Commentary on Political Economy

Tuesday 8 June 2021

Notes on Fiscal and Monetary Policy

Useful summary and prognosis...contains a dig at Paul Krugman. In my pieces on Krugman, I have voiced my dismay at just how he never understood the most basic nature and functions of money as a store of value. The criticism of Krugman's analysis in this piece is based on that fact, but the author doesn't say it because economists never write about theory.  Now, it's historical truth that Marx didn't know money "in particular "; but in fairness to him he knew it a little better than any of these dunderheads..."in general"! Small consolation,  but important to acknowledge.

An important contribution in terms of BoP policies...The author fails to notice that the least "protectionist" economies are the most export-oriented ones precisely because they repress domestic demand through "fiscal discipline " - which actually means "wage suppression"...look at Germany, South Korea and Taiwan or "the Asian Tigers"...Ironically,  demand repression or suppression is the best form of protectionism!...your workers don't have the purchasing power to buy foreign goods!...a floating exchange rate is imperative...

...with domestic demand suppressed and exports privileged,  productivity is facilitated because unit costs are low (through wage suppression and exchange-rate adjustment)...The trick is in maintaining competivity in value-added production...immigration,mineral and agricultural resources, education and tourism, on which Australia depends, are pitfalls...the Lucky Country's "easy way out"...for how long?

"Japan’s The Nikkei newspaper reported on Tuesday that China had scaled back its flights into Taiwan’s airspace since the US-Japanese statement, suggesting Beijing had backed off its aggression."

The only language Chinese Rats understand is: cross this line, and as sure as night follows day, we will k..l you".

Peter Jennings, a friend of Paul Monk's:

“At a time when Xi Jinping is obviously testing the waters to see if they would be able to get away with pressure on Taiwan, it’s really necessary for the most interested countries to make clear to China this is just not worth the effort on Beijing’s part,” he said.

Michael Brennan again! ...yeah, I thought his comments were right on the mark...once again,  his argument would be stronger if he connected what he keeps separate: fiscal discipline leads to productivity leads away from explicit protectionism...because they make it redundant...

"Mr Brennan said that GDP per capita, a more meaningful measure of individual prosperity, over the past decade had grown at its slowest pace in at least 60 years."...because of indiscriminate immigration,  over-reliance on tourism and education and commodities...

He warned that the prevailing economic argument which held that higher debt levels could be sustained as long as nominal growth was higher than borrowing costs risked implying “something altogether different and much bigger – that debt and deficit no longer matter at all; and that we can afford the next and the next ‘one-off’ rise in debt”.

This thesis has been advanced by Krugman,  lately defended by Niall Ferguson on Bloomberg - but he is no macroeconomics, as he himself hastens to avow.  This is the kind of post-Keynesian nonsense that would apply in what is akin to Joan Robinson's (Cambridge ) Golden a capitalist society,  it ends up into a Ponzi scheme under Goodhart's Law: the minute a rule is widely known (he should have added,  in a for-profit economy) its usefulness evaporates instantly...

Of course, Goodhart (a central banker) was talking about central-bank instruments...the greatness of Central bankers is that they are Marxians (not Marxists!) in disguise !

A little beauty from the AFR Board.

The attacks on Fed, and Western central bank, policy are intensifying…this one from a former Fed Board member…

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