Bill Mitchell: Eurogunea 2020. Ez aipatu gerla!

Eurozone 2020. Don’t mention the War!


(i) Sarrera: Europako Komisioaren txostena

I guess I cannot avoid commenting on the European Commission’s recently released (February 5, 2020) – Economic governance review – which, allegedly, “seeks to assess how effective the economic surveillance framework has been in achieving three key objectives: ensuring sustainable government finances and economic growth, as well as avoiding macroeconomic imbalances; … promoting convergence in Member States’ economic performance.” The short answer is that the framework has failed on all fronts. The Member State fiscal situations are always mostly teetering on the edge of insolvency and only the ECB has been bailing them out; macroeconomic imbalances that really matter, such as the on-going illegal German external surpluses persist, and divergence is the Eurozone norm. Why? Another simple answer: because the architecture of the currency union is deeply flawed and biases the economies to crisis and makes them vulnerable, in an existential sense, to fluctuations in global activity. Why would they have done that? Answer: the triumph of neoliberal ideology over reason.

In this age of PC, I imagine some out there will pass negative judgement on the following video.

But it establishes where the title of today’s blog post came from and provides a tangential clue to modern day problems in the Eurozone.

And, yes, when I watched it again after many years I still laughed.

Comedy is a bit like that – operating a little below the PC veneer.


(ii) Ikuspegi ofiziala

The official line

As in all these EU spin exercises, we read that:

the single currency … is one of Europe’s most significant and tangible achievements … [which] … provides a basis for our economies to become more integrated with a view to supporting greater stability and prosperity

Except it hasn’t done that at all.

Why is France in chaos, riven with social protests, if all is well?

Here is convergence in action.

It shows real GDP indexes (March 2008 = 100) for four Eurozone nations up to the September-quarter 2019 (latest data).

Germany and France are in a different world compared to Italy and Greece, the latter who are still operating with economies below the size they entered the GFC with.

Italy is 5 per cent smaller and Greece is 22.3 per cent smaller.

No convergence is likely.

Upon that score, the monetary union fails.

Further, the Eurozone inflation rate is nowhere near the ECB’S price stability target, despite the massive build up of government bonds on the ECB’s balance sheet, all in the name of trying to push the inflation up to that price stability target.

So the framework fails in that respect as well.

Please read my blog posts (among others):

1. ECB confirms monetary policy has run its course – Part 1 (September 17, 2019).

2. ECB confirms monetary policy has run its course – Part 2 (September 18, 2019).

The European Commission then claim that the “unique” design of the EMU reflected the need to prevent “free-riding behaviour leading to excessive government deficits and debt levels”, which just is another way of saying none of the original entrants trusted each other nor shared a deep commitment to the joint exercise.

The Germans, in particular, were really forced into allowing Italy into the union, because if they had have rejected them on the failure to meet the public debt thresholds during the so-called ‘convergence process’, they would also have had to reject entry to Belgium, which was impossible.

I covered that in detail in my 2015 book – Eurozone Dystopia: Groupthink and Denial on a Grand Scale (published May 2015).

But the Commission goes the next step … too far:

This, in turn, would threaten price stability and might ultimately force the central bank to use monetary policy to finance budget deficits.

Which is where Basil Fawlty would have had a field day!

(iii) Europar Banku Zentrala (EBZ)

In my 2015 book, I clearly trace the way the ECB saved several Member States from insolvency in 2010, when it introduced the Securities Markets Program (SMB), which evolved into the current QE interventions.

The build up of public debt on the ECB’s balance sheet is, in, ‘look the other way’ language, claimed to reflect normal liquidity operations.

But the reality is that the ECB has been funding “budget deficits” throughout the Eurozone for years and breaking the spirit of the Treaty.

Yes, the purchases have been in the secondary bond markets, which then leads to the denialists claiming there is no ‘direct’ financing going on.

Tell that to the dealers in the primary markets who know they can offload debt at a handy capital gain to the ECB.

Smoke and mirrors is the expression!

Hence the title of the post ‘Don’t mention the War’!

So, now the Commission is seeking as part of “a new political cycle … to assess the effectiveness of the current framework for economic and fiscal surveillance …”

They recognise that the “economic context has materially evolved” since the Stability and Growth Pact was supplemented by the Fiscal Compact (the “six-pack and two-pack” changes which accentuated the austerity).

They admit that the EMU is stuck in a weak growth state with low interest rates, but, refuse to acknowledge that it was the SGP and the subsequent changes that have made it virtually impossible for the union to perform in any other way.

They further acknowledge that a climate response “will require significant additional private and public investment over a sustained period of time.”

But then the logic fails.

(iv) Euroguneari buruzko Mitchell-en bost puntu

1. Debt sustainability remains a focus because the Member States all face credit risk because they don’t use their own currency.

2. The risk is acute in the EMU because “governments with very different debt levels share the same currency and the central bank cannot act as a lender of last resort to governments”.

3. But monetary policy is now ineffective so expansionary fiscal policy has to be considered.

4. But because the Member States use a foreign currency the bond markets become involved and we are back to debt sustainability concerns.

5. And climate risks need big funding.

That is my 5-point impossibility structurethat is the Eurozone.

As long as they restrict national government deficits to austerity levels, the mess will continue and they will not be able to respond properly to the climate challenge.

In terms of the debt sustainability discussion, the Commission tries to make virtue that debt-to-GDP levels in most Eurozone nations are “far below that of the US or Japan”.

And they presumably write that sort of stuff with a straight face!

The monetary systems of Japan and the US are not comparable to the EMU, where no national government has currency sovereignty.

It is just a vacuous comparison.

And there is no acknowledgement that the “fiscal consolidation” that they revere has been directly responsible for the stagnating growth and zero interest rates (not to mention the negative long-term bond yields in some nations) that they document.

No connection is drawn.

Don’t mention the war!

Further, they acknowledge that despite earlier claiming the euro was about convergence, the reality is that public debt levels “remain around or (well) above 100% of GDP in some others, accounting for a large share of euro area GDP” and only “around half of the Member States” are below the 60 per cent threshold specified by the SGP.

And debt ratios “continued to rise”, which has “increased divergences between debt levels in the EU”.

Growth rates have diverged.

Debt levels have diverged.

Deficit outcomes have diverged “despite favourable economic outcomes”.

Unemployment rates have diverged.

And so on.

(v) Neurri fiskalak

But then the analysis shows how much the whole governence, surveillance and enforcement structure surrounding the fiscal rules has failed:

Nonetheless, Member States’ fiscal policies have remained largely pro-cyclical … remained largely pro-cyclical during the crisis as consolidation took place in a context of heightened market pressure at a moment of very low growth or even contraction in economic activity …

This contributed to the weak economic and employment performance in that period, even if it aimed at bringing public finances on a sustainable path and at regaining market confidence.

Which means that fiscal policy was forced by dint of the reliance on private bond markets (due to the surrender of currency sovereignty) to make the consequences of the private spending collapse worse than would have been the case if the Member States had not have surrendered their currency.

This fact is a basis denouncement of the whole architecture and surrounding rules enforcement of the Eurozone.

It is why I have always believed the system would fail to deliver prosperity.

It is why there is an in-built bias to austerity and stagnation.

It is why it should be dissolved.

It is a system that prioritises the rule outcomes over attainment of human potential.

It requires human suffering to appease bond markets.

In nations which issue their own currency, the bond markets have to work within the terms set by the government.

In the Eurozone, the bond markets drive governments.

The European Commission is also forced to admit that:

the current fiscal framework did not prevent a decline in the level of public investment during periods of fiscal consolidation, nor did it make public finances more growth-friendly.

(vi) Espainia eta pobrezia

And the UN Special Rapporteur (2014-2020) on Extreme Poverty and Human Rights, Philip Alston has just released his evaluation of – Spain – (February 7, 2019), which was compiled during a visit between January 27, 2020 and February 7, 2020.

I will consider that in detail another day but the summary results are terrible and an absolute condemnation of the Eurozone system:

1. “Spain is utterly failing people in poverty, whose situation now ranks among the worst in the EU”.

2. “The post-recession recovery has left many behind, with economic policies benefiting corporations and the wealthy, while less privileged groups suffer fragmented public services that were severely curtailed after 2008 and never restored.”

3. “26.1 percent of people in Spain, and 29.5 percent of children, were at risk of poverty or social exclusion in 2018.”

4. “Deep widespread poverty and high unemployment, a housing crisis of stunning proportions, a completely inadequate social protection system that leaves large numbers of people in poverty by design, a segregated and increasingly anachronistic education system, a fiscal system that provides far more benefits to the wealthy than the poor, and an entrenched bureaucratic mentality in many parts of the government that values formalistic procedures over the well-being of people.”

5. “companies are paying half as much in taxes as they did before the crisis despite strong profits.”

6. “Neighborhoods of concentrated poverty where families raise children with a dearth of state services, health clinics, employment centers, security, paved roads or even legal electricity.”

7. “Poverty is ultimately a political choice, and governments can, if they wish, opt to overcome it.”



Have the EU boffins been down to some of the Spanish villages where the UN visit found “far worse conditions than a refugee camp”.

I doubt it. Brussels is too comfy for that lot.

All they can say is that:

the six-pack and two-pack reform … have strengthened the framework for economic surveillance in the EU and euro area and guided Member States in achieving their economic and fiscal policy objectives … The strengthened surveillance framework has also fostered convergence in the economic performance of Member States …

Anyone who does not condemn this charade should question their own values.

(vii) Erantzun aurrerakoia

The progressive response – disappointing to say the least

The best the “Socialists and Democrats in the European Parliament” can come up with is that the review provides “a much-needed opportunity for improving the EU’s fiscal rules by introducing a Golden Rule for sustainable investments.” (Source).

One European Parliamentarian said that:

The European Green Deal has the potential to transform Europe into a sustainable and inclusive society. To make our Green Deal ambitions a reality, we must now put significant money behind it. According to Commission estimates, an additional 260 billion Euros is needed every year to meet our Paris Climate goals. It is high time we up-date our budget rules to enable member states to invest in a good future for all.

I do not disagree with the sentiment or the focus on environmental sustainability.

The problem is that while the intention is sound, the reasoning remains flawed as long as the Member States use a foreign currency.

Further, it is disappointing that the so-called progressive forces in European politics are content to operate within the flawed monetary architecture of the EMU and adopt a position that the only change required is to introduce a ‘golden rule’, without, seemingly, understanding its drawbacks.

The talk of ‘golden rules’ goes back years. It is hardly an innovative suggestion and just exemplifies the crippingly slow speed at which debates in the EU unfold.

Golden Rules are often proposed by economists who want to appear progressive, but, ultimately, still work within the so-called orthodox ‘government budget constraint framework’, which falsely asserts that spending by a currency-issuing government is financially constrained.

These economists, however, do argue that in some cases, it is more fruitful to concentrate on stimulating economic growth, than it is to cut government deficits.

In this regard, they argue that public borrowing should be use to ‘finance’ capital expenditures and deficits incurred as a result of such investment in public infrastructure and other public works, are tolerated as long as they ‘pay for themselves’ through rates of return on infrastructure, for example.

The latter point has then dove-tailed into the ‘user pays’ mentality, where essential public infrastructure is provided at escalating charges as part of the fiction that the government is like a business and has to receive a commercial return on what should be seen as delivering social returns.

The ‘Golden Rule’, typically specifies that the recurrent fiscal balance should be zero and the capital account (investment) can be in deficit and covered with borrowing.

Some proponents also restrict such investments to times when interest rates are low, further adding to the fiction by claiming this makes government investment cheaper.

Of course, the ‘cost’ of the investment is embodied in the real resources that are consumed in the process of the policy execution.

For a given project, that ‘cost’ is invariant to the yields that might be offered on public debt.

The ‘Golden Rule’ was already recognised by the classical economists in their discussions of public finance. So even within an orthodox public finance model, their is some flexibility for fiscal deficits as long as they reflect spending that will ‘pay for itself’ through rates of return on infrastructure, for example.

Without such a ‘rule’, the application of the European fiscal rules, biases public investment expenditure toward being pro-cyclical – cutting spending when non-government activity is declining – to meet pre-conceived fiscal balance targets.

This is because in political terms, it is much easier to cut capital expenditure than it is to cut current expenditure, the latter being more directly noticeable for voters on a daily basis (pensions etc).

But the cuts to public capital expenditure not only undermine current economic activity and pushes up unemployment, but, also undermines the future growth potential by slowing the rate of capital accumulation.

It also reduces private investment opportunities, which typical leverage off well-built and maintained public infrastructure.

Responsible fiscal policy requires that stimulus/contraction cycles be counter-cyclical – to offset non-government spending fluctuations in either direction.

So within the neo-liberal fiscal conservatism, the introduction of a ‘Golden Rule’ might remove the bias against public investment.

Proponents of the Golden Rule also appeal to its equity advantages whereby the public expenditure is steadily financed over time as the debt is repaid, which means there is a better matching of who receives the benefits from the services flowing from the infrastructure and who pays for it.

Both arguments, within the flawed overall logic, are reasonable.

(viii) DTM (MMT)

But, once we grasp the essentials of Modern Monetary Theory (MMT), then we know that this claimed matching of costs and benefits overtime is somewhat misleading.

The true ‘cost’ of providing public infrastructure is not the flow of financial outlays (including interest payments) over time but the real resources that are deployed to construct and maintain the infrastructure.

For most projects, the cost is mostly incurred upfront in the construction phase, which means the current or near generations still end up bearing most of the costs.

However, there are many problems with the concept of the ‘Golden Rule’.

When we get into demarcation issues as to what should be classified as net investment spending, the ‘Golden Rule’ essentially breaks down.

While the split between current and capital is normally defined as some time period in which the benefits of the spending are exhausted (less than or more than 12 months usually), it is more sensible to think of capital expenditure as that which improves the potential productive capacity of the economy.

A progressive approach should conceive of productivity much more broadly than the narrow concept that mainstream economists deploy.

Productivity is not just the contribution an input makes to the private profit bottom line.

In this context, one could make a strong case to include much of the recurrent spending on health, education, research and development along with spending on bridges, transport and other physical capital as capital items.

For example, the public investment in the education of its population delivers massive social and private returns over the person’s lifetime. These returns are not exhausted within 12 months.

If education and health expenditure on teachers and nurses and libraries and books, for example, are considered as current spending, then the ‘Golden Rule’ biases total public spending against it in favour of ‘building bridges’, which might be a poor use of the society’s real resources.

The bias towards physical infrastructure and financial assets is reflected in what governments put in their so-called financial statements – specifically their balance sheets or statements of financial position.

I explain that point in detail in this blog post – The non-austerity British Labour party and reality – Part 2 (September 29, 2015).

The point is that current definitions of capital items would bias the application of the ‘Golden Rule’ to be too restrictive in terms of advancing general well-being.

The other major problem with this idea in relation to the Eurozone Member States, is that they would remain dependent on private bond markets to fund the deficits arising from the investment in public infrastructure.

All 19 Member States carry credit risk as a result of using a foreign currency. In that sense, they are vulnerable to shifts in bond market sentiment, which could choke their capacity, relative to revenue, to continue servicing the debt obligations and provide first-class public services.

Imagine in a recession as taxation revenue declines, the recurrent fiscal position becomes stretched and austerity would be invoked to bring the two fiscal sides back into balance.

This would undermine grow th even further and increase the risk that the government would be unable to meet it debt obligations.

And then the crisis deepens.



(1) Nothing since the GFC has convinced me that the EMU can be reformed in any meaningful way to resolve the inherent flaws in its architecture, which reflect the neoliberal bias which set the system up in the first place.

(2) The propaganda machine from Brussels continues to pump out these elaborate technical discussion documents that essentially mean more of the same.

(3) And as the UN Special Rapporteur noted the Eurozone maintains a “fiscal system that provides far more benefits to the wealthy than the poor”.

(4) That is why it was designed in this way and why the elites will not broach any serious reform.

(5) Why should they? They are doing very well out of the disaster.

(6) It should be dissolved. And nations such as Italy and Spain which are unable to provide for their own citizens in any reasonable way should unilaterally leave and restore their own currencies.

As soon as possible.

Iruzkinak (2)

  • joseba

    Bill Mitchell-en GDP is a flow and is the sum of the all expenditure flows over a given period

    (i) Sarrera gisa

    … Students really struggle when first introduced to the idea of a stock and a flow. They can easily be led into defining a flow as a stock. Getting this absolutely right is one of the key building blocks in understanding basic macroeconomics and the links between the expenditure system and financial accumulation. Modern Monetary Theory (MMT) builds heavily on the difference between stocks and flows and is also what we call stock-flow consistent. So all flows that inform stocks are accounted for in a consistent way. So, for example, we know that when households save, which is the residual of disposable income that is not consumed and a flow, this accumulates into a stock of financial wealth sanity. (…)

    (ii) BPG fluxu bat da
    GDP is a flow
    In my classes last week at Helsinki University we discussed stocks and flows and how they fed into understanding national accounting and financial balances (flow of funds).
    I was asked by a student to comment on the so-called ‘bath tub’ analogy that was often used in mainstream macroeconomics textbooks and is still in vogue in some circles.
    Within the core MMT group this analogy came up some years ago and my comment then was that it was not a valid representation of the concepts being discussed because it confused stocks with flows.
    It also cannot reasonably be used to establish definitive causalities between injections into and leakages from the spending stream, because of the interdependence between the two types of flows.
    Here is why.
    It was first proposed in Kenneth Boulding’s 1946 book – The Economics of Peace (Prentice-Hall) – where he outlined the basic Keynesian model in the context of the Post WW2 reconstruction requirements in Europe and Asia, which he described as the challenge of “capital rebuilding”.
    Capital was defined as:
    … the sum total of the valuable things possessed by the individuals of a society, excluding ‘claims’, that is, mere titles to property. The word is used to mean both the inventory of these valuable things – the houses, factories, machines, livestock, stocks of raw materials, and goods in all stages of production – and also to meant he sum of the values of these things.
    So Kenneth Boulding was really talking about what economists call ‘stocks’.
    It gets tricky here.
    He says that:
    If, for instance, production in a community is worth 1,000,000 dollars a year, and consumption amounts to 900,00 dollar’ worth a year, there will be a net increase of 100,000 dollars in the value of the stock of capital. Thus a community can increase its rate of accumulation of capital only by increasing production, by decreasing consumption, or by some combination of both.
    He says that “this difference is sometimes called ‘saving’, but since this word is ambiguous, it should be avoided as far as possible.
    He later noted that ‘saving’ resulted from “the difference between earnings and spendings … an increase in the holdings of money. There is no point in an individual merely accumulating money, that is, cash, beyond a certain point”.
    He then says that individuals will make portfolio choices and perhaps “buy securities of some kind”.
    So implicit in this construction is the notion that income flows (more about which later) that are not fully recycled back into the spending stream and thus constitute what we consider to be a flow of saving in each period, form the basis of wealth accumulation (a stock of financial assets).
    So in this case: income minus consumption equals saving (all flows).
    Saving then accumulates to wealth (a stock), which can be held in different forms.
    So you can see that Kenneth Boulding is jumping from a difference between flows to an accumulation of a stock, which is fine in the context he is working in – a concentration on wealth construction.
    In Chapter 7 Unemployment: The Problem, Kenneth Boulding rehearses the basic Keynesian model that was becoming mainstream in the academy by this point.
    This is where he introduces his “Bathtub Theorem”.
    He writes in terms of quantities:
    The rate of accumulation of the stockpile of goods is equal to the rate of production less the rate of consumption … just as the rate at which water accumulates in a bathtub is the difference between the rate at which it runs in from the faucet and the rate at which it runs out through the drain, so the rate of accumulation of goods is equal to the difference betwen the rate at which goods are added to the stock and the rate at which goods are drained away … If production (the flow from the faucet) is greater than the consumption (the flow down the drain) it is clear that the water in the economic bathtub (the total stock of goods) must rise.
    He then applies the ‘Theorem’ to the monetary system – where “expenditure is income”. He rehearses the argument that what applies to the individual “are not true of the system as a whole” – this is the standard Keynesian argument about the fallacy of composition.
    He writes to illustrate the point:
    To an individual, his money income flows into his pocket, again rather as water flows into a bathtub, and his money expenditure flows out of his pocket just as water disappears down the drain The amount in his pocket (or his bank balance) obviously depends on the relative size of income and expenditure; when he is getting money faster than he is spending it, the amount of money in his pockets increases, just as a bathtub will fill up if water is running in faster than it runs out ….
    When we look at our whole society, however, and add up all incomes of all people, and add up all the expenditures of all people, it is clear … that not only must these totals be equal, but that they are simply different ways of looking at exactly the same thing!
    We don’t see much more of the ‘bathtub’ after this.
    The point is that the individual with a net inflow of income (a flow) can save (a flow) and accumulate those savings in the form of a bank balance (a stock).
    The ‘bathtub’ analogy was meant to describe the initial income flows (in and out) and the way in which the difference between the two flows would accumulate as wealth (or a water storage) in the bath.
    Using it that way is fine but somewhat confusing as I will explain.
    But it should be clear that Kenneth Boulding was not thinking of the bathtub level as national income. He sort of fudges a step in the process of accumulation and many people after him didn’t seem to get the point that he was talking about a stock of wealth rather than a flow of income.
    Trying to conceive of the bathtub water level as GDP is therefore not valid.
    In macroeconomics, we define a ‘steady-state’ or ‘equilibrium’ as a situation where there are no forces present to change the current flow of output and income being produced.
    This concept of ‘equilibrium’ is not defined as a ‘market clearing’ state, which means it does not necessarily mean that all the productive resources are being employed.
    An economy can come to rest in the macro sense and be plagued by elevated levels of persistent unemployment.
    This is why Keynes advocated ‘exogenous’ injections of government spending and/or reductions in tax rates in order to provide an external stimulus to the economy when it is stuck in a undesirable ‘steady state’.
    The basic macroeconomic relations tell us that total income (GDP) = total spending = total output.
    If spending changes so does output and income in the same direction.
    Which should disabuse anyone of the IMF type claims during the GFC that a nation could enjoy a fiscal contraction expansion. That was claptrap.
    So equilibrium means GDP remains constant and we can define this in terms of the condition that total injections into the spending stream equal total leakages from the spending stream.
    The idea is that in any period, spending is creating income which then leads to household saving (leakage), government taxation rising (leakage) and import spending (leakage).
    If there was [were] no offsetting injections into the expenditure stream next period, these leakages would mean that the initial income created would not fully cycle back into the spending stream.
    So, to balance the leakages, spending injections have to come from outside the cycle in the form of government spending, business investment and export revenue.
    When the leakages equal the injections then the system comes to rest.
    Note also that these leakages are themselves dependent on the level of income (and hence spending).
    Further, we consider that Gross Domestic Product (GDP) to be the sum of the expenditure coming from Household consumption, Private investment (capital formation), Government spending (recurrent and capital) and Exports minus Imports.
    The national account expenditure components (consumption, investment, government spending, exports minus imports) are flows and sum to GDP, which is also a flow.
    GDP – that is the market value of all final goods and services produced in a period – is a flow of dollars (or whatever currency that is relevant).
    The leakages from the income-expenditure system are also flows – saving from disposable income, taxation revenue to government and import expenditure that flows to the rest of the world.
    A flow is measured as a quantity over time, not at a point in time.
    A stock is a level measured at a point in time.
    So your weekly income is a flow, while your bank balance (if you are lucky enough to have one) is a stock.
    So why is the ‘bath tub’ analogy problematic.
    The water in a bath or a reservoir is a stock not a flow.
    Mountain streams are channelled into dams (reservoirs) to accumulate water. The streams are flows, the accumulation is a stock.
    The bath tub analogy constructs the spending injections as water flows into the bath coming from the taps.
    The leakages are characterised in the analogy as water draining from the bath via the drain hole.
    And, according to the analogy, if the flows in from the tap equals the flows out into the drain, then GDP will be stable.
    Which is where the analogy fails.
    The failure is because it characterises GDP as a stock – a reservoir of water in the bath.
    Considering GDP to be a stock is a basic error that students often make.
    Clearly, the ‘bath tub’ analogy is not a good pedagogic device because it perpetuates the confusion that students have in terms of stocks and flows.
    On the one hand we go to great length to teach students that GDP is a flow of spending, income and output, but then they come across the ‘bath tub’ analogy which tells them that GDP is the water level in a bath, which is a stock.
    A better (but still not perfect) analogy is that the expenditure-income process is like a river flowing endlessly into some unspecified horizon.
    Accordingly, the injections are the flows into the river from its source (or tributaries) and the leakages are the outflows from the river to other places.
    The level of the river will rise and fall according to the inflows and outflows but it will still be flowing.
    It also allows us to understand dynamic shifts in equilibrium as the volume of water moving down the river increases and decreases according to inflow shocks and the adjustments that follow via the leakages.
    Further, trying to isolate causality between the injections (say, government spending) and leakages (say, tax revenue) is impossible in this type of framework.
    That is because there are three injections in the standard framework pushing water into the GDP flow which generates income, which triggers the three leakages.
    Which spending source caused the income that allows taxes to be paid, for example? Taxes flow from the flow of income.
    1) I didn’t get time in the class last week to clarify these details.
    2) I hope that sets the record straight.
    3) Boulding’s bathtub theorem is about accumulation not income determination.

  • joseba

    Laboristak, Altxor publikoa eta hautatutako politikariak
    Bill Mitchell-en British Labour seems to think that HM Treasury can dominate the elected politicians

    (i) Altxor publikoaren independentziaz

    (…) today, I want to briefly comment on a story from the Guardian’s Larry Elliot (February 14, 2020) – PM’s Treasury power grab doomed to fail, warn former insiders – which reported that some Labour Party ‘insiders’ (aka gutless morons who won’t publicly take responsibility for spreading rumours) had determined that the current government ministers would not be able to win a power struggle against the powerful H.M. Treasury, who would withhold crucial information from the government to maintain their hegemony. What? The inference was that “the Treasury’s independence” – that is, in other, more accurate words, the right of unelected and unaccountable technocrats to impose their right-wing, neoliberal austerity ideology on the democratically-elected government – was a Labour ideal that should be preserved and that those awful Tories were trying to assert democratic control of its public service institutions.
    At the same time, ex-Labour Party advisors, who had shoehorned the Party into accepting and propagating the disastrous Fiscal Credibility Rule, were opining (if you can call it that) that “Labour may need to start worrying about the deficit”, as reference to the Tory plan to introduce a stimulus to attenuate the post-Brexit dislocation.
    Other so-called progressives, who supported Remain and the FCR chimed in by way of support.
    Meanwhile, the Labour Party are running a ‘star chamber’ to purge anyone who dares to criticise, for example, the illegal occupation of Palestinian land and the subsequent human rights abuses that that occupation has involved.
    You really cannot make this stuff up.
    And then we get to the Womens’ Refuge battle within Labour that threatens to consume all reason and those it involves.
    I have views on the Womens’ matter but they will have to wait until Thomas Fazi and I publish the sequel to our book – Reclaiming the State: A Progressive Vision of Sovereignty for a Post-Neoliberal World (Pluto Books, September 2017) – sometime later in 2020.

    (ii) Altxor publikoa, diziplina fiskala, defizitak eta ekonomiaren ahalmen erreala
    On the latest update on the ‘Star Chamber’, this article by academic Haim Bresheeth is worth considering – My life’s work as an anti-racist and anti-Zionist activist makes me an antisemite according to Labour.
    A few weeks ago, I saw a Tweet from an avowed Marxist, cum Labour Party ‘advisor’ (from afar) that appeared to be preaching the virtues of Thatcher-style austerity.
    Here it is:

    (Ikus linka)

    “Fiscal discipline” is now a defining feature of the Labour narrative rather than full employment, equity, public infrastructure, public education, public health and climate action – all of which require fiscal policy to ignore deficits and balance spending with the real capacity of the economy.
    Think about Treasury for a moment.
    1. It told the British people that there would be an immediate recession if the June 2016 Referendum resulted in a Leave majority.
    2. It has repeatedly updated those estimates as each prediction of disaster fails to materialise as part of a biased anti-Brexit – read, anti-Democratic – campaign to maintain the UK in the corporatist, neoliberal cabal that is the EU.
    3. We are really back to the 1930s, in a different context where the British Treasury introduced deflationary policies (wage cuts etc) as a response to the collapsing British economy during the early stages of the Great Depression.
    The contribution of Keynes (and the economists working with him) was to explain why things deteriorated even further after the H.M. Treasury was set loose on the economy and to show a different path.
    Their contribution provided a categorical rejection of the mainstream theory that the Treasury technocrats held as an ideological position rather than any valid representation of reality.
    We are back to that sort of issue.
    The British Treasury officials in the 1930 had no idea of how the economy operated.
    The current crop is no better.
    In my view, the British government should sack all the senior Treasury staff and clear the decks of these neoliberal New Keynesian ideologues.
    If anyone else in the Treasury decides to withhold data then they should go too.
    If there is a shortage of qualified economists in the UK to provide sensible advice then that is just an indictment of the Economics Departments in that country who persist in teaching a fictional world and spend hours “counting angels on tops of pinheads”.
    I wrote about the struggle between Keynes and the British Treasury in this blog post – These were not Keynesian stimulus packages (April 15, 2011).
    Here is a write up of an interview I did for Radio New Zealand (July 30, 2017) – ‘There’s no such thing as fair austerity’ – where I noted that these economists have been “torturing the minds of our youth with lies and ideology made to look like eternal truths”
    To think that Labour would prioritise the technocrats over the democratically-elected politicians shows how far down the neoliberal rabbit hole they have gone.
    The depoliticisation of economic policy decisions is a hallmark of the neoliberal era as politicians sought to defray the blame for austerity they wished to inflict on their economies by claiming some external force was involved – whether it be a so-called ‘independent’ central bank, an external multilateral body like the IMF, or some technocrats in Treasury departments.

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