16 thoughts on “Monday Message Board

  1. Quantitative easing (QE) and inflation.

    QE was said to be non-inflationary under current circumstances by several economists, including Paul Krugman (NYT column).

    Earlier this year, I did return to a topic which was widely discussed immediately after the beginning of the GFC, namely the inadequacy of measuring inflation by consumer prices (as in the Keynesian and other macro-economic models). I said the money was going into financial markets leading to financial asset price inflation. Well, now ‘everybody’ who is connected to financial markets is talking about a bond price bubble. Bubbles burst. Bond prices are not isolated from share prices which are not isolated from all other asset prices and asset prices enter the budget constraints of people, more for some than for others at various times of their lives.

    If I may build on one of Keynes’ insights, the QE money went to the wrong people (individuals).

    And, from general equilibrium theory, an important insight is that the wealth distribution matters.

  2. I agree about “the inadequacy of measuring inflation by consumer prices”. Asset price inflation ought to be a serious concern in any economic analysis. It distorts the economy in all sorts of unhealthy and unsustainable ways. It creates bubbles, encourages speculative rather than productive investment and impacts on the “budget constraints of people” particularly, in Australia, in terms of house prices and rental rates.

    The US Federal Reserve reporting on the US economy on June 14, 2013 wrote;

    “The rate of capacity utilization for total industry edged down 0.1 percentage point to 77.6 percent, a rate 0.2 percentage point below its level of a year earlier and 2.6 percentage points below its long-run (1972–2012) average. ”

    To my economically naive eyes 77.6% capacity utilisation looks poor. The “historical” long-run average of 1972-2012 of 80.2% also looks poor to me. More experienced economists might be able to tell me what a realistic healthy level is. But, I think I can safely assume that if unemployment is about 5% to 7% higher than the frictional rate and if there is further very significant under-employment and hidden employment in the system, then 78% to 80% (about) capacity utilisation, on current measurement methods, is insufficient capacity utilisation for a healthy economy. I note Canada achieved 87% capacity utilisation in 2003/2004 according to Statistics Canada. A healthy level would achieve full employment except for frictional unemployment.

    Given the current US political economy and indeed the current Anglophone and EU political economy, I would assign a vanishingly small probability to the chances of improving capacity utilisation or to improving equity in relation to wealth distribution in these zones. Some countries are already in a depression greater than the Great Depression, notably Greece, Spain and Portugal. Several other countries look likely to follow very soon particularly Italy and even France.

    The systems in these areas are too wedded to inequality, too much controlled by plutocrats, and neoliberal “juntas” and “troikas”. In other words too deeply set into the system of corporate capitalism along with its sycophants, intellectual “hired guns” and “bought and suborned” governments. The last being an overused phrase of mine I know but so appropriate it deserves the repetition.

    When a system is headed towards collapse and incapable of reforming itself then collapse must perforce occur. Collapse is already well advanced in Greece and Spain for example. Only when collapse occurs and the masses of the workers and population demand and indeed create a new system will any real change occur. Bourgeois economics is unreformable and unsalvageable within its own paradigm. Don’t look for any hope there.

  3. on digby today there is a graph video of income comparison in USA.

    the blog title:

    “a rightwing 50’s PSA about income inequality can teach us a lot”

    it’s the second video in the article.

    is there anything like this of the current Australian income breakdown?

    i know the fin seems to think the average PA income is around A$150,000:oo.
    but only around 15% actually do receive this.

    everyone on less is the “underclass”

  4. As I’m bored and feeling a little masochistic, here is a digest of the top few stories, quote unquote, on Catallaxy, all accompanied with the usual slogans (LEFTIES SPEND MONEY AMIRITE?!?!?!):

    – 2 stories on Gillard’s “public relations disaster”: a photoshoot with Women’s Weekly that lead to some kind of confusion.
    – a book review for a tract which proposes the notion that entrepreneurship and innovation have become endangered by the usual suspect, MASSES OF NEW GOVERNMENT REGULATION
    – childcare is actually an excuse for government indoctrination of children
    – and finally, the Australian economy is literally collapsing with Gillard at the helm

    This is painful, infantile dreck. I try to keep an open mind and listen to all positions but it’s impossible with such easily debunked nasty partisan garbage being breathlessly repeated as if it were something approaching reality. Especially the last point where you can choose from a vast array of data to show that the Australian economy is doing exceptionally well relatively speaking and we are nowhere remotely near the point of soup kitchens and Abbottvilles (since if it all goes downhill, it will be on his watch, which means he’s obviously responsible, rather than being the latest in a chain of historical events with a myriad of contributing factors where policy was largely path dependent, correct?) [RW logic].

  5. @Will
    Agreed Will. Loved the moment on QandA Monday 24 when Tony Jones quizzed Catallaxy ‘economist’ to please explain her “dim-witted” assessment of childcare workers. Didn’t hear a peep from her the rest of the show

  6. Round 3 of the ALP’s leadership tussle appears to have commenced, with Rudd backers circulating a petition for a spill.

  7. For the sake of the nation, and more importantly the sake of my psephological reputation * please let it be Rudd.

    * My Election prediction record for the noughties/tennies: AUS 4/4, USA 3.5/4

  8. Evidently, Rudd will win the leadership ballot.

    The L/NP will still probably win the election, given mass voter disenchantment with the way the ALP does political business. In particular, the ALPs leadership political division has spelled electoral death ever since early 2010. More generally the ALPs state & federal modus operandi is has the Machiavellian stench of corruption without the saving grace of Medici grandeur.

    But the L/NP will probably not win in a landslide. Without the Gillard albatross the government will probably suffer a typical third term loss, around ALP 48 – L/NP 52 2PP. This men’s that the non-Right will prevent Abbott from dismantling the mining & carbon tax. As well as blocking Son of Work Choices stalking the land.

    That will do me, for now.

  9. Great news from the ALP leadership spill. Wayne Swan will no longer be Treaurer. One of the biggest dogs that haven’t barked for the ALP government is the absence of a Treaurer who is also a credible alternative PM.

    Successful governments have operated on the dynamic duo principle. Fraser-Howard, Hawke-Keating, Howard-Costello. But Gillard-Swan…I don’t think so.

    Apparently Chris Bowen is slated for Treaurer, an entirely superior performer who handled the poisoned chalice of Immigration with the right mix of firmness and fairness. In contrast to that clown Chris Evans who turned the portfolio into a catastrophic farce.

  10. Jack,

    I think a 54-46 Labor loss is more likely. The Coalition has a big bag of money and it will carpet bomb the electorate with attack ads ably supported by News Ltd. This will shift enough votes back to the Coalition from any honeymoon period to make it a thrashing.

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