Economy

The Real State of the Union

Published by Anonymous (not verified) on Thu, 06/02/2020 - 4:18am in

I wasn’t going to comment on Trump’s lie-filled State of the Union message but the...

Behind the Latest CBO Numbers: Four Reasons Why We Shouldn’t Fear the Deficit

Published by Anonymous (not verified) on Sat, 01/02/2020 - 7:07am in

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The latest CBO forecasts show lower interest rates, a lower debt-GDP ratio, and no crowd-out: a reminder to check economic assumptions and a recipe for increased public spending. 

Earlier this week, the Congressional Budget Office (CBO) released its Budget and Economic Outlook for the next decade. The numbers that have gotten the most attention are the budget toplines: The federal budget deficit is projected to reach $1.02 trillion in 2020, with total federal debt surpassing $31 trillion. At a time when many people are looking for government to do more, these daunting numbers are already being seized on by deficit hawks to argue that it needs to do less. A closer look at the numbers, however, suggests that deficit fears are overblown.

1. Interest rates have been lower than anticipated, and the CBO has once again lowered its forecast for future rates.

The CBO made a major reduction in its interest rate forecasts last August, implicitly acknowledging that they were wrong to expect interest rates to quickly return to “normal.” But that adjustment was still too conservative: Interest on the federal debt in 2019 turned out to be well below what the CBO was projecting last August. In this latest report, they have revised their interest rate forecasts downward again, projecting $364 billion lower interest spending over 2020–2029 than they did in August. (For comparison, this would cover about 80 percent of the cost of making all public colleges free.) After repeatedly, and wrongly, predicting that interest rates would soon rise back to “normal” levels, the CBO seems to have learned its lesson and is now projecting only a modest and gradual rise in interest rates—less than one percentage point over the next decade. Unfounded fears of future interest rate increases are not a sound basis for policy choices today.

2. With lower interest rates, the costs of public borrowing continue to plunge. 

Because interest rates are so low, federal debt-servicing costs are also low, despite the high levels of debt. The notion that today’s high federal debt creates an exceptional burden for government or taxpayers is almost the opposite of the truth. Thanks to low interest rates, we are spending less on debt service today than at almost any time in recent decades. As the figure above shows, the share of federal spending going to interest payments is barely half what it was in the 1990s. A few years ago, before the Federal Reserve (“the Fed”) started raising rates, interest payments as a share of federal outlays were at their lowest-ever levels since before World War II. Under these conditions, it makes no sense to worry about interest payments crowding out other public spending.

3. There’s been no crowding out; government deficits don’t compete with productive private investment.

Falling interest rates don’t just mean that the debt is less of a burden; they also mean that we need to rethink the whole theory of “crowding out”—the idea that federal borrowing competes with private investment for scarce savings (by making the cost of borrowing higher). In reality, larger deficits haven’t meant higher interest rates, and they haven’t reduced private investment. Of course, even if public spending doesn’t compete with private spending, that doesn’t mean the government should spend money on just anything. It’s still important to be sure that spending is on something socially useful, rather than inequality-exacerbating tax cuts for the rich.

4. Debt forecasts depend on economic assumptions, especially about growth. 

Thanks to faster-than-anticipated GDP growth, the CBO now projects that the federal government will receive nearly $240 billion more in revenue over the next 10 years than they expected in August.  

Why is this relevant? The burden of public debt doesn’t just depend on public spending and revenues; it depends on economic growth. When GDP growth comes in above the forecast, this translates into a smaller debt-GDP ratio (i.e., the denominator in that ratio increases)—a far more important measure than the absolute dollar amount of debt. Faster GDP growth means that any given level of debt is less burdensome. 

Though deficit hawks tend to only focus on cutting spending to lower the debt-GDP ratio, the CBO’s new numbers are a reminder that growth (along with interest rates) often has a bigger effect on the ratio in practice. If spending cuts reduce demand and GDP—as, in today’s environment of sluggish growth, they almost certainly would—then they can actually raise the debt-GDP ratio and be self-defeating even in their own narrow terms.

To be clear, while somewhat faster-than-expected growth over the last six months is good news, it is far from a boom; there is still good reason to think that the US economy is operating well below potential. But to the extent that policymakers are worried about the burden of debt, they would do better to focus on boosting demand and growth rather than cutting spending. 

Opponents of public investment and a generous social safety net are already using this week’s CBO report to argue that reducing government debt should be the top policy priority, whatever the sacrifices we force people to make. But a more careful reading shows that is wrong. However worried we were about government debt six months ago, the latest CBO numbers should make us less worried—and more confident in our ability to spend more on the major challenges facing our nation. 

The post Behind the Latest CBO Numbers: Four Reasons Why We Shouldn’t Fear the Deficit appeared first on Roosevelt Institute.

It’s time to start walking the talk to solve the big issues of our time – from climate change to social inequality.

Published by Anonymous (not verified) on Sun, 26/01/2020 - 2:23am in

Planet Earth on fireImage by Pete Linforth from Pixabay

‘We don’t think a sustainable society needs to be stagnant, boring, uniform or rigid. It need not be, and probably could not be centrally controlled or authoritarian. It could be a world that has the time, the resources, and the will to correct its mistakes, to preserve the fertility of its planetary ecosystems. It could focus on mindfully increasing the quality of life rather than mindlessly expanding material consumption and the physical capital stock.

Donella H Meadows, Jorgen Randers, Dennis Meadows. The Limits to Growth: The 30-year update.

 

This week the usual billionaires, business and political leaders descended into Davos, many in their private planes, for their annual jolly to discuss how to make a ‘better version of globalisation’. The mind boggles.

The theme for this year’s World Economic Forum meeting was ‘Stakeholders for a Sustainable World’ and amongst its delegates were the environmental campaigner Greta Thunberg and the arch climate change denier President Trump.  Whilst the President railed in his speech against ‘prophets of doom’ (in clear reference to Greta), and following previous statements in which he rebutted the scientific consensus about climate change (calling it a hoax), he boasted about America’s huge oil and gas reserves, signalling his determination to continue exploiting them.

After Greta reminded people in her speech that the house was still on fire and called for fossil fuel divestment, Steven Mnuchin, US treasury secretary, rudely and patronisingly told her to ‘go to college and study economics’ and come back when she’d learned a thing or two about economic realities. Whilst Greta’s passion cannot be faulted and despite her youthful naivety, she should not be criticised for challenging once again the paltry action taken so far by the international community and raising once again the urgency for real action. In fact, if anyone needs to go and learn about economics it must be Mnuchin himself. Despite his degree in the subject, he doesn’t seem to have learned much. He is clearly steeped in economic orthodoxy, as he made clear in an interview in Davos when he said that the government could not sustain federal deficits and they would have to cut government spending.

He, like many others around the globe including our own politicians and the current government, are immersed in a discredited narrative which bears no relationship to the real world. Politicians have used the household budget argument to serve an ideological purpose by reducing state intervention, cutting funding for public and social infrastructure, creating the legal frameworks to serve corporate interests rather than those of people or the planet and pouring public money into private profit. At the same time, they have denied that the public purse has the power to create an economy that serves the wellbeing of citizens in an ecologically sustainable and equitable way.

Years of talking shops and global agreements have not really led to the sort of change that is desperately needed if we are to limit warming and protect the land and its natural resources, not to mention its biodiversity – all that we depend upon for our survival.  In the 1970s, experts were already warning about the limits to growth and in a book of the same name Dennis and Donella Meadows posited that if the rates of economic growth, resource use and pollution continued without change, then not far down the line we would face environmental and economic collapse. As the planet continued to warm, we continued to consume – abusing nature and its resources with little thought beyond satisfying our wants and desires. We are now faced with the realities of our short-sightedness.

Not a week seems to go by without yet another disaster.  Floods this week in East Africa after years of drought have caused massive human displacement, loss of food crops and destruction of infrastructure.  And again, this week, scientists were warning that global warming was increasing the risk of wildfires in many parts of the world and, more worryingly, that the Australian bushfires will release ever more carbon dioxide into the atmosphere. Bob Ward, policy director at the Grantham Research Institute on Climate Change at the London School of Economics, said that ‘We are closer than we think to the point of no return’. A stark warning of what we face should we fail to act whilst we still have time.

And yet although there was an outward expression of concern by political and corporate leaders attending the forum, it was noted in an article by the New York Times that despite the ever-increasing risks, few companies and investors provided real detail about how they would transition rapidly away from an economy based on fossil fuels. It also noted that just a fraction of global businesses disclose the financial risks posed by climate change, and even fewer have set their own targets and timetables to do what the science demands.  It is par for the course to note that these so-called commitments are couched in the ‘tangible risks to the bottom line,’ i.e. the monetary risks to their profits, instead of considering the tangible risks to the planet and human and other forms of life which depend on a healthy planet for their existence.  It may be promising to tackle climate change but still has failed to say how or when. It has to go beyond simplistic pledges.

It is ironic in that respect that Mnuchin claimed that the US was showing leadership in confronting climate change but through its private sector rather than government; the realities do not seem to match the expectations. For example, Trump’s record on the environment is scarcely commendable, having repealed many environmental regulations with respect to air and water quality and carbon targets (despite the US already being one of the biggest carbon polluters in the world) and is giving free rein to business to do as it pleases. Only this week, he indicated his intention to scrap protections for America’s streams and wetlands which he says will be a victory for American farmers. Under the new regulations, landowners and property developers will be able to pour pesticides, fertilisers and other pollutants directly into the nation’s waterways.

In the same vein, although Boris Johnson has committed to ‘world-class’ environmental standards, he has already indicated that he sees environmental regulation as red tape which he believes makes the UK a less attractive place for industry. To that end, he has removed worker and environmental protections from the EU withdrawal bill. A presage of things to come?

Where is the political leadership to lead us away from planetary destruction to ensure a future for future generations? For the time being there is none. Corporations indulge in greenwash and politicians continue to serve their interests.  Without action, this is tantamount to signing the planet’s death warrant.

The common cause which pervades government policies across the globe from the US to the UK, Europe and elsewhere is a toxic, destructive globalised economic system.

The last forty years of market-led, ideologically driven government policies have dominated the discourse.  Aside from the devastating consequences on the environment of unchecked growth and exploitation of planetary resources, it has also led to huge disparities in wealth and equity. The consequences are visible everywhere. Public and social infrastructure in decay, increasing poverty, precarious employment and low wages and working people have suffered the consequences around the world.   Oxfam, which published its report ‘Time to Care’ earlier this week said that economic inequality was out of control. It noted that in 2019 the world’s billionaires, only 2,153 people, had more wealth than 4.6 billion people. It focused on the huge divide created by a  flawed and sexist economic system that valued the wealth of the privileged few, mostly men, more than the billions of hours of work carried out by unpaid and underpaid care work primarily done by women and girls around the world.  It challenged governments to build a human economy that is feminist and values what truly matters to society rather than fuelling an endless pursuit of profit and wealth.

When President Trump strips food aid from low-income people and wants to cut entitlement to Medicare and other social programmes whilst giving tax cuts to the rich, US citizens should be asking questions. When our own Conservative government implements a decade long programme of austerity and public spending cuts which have added to the difficulties faced by many working people who daily struggle to heat their homes, put food on the table and clothe their children and who live in decaying communities with increasingly poor public services, UK citizens should be challenging what has become a decades’ long norm of increasing intensity. When EU citizens face the consequences of austerity in increased poverty and inequality and cuts to public services and social security as a result of a dysfunctional currency system it is time to say enough is enough and indeed many already are.

Global citizens should be querying the validity of an economic narrative that places blame on individuals and claims there is no alternative to harsh cuts to public spending whilst they see the rich just keep on getting richer as if somehow their ‘hard work’ entitled them to it.

These actions by a state which is supposed to serve the interests of its citizens are cruel and unnecessary. The lives of the entitled rich versus the lives of the expendable poor. Whether in the US or the UK people are dying for the lie of austerity and people go along with it because they have been convinced by years of propaganda that there was no alternative to fiscal starvation by the state in order to save the public finances.

And worryingly, but not surprisingly, the consequences of this market-led phenomenon in which politicians have ceded power to corporations is no longer confined to working people living on decaying estates in precarious low paid employment. It is now also occurring in middle class families.

An international report ‘Under Pressure: The Squeezed Middle Class’ published by the OECD in 2019 said that middle class families are now seeing their incomes stagnate and are facing growing fears about job insecurity whilst higher income groups have continued to accumulate income and wealth. The report warned of the social consequences if the middle classes were to lose trust in the system; a trust that has already been broken amongst working class people. It noted also that worsening income inequality could threaten trust in democratic institutions and was causing ‘growing discontent’.

Indeed, only this week a report by the University and College Union highlighted the ‘alarming rise of mass casualised labour’ in British universities showing that precarious employment was not just an issue for those working in the gig economy. Chi Onwurah, the Labour MP for Newcastle Central said ‘Reliance on precarious low paid staff has become a business model’.

This forty-year-old system has proved pernicious and serves corporate interests rather than human or planetary interests. Chasing surplus value at whatever cost to serve the global lords of profit.

More than ever, we need solutions to address climate change and increasing social inequality. Bernie Sanders, the US democratic Presidential hopeful commented in response to the report from Oxfam that: ‘….as a result of extreme drought and a rise in sea levels exacerbated by climate change as many as 2.4 billion people throughout the world will be living in areas without enough clean drinking water just five years from today… now more than ever, our job is to bring people around the world together to develop an international movement that takes on the greed of the billionaire class and leads us to a world of economic, social, political and environmental justice’.

Not only do we need to embrace a new paradigm in the shape of a just green transition towards a fairer, more sustainable world, but also to develop effective frameworks for delivering it in terms of resource distribution. We have to ask ourselves difficult questions about what the economic and political priorities will have to be in order to achieve that goal? We need political leadership, not prevarication. We need to challenge the narrative of ‘there is no money’, show that it is never a question of monetary affordability and emphasise the consequences for the planet and our children’s children of not spending the cash.

 

 

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The post It’s time to start walking the talk to solve the big issues of our time – from climate change to social inequality. appeared first on The Gower Initiative for Modern Money Studies.

Our economy is an unstable system, threatening its own survival

Published by Anonymous (not verified) on Wed, 01/01/2020 - 11:33pm in

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Economy

Accumulate, accumulate! That is Moses and the prophets! – Lars Syll

Romanian-U.S economist Nicholas Georgescu-Roegen (from reference)

In the post-war period, it has become increasingly clear that economic growth has not only brought greater prosperity. The other side of growth, in the form of pollution, contamination, the wastage of resources, and climate change, has emerged as being perhaps the greatest challenge of our time.

Against the mainstream theory’s view on the economy as a balanced and harmonious system, where growth and the environment go hand in hand, ecological economists object that it can rather be characterized as an unstable system which at an accelerating pace consumes energy and matter, and thereby pose a threat against the very basis for its survival.

The Romanian-American economist Nicholas Georgescu-Roegen (1906- 1994) argued in The Entropy Law and the Economic Process (1971) that the economy was actually a giant thermo-dynamic system within which entropy increases inexorably and the material basis of human habitation disappears. If we choose to continue producing things with the techniques we have developed, then our society and a habitable earth environment will disappear faster than it would have if we had introduced small- scale production, resource-saving technologies and limited consumption.

Following Georgescu-Roegen, ecological economists have argued that industrial society inevitably leads to increased environmental pollution, energy crisis and an unsustainable growth.

Today we really need to reconsider how we look upon how our economy influences the environment as a whole and climate change. And we need to do it fast. Nicholas Georgescu-Roegen gives us a good starting point for doing so!

Reference:

Real World Econ Rev., Oct 23, 2019 https://rwer.wordpress.com/2019/10/23/accumulate-accumulate-that-is-moses-and-the-prophets/

Comments; ghholtham

Oct 23, 2019

It is a pleasure, and a slight relief, to be able to agree entirely with Lars Sylls. We do need to consider the impact of economic activity on the environment.

There has in fact been quite a lot of writing about the application of thermodynamic principles to economics since Georgescu-Rogen, by people like Duncan Foley in economics and Quevedo in physics. I am not sure Lars would like it very much because it still treats the economy as a closed system and ignores the role of materials and pollution in production. That has come into focus as a result of current ecological concerns. People were not too wrong in thinking that most mineral resources were plentiful but were wrong in supposing the earth and its ecosystems had an unlimited capacity to absorb human activity without serious disturbance.

The standard solution to the “tragedy of the commons” is to allocate property rights giving someone an incentive to preserve their asset. That is not going to work with the global atmosphere or the global temperature. Collective action is essential. When we see the difficulty there is in forming political coalitions for change because of disputes over the distribution of responsibility you do fear there is just enough truth in the caricature homus economicus for us to be doomed.

The post Our economy is an unstable system, threatening its own survival appeared first on Economic Reform Australia.

Government spending and inflation

Published by Anonymous (not verified) on Wed, 01/01/2020 - 11:05pm in

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Economy

Government spending and inflation – Editor

The following extract is from an item written in 2017 by Ellis Winningham about inflation, which appeared in the Facebook page of Prue Plumridge on 31st October 2019.

– – – – – – – – – – – – – – – – –

The type of inflation that you’ve been made to fear is not the mere increase in the cost of living over a period of many years.

It has a name. It’s called “accelerating inflation”. Accelerating inflation is not the same thing as comparing what a dollar bought in 1982 to what a dollar buys in 2017.

Accelerating inflation is the type of inflation experienced in the 1970’s, and the origins of that episode had nothing to do with government spending. It was a supply-side issue due to the actions of a swing supplier of oil.

Inflation is a continuous increase in the price level over the period of time that one is observing it. Accelerating inflation exists when the inflation rate is rising rapidly over a short period of time. For instance: March 2%, April 3%, May 4%, June 5%, July 6%, August 7%.

As you can see, the inflation rate is not stable, it is not increasing slow and steady over a period of 50 years, it is not the same thing as comparing the cost of living in 1963 to 2017 – it is accelerating, hence the name.

Government spending will not result in accelerating inflation prior to the economy reaching maximum output; that is to say, prior to the ability of the economy to respond to further government spending with increased output.

Every nation has a maximum limit to its production capacity. If government spending were to persistently exceed that capacity, then accelerating inflation from government spending would be a possibility. The problem though in the US, UK, and Australia, is that you first need to employ every, single person who is willing and able to work in order to even reach that capacity. And we aren’t just talking about part-time and low wages. We are talking more full- time jobs at decent wages than there are available workers to fill those jobs. When you get to that point, if the government continues to increase its spending, then you can begin to worry. Not before.

The post Government spending and inflation appeared first on Economic Reform Australia.

The US is the world’s second largest economy

Published by Anonymous (not verified) on Wed, 01/01/2020 - 10:07pm in

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Economy

The US is the world’s second largest economy
When it comes to climate change, it matters – Dean Baker

The New York Times has an article on the Trump administration’s decision to pull the United States out of the Paris Agreement on climate change. The first sentence wrongly describes the US as “the world’s largest economy”. Actually China passed the US as the world’s largest economy early in the decade.

According to the IMF its economy is now more than 25 percent larger than the U.S. economy. It is projected to be more than 50 percent larger by 2024.

This matters because China actually has moved aggressively to adopt clean energy. It is now by far the world leader in the use of solar and wind power and electric car sales. The fact that the Trump administration is determined not to cooperate in efforts to reduce green- house gas emissions is unfortunate, but the fact that the world’s actual largest economy is taking big steps to curb emissions is hugely important.

Source: Real World Econ Rev, 7 Nov 2019 https://rwer.wordpress.com/2019/11/07/the-united-states-is-the-worlds-second-largest-economy-when-it-comes-to-climate-change-it-matters/

The post The US is the world’s second largest economy appeared first on Economic Reform Australia.

The essence of neoliberalism

Published by Anonymous (not verified) on Wed, 01/01/2020 - 9:18pm in

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Economy

A programme for destroying collective structures which may impede pure market logic – Editor

Source: Lars Syll (reference 2)

The following extract from an article by Pierre Bourdieu [1] was published by Lars Syll in RWER blogs on 10 Nov 2019 [2]:

“ The neoliberal utopia evokes powerful belief – the free trade faith – not only among those who live off it, such as financiers, the owners and managers of large corporations, etc., but also among those, such as high-level government officials and politicians, who derive their justification for existing from it.

“ For they sanctify the power of markets in the name of economic efficiency, which requires the elimination of administrative or political barriers capable of inconveniencing the owners of capital in their individual quest for the maximisation of individual profit, which has been turned into a model of rationality.

“ They want independent central banks. And they preach the subordination of nation-states to the requirements of economic freedom for the masters of the economy, with the suppression of any regulation of any market, beginning with the labour market, the prohibition of deficits and inflation, the general privatisation of public services, and the reduction of public and social expenses.

“ Economists may not necessarily share the economic and social interests of the true believers and may have a variety of individual psychic states regarding the economic and social effects of the utopia which they cloak with mathematical reason. Nevertheless, they have enough specific interests in the field of economic science to contribute decisively to the production and reproduction of belief in the neoliberal utopia.

“ Separated from the realities of the economic and social world by their existence and above all by their intellectual formation, which is most frequently purely abstract, bookish, and theoretical, they are particularly inclined to confuse the things of logic with the logic of things.”

References:

  1. https://mondediplo.com/1998/12/08bourdieu
  2. https://rwer.wordpress.com/2019/11/10/the-essence-of-neoliberalism/

The post The essence of neoliberalism appeared first on Economic Reform Australia.

Is a different type of economics the answer?

Published by Anonymous (not verified) on Wed, 01/01/2020 - 8:22pm in

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Economy

A paradigm shift is underway in economics – Steven Hail

 

Source: Flickr cc

The media as a whole is catching on to the fact that there is a paradigm shift underway in economics.

This won’t be a surprise to you if you have been reading my articles. I have written about two dozen articles on the main challenger to the old paradigm, which is now called Modern Monetary Theory (MMT), and others have also written on this topic. If you have been relying for your news and your current affairs on the usual suspects, how- ever, then the current controversy might have crept up on you.

For the most part, mainstream media have been asleep on this one, even if they are latterly waking up.

There have been increasing mentions of MMT in mainstream media, and an increasing number of whole articles which are partly, if not entirely, supportive of this new frame for thinking about the economy and the role of the federal government within the economy. MMT proposes that the constraint applying to federal government spending shouldn’t be debt but inflation, that is, how much new money can be pumped into the economy before prices begin to rise.

Why the sudden interest? It is becoming clear to all but the most blinkered that what was for many years the near- consensus view on the best way of managing the economy is broken. It certainly doesn’t work any longer and perhaps it could only ever work for a while because it depended on things which are unsustainable. And what is unsustainable, naturally, tends not to be sustained.

The old consensus was that the economy should be managed by a central bank, independently of politics, controlling interest rates to keep inflation on target and stop the economy hitting the rocks. The important thing for the government to do was to balance its budget, at least on average over time.

To do otherwise was to risk either sky- high interest rates, sky-high inflation, or both. All you needed to do was to add the neoliberal propaganda about how low taxes are important for incentives and productivity growth. Then you had constructed an argument for government spending cuts, the privatisation of anything and everything that could possibly be privatised, all the “grey corruption” described so well in books like Banking Bad and Game of Mates, and all the trickle-down economics nonsense that goes with it.

In Australia it wasn’t only the Coalition parties that bought enthusiastically into this narrative. It was the Labor Party as well, which abandoned full employment, privatised with gusto, deregulated the banks and set up a tax-advantaged private superannuation system – so that its rorts were inevitable.

And now, finally, we can see all this disintegrating. The result is almost a world-record level of household debt held in Australia, a still-fragile property market, an unacceptably high level of inequality, politicians who think they cannot afford to raise Newstart to a civilised minimum, and interest rates on their way to zero.

And for what reason? Zero interest rates won’t do much to help. We have so much household debt, we surely don’t want to take on more and we certainly shouldn’t be piling more debt onto households. Businesses are not so heavily into debt, but why should they borrow to invest when there are not enough customers with money to justify their investments?

If you have a mortgage, an interest rate cut might help you, but it will hurt someone with term deposits, and if you spend more, they may spend less. And everyone knows interest rate cuts are a panic measure that not even the RBA (Reserve Bank of Australia) now believes in. The RBA itself has been talking about euro-zone style quantitative easing, even though all serious commentators know that doesn’t work either.

What does work is fiscal policy, as MMT advocates have been saying for years. If you want to hold the economy at or close to full employment, without high private sector debt pushing the financial system towards a fragile state; if you want people to be able to spend out of their wages, rather than on the credit card; if you want decent public services as well as efficient, green public infrastructure, you have to use fiscal policy.

And in an environment where the private sector needs to add to its saving, and when the rest of the world is not going to provide enough support for sustainable prosperity within Australia through its demand for our exports, the government must net spend enough.

Most governments, for most of the time, have run budget deficits in the past. In the absence of a persistent surplus on the current account of the nation’s balance of payments, economic growth without government deficits is simply unsustainable. It drives the private sector into debt. A government surplus is a private deficit and it weakens the financial system and the economy. A government deficit is a private sector surplus, and it supports the economy and strong private balance sheets.

Deficits don’t drive interest rates up if you are a monetary sovereign. The monetary sovereigns issue their own currencies and set their own interest rates. The cash rate within Australia is set by the RBA. Interest rates applying to government debt depend on what investors expect the RBA to do with the cash rate over time. The RBA could directly set those rates too, if it wished, as the Japanese central bank has done with ten-year interest rates on government debt since 2016. They have been set at zero. The official short-term rate has been negative.

And fiscal deficits are only inflationary if they contribute towards spending which pushes the overall economy towards its productive capacity. The question is how to ensure that a form of full employment can be delivered without overheating the economy. And one idea that is gaining ground now is to introduce a federal job guarantee.

The important thing to note though is that the old system is broken. Though we may be at least 18 months away from everyone being aware of this.

People will also become aware that the federal government budget and the appropriate use of fiscal deficits will take over as the dominant mechanism for managing federal government spending, employment and sustainable economic development.

For my part, I am doing my best to help the transition on its way. This includes, with the assistance of the University of Adelaide, inviting Bernie sanders’ chief economic adviser, and former chief economist for the Democrats on the US Senate Budget Committee, Professor Stephanie Kelton to Australia in January, so that we can talk more about modern monetary theory and a Green New Deal for Australia.

Prof Stephanie Kelton

Source: Independent Australia, 28 Aug 2019 https://independentaustralia.net/politics/politics-display/is-a-different-type-of-economics-the-answer,13047

Dr Steven Hail is a Lecturer in Economics at Adelaide University, and is an ERA member.

The post Is a different type of economics the answer? appeared first on Economic Reform Australia.

The unrealistic model of William Nordhaus

Published by Anonymous (not verified) on Wed, 01/01/2020 - 7:28pm in

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Economy

A model used in advising governments about the economic impact of global warming – Editor

William Nordhaus (born May 31, 1941) is an American economist and Sterling Professor of Economics at Yale Univ- ersity, best known for his work in econ- omic modelling and climate change. He is one of the laureates of the Sveriges Riksbank 2018 prize in the economic sciences in memory of Alfred Nobel (commonly mislabelled as the “Nobel prize in economics”). He received the prize “for integrating climate change into long-run macroeconomic analysis”.

The following critical comments relating to his work and to his receipt of this prize appeared in RWER blogs on 21 September 2019 [a,b].

Nordhaus’ dangerous gamble for humanity’s future (from Steve Keen)

Nordhaus’s transgressions are immense. His ‘damage function’ which he uses to estimate global warming damage is incorrect and uses data that has nothing to do with climate change. Despite this, the Intergovernmental Panel on Climate Change (IPCC) uses his model to advise governments about the economic impact of global warming.

William Nordhaus [1] Representation of Alfred Nobel displaying disbelief [2]Nordhaus and the other mainstream climate economists certainly have a lot to answer for. Because their thinking has seriously delayed action to avert the damage done from climate change.

The central problem with Nordhaus’s model is the “damage function”, which is a mathematical fiction that has little to do the real world. By using a spurious method, he has calculated that 2°C of warming will only reduce global economic output (GDP) by 0.9 percent, and that 4°C would cut GDP by 3.6 percent.

These are trivial changes. And if it were true, then there would be little to worry about. This is the reason why Nordhaus has repeatedly argued that from the point of view of economic rationality an “optimal” path would be 3.5°C of warming above preindustrial levels.

Climate scientists, meanwhile, are truly worried about a 2°C increase. They assert that global warming must be kept to 2°C or below, or risk tipping us into a “domino-like cascade that could take the Earth’s system to even higher temperatures”.

Nordhaus’s damage function, however, projects a smooth transition. So it is like describing a canoe trip along a river with a waterfall by saying you will descend seven metres for every kilometre paddled. That would describe the river section of the journey very well, but not the part where you plummet over the waterfall …

It seems that Nordhaus has completely failed to understand climate science.

The only changes he has made to his research over the years have made it less able to handle tipping points.

Nordhaus’ “Nobel Prize” is not a real Nobel Prize (from Ken Patterson)

Willian Nordhaus can’t keep his “Nobel Prize” because he doesn’t have one. Alfred Nobel never set up a prize for economics because he recognised that it is not a science – not even a “dismal science” – and that most research in economics has little to do with the real world, being founded on ideas which are palpably untrue.

What Nordhaus has won is a Swedish Banker’s prize for promoting neo-liberal ideas about money for the benefit of the world’s super rich. It has been called a “Nobel Prize” despite Nobel’s wishes and the efforts of his family to have the title removed.

This economics prize is routinely dished out to people who promote neo-liberal and politically conservative ideas in an attempt to give them added respectability. They have been, to the world’s great loss, successful on this endeavour. It is no surprise that Nordhous’s ideas are so bad, firstly because classical economics is not capable of dealing with the sorts of problem climate change poses to the world; and secondly because the purpose of the award is to give bankers/ financiers/capitalists/plutocrats cover for what they intended to do anyway.

Sources:

    1. https://rwer.wordpress.com/2019/09/21/nordhaus-dangerous-gamble-for-humanitys-future/
    2. https://rwer.wordpress.com/2019/09/21/willian-nordhaus-cant-keep-his-nobel-prize-because-he-doesnt-have-one/
      1. William Nordhaus, Wikipedia (by Bengt Nyman from Vaxholm, Sweden -EM1B6043, CC BY 2.0)

      2. steemit.com/money/@majes.tytyty/cm-21-no-no-the-nobel-prize-in-economics-the-dismal-science-is-not-a-real-nobel-chaos-monitaur

Comments

Patrick Newman

This is a sophisticated form of denial and one that will nurture crude and corporate deniers for years to come. Except that there may not be years to come. It is important that enlightened economists drill down into the assumptions and corroborated data that is used. For example, what assumptions/ predictions are made about the destruction and replacement of capital due to catastrophic climate events. The reconstruction of Great Abaco Island will see a leap in that micro-economy’s GDP (if it happens).

Jorge Buzaglo

If you factor in all the effects of global warming above 2 deg C, then global GDP might even increase a lot. Think about the dramatic increase in health expenditures, the huge costs associated with palliative and preventive measures, the enormous costs of reconstructing damaged infrastructures, that is, the fantastic increase in all kinds of public investments, etc. It would be a massive global economic big push, to compare (in not only economic terms) to World War II. This speaks about the insanity or stupidity of mainstream economic approaches to global warming. And also about the meaninglessness of GDP in our dire circumstances…

Ken Zimmerman

There is so much wrong with Nordhaus and his “theories,” along with the mathematics he uses and the masters he serves. First, he is an economist. He examines things economically. That’s like the wonderful tool economists invented – the cost-benefit study. I have read hundreds of these in environmental assessment reports for the construction of power plants, transmission towers, oil and gas drilling, pipelines, etc. Consider this as an example from Oklahoma. Several grouse reside only in Oklahoma and Alabama near sites that are also prime drilling sites. The environmental assessments all concluded that drilling was an economically valid action to take, since the grouse had no monetary value. This conclusion considers only the needs of oil and gas corporations. Primarily because the studies were performed by engineers trained in economic-engineering. Nordhaus takes this route but on a much bigger scale. Second, Nordhaus’ reputation as an “economic scientist” is undermined if he allows anything other than economic impacts of climate change to be considered. Third, Keen is correct that Nordhaus, “has completely failed to understand climate science.” But this was never Nordhaus’ aim. In fact, it was most likely Nordhaus’ aim to ignore climate science as much as possible. Finally, Nordhaus is a prize-winning econ- omist. But who put up the money for these prizes and the University professorship that Nordhaus was given? It was people like the Koch brothers. In the face of this, the thing that most impresses me about Nordhaus is his audacity. His claims to be protecting human life and the health of the planet, and fighting climate change, are obviously false. But he refuses to give up the claims. Makes you believe the art of lying is not dying, as Mark Twain suggested.

Charlie Thomas

There is no adequate accounting for non- renewable and non-recyclable waste in main stream economics. Economists continue to prosper, to thrive and to influence our culture and earth with a whole segment of missing information required for understanding the system of the earth. Much as I have enjoyed reading this blog, it still seems that the focus is on the entirely inappropriate economics of mankind’s mental justification of the persist- ence of wealth at the expense of the great majority of humans and the risk to the future of all creatures. Surely, there is a cure for this failure to account for risk beyond the very short term thinking of economics.

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Facing barbarism

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Facing barbarism – David Faber

Source: Flickr cc

Amidst the tumult of the 19th century, a wise man predicted that humanity would in due course have its fate in its own hands – when we had our backs to the wall. Our free will would face the choice between social democracy and barbarism, between establishing a democratic community of producers or socioeconomic and ecological collapse. Having to choose, we would have to choose wisely. Otherwise our history will end in the common ruin of the contending classes. In these latter days of history as we have known it, when both inequality and inefficiency are overshadowed only by the looming challenge of climate change, it has become impossible to address one without addressing the other.

On August 20 2019, a senior exponent of BHP, Andrew MacKenzie, conceded on ABC business television that the ecological challenge we face calls for the biggest social mobilization since World War II. Of course, he sees a role for the options of coal and nuclear power in a transition to a sustainable energy economy, although he at least admits that such an interested position is moot and controversial.

But the point he conceded remains vital: we need a Green New Deal going to the heart of what democracy will mean in the immediate future, a basic rewriting of the social contract between government and the governed, with guarantees of both genuine full employment and real climate action together with a Just Energy Transition.

Congresswoman Alexandria Ocasio-Cortez has spear headed the concept of a Green New Deal within the United States. In that country, reference to the role played by the public sector under President Franklin Delano Roosevelt’s New Deal in helping to alleviate the misery of the Great Depression has never been altogether forgotten. The concept cannot, of course, be imported into this country without careful translation in national terms. It needs to be made Australian.

What we need is not just a GND, but a Green New Deal for Australia which speaks to the Australian people, made to measure for the needs of our econ- omy and environment. The imminent January 2020 University of Adelaide Sustainable Prosperity Conference will foster much pertinent thinking and may even have coined the phrase we need, one the people can recognize and understand.

Language concerns apart, the GND concept is already beginning to strike root here. Concept development work has begun around the country. Time and labour will be necessary to bring it to fruition, scientifically and politically. Discussion documents must be circulated and negotiated. Between the bare concept and the economic costing for economic planning for a well-regulated market economy with an adequate role for the public sector, there is much to be done.

Open minds and dialogue will be necessary as well as resolute application of key principles. There must be a just energy transition to reliance on renewable power generation, one in which the costs are fairly spread across society, and they’re likely to be less than the costs entailed in using fossil fuels. The working class must be reassured as of right that there will exist a proper supply of well-paying jobs, delivered by an Australian Job Guarantee. Labour rights to organize and collectively bargain and strike, undermined since 1975 in this country, must be restored and embodied within the Constitution.

Environmental remediation must be prioritized to arrest the ravages of climate change that are already upon us.

Roosevelt’s New Deal always had a green tinge to it. Among the first of the programmes rolled out was forestry work for the unemployed in upgrading national parks infrastructure. The GND must be green to the core and have the courage to sweep away the received shibboleths of austerity economics which have served the country and indeed the entire world so ill these last generations.

Provision must be made for skilled as well as `unskilled’ labour. To give an example, the Lomax brothers were employed by the Library of Congress during the New Deal to record the blues, unearthing talent like Huddy Leadbetter in a Southern prison. An Australian GND could employ citizen scientists across our landscape and humanists in our communities to ident- ify our history and problems we need to address socioeconomically.

Genuine Full Employment is feasible without inflation because after generations of running down the country there is so much that now needs to be done. Our unemployed workforce represents idle reserves of capacity and productivity, an opportunity as well as a problem.

Historian Stuart Macintyre has identified postwar reconstruction 1945-9 as the nation’s most enterprising era. Existing anti-public sector dogma and prejudice were cast aside. And the foundations of new industries were laid down. A brand new day of health care was mooted. Of course, reactionary forces mobilized to counter this clarion call. Closed minds will doubtless mobilize again. But we have nothing to fear but fear itself. And as a Nobel Prize winning poet said decades ago, `let us not talk falsely now, the hour is getting late’.

Dr David Faber is an Adjunct Research Fellow at the Flinders University of SA, and is an ERA member.

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