Category Archives: Macroeconomic policy

Philip Pilkington: Market Monetarism Or An Attempt to Speed Up the Decline in Real Wages

By Philip Pilkington, a writer and journalist based in Dublin, Ireland. You can follow him on Twitter at @pilkingtonphil

The so-called ‘market monetarists’ – that is, a growing pack of neoclassical economists who are advocating that central banks should try to generate inflation – are not as strange a breed as many think. Recently we compared classic deflationary monetarism with contemporary QE policies and found that they were based on the same underlying theoretical framework. We also found that the high priest of classical monetarism himself, Milton Friedman, strongly advocated inflationary monetary policies for both Japan after 1991 and the US after the stock market crash of 1929. So, it is by no means surprising that when one monetarist policy fails (I refer to QE), another will quickly be cooked up by Friedman devotees.

That is precisely the role of the market monetarists in the current policy and economic debates. They have introduced the banal notion that central banks should no longer target inflation or unemployment but instead they should focus on Nominal Gross Domestic Product (NGDP) – that is, a measure of GDP that has not been adjusted for inflation.

The Sucking Sound of Air Leaving the Economy

I’ve refrained from commenting much on the state of the economy over the last couple of years because it seems to have been largely irrelevant to the direction of many widely followed markets. While bonds, particularly the highest quality bonds, have continued to rally over time, par for what you’d expect in an economy facing deflationary pressures, on a day to day basis, bipolar risk on/off reactions have held sway. And even though there is no reason to expect anything better that a weak recovery in the wake of a balance sheet recession afflicting the world’s advanced economies, a peculiar tendency to look to ordinary recessions for comparisons plus undue faith in the confidence fairy has led many commentators to draw trend lines through improving data series and declare it to be a recovery. However, we seem to be at or may even have passed an inflection point, and policy makers seem remarkably unprepared to take action.

Marshall Auerback: The Pain in Spain

By Marshall Auerback, a hedge fund manager and portfolio strategist. Cross posted from New Economic Perspectives.

Just when you think that things can get no worse in Spain, they do. Take a look at this chart, courtesy of Credit Suisse via FT’s Alphaville

Restoring Trust in the American Economy: The Real World v. The Confidence Fairy

By Paul Davidson,the author of “The Keynes Solution: The Path to Global Economic Prosperity” and the editor of the Journal of Post Keynesian Economics. Cross posted from Alternet

Recently I went to a well-known restaurant in Evanston, Illinois. This restaurant has a reputation for providing excellent food and service. But the night I was there, it was less than half full. I asked the manager if he would he hire more waiters and chefs if his taxes were reduced and/or government removed the existing regulations controlling the way his restaurant could operate. His answer was that even if his taxes were reduced and regulations eliminated, he would only hire more staff if more customers came in for dinner. On the other hand, if there were twice as many customers for dinners than there were on this night (and there were many more customers before the recession began in 2007) he would gladly double the number of workers he employed even if his taxes were not reduced or regulations changed.

That’'s how things work in the Real World.

Satyajit Das: “Super Brussels” Saves The World, Again, Maybe!

By Satyajit Das, derivatives expert and the author of Extreme Money: The Masters of the Universe and the Cult of Risk (2011). Jointly posted with Roubini Global Economics

The Pavlovian response of financial markets to the European leaders’ summit of 28 and 29 June 2012 was remarkable. The frugal communiqué of 322 words fired the “animal spirits” of financial markets, which now believe that the European debt crisis has been “solved”. As comedian Robin Williams joked: “reality is just a crutch for people who can’t handle drugs.”

Europe Has No Levers for Growth

By Delusional Economics, who is horrified at the state of economic commentary in Australia and is determined to cleanse the daily flow of vested interests propaganda to produce a balanced counterpoint. Cross posted from http://www.macrobusiness.com.au/2012/06/the-european-summit-is-a-write-off/“>MacroBusiness.

It’s the eve of the 19th EU summit and as I type Angela Merkel and Francois Hollande should be getting started on their pre-summit meeting. I don’t think there is doubt in anyone’s mind that although we have seen 18 before it, this summit is of particular importance. Hollande and Merkel had a few words to say before their meeting:

Jeffrey Sommers/Michael Hudson: Latvia, the Austerians’ Potemkin Village

Yves here. I’m dwelling on the spectacular failure of Latvia in part because readers like the writings of Michael Hudson, but more important, because a major push is on to reimage the implosion of that economy as some sort of success, not unlike the claims the Chicago Boys made for their efforts in Chile. It also doesn’t hurt that this account, which is a considerably expanded version of a recent Financial Times op-ed, is vivid and pointed.

By Jeffery Sommers and Michael Hudson, a associate professor at the University of Wisconsin-Milwaukee and distinguished professor at the University of Missouri-Kansas City respectively, who have both advised members of Latvia’s government on alternatives to austerity. They are also contributors to the forthcoming book by Routledge Press: The Contradictions of Austerity: The Socio-Economic Costs of the Neoliberal Baltic Model. Cross posted from Counterpunch by permission of the authors

Austerity’s advocates are declaring victory with Latvia’s battle against the European economic crisis and advocating it as the model for Greece & Spain to emulate. Curiously, Latvians have been declaring this “win” by exiting their country.

Can the Fed Really Do More?

By Stephanie Kelton, Associate Professor of Economics at the University of Missouri-Kansas City. Cross posted from New Economic Perspectives.

I’ve grown increasingly frustrated by the near universal cry for more action from the Fed. My friend and fellow blogger Marshall Auerback has quipped that it’s as if every mainstream progressive received the same White House memo. I imagine it looked something like this:

New Directions in Monetary Economics: An Interview with Marc Lavoie – Part II

Marc Lavoie is a professor in the Department of Economics at the University of Ottawa. He is the author of numerous books on post-Keynesian economics. His latest work ‘Monetary Economics’, written with the late Wynne Godley, is now available in paperback from Amazon.com.

Interview conducted by Philip Pilkington. Part I of this interview can be found here

Philip Pilkington: If you don’t mind I’d like to move onto some more practical issues. The models set out in the book lead to some very different conclusions than the mainstream models as far as the effects of macroeconomic policy go. This has enormously important implications for both policymakers and people working in the financial markets.

The Crisis Shifts to Italy

By Delusional Economics, who is horrified at the state of economic commentary in Australia and is determined to cleanse the daily flow of vested interests propaganda to produce a balanced counterpoint. Cross posted from MacroBusiness.

As we head towards Greece’s weekend election, rumoured to be celebrated by the locals by moving ever larger sums of money elsewhere, the Eurozone appears to be seriously straining under the constant pressure of its ongoing crisis.

Philip Pilkington: Budget Hawk Socialism – Why Calls for Balanced Budgets Lay the Path for Socialism

By Philip Pilkington, a writer and journalist based in Dublin, Ireland. You can follow him on Twitter at @pilkingtonphil

What the bourgeoisie therefore produces, above all, are its own grave-diggers. Its fall and the victory of the proletariat are equally inevitable.

– Karl Marx and Friedrich Engels ‘The Communist Manifesto’

Calls for balanced budgets in the present environment have long appeared somewhat confused, of that we have had little doubt for some time now as balanced budgets seem to exacerbate the problems they target rather than solve them and may lead to higher debt-to-GDP levels due to the reduction in real economic growth that they lead to.

Europe’s Problems Multiply

Yves here. Notice how someone in the officialdom actually said “There is no alternative”. Nothing like being explicit.

By Delusional Economics, who is horrified at the state of economic commentary in Australia and is determined to cleanse the daily flow of vested interests propaganda to produce a balanced counterpoint. Cross posted from MacroBusiness.

Overnight, Greek Leftist leader, Alexis Tsipras, gave up on his attempts, or at least pretence of them, to form government. The gauntlet has now been handed to PASOK leader, Evangelos Venizelos, who again has 3 days to attempt the same.