Bill Mitchell — US labour market reality debunks mainstream view about structural impediments

An enduring myth among mainstream economists is that so-called ‘structural’ impediments in the labour market prevent aggregate spending initiatives from government being an effective solution to mass unemployment. According to this view, if the government attempts to reduce the unemployment rate below some ‘natural rate’ then accelerating inflation will be the only outcome. The ‘natural rate’ can, in turn, only be reduced by structural policies – attacks on trade unions, welfare state retrenchment, cutting the minimum wage, and the rest of the litany of neoliberal policies. And, in this view, the unemployed are to blame for their own state – a lack of effort on their part to adequately present themselves to the labour market. The prior view that mass unemployment is a systemic failure to create enough jobs is rejected. A piece of this fiction is that one of long-term unemployed (and other disadvantaged workers) are not capable of being absorbed into employment without extensive re-training and other personal rehabilitation and this also prevents the unemployment rate from falling quickly. The problem with all of these related propositions is that reality interferes and generates outcomes that contradict the assertions. It is quite obvious that if the economy is run at high pressure then firms are forced to scrap prejudice for disadvantaged groups and offer on-the-job training to them to ensure they can maintain market share. In other words, the long-term unemployed do not present an impediment to growth. Events in the US labour market at present are demonstrating this reality....

Bill Mitchell – billy blog
US labour market reality debunks mainstream view about structural impediments
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Hassan Hakimian — What’s Driving Iran’s Protests?

Not a bad article considering that Project Syndicate is an organ of the corporate elite.

The author does recognize that the economic protest is the result of President Rouhani's neoliberal program to deliver the promised increase in prosperity that neoliberals assume to be widely distribute by trickle down.

So, even though the article is written from the neoliberal point of view, it does admit the failure of neoliberal reformers to deliver on their promises to the country as a whole, even though growth has improved under Rouhani.

What the author does not mention is that the economic aspect of the protest is exacerbated by the cutting back of welfare, with the result that the have-nots protesting have been severely disadvantaged even with the economy "improving."

Project Syndicate
What’s Driving Iran’s Protests?
Hassan Hakimian, Director of the London Middle East Institute and Reader in Economics at SOAS, University of London

Zhang Jun — China’s Painful Structural Transformation

China's economy has slowed as it shifts from exports and investment toward domestic consumer demand. But rapid growth could return if urbanization accelerates and the authorities implement the structural reforms needed to enable emerging service sectors to thrive.

Urbanization is the key to growth and development of an economically strong "middle class" of domestic consumers.

Project Syndicate
China’s Painful Structural Transformation
Zhang Jun | Professor of Economics and Director of the China Center for Economic Studies at Fudan University, Shanghai

Olga Tanas — Russia Retools After Crash as Post-Oil Economy Takes Shape

Up to date analysis of the Russian economy. Russia is diversifying and restructuring away from resource extraction.

Bloomberg
Russia Retools After Crash as Post-Oil Economy Takes Shape

Olga Tanas

Bill Mitchell — Fiscal policy is a potent instrument for productivity growth

Sometimes we have to take a longer look at things to see the present in perspective. Greece has been a living experiment for the neo-liberal Groupthink machine that is the Troika. We rarely experiment on humans on any sort of large-scale if there is the likelihood of adverse result. That would breach any notion of human ethics. It is a pity that we relax those standards when dealing with other animals, but that is another story again, which I will leave silent here. The Nazis certainly conducted large-scale experiments on humans and we vilified them for it. The Troika is conducting different types of experiments on the citizens of Greece, which defy reason, and which also have had devastating effects. But still the mantra continues from the babbling mouths of the political leadership in Europe and its technocratic squawk squad (SS) embedded in the European Commission bureaucracy, the ECB, the IMF and various so-called ‘think tanks’ that continually pump out pro-Euro propaganda disguised as research – more structural reform, more fiscal austerity. Apparently, this scorched earth approach is the only alternative and will deliver higher productivity, increased international competitiveness and underpin a return to prosperity. Greece is on the front line of this approach. I never believed it would work because it defies economic reason. Economic reason that is not blighted by the neo-liberal Groupthink. It hasn’t worked. And now, the IMF, or at least segments within the IMF, are admitting that and producing research that supports the opposite case – the Modern Monetary Theory (MMT) case – that expansive “fiscal policy is a potent instrument for productivity growth through innovation”. Correct!

Bill Mitchell – billy blog
Fiscal policy is a potent instrument for productivity growth
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Peter Dorman — Economic Reform: An Imaginary Beast?

The neoliberal agenda is "reform."

My question is, what country at what time has ever instituted such a reform program with measurable results? Is there any precedent at all? Any systematic policy-driven transformation of administrative transparency, economic incentives, organizational effectiveness?

Actually, when the record is inspected the result of neoliberal "reform" is increasing inequality based on rent extraction, accompanies by dominance of labor by capital and environmental degradation. Duh. What else did anyone expect?

Econospeak
Economic Reform: An Imaginary Beast?
Peter Dorman | Professor of Political Economy, The Evergreen State College

Peter Radford — Spanish Triumph?

It’s all a bit annoying. Really. I have just read the Economist’s article about Spain. The article is titled “Back on its feet”.

Such a title might lead you to imagine that the article is about a triumphant return to prosperity. But no.

Instead we are told that unemployment is down to 22.5%. This is down from a peak of 26.3% back in 2013. Growth, we are told, has ‘sparkled': it rose to an annualized rate of 3.8% in the first quarter and rose again a little further in the second.

Wow.

These are the fruits of severe austerity. They are ‘the vindication of reforms’ the right of center government put in place in 2011.

Double wow.…

The new propaganda is how well austerity is working. Elite chutzpah never ceases to amaze.

Sorry Economist: the story is one of disaster not triumph. It is of lost lives, lost hopes and lost dreams. And those ‘reforms’ are like the leeches of yesteryear: they are the product of economic theories that lack an understanding and empathy for real people.

Let’s all hope that our Spanish friends are tough enough to withstand the damage inflicted by the cure being thrust upon them. And let’s all hope that one day these reckless and violent cures are seen for what they are: inhuman evil.

Yes, Spain is going great — in comparison with Greece.

The Radford Free Press

Spanish Triumph?

Peter Radford

Kenneth Rogoff — A New Deal for Debt Overhangs?

Rogoff outlines three alternatives for addressing the EZ crisis, or crises, and suggests one.

Project Syndicate
A New Deal for Debt Overhangs?
Kenneth Rogoff, Professor of Economics and Public Policy at Harvard University and recipient of the 2011 Deutsche Bank Prize in Financial Economics, was the chief economist of the International Monetary Fund from 2001 to 2003

Bill Mitchell — IMF on Greece – they haven’t learned from their mistakes

In the most recent take of the Greek crisis, the IMF seems to have come out as being the reasonable part of the Troika as a result of its last minute release of a document where it said that Greece’s debt position was unsustainable and that any longer-term settlement of the crisis would require “debt relief measures that go far beyond what Europe has been willing to consider so far”. But a closer reading of that report (July 14, 2015) – An Update of IMF Staff’s Preliminary Public Debt Sustainability Analysis – tells me that the IMF hasn’t learned very much at all from the disastrous and repeated mistakes they made that have deepened and prolonged the Euro crisis. They are still hanging on to the neo-liberal mantra that if only Greece had followed the ‘structural reform’ program fully it would now be out of crisis and not in need of debt relief. It is a pipe dream that only these neo-liberals can contrive when their whacky ideas are confronted with the reality of the monetary system.…

As Michael Hudson is fond of saying, "junk economics." As these people blinded by ideology, or just plain stupid. Or maybe insane, repeating failure aka digging the hole deeper, while expecting different results.

Bill Mitchell – billy blog
IMF on Greece – they haven’t learned from their mistakes
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Bill Mitchell — Structural reform – code for smash the worker resistance

The ECB had another lavish annual talkfest in Portugal over the weekend just gone in the guise of their – Forum on Central Banking. Like all these EU-type gatherings there was plenty of fine food and wines. They even provided footagealong those lines. The President of the ECB Mario Draghi gave the opening speech – href=”http://www.ecb.europa.eu/press/key/date/2015/html/sp150522.en.html”>Structural reforms, inflation and monetary policy – on May 22, 2015. There was also talk about how “structural and cyclical policies … are heavily interdependent” but then a denial of the same. The message from the President was like a record stuck on the turntable – “to accelerate structural reforms in Europe … even in a weak demand environment”. Well here is my message – similarly like a stuck record – structural imbalances occur because of weak demand and the best time to assess structural policy is when you have first attained full employment by appropriate setting of fiscal deficits, not before. It is madness to deliberately constrain fiscal balances to levels that ensure high and entrenched unemployment and rising underemployment and then expect citizens to support microeconomic policies that further undermine their welfare and damage what job security they have. But that is the EU way and that is why the Eurozone is a massive basket-case failure.

Must-read.

Bill Mitchell – billy blog
Structural reform – code for smash the worker resistance
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Dirk Ehnts — IMF’s Blanchard: fiscal policy part of the solution against stagnation

In a modern economy with a sovereign currency, both banks and the government can create additional deposits for the private sector. Banks achieve that through lending, and the government through bond issuance. A third way, which doesn’t work for everybody, is to have exports higher than imports, which must result in a net inflow of net financial assets, among them deposits (ex-post). In the euro zone, the private sector does not want to borrow even though interest rates are at zero. If you want a cause, then name it confidence: the firms and households are pretty confident that in this situation of weak demand, high unemployment and falling prices they do not want to more borrow. 

It seems like the only way to get the monetary circuit going in Europe is through the creation of private sector deposits by a) cutting taxes (for those who can reasonable expected to use the additional deposits for spending) or b) increasing government spending (which directly creates deposits for the private sector). What this does not mean is a) government has to be bigger (let them hire private companies to do public jobs if you think that it is welfare-improving) or b) that this will become a permanent feature of the economy. As long as the private sector does not spend, government jumps in. When aggregate demand runs hot, taxes can be increased and the central bank’s interest rate hiked up. This would constitute a return to normal. No mass unemployment, the usual bickering about higher taxes, and savers getting money for nothing.

The problem lies in the insistence on "structural reform" (lower public spending and instituting wages "flexibility") in order to become "more competitive" globally, which is a race to the bottom that is deflationary.

econoblog 101
IMF’s Blanchard: fiscal policy part of the solution against stagnation
Dirk Ehnts | Berlin School for Economics and Law

Lawrence Delevingne — Germany: Our job is to strengthen Europe

A top German official has said the country supports Europe's efforts to kick start the region's economy -- including a quantitative easing (QE) program -- but that other countries have to sell reforms to their citizens. 

"The task for Germany now today is, through its own policies, structural reforms, its own investments, to support the EU and the Commission when it brings on to the market, so to speak, its stability package,"Sigmar Gabriel, vice-chancellor and federal minister of economic affairs and energy of Germany, said at the World Economic Forum Thursday in Davos, Switzerland.

"But every nation," he added, "has to have the courage to broach such structural reforms and speak clearly about them without making people afraid. This is difficult."

There could be significant political cost—such as losing elections—from such structural reforms, Gabriel said, but stressed there was no other choice.

"There is no alternative. The alternative is to simply prolonging the crisis and this situation becomes untenable for citizens," he said during a discussion about Europe's economy.

Then comes the delusional appeal to the confidence fairy.

"How can one give people the sufficient confidence to believe that they will benefit from...these structural reforms?" Gabriel added. 

"That is a difficult task for politicians to give such confidence to the electorate, so they can believe that their children will be better off. That is one of the major task of politicians and I think some have been quite successful."

Good luck with that.

CNBC Davos
Germany: Our job is to strengthen Europe
Lawrence Delevingne

Michael Stephens — This Time Is Indifferent

Yet, revealingly, there are some deficit hawks who are treating the rapid shrinking of the deficit as bad news — and not for the Keynesian reason that this indicates the government is failing to do its part in supporting the economy, as Bernanke stressed in his remarks yesterday, but because the disappearing deficit is easing congressional pressure to pass “entitlement reform” (which, as we’ll see below, does belong in scare quotes)....

For the fauxsterian, the question of whether austerity can be expansionary, or whether economic growth falls off a cliff when countries’ public debt ratios surpass 90 percent of GDP, is really all beside the point. Deficit and debt hysteria have simply been a useful tool for pushing specific legislative changes that may or may or may not be related to the budget balance — changes that might be difficult to pass outside an atmosphere of imminent crisis.

A recent Washington Post column by Steven Pearlstein, “The Case for Austerity Isn’t Dead Yet,” more or less endorses this line. The problem with fiscal stimulus, the column tells us, is that it works: it boosts short-term economic growth, thus easing the pressure to pass “structural reform.”

Multiplier Effect
This Time Is Indifferent
Michael Stephens