Monday, April 10, 2017

Bill Mitchell — Recessions are never desirable events and are always avoidable

Bloomberg published an article last week (April 7, 2016) that it should not have published given that the article offers only fake knowledge to its readership. The article in question – Australia’s Delayed Recession Fallout Is Showing Up in Its Jobs Data – carried the sub-title “There may be trouble ahead” and purported to argue that because the Australian government’s fiscal stimulus allowed our nation to avoid a recession in 2009 we now have to ‘pay the piper’ and take our medicine and suffer a recession anyway. The proposition is ridiculous to say the least. The article uses as authority some nonsensical statements from a “business management consultant”, who doesn’t appear to have a very sound grasp of either history or what is actually going on. This is another case of misinformation. The fact is that the Australian government’s fiscal stimulus in 2008 and 2009 saved the economy from recession. The current slowdown and parlous labour market is not some delayed effect from that. Rather, it is because the Australian government caught the ‘fiscal surplus bug’ obsession, and began a misguided pursuits of surpluses, irrespective of what the external and private domestic sectors were doing. It caused an immediate slowdown and all the virtuous dynamics that were accompanying the stimulus-led growth (for example, fall in household debt and the rise in the household saving ratio) were reversed, as we would expect. Far from being delayed effects, the poor jobs data is because current fiscal policy is too restrictive. Simple solution: expand the discretionary fiscal deficit (preferably with a large-scale public sector job creation strategy)....
Bill Mitchell – billy blog
Recessions are never desirable events and are always avoidable
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia


Andrew Anderson said...

Simple solution: expand the discretionary fiscal deficit (preferably with a large-scale public sector job creation strategy).... Bill Mitchell

Sure, if there is public sector work that needs doing*. Otherwise, a even simpler solution is to distribute fiat equally to all citizens. And a way to finance it is with negative yields on sovereign debt, including negative interest on fiat account balances at the central bank with a $250,000 or so individual citizen exemption from negative interest.

*Jobs for the sake of jobs carries the risk of inefficiency or even negative work being performed.

Ralph Musgrave said...


I'd put your point a bit differently and as follows: "The decision as to how much of a stimulus package should boost public as opposed to private spending is a purely political decision, thus that is not a point on which economists like Bill Mitchell should express a view".

I.e. I'd argue that there is not such thing as a specific amount of "public sector work that needs doing". E.g. if voters and politicians decide we need a bit increase in spending on education, then that's that: we "need" to spend more on education. In contrast, if they decide we don't need more public spending, then we don't.

Andrew Anderson said...

Slightly off topic but since I'm banned at Naked Capitalism I thought I might correct Yves here. Here's what she said today:

The banking industry is a huge example, where as we’ve written repeatedly, its operations are purely extractive (the cost of periodic crises greatly exceeds the value of the enterprises) and it enjoys such large subsidies that it should not be regarded as private enterprise. Banks should be regulated as utilities. from [bold added]

Another option is de-privileging the banks and that option should REQUIRE huge amounts of new fiat to be equally distribute to all citizens to properly abolish government-provided deposit insurance.

The problem with the government-privileged banks as regulated public utilities option is that we still have the problem, because of the government privileges, of the extension of the PUBLIC's CREDIT but for private gain. But the public's credit should be used promote the general welfare, not to make the rich, who would still be the most so-called credit worthy, even richer at the expense (e.g. the legally stolen investment opportunities of less credit worthy savers) of the rest of the population.

And that's not the only problem since the regulations would likely preclude useful bank innovations that would be perfectly proper with 100% private banks with 100% voluntary depositors.

But, according to Yves, the idea, for example, that we should all be allowed accounts at the central bank is "balmy" because, argument from tradition(from a Progressive!), "Central Banks have always and ever shall be banks for the banks." Yes, but nothing precludes the citizens from having accounts at the central bank too.

Not that Yves is the only opponent of genuine reform but I mention her here because:
1) I am banned at her site.
2) as an example of the silliness of some of the objections to genuine reform.

Andrew Anderson said...

Nor is Yves less than very intelligent, imo, so her opposition is all the more a mystery except for this:

For our struggle is not against flesh and blood, but against the rulers, against the powers, against the world forces of this darkness, against the spiritual forces of wickedness in the heavenly places. Ephesians 6:12