Italia: troppo grande per fallire, troppo grande per scamparla

Published by Anonymous (not verified) on Mon, 06/08/2018 - 10:41pm in



L’euro ha tolto la possibilità ai Governi nazionali di gestire in modo significativo le loro economie e in Italia, proprio come in Grecia un paio di anni fa, le persone hanno dovuto pagare i veri costi delle erronee e concomitanti politiche di austerità. Durante l’ultimo decennio, il dispiegarsi delle ripetute crisi economiche in Eurolandia ha […]

IMF blames Germany for increased crash risk

Published by Anonymous (not verified) on Mon, 06/08/2018 - 8:56pm in



Der Chefvolkswirt des Internationalen Währungsfonds (IWF), Maurice Obstfeld, weist Deutschland eine Mitverantwortung zu für die Spannungen in der internationalen Handelspolitik. Zudem trage Deutschland dazu bei, dass das Risiko einer neuerlichen Finanzkrise steige. „Alle Länder, auch Deutschland, stehen in der Verantwortung, die globale Finanzstabilität zu schützen“, schreibt Obstfeld in einem Gastbeitrag für WELT. Der renommierte Ökonomieprofessor […]

Labour’s chief economic adviser confirms it is committed to the thinking that will deliver yet more austerity

Published by Anonymous (not verified) on Mon, 06/08/2018 - 6:26pm in


Economics, Labour

I delve into Labour party issues again with some reluctance, but it's important to do so. This time the issue is right on my home territory. It's economics and modern monetary theory. James Meadway, who heads John McDonnell's economics team, wrote this on Carol Wilcox's facebook page in a debate starting at 3.06pm on Saturday:

MMT is just plain old bad economics, unfortunately, and a regression of left economic thinking. An economy “with its own currency” may never “run out of money”: but that money can become entirely worthless.

This was the reply from Howard Reed, who comments on this blog, quite often, and is a great economist:

MMT makes a lot more sense than Mrs Thatcher’s handbag Economics (which is where the mainstream seems to be at, unfortunately). Very important for John McD to get out of that neoliberal mindset. He may well have escaped it already - you’ll know better than me!

Meadway came back saying:

Well, I disagree - in terms of what a genuinely radical and transformative Labour government would need to do on the economy, its prescriptions are close to catastrophic (for all that it has grasped some correct formal insights ahead of neoclassicism). Any country that isn’t the US trying to apply MMT’s prescriptions would find itself in the same position.

Howard then asked:

Why is the US different?

Meadway never replied. Nor did he reply to this series of questions from me, which I posted (I have added paragraph breaks, not in the original):

Interesting James. How do you think money is created? Do you think the government is incapable of creating it? If not, how do you explain QE? And how do you explain the fact that the economy has survived it?

Whilst on the subject, do you think QE should only be for the benefit of bankers?

And what do you think the role of tax is in the economy? Might you explain how tax is paid if government does not create the cash to pay it in the first place?

And might you also explain why aiming for full employment by creating the demand to deliver it is such a bad thing to do?

And, come that that, why full employment on at least living wages would be such a bad thing for the economy that it would destroy confidence in the country and the currency?
Your comment requires responses on all these issues. Where would you like to start?

Maybe I'd have been tempted not to respond if I was James Meadway. He's dug himself a pretty immense hole here, but let me look at why. This is important: Meadway revealed just where Labour economic thinking is right now. Unpacking what he says reveals what he is saying.

First, it is that Labour thinks it has to live in fear of the money markets. And so bankers. And so their supposed ability to manipulate exchange rates.

Second, it shows that Labour is committed to leaving bankers (Carney & Co) in charge of these issues.

Third, it seems that Labour does remain committed to mainstream economic thinking, call it neoclassical or neoliberal if you wish.

Fourth, it thinks that to go back to a belief in full employment and the use of fiscal policy to achieve that and growth is a 'regression in left economic thinking'.

And, fifth, Meadway apparently thinks that achieving the goals of full employment and growth will leave the currency valueless.

I think these are all  entirely fair extrapolations. On the basis of them is also possible to say that Meadway thinks Labour thinks, as Liam Byrne said, that the money can run out, and that it may have actually done so.

And that he thinks banks will be setting the agenda for Labour.

And that austerity will remain in place.

And that all the possibilities of fiscal policy; the power to create money to achieve social goals and (as importantly) to create the means to settle tax to keep inflation under control in that situation should all be ignored.

In other words, and let's not be too unsubtle about this, what Meadway is saying is expect Labour to deliver more Tory economic policy. Howard challenged him on this, and decoding his reply his response was 'markets won't let us do anything else'.

There is no surprise here: the reason why I refused the job of being McDonnell's chief economic adviser in 2015 (Meadway was to be my deputy) was because McDonnell was adamant that he had to sign up to Osborne's fiscal charter that required balanced budgets.  That is still Labour policy, bar borrowing for investment,  but with that borrowing to, however, be financed at market rates, and so be entirely within the goodwill of the banking system as Labour wants to see it. I maintain that in the circumstances I was right to quit:  I could never have lived with such a timid approach towards the economic policy that this country needs for the radical transformation that is required to provide us with the basis for prosperity in the 21st-century. Meadway obviously can, and is delivering what John McDonnell wants in the form of deeply neoliberal, and profoundly conventional thinking. He can't even get his head around the fact that tax plays a fundamental role in MMT.

And if you want to know why I think Labour is not a radical party capable at present of delivering anything like the change this country requires because it is led by people far too right wing, and far too conventional in their thinking to do so, that is it.

The real business

Published by Anonymous (not verified) on Mon, 06/08/2018 - 5:35pm in



It's a good job there is nothing to talk about on the Left right now:

It would be great to get down to the real business.

Rethinking public budget

Published by Anonymous (not verified) on Sun, 05/08/2018 - 10:34pm in



The balanced budget paradox is probably one of the most devastating phenomena haunting our economies. The harder politicians — usually on the advice of establishment economists — try to achieve balanced budgets for the public sector, the less likely they are to succeed in their endeavour. And the more the citizens have to pay for […]

In the sixth largest economy in the world we’re letting local authorities fail and that is wholly unnecessary

Published by Anonymous (not verified) on Sat, 04/08/2018 - 9:28pm in

Northamptonshire was first. East Sussex second. There will be a third, fourth, and maybe many more. Local authorities in England are going bust, unable to meet anything more than their basic legal obligations (and, I very strongly suspect, not even that in due course). In the sixth largest economy in the world we cannot apparently afford decent social care, child protection, bus services or the other vital, and very often unseen, services that local authorities provide. Let alone libraries.

This was foreseeable, of course. When George Oborne decided on austerity he imposed it first of all on those furthest from him, so that his (and his Westminster colleagues)  risk of suffering adverse reaction was minimised. He is a politician of the most cynical variety, after all. And that meant he picked on the most vulnerable.

Those were the weakest in society.

And the poorest communities in the country. The following data comes via Naked Capitalism and Thiemo Fetzer:

And he picked on local authorities, because he could claim that their spending was not his responsibility. In some cases spending has been reduced by 60% as a result.

And somehow it was assumed that there would be no consequence to this. It was, after all, to use the logic of the Taxpayers’ Alliance that Osborne bought hook, line and sinker,  just the local bureaucrat and the ‘scrounger’, who supposedly validated those council officials role in life, who would suffer for this. The rest of society would, supposedly, be liberated from their interference and the burden that they represented.

The protest of those professionals at the front line was ignored.

The warning that those most vulnerable were really suffering was dismissed: they should stop twitching the curtains and get out to work (yes, Osborne, said it).

The vilification knew almost no limits.

And some councillors actually believed it. And they believed that they should outsource to save money. And cut taxes, because they were a ‘burden’. How wrong they were.

It’s taken eight years but the consequences are now glaringly apparent. We have bankrupt local authorities, effectively unable to function any more.

Local democracy in the UK has failed. Just think about that for a moment. The Tories are literally destroying a tier of government.

But that’s the existential crisis. More directly, children will suffer as a result.

And so will the elderly.

And those who need care.

And support.

In fact, almost all those who society should protect, but who Cameron and Osborne thought not worthy of consideration, will now pay the price for their callousness.

And what is the reaction of the government that is imposing this deliberate act of cruelty (no other word will do) on millions? I heard a Minister say this morning that they have increased funding to local authorities this year by £2 billion because of the success of their austerity policies.

I did not swear at the radio. Or cry. Although both could have been justified. I instead struggled to imagine how this person (I did not bother to catch his name and anyway do not wish to make this personal: the whole Tory party is responsible for this) can live with himself. And how he could have had such an empathic bypass that he can talk utter nonsense when the facts scream that what he is saying is not just nonsense, but blatantly wrong.

Whilst Brexit distracts us this country is in a real crisis.

As a democrat I mourn what is happening, and the consequence it will have for local accountability.

But much more importantly it infuriates me that the capacity we have to create money is not being used to solve this crisis. In the world of commerce, and of individual responsibility, we have long learned that although debt forgiveness, by allowing a person (or company)  to go bankrupt is essential if we are to accommodate  the inevitability of failure within society, even if it creates moral hazard,  and yet, apparently, there is no way that we can consider this possible within the realms of government. So the people of Greece have had to suffer for the mistakes of their government,  their bankers,  Goldman Sachs,  German bankers and the European Central Bank. We could, of course,  have waived Greek national debt.  Or it could have been repurchased by the ECB  under its trillion euro plus quantitative easing programme.  But neither was done.  It was thought necessary for the people of Greece to learn a lesson from something that had never been their fault.

And now,  very obviously, this Tory minister and the government that he represents wants to make sure that the people of Northamptonshire, East Sussex, and wherever follows,  will also learn a lesson for which their only fault is voting Tory. But, of course,  many of those who voted Tory will not think that this issue affects them: when (they will think) was the last time their family needed a social worker? They might be surprised:  just wait until someone gets dementia in the family and then you might find out. But in the meantime, just like the Minister,  some will sit back smugly and think this is not an issue of concern to them.

But it is. We live in community. That is inescapable, whatever neoliberals think. And we need, therefore, to act as a community.

So what should happen? The solution is remarkably straightforward. The debt of the councils who are in dire financial straights, in whatever part of the country they are and for whatever reason the issue arose (let's not play party politics here: the crisis is too big for that) need to be allowed to turn that debt into bonds. And those bonds need to be purchased by the government using a special QE programme created for this purpose. The debt still exists of course. It should be interest-free. It should be due for repayment not less than 100 years hence (by when inflation will have eliminated it,  if nothing else has in the meantime). The exercise is wholly costless, unless the debt to be acquired is due to third parties under PFI and other schemes, when arbitration on the fair value of cancellation of the sum owing  should be resorted to (taking into consideration the fact that the councils in question are  effectively bankrupt and can legally default on their debts without recourse to central government guarantee) . These councils failing be put back on their feet;  local democracy can be restored;  services can be reinstated and, most important of all, the vulnerable in our societies can be protected.

And all this can be done by simply using the power that the government has to create money out of thin air, just as it did to save our banking system.

Bankers bonuses were protected by QE.

So, too,  should the young, the elderly, the vulnerable, those in need of local transport, and others who depend on local authority services where mistakes have been made, just as bankers made mistakes before 2008.

The analogy is obvious.

And it is wrong that when those suffering where the wealthy a bailout was possible and when they're the most vulnerable in society that is apparently not possible.

Action on this is essential. And possible. Now. We can demand it. Please do. Forget the risk of moral hazard. Get on with caring about those who are impacted.

And if anyone is to be impacted, make sure it is the councillors who let this happen, all of whom who share the responsibility by having been in the administrations that bankrupted their authorities should be barred from public office for lengthy periods of time.

Four Definitions of Money. All Correct.

Published by Anonymous (not verified) on Sat, 04/08/2018 - 1:59am in



By Steve Roth Money makes the world go round. That may well be true, but money certainly makes the economics world go round. It’s the discipline’s special purview, the numeric linchpin that gives economics its dominant […]

The post Four Definitions of Money. All Correct. appeared first on Evonomics.

Danny Blanchflower and I agree: Mark Carney’s seriously fluffed it this time

Published by Anonymous (not verified) on Fri, 03/08/2018 - 4:14pm in



Danny Blanchflower and I had a fun conversation last night. It’s always good to talk with him, even if most of the time we’re two strongly opinionated economists swapping views separated by the width of a fag paper.

So we agreed there was no reason for a rate rise yesterday.

After which we agreed it must be egos or Brexit that drive it.

And we agreed that the fact that the decision was unanimous was deeply suspicious: groupthink has a dangerous history at the Monetary Policy Committee.

That said, we were unanimous that we’d have proposed a cut in rate to signal to the government that there is a strong need for fiscal intervention by them and that the Bank is out of firepower to deal with the issues we face.

So what is the biggest issue? We discussed this, of course. Growth at 1.5% and that the Bank now thinks that’s overheating could be one such issue. When the economy is in need of the sort of transformation that only serious investment (and so, of course, continuing low interest rates) can bring them to have the poverty of aspiration that the Bank has displayed is dire.

But worse is their view on wage inflation. This is where Danny is the real expert. I doff my hat. So should Mark Carney. Danny, and his colleague David Bell, have a new paper out on why despite the fact that the world’s economies are supposedly at full employment we are not seeing the inflation that the so-called Phillips Curve predicts we should be suffering.

Danny’s explanation (if I can summarise it) comes in just two tables. The first is this:

To not be too unsubtle about it, the Bank’s ability to forecast on this issue is dire, as Danny and his colleague have shown. They persistently overshoot in their forecasts, and appear not to have learned any lessons from doing so. I entirely agree with Danny that this is happening now.

Danny and I also agree on the fact that the Bank is just wrong to maintain that we are near full employment. Both of us have done work on self-employment and the disguise it provides for under-employment in our time. I have no doubt this is happening now. In the same paper I have already noted Danny and David Bell look at the issue of underemployment being disguised by involuntary part-time employment i.e. those recorded as being in employment but who would wish for more hours than they are currently able to work, usually shifting them from part time to full-time work. This is a critical issue. And it is widely prevalent, as this (the second) table shows:

The implication is obvious: we are not at full employment, or in our mutual opinion, anywhere near it.

But that brought us to another theme, where again I bow to Danny’s expertise. This is the so-called NAIRU - that is the non-accelerating inflation rate of unemployment. It’s not that long ago that the bank thought this was 8%. Then it was 7%, then 5%. Now it’s about 4.5% on their opinion. But why? As Danny explained, when researching a new book out next year from Princeton entitled ‘Not working: where have all the good jobs gone?’ he looked at NAIRU since 1945. He says as a result that it’s quite fair to argue that from 1947 to 1958 it was 1.5%. Of course the world has changed since 1958 (excepting the fact that’s when I arrived in it). And the profile of employment has changed radically too. But why has NAIRU changed? Or has it? Could it be argued that it is now no more than 2.5%? I think that plausible. And, we agreed that NAIRU should be measured when those in employment have the hours they want and are being paid persistently, at a living wage rate (at least). If that’s the case then for the Bank to claim we are at full employment now is as likely to be as wrong as their wage inflation forecast, on which we can place a near certain probability of overstatement.

To summarise, if Danny and I are right, and as I said, it was hard to find a point of disagreement between us, then the Bank of England are massively wrong in their forecasts on employment and wage rate increases. They are also wrong on growth, because they are presuming there is no capacity for it when that is just untrue. So what chance their inflation forecast is right? Near en0ugh none at all, if external factors are excluded from consideration.

But in that case what they have done is send out profoundly worrying messages. I mentioned some of these yesterday, but I will reiterate them.

First, they are sending out a message that they are out of control: they are issuing forecasts that do not accord with observable facts.

Second, they are making decisions on the basis of those observably incorrect facts that appears to be inappropriate as a result.

Third, that then undermines the credibility of a so-called independent central bank. It is well known that I have little belief in this idea in any event. But when they actually can’t do their job properly any vestige of worth disappears.

Fourth, you have to then wonder what they are really doing (especially with 9-0 decisions for an idea as far off-beam as this one) and that fuels conspiracy theories. We could really do without more of them.

Fifth, whatever claims are left for monetary policy are shredded, but when fiscal policy is not (as yet) getting a look in that leaves it appearing that no one has a clue how to manage the economy. We are out of control.

And, sixth, as an economy boost before the inevitably of a poor Brexit (on which, at least, Carney was appropriately clear) this is a complete failure.

Worry. I reiterate that advice.

And look forward to Danny’s book.

We have agreed we should talk more often: it’s always fun, even if self-confirming. But I strongly suspect we’re right this time. And it’s good to be so in good company.

The only reason for the Bank of England’s interest rate move is bankers’ vanity

Published by Anonymous (not verified) on Thu, 02/08/2018 - 9:53pm in



The job of the Bank of England is to keep inflation on target at 2%. In their inflation report they admit:

The prices of the things you buy have been going up by more than our 2% target on average over the past year.

That’s been mainly due to the big fall in the pound following the Brexit vote.

The lower pound has meant that things businesses get from abroad cost more. Businesses have been passing those rising costs on to their customers. So that has meant higher prices in the shops. Most of the increase in prices due to the fall in the pound has now happened though.

The price of oil on world markets has also risen over the past year, pushing up prices for petrol at the pumps. Because of that, we think inflation picked up a bit in July.

But unless oil prices keep on rising, inflation should continue to fall back towards our 2% target.

And they evidence this with a chart:

In other words, there is no reason for an inflation rate rise. And as external cost pressures are falling (as they admit) this is unlikely to change.

And as Mark Carney is saying, as I write, investment growth is subdued; Brexit uncertainty remains; consumption growth is modest and below trend. And wage growth is hardly significant, and right now remains below inflation, although he suggests he expects otherwise.

So what is the reason for the interest rate rise? There is none, bar pride motivated by the fact that there has been no real rise since 2008. The charts supplied by the Bank show this. This is on growth:

They use this image:

Growth is simply not on the cards, in other words, in their opinion. The claim that the economy is going to overheat is, then, just wrong, unless it is assumed that the sluggish economy we now have is as good as we are ever going to get. Maybe that is the Bank's assumption. If an advert for the fact that neoclassical economics has failed then this is it, in its own terms. But however looked at, this is not the cause for an interest rate increase.

So move on to wages. The Bank is clearly very worried about this. They say we are at full employment:

The share of people out of work is at its lowest level for more than 40 years. And there are a lot of job vacancies. This means that companies need to compete hard with each other to recruit and retain workers. One way they do that is by offering higher pay.

The pressure in the jobs market means we're expecting to see bigger, more widespread pay rises in coming years.  That greater spending power should support growth in the economy.

They support it with a chart:

The only possible explanation for this is that they think so few people will be coming into the UK over the next few years that the supposed Brexit bonus for UK based employees must be killed off at birth by strangling the effect of pay rises that those who cannot make ends meet, and so are borrowing at record levels, might enjoy. You could not make it up.

You could not also make up the fact that the Bank clearly thinks the current type of low paid, insecure employment that so many are suffering will be an ongoing fact of life. That's deeply depressing.

But let me be candid: they don't really believe this. If they did they would not say that they think there might be scope for another three interest rate rises of 0.25% over the next three years, which is the most modest version of them 'taking back control' that they could possibly conceive of if the policy of central bank control of the economy is to retain any credibility at all.

So my suggestion is that this rise has nothing at all to do with economic facts. It has everything to do with bankers' egos. And we have seen the consequences of them running out of control before.


That is, yet again, my best advice.


The Bank of England’s interest rate rise is the surest sign that they are out of control

Published by Anonymous (not verified) on Thu, 02/08/2018 - 9:12pm in



As I have just tweeted in response to the Bank of England's decision to raise interest rates to 0.75%, announced minutes ago:

It takes some considerable stupidity to see a crisis coming and decide to make it worse. But that’s exactly what the Bank of England has just done by raising interest rates to 0.75%. The motto seems to be ‘if we’re going to make a mess of things let’s make it a really good mess’

As I said on Monday, when I suggested that the only reason the Bank might do this was to stop losing face for not doing so:

Pride comes before a fall. Raising rates now will help precipitate a fall. 'Normalisation' [of interest rates] is no more than belief in a dogma that glaringly obviously failed at enormous cost to the world in 2008. But Threadneedle Street has its pride, and we will all pay for it.

To support my argument let’s look at fundamentals.

Real wages are falling, again.

The savings ratio is at an all-time low as households are under threat of being unable to make ends meet.

Growth is modest and is not reflected in consumer spending.

The labour market is not tightening.

There is no sign of wage pressure.

Brexit is reducing investment rates. And it is also creating situations of massive economic unease: no one needs to dampen exuberance when there is talk of troops on the street to ensure the maintenance of basic econipimic functions.

All of these suggest there is no reason for a rise now.

In fact the only economic indicator that suggests an interest rate rise is appropriate is the falling value of the pound, but it is declining as rapidly as the UK’s trade prospects are. No interest rate rise will overcome Liam Fox’s failings.

There is, then, no reason to increase rates this week. The most sensible move would be a cut in rates.

I stick by that. This is a mistake. I won't say it's a mistake of epic proportions: 0.25% interest rate changes cannot be so described. But the symbolic suggestion that the Bank thinks either a) the economy is strengthening when it so glaringly obviously isn't, or that b) rates need to rise so that they can be cut when things really go wrong next year, when candidly that will in the face of the Brexit onslaught make no difference to our well being, are signs of desperation in either case. And that's not what we need to indicate that a) the Bank is in control b) central bank independence is a good idea or c) anyone in charge has any real idea what they are going to do next year.


That's the best advice I can give.