Debt Todos

Research Notes

(Preliminary notes.)

I’ve been slowly trying to get back into fiscal time series research, focusing on NZ. Our data is not as neatly packaged as is the USA via the St Louis FRED. I might even need to resort to the BIS or OECD for our NZ data? Before I do, I will be trying the NZStats app tool, which might be a way to extract some of our fiscal data. If someone knows how to do this already please tell me!

Apart from just getting the data in the first place (monthly series is the longest interval acceptable) the main noticeable thing when I peruse the various sources is the prevalence of monetarist thinking and language. All NZ government debt sources frame the data descriptions in terms of “scary” liabilities of our government. This is true enough, but the language is very curious from an MMT point-of-view.

It is always “as if” the government debt is the bad thing.

Not to mention this whole Superannuation silliness and the need to hold foreign reserves. The need to hold foreign reserves betrays fixed exchange rate mentality, or at a minimum a mindset of some sort of need to control or manage the NZD exchange rate. We of course have no need whatsoever to be spending human resources doing such financial management. That we do employ people to do this work is financial mismanagement. But try telling that to a Treasury official! All you will hear back is crickets.

I guess these are not really research notes. More like research frustrations aired.

Beveridge Curves

Only tangentially related, I was reading a post on substack by Mike Alexander on the topic of Beveridge curves. I believe the guy is MMT aware. Also, what he noted as the conventional “explanation” for COVID era inflation was probably not his conception, he was merely reporting.

Here is the report:

The return curve following the pandemic is even higher than the return after the financial crisis. It passes into the tight region at an unemployment level just a bit below 6%. Yet no wage growth was observed, instead we got inflation. The standard explanation for this was supply disruptions and government stimulus-enhanced demand gave rise to the inflation and that offset nominal wage gains stemming from labor market tightness. The Fed raised interest rates dramatically in response to the bout of inflation, and annual inflation rate subsided from a peak around 9% in mid-2022 to around 3% a year later. After this it has remained largely unchanged. Wage increases did not commence once this happened. Rather vacancies have been shrinking, suggested that rather than raising wages to acquire the workers to fully staff their operations, businesses prefer to keep the higher profit margins they achieved during the inflation by hiking prices by more than costs rose. It is also possible that higher interest rates are increasing business costs, putting additional pressure to minimize growth in the wage bill.

There is quite a bit there that needs MMT caveats.

1. There is no reason to suppose the FED raising rates caused the decline in inflation. Why not put it down to supply chains being restored?
2. Wages will not rise unless there is government fiscal injection support.
3. While the FED keeps rates high businesses (or at least the financial sector) can earn free basic income by purchasing Tsy bonds, so have no hard drive to produce more real output to makes sales to profit. They might not buy bonds eventually preferring riskier instruments, but the option will always be there, at least whole the FED thinks monetarism is still an accurate analysis and framework.
4. Wage demands can be a cause of one-off increases in the price level, but have never been a source of inflation (continual increase in the price level).
5. Likewise corporate price gouging is not continuous, and so is also not a cause of inflation. It can look like inflation of course, but only if government supports long-term via the fiscal injections to avoid credit crunches. Such state life-support for price gougers can look like inflation if it becomes a habit.
6. Even a foreign oil monopolist setting price is only a one-off adjustment in the price level, it too can look like inflation if it becomes habitual (see Duelling Monopolies ).
7. I’d like to do more modelling to substantiate this claim, but I think continual inflation at some base rate, around 3% is always caused by the government monopolist setting the price of the currency, aka. the central bank interest rate.

Central Banks do this (set a non-zero interest rate) only because they are operating under something like a fixed exchange rate mentality, or either that or pure monetarist ideology. Both of which are false frameworks for analysis when the country is operating a floating exchange rate of a non- convertible currency which functions primarily as a tax credit.

Yeah yeah, you can through all the “realism” you like at me. I know the realpolitik. I know why things look like a monetarist world. But screaming it is so does not make it so. The USA (and NZ, Japan, Australia, UK, Canada,… all the rest) are operating MMT economies. They get policy backwards because they do not acknowledge they are running MMT systems.

Just because you have an MMT system does not mean your economics advisers understand MMT. But if you wield any state power, you had better consider it your moral obligation to see to it you at least understand MMT, and so can appropriately (most of the time) ignore the mainstream economics advisors. They are defeating the public good purpose of a government.

If you have good economics data gathering operations, talk to and foster those people.