This is the second part of the discussion on Tariffs that I started in – Tariffs and more – Part 1 (March 13, 2025). In the first part I considered some of the historical motivations including the infant industry argument. Today, I plan to expand on that discussion and add further considerations that might help us understand what is going on at the moment.
Today (March 14, 2025), MMTed releases Episode 12 in the Second Season of our Manga series – The Smith Family and their Adventures with Money. This is the final episode in Season 2. There is a lot going on in the community at present with an election approaching and the government in crisis over its deliberate recession. Have a bit of fun with it while learning Modern Monetary Theory (MMT) and circulate it to those who you think will benefit. Season 3 will begin on May 23, 2025 and there will be some shocking developments revealed.
This week, Australia learned that old geopolitical relationships and so-called ‘free trade’ treaties mean little when it comes to US policy. The obsequious way our political class fawns after the US has been a constant sickening element of our national identity for as long as I can recall. When I was a child, we were told by our Prime Minister that Australia was “all the way with LBJ”, a foreign policy that took out nation, against all reason, into the Vietnam War. Now, the US President is demonstrating why a reliance on the US as a ‘good citizen’ of the world is a poor strategy for an advanced nation to adopt. The other interesting aspect of what is going on is that the world is once again entering an experiment that will provide knowledge about the impacts of ripping up free trade agreements and increasing barriers to entry. Theorising is one thing but now we have a practical experiment underway. This is Part 1 of a series on the current debate about tariffs.
The Australian Bureau of Statistics (ABS) released the latest data today (March 12, 2025) on – Industrial Disputes, Australia – which covers the December-quarter 2024. The data shows that there was a slight decline in the number of industrial disputes over the last 12 months, although the number of working days lost rose significantly (by 15.4 per cent in the quarter). However, disputation remains at record lows. That fact is one of the success stories of neoliberalism and the way that the interests of Capital have co-opted government to ensure the income distribution was shifted back in favour of profits at the expense of wages. There are all sorts of explanations given to explain the low real wages growth in Australia over the last few decades and all try to sheet home the blame to global factors or demographic shifts. But the fact remains that there was concerted action by government under pressure from the employer groups to introduce legislation and regulation that undermined the capacity of the trade unions to pursue action in the interests of their members. That action was very successful from the perspective of capital and devastating to workers. Today’s blog post is really just a set of notes about the trends shown in this data.
Life expectancy has fallen since Covid in almost every country although the policy response has been exactly the opposite to what should be expected. We now have the United States Secretary of Health and Human Services advocating ‘personal choice’ in vaccine take up while he recommended Vitamin A to deal with a spreading measles outbreak in Texas. Decades of science is being disregarded in favour of ideology. We are now five years into the Covid pandemic and the data suggests that the costs of our disregard will accumulate over time as more people die, become permanently disabled and lose their capacity to work. We also know that the ‘costs’ of the pandemic have been (and will be) borne by the more disadvantaged citizens in the community. I was talking to a medical doctor the other day in a social environment and I learned something new – that in Australia, there is a difficult process that one has to go through to get access to the ‘free’ (on the National Health list) anti-viral drugs if one gets Covid. However, if you have $A1,000 handy, you can ring your GP up and get an instant prescription for the same drugs and avoid all the hassle, which has reduced access significantly for lower income households. Another example of how fiscal fiction (governments haven’t enough money) favour the high income cohorts.
The British press are reporting that the Government there is planning further spending cuts of the order of billions of pounds because the economic environment has changed and the current fiscal trajectory is threatening their self-imposed fiscal rules thresholds. We already heard last week how the Government is significantly cutting Overseas Aid as it ramps up military expenditure. Now, it is reported that billions will be cut from the welfare area and the justification being used is that there is widespread rorting of that system by welfare cheats. There are several points to make. First, getting rid of rorting is desirable. But I have seen no credible research that suggests such skiving is of a scale sufficient to justify cutting billions out of welfare outlays. Second, quite apart from that question, the micro attack on the welfare outlays have macroeconomic consequences. The British Office of Budget Responsibility estimates that the output gap is close to zero which means it is claiming there is full employment. Even if that is true, that state is underpinned by the current level of government spending (whether it is on cheats or not). If the spending cuts that are targetting rorting are not replaced by spending elsewhere then a recession will occur and the Government will surely fail to achieve its ‘non negotiable’ fiscal rule targets. It is a mess of their own making.
Today (December 4, 2024), the Australian Bureau of Statistics released the latest – Australian National Accounts: National Income, Expenditure and Product, December 2024 – which shows that the Australian economy grew by just 0.6 per cent in the December-quarter 2024 and by just 1.3 per cent over the 12 months (up from 0.6 per cent). GDP per capita also reversed its sequence of negative results as output growth outpaced the underlying population growth. The only source of expenditure keeping GDP growth positive is coming from government – both recurrent and investment. The largest component of national expenditure – household consumption spending – returned to a positive contribution as did business investment and net exports. But the fact remains that non-government spending is still relatively weak and it is public spending that is keeping the economy from near recession growth rates.
It is hard to keep track of the major shifts in world politics that are going on at the moment. I am in the camp that saw the extraordinary confrontation between Trump/Vance and Zelensky as demonstrating how embarrassing the US leadership has become. I am not a Zelensky supporter by any means but the behaviour of the US leadership was beyond the pale as it has been since January. I am no expert on geopolitical matters but it seems obvious to me that the US is now opening the door further for China to become the dominant nation in the world as the US sinks further into the hole and obsesses about who should thank them. And the latest shifts are once again going to demonstrate how dysfunctional the EU architecture has become. If it is rise to the post NATO challenge then its obsession with fiscal rules will have to end and they will have to work harder to create a true federation. I am skeptical. The shifts are also once again demonstrating that mainstream economic thinking is dangerous, something I can claim expertise to discuss. The recent decision by the US Administration to hack into the USAid office is probably not the definitive example of this point because it is more about being bloody minded than ‘saving’ money. It will just further open the door for China though. However, the decision by the UK Labour government to reduce Overseas Development Assistance (ODA) to (according to Starmer/Reeves logic) ‘pay’ for a rather dramatic increase in military expenditure is a classic example of how policy goes astray when mainstream economic thinking in general, and the British fiscal rules, specifically are used to guide policy.
“Fiscal support can manage the direct economic fallout from extreme weather events.” That quote came from an interesting new research paper published in the 98th edition of the Bank of International Settlements Bulletin (February 10, 2025) – Macroeconomic impact of extreme weather events. The paper seeks to tease out what the economic impacts and policy implications are of the climate changes that are now manifest in various extreme weather events, such as droughts, wildfires, storms, and floods, which are increasing in incidence across the globe. The researchers recognise that such events are increasingly imposing “high economic costs” and “social hardship” on communities around the world. Their conjecture is that the “most extreme weather events have been rising and are likely to increase further” which will challenge policy makers. They discuss the implication of this increased exposure to such events for fiscal and monetary policy but recognise that fiscal policy must be the frontline tool to respond to the damage caused by such events.
The last several decades of what is termed the neoliberal era has led to some fundamental changes in our social and economic institutions. It was led by the interests of capital reconfiguring what the polity should be doing, given that most of the significant shifts have come through the legislative or regulative capacity (power) of our governments. In turn, this reconfiguration then spawned shifts within the political parties themselves such that the traditional structures and voices have changed, in some cases, almost beyond recognition. The impacts of these shifts have undermined the security and prosperity of many citizens and redistributed massive wealth to a small minority. The anxiety created as the middle class has been hollowed out has been crying out for representation – for political support. Traditionally, support for the socio-economic underdogs came from the Left, the progressive polity, which, after all was the Left’s raison d’être. But that willingness by the Left politicians to give voice to the oppressed has significantly diminished as it surrendered the macroeconomic debate to the mainstream and got lost in post modernism. As a consequence, the ideological balance has demonstrably shifted to the Right, and the former progressive parties have been abandoned. My thesis is that the Left has created a burgeoning return of the Right with a daring and resolve that we haven’t seen for decades. The election and aftermath of Donald Trump’s elevation to presidency demonstrates the situation. Last weekend’s general election in Germany demonstrates the situation. And today a poll was released in Australia that suggests the current Labor government, which slaughtered the conservatives in the last election just 3 years ago are now facing a clear loss to the Opposition – that is advocating Trump-style radicalism. As the saying goes – you get what you deserve.