Category Archives: Macroeconomic policy

The ECB’s QE Decision

The European Central Bank has just launched full-fledged quantitative easing. This column argues that the ECB’s watershed decision highlights both the strengths and the persistent vulnerabilities of the Eurozone. The limited-risk-sharing provision flags the need for greater fiscal union; and governments should use the respite that QE provides to launch much-needed structural reforms.

That’s their story and they’re sticking to it.

Announcing (Actually, Confirming) Our Focus on the CBO’s Dubious Models and Political Bias

We’ve been writing about abuses of power and process at the Congressional Budget Office and will be ramping up our coverage further now that ranking member Bernie Sanders has a new team at the Budget Committee, which among other things supervises the CBO. And the CBO is going to be the subject of a major political fight over how it prepares its estimates of the economic and fiscal impact of pending legislation. As we’ll discuss below, Republicans plan to mandate that the CBO use something called dynamic scoring, which has the effect of making tax cuts look far more beneficial to the economy than they are, by effectively claiming that tax cuts boost growth, which then boosts tax receipts. It would effectively institutionalize the Laffer curve, which has been widely and repeatedly debunked. As troubling as this development is, there’s already a lot not to like in how the CBO operates.

Can Abenomics Revive Japan’s Economy?

Most readers are skeptical of Abenomics, and for good reason. This post gives an accessible discussion of why it has not worked.

MMT Versus the CBO: Replacing the Budget Constraint with an Inflation Constraint

Yves here. MMT, or Modern Monetary Theory, is in the process of becoming vastly more visible by virtue of leading MMT advocate, Stephanie Kelton, becoming Chief Economist on the Senate Budget Committee on behalf of ranking member Bernie Sanders. And that means, as this post demonstrates, that MMT has gone through the “first they ignore you, then they ridicule you” stages and is now in the “then then fight you” phase. And one of the chief strategies of MMT opponents is to misrepresent it.

Wolf Richter: Subprime Spikes Auto Sales, Delinquencies Soar, Industry in Total Denial, Fallout to Hit Main Street

Stuffing people into cars they can’t afford and ultimately may not be able to pay for is big business.

Bill Mitchell: Demystifying Modern Monetary Theory

Yves here. This is a useful and accessible talk by one of the leading Modern Monetary Theory developers, Bill Mitchell of the University of Newcastle, interviewed here by Marshall Auerback of INET.

This talk is wide-ranging, and starts by pointing out that in key ways, Modern Monetary Theory incorporates basic concepts that have perversely omitted from mainstream macroeconomics, largely for ideological reasons. This conversation does not get much into central bank operations, which is the basis for MMT’s claim that it is a much more accurate representation of how monetary operations work for a fait currency issuer like the US than textbook or popular press accounts that are based on outdated “gold standard” notions.

In typical Australian fashion, Mitchell is blunt, so I suspect readers will find this talk to be more lively and accessible than typical economists’ fare.

Japanese Politics: Still 猫に小判

Yves here. Readers asked our Japan-watcher Clive for his take on the snap election in Japan, where voting takes place this Sunday. Contrary to the norm for Japanese politics, there may be less here than meets the eye. In addition, Clive provides an update on Japanese media and official statements on the TransPacific Partnership negotiations.

Yanis Varoufakis: Was Maastricht Another Versailles for the German Nation? A Reply to Klaus Kastner

Lambert here: This post gives some insight into how hard the hardball that led to the Euro really was. Makes “the mess in Washington” look like pattycake (though not, admittedly, the run-up to the Civil War). By Yanis Varoufakis, a professor of economics at the University of Athens. Cross posted from his website. Klaus Kastner […]

Germany and the European Commission’s €315 Billion Infrastructure “New Deal” is Yet More Smoke and Mirrors

I have to confess I had not taken the announcement of a €315 billion infrastructure spending program by the European Commission all that seriously, despite the fact that this on the surface represented a very serious departure from the Troika’s antipathy for anything resembling fiscal spending. It was so out of character that something had to be wrong with the picture, particularly given the absence of any evidence of Pauline conversions from the Germans. And that’s before you get to the fact that while €315 billion sounds impressive, given that the spending is likely to be spread out over time, the size of the shot, even if it worked as advertised, is less impressive than it might seem.

In fact, the history of post-crisis interventions in the Eurozone has been that of sleight-of-hand over substance, except as far as austerity program are concerned. Ambrose Evans-Pritchard peels away the dissimulation in the latest effort at confidence building, with emphasis on the con.

Why is Anyone Surprised that Abenomics Failed?

In case you managed to miss it, there’s been a fair bit of hand-wringing over the fact that Japan has fallen back into a recession despite the supposedly heroic intervention called Abenomics, whose central feature was QE on steroids.

But Japan of all places should know that relying on the wealth effect to spur growth has always bombed in the long term.

Wolf Richter: Italy’s Crazy New Economy from Hell

Yves here. Italy provides an intriguing example of how austerity inflicts damage on businesses. Here, one of the ways that the government is making its fiscal deficit look better is by paying companies that provide services to it slowly, or not at all.