions of the banks. Without credit-worthy borrowers lining up to access loans, the banks could have all the reserves in the world and the central bank could invoke any number of nifty ‘indexing’ or other support payment schemes on those reserves, and the banks would still not lend. And with those credit-worthy borrowers lining up to access loans, the banks will always lend irrespective of their current reserve position or the nifty support schemes the central bank might dream up. Core Modern Monetary Theory (MMT) 101!
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    Posted in Central banking, Debriefing 101 | 9 Comments

    Australia’s race to the bottom to part-time jobs with low-pay

    To coincide with the US Bureau of Labor Statistics release of the May 2016 Employment Situation I updated my analysis on the pay characteristics of the net job creation in the US labour market – see Bias toward low-wage job creation in the US continues. The overwhelming finding was that the jobs lost in low-pay sectors in the downturn have more than been offset by jobs added in these sectors in the upturn. However, the massive number of jobs lost in above-average paying sectors have not yet been recovered in the upturn and do not look like being so, given the labour market is slowing again. In other words there is a bias in employment generation towards sectors that on average pay below average weekly earnings. In the last 12 months, 86 per cent of the net jobs added in the Australian labour market have been part-time and underemployment has risen, suggesting a rise in casual work as well. Further analysis in this blog reveals that this accelerated trend towards part-time employment creation has been accompanied by a disproportionate shift towards low-pay employment (and below-average employment in general). The shifts over the last 6 months, in particular, towards below-average employment has been alarming. So come on down to Australia as our politicians take us on a race to the bottom in the part-time nation with low-pay, that barely grows at all. We are a very stupid nation supporting the policy structures that deliver this poverty of outcomes.
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      Posted in Labour Force, US economy | 5 Comments

      Australian Treasurer embarrasses himself

      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.
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        Posted in Economics | 24 Comments

        The Weekend Quiz – August 27-28, 2016 – answers and discussion

        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.
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          Posted in Saturday quiz | 3 Comments

          The Weekend Quiz – August 27-28, 2016

          Welcome to The Weekend Quiz, which used to be known as the Saturday Quiz! The quiz tests whether you have been paying attention or not to the blogs I post. See how you go with the following questions. Your results are only known to you and no records are retained.
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            Modern Monetary Theory – what is new about it? – Part 3 (long)

            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.
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              Posted in Central banking, Debriefing 101 | 10 Comments

              Mayday! Mayday! The skies were meant to fall in … what happened?

              The British Office for National Statistics, which although recently revamped continues to have the most user-unfriendly home page and dissemination service of all the national statistical agencies, published the latest – Retail Sales in Great Britain: July 2016 – data last week (August 18, 2016). It looked good to me. In the past week or so there has been a stream of data coming out of Britain or about Britain, which also looks good to me. What the hell is going on? The skies over Britain were meant to have fallen in by now. Unemployment was meant to be going through the roof or was the roof meant to collapse first. All manner of despair was meant to be visiting the shores of Britain after the June 23 vote to get out of the dysfunctional European Union. The reality is that things are looking okay there. Skies are intact and quite blue I believe which has boosted the confidence of British consumers. Tourism is booming. Unemployment is falling or at least those claiming unemployment benefits. One investment bank put out a briefing last month with a Mayday! Mayday! warning that unemployment was about to rise dramatically. Who has been sacked for that piece of public misinformation. George Osborne, remember him, said in mid-June that British public finances were about to collapse and an immediate, emergency fiscal response would be needed. Days have passed – things are looking ok. Eurozone nations should take note! Ignore the neo-liberal scare mongering. Follow Britain’s lead in abandoning the ridiculous notion that there is something special about ‘Europe’. Eurozone nations should get out of the currency union as soon as possible.

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                Posted in Britain, Eurozone, UK Economy | 15 Comments

                Modern Monetary Theory – what is new about it? – Part 2 (long)

                In yesterday’s Part 1 of this two-part blog – Modern Monetary Theory – what is new about it? – I introduced the idea that a major new contribution of Modern Monetary Theory (MMT) to economic theory was in its treatment of inflation and the Phillips curve. This is part of a keynote presentation I will be giving at the International Post Keynesian Conference – which will be held at the University of Missouri – Kansas City between September 15-18, 2016. The keynote presentation is scheduled for Friday, September 16 at 17:00. The topic of my keynote presentation will ‘What is new about MMT?’ and will challenge several critics from both the neo-liberal mainstream and from within the Post Keynesian family that, indeed, there is nothing new about MMT – they knew it all along! I contest that when they say this they are lying and doing so to cover up the inadequacies of their own failed analytical frameworks whether they be mainstream or Post Keynesian.
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                  Posted in Debriefing 101, Economics | 17 Comments

                  Modern Monetary Theory – what is new about it?

                  In a few weeks I am off to the US to present a keynote talk at the – International Post Keynesian Conference – which will be held at the University of Missouri – Kansas City between September 15-18, 2016. I will also be giving some additional talks in Kansas City during that week if you are around and interested. The keynote presentation is scheduled for Friday, September 16 at 17:00. The topic of my keynote presentation will ‘What is new about MMT?’ and will challenge several critics from both the neo-liberal mainstream and from within the Post Keynesian family that, indeed, there is nothing new about MMT – they knew it all along! Well the truth of it is that these characters clearly didn’t previously know or understand a lot of key insights that MMT now offers. No matter how hard they try to reinvent what they knew, the facts are obvious. MMT makes some novel contributions to our knowledge base and shows why a lot of so-called mainstream macroeconomic theory that parades as ‘knowledge’ is, in fact, non-knowledge. This blog and the second-part will provide some notes on the paper I am writing (with my colleague Martin Watts) on this topic.

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                    Posted in Debriefing 101, Economics | 34 Comments

                    The Weekend Quiz – August 20-21, 2016 – answers and discussion

                    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.
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                      Posted in Saturday quiz | 1 Comment