On the first day in her new job the IMF boss was interviewed by the in-house survey unit and asked to outline her agenda. She clearly thinks the IMF remains a centrepiece of the international monetary system. The evidence would suggest otherwise. The conduct of the IMF over its long history has not advanced prosperity and once the fixed-exchange rate system collapsed as unworkable the rationale for the IMF also disappeared. In trying to reinvent itself over the last 40 years, the IMF has become an exemplar of neo-liberal free market thinking and action and caused many of the larger crises that have evolved during this period. Its role in the current crisis exemplifies its culpability. It turns out that a leading mainstream economists also thinks it is time to shut the doors at 700 19th Street, N.W., Washington, D.C. 20431.

I said the other day that I would avoid the US debate for a while. So to wean myself off it I have gone to the other extreme. Local! Today the Australian Bureau of Statistics released their Detailed Labour Force data for June 2011, which always follows a week after the preliminary national estimates are released. Among that data release are the regional estimates which provoke considerable interest because they relate to localised areas where the local lobby groups – like real estate developers, chamber of commerces, and the like are always keen to seize on the data to promote their own agendas. So typically they will seize on some easy to understand single indicator and pronounce forth when, in fact, a more detailed analysis shows that the situation is exactly the opposite to what they are claiming. This generally happens when the unemployment rate falls and they tell everyone things are good (which of-course advances their own interests). So I thought I would just document (again) this issue as a way of further educating the public in the prudent use of labour force data. Things are not always what they seem.

Yesterday I promised to stay clear of analysing the US economy for a while given how much mis-information is flowing out of there. Today I break that promise to myself. Last week (July 7, 2011) the rabid US Republican Paul Ryan released a “House Budget Committee document” – The Debt Overhang and the U.S. Jobs Malaise – which drew on work produced by Stanford Professor John B. Taylor. You can sort of understand politicians who lie and embellish but when a text-book writing, senior economic professors misuses our art to misrepresent the situation you have to wonder. Whoever Mark Twain got that phrase “Lies, damned lies, and statistics” from they must have been reading Taylor’s blog in recent years.

I have always been sceptical of the way the US Congressional Budget Office computes its structural deficit decomposition – that is, separates out the cyclical effects (the automatic stabilisers) from the underlying policy settings. I have written about that before. This came back to my attention span again today after I read a column in the New York Times (July 10, 2011) which reported that an “extraordinary amount of personal income” for Americans is now “coming from the US government”. That combined with a really stupid Bloomberg editorial yesterday (July 11, 2011) led me to investigate further. What I found hardly surprised me but reinforced how the American people are being let down by their leaders with the financial press mostly reinforcing the lies.

The US Bureau of Labor Statistics published the latest labour force data on Friday and the results can be summarised in one word – shocking. Meanwhile the so-called US political leadership met at the White House to determine how they could make sure the US labour market deteriorated even faster than the latest BLS data shows it is. Other senior White House officials appeared on American TV networks engaging in what can only be related to early teenage male behaviour – ours will be bigger than our opponents. The ours being the trillions they plan to cut from the US federal deficit. With the US labour market in clear decline and the top level talks being about trillions of cuts in public spending you can only conclude one thing – the US leadership has gone missing.

A few things came up today which I thought I would write about – albeit briefly (but then that is all relative I suppose). In general I am scaling down blog activity on Fridays. But today the Australian government released a final evaluation report on one of its big fiscal stimulus infrastructure projects. The Report attracted the typical biased headlines – massive government waste. Over in the UK, the wreck of News Limited’s News of the World proved – once again – that the private sector cannot be trusted to self-regulate resonating what we learned from the financial crash but seem to have forgotten already. These two observations are related and so today I consider the notion of government waste.

There are several different strands of mainstream economic thinking and these differences manifest in the way they think about monetary and fiscal policy. The extreme mainstream position is that fiscal policy is ineffective because it 100 per cent crowds out private spending. The only role for aggregate policy then is to allow an independent (politically speaking) central bank to adjust interest rates up and down to regulate inflation (via expectations). There isn’t much for economists to do if that view was accurate. Then there are mainstreamers who think that budget deficits are generally damaging to private spending because they drive up allegedly drive up interest rates and crowd out private spending, the latter which, is considered to be more efficient because it is backed by the so-called wisdom of the “market”. So generally monetary policy should be used to stabilise aggregate demand such that inflation is stable. However, this group of economists find some time for budget deficits when there is a “liquidity trap”. From the perspective of Modern Monetary Theory (MMT) – whether there is a liquidity trap or not is irrelevant.